<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
------------------------------
Commission File Number 2-27985
------------------------------
1st Franklin Financial Corporation
A Georgia Corporation I.R.S. Employer No. 58-0521233
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(706) 886-7571
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
- -------------------------------------- ----------------------------
Common Stock, par value $100 per share 1,700 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
The following financial statements required hereunder are incorporated
by reference from the Company's Quarterly Report to Investors for the
Six Months Ended June 30, 1995. See Exhibit 19
Consolidated Statements of Financial Position:
June 30, 1995 and December 31, 1994
Consolidated Statements of Income:
Quarters and Six Months ended June 30, 1995 and June 30, 1994
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1995 and June 30, 1994
Notes to Consolidated Financial Statements
ITEM 2. Managements' Discussion and Analysis of Financial Condition and
Results of Operations.
The information required hereunder is set forth under "Management's
Letter" of the Company's Quarterly Report to Investors for the Six
Months Ended June 30, 1995. See Exhibit 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company has been named as defendant in the following legal
proceedings in the state of Alabama:
Leo Upshaw vs 1st Franklin Financial Corporation, Voyager Life
Insurance Company, Voyager Guaranty Insurance Company and Keith
Davis; Filed in Circuit Court of Barbour County, Alabama,
Clayton Division; Civil Action No. CV-95-031.
On May 11, 1995, the Company was served notice of this
case which alleges fraud in connection with the sale of
credit insurance and in connection with the refinancing of
loans.
Edna P. Robinson vs 1st Franklin Financial Corporation, Voyager
Life Insurance Company and Keith Davis; Filed in Circuit Court
of Barbour County, Alabama, Clayton Division; Civil Action No.
CV-95-098.
On May 11, 1995, the Company was served notice of this
case which alleges fraud in connection with the sale of
credit insurance and in connection with the refinancing of
loans.
<PAGE>
Teri W. Foster vs 1st Franklin Financial Corporation; Filed in
Circuit Court of Barbour County, Alabama; Civil Action No. CV-
95-0123.
On May 11, 1995, the Company was served notice of this
case which alleges fraud in connection with the sale of
credit insurance
Vicki Davis vs 1st Franklin Financial Corporation; Filed in
Circuit Court of Barbour County, Alabama; Civil Action No. CV-
95-0139.
On May 11, 1995, the Company was served notice of this
case which alleges fraud in connection with the
refinancing of a loan.
Corinthia Holman vs 1st Franklin Financial Corporation and
Voyager Life Insurance Company; Filed in Circuit Court of
Barbour County, Alabama; Civil Action No. CV-95-0142.
On May 11, 1995, the Company was served notice of this
case which alleges fraud in connection with the sale of
credit insurance and in connection with the refinancing of
loans.
The aforementioned actions are in addition to previously disclosed
complaints. 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. Management believes that the
Company's Alabama operations are in compliance with applicable
regulations and the actions are without merit. The Company is
diligently contesting them.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
19 Quarterly Report to Investors for the Six Months
Ended June 30, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30,1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
1st FRANKLIN FINANCIAL CORPORATION
-----------------------------------
Registrant
Ben F. Cheek, III
-------------------------
Chairman of Board
A. Roger Guimond
--------------------------
Vice President and
Chief Financial Officer
Date: August 7, 1995
<PAGE>
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
INDEX TO EXHIBITS
Exhibit No. Page No.
19 Quarterly Report to Investors for
the Six Months Ended June 30, 1995.......... 6
27 Financial Data Schedule.......................... 15
<PAGE>
<PAGE>
Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
SIX MONTHS ENDED
JUNE 30, 1995
<PAGE>
MANAGEMENT'S LETTER
Financial Condition:
- -------------------
The Company's total assets grew $28.1 million during the first half of 1995
primarily as a result of increases in cash and cash equivalents. Cash
generated from increases in sales of the Company's debt securities and
increases in loan payments created almost $18 million (a 269% increase) in
surplus cash during the period. Increases in funds invested by the Company's
insurance subsidiaries and improved bond market values resulted in a
$6.2 million (47%) increase in the investment portfolio during the same
period which also contributed to the increase in total assets.
A third factor contributing to the increase in total assets was a
$4.1 million (3%) growth in net receivables outstanding (gross receivables
less unearned finance charges). During the first quarter of 1995, net
receivables declined 1%, however a rebound in consumer loan demand during the
second quarter resulted in an overall increase in the loan portfolio.
The aforementioned increase in sales of the Company's public debt
securities caused senior debt and subordinated debt to increase
$24.6 million (28%) during the six month period just ended. Other
liabilities decreased $.8 million (11%) mainly due to disbursement of the
1994 incentive bonus in February.
Results of Operations:
- ---------------------
Average net receivables were $122.7 million during the six months ended
June 30, 1995 as compared to $110.8 million during the same six-month period
ended June 30, 1994. Interest income rose $1.2 million (15%) and
$2.1 million (12%) during the quarter and six-month period just ended as
compared to the same periods a year ago, respectively, due to the higher
level of average net outstanding receivables. Income earned from the
investment of surplus cash and additional income earned from the increase in
investment securities also contributed to the increase in interest income.
Interest expense increased $.7 million (49%) and $1.0 million (39%)
during the comparable periods due to the aforementioned increase in the
Company's senior and subordinated debt securities issued and an increase in
overall borrowing cost. Higher interest rates caused average borrowing costs
to increase to 7.04% during the six-month period ended June 30, 1995 as
compared to 6.29% during the same period ended June 30, 1994.
The higher levels of average net receivables outstanding and increases in
bankruptcy filings caused net charge-offs to increase $.3 million (52%) and
$.4 million (40%) during the quarter and six month periods ended June 30,
1995 and 1994, respectively. This increase in net charge-offs caused the
Company's provision for loan losses to increase $.3 million (41%) and
$.4 million (34%) during the comparable periods.
Other operating expenses increased $.7 million (11%) during the quarter
ended June 30, 1995 as compared to the quarter ended June 30, 1994 and
$1.3 million (10%) during the six-month period ended June 30, 1995 as
compared to the same six-month period a year ago. Higher payroll and
employee benefit costs, increases in computer expenses, legal and audit
expenses, postage, rent expense, telephone expense and taxes and licenses
were the main causes of the increases.
Effective income tax rates were 29.5% and 30.8% for the quarters ended
June 30, 1995 and 1994 and 30.1% and 31.3% for the six months just ended as
compared to the same period a year ago, respectively. Certain tax benefits
provided by law to life insurance companies substantially reduce the life
insurance subsidiary's effective tax rate and thus decrease the Company's
consolidated tax rate below statutory rates.
<PAGE>
Liquidity:
- ---------
Liquidity requirements of the Company are financed through the collection
of receivables and through the issuance of public debt securities. Net cash
flows from financing activities, excluding bank borrowings, increased
$14.4 million during the first half of 1995 as compared to the same period a
year ago and collections on loans increased $4.3 million over the same
period. In addition to the securities program, the Company has two external
sources of funds through the use of two Credit Agreements. One agreement
provides for available borrowings of $21 million. Available borrowings were
$21 million and $20.6 million at June 30, 1995 and December 31, 1994,
respectively, relating to this agreement. Another agreement provides for
an additional $2.0 million for general operating purposes, all of which was
available June 30, 1995 and December 31, 1994.
Liquidity was not adversely affected by delinquent accounts even though
the percentage of outstanding receivables 60 days or more past due increased
to 4.3% of receivables at June 30, 1995 from 4.0% of receivables at
December 31, 1994.
The Company has various legal proceedings, including five new complaints
filed in May, pending against it in the state of Alabama alleging different
violations of Alabama consumer lending laws and violations in connection with
the sale of credit insurance and loan refinancing. All of the actions are
still 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 all the complaints.
Other:
- -----
Management continues to explore and evaluate potential new market areas
as part of its expansion plans. Currently eight new branch offices are
scheduled to open during the third quarter of this year.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, December 31,
1995 1994
------------ ------------
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS. . . . . . . . $ 24,654,685 $ 6,689,544
------------ ------------
LOANS, net . . . . . . . . . . . . . . . 112,799,497 108,667,175
------------ ------------
INVESTMENT SECURITIES:
Available for Sale,
at fair market value . . . . . . . 14,650,945 12,651,527
Held to Maturity,
at amortized cost. . . . . . . . . 4,929,282 697,144
------------ ------------
19,580,227 13,348,671
------------ ------------
OTHER ASSETS . . . . . . . . . . . . . . 7,529,418 7,762,867
------------ ------------
TOTAL ASSETS. . . . . . . . . . $164,563,827 $136,468,257
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DEBT. . . . . . . . . . . . . . . $ 84,830,058 $ 66,677,289
OTHER LIABILITIES. . . . . . . . . . . . 6,756,429 7,582,833
SUBORDINATED DEBT. . . . . . . . . . . . 28,022,860 21,602,656
------------ ------------
Total Liabilities . . . . . . . . . 119,609,347 95,862,778
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock . . . . . . . . . . . . . 170,000 170,000
Net Unrealized Gain (Loss) on
Investment Securities Available
for Sale. . . . . . . . . . . . . . (34,776) (693,457)
Retained Earnings. . . . . . . . . . . 44,819,256 41,128,936
------------ ------------
Total Stockholders' Equity. . . . . 44,954,480 40,605,479
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. . . . $164,563,827 $136,468,257
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30 June 30
------- -------
(Unaudited) (Unaudited)
1995 1994 1995 1994
---- ---- ---- ----
INTEREST INCOME. . . . . . $ 9,410,073 $ 8,175,137 $18,610,336 $16,551,701
INTEREST EXPENSE . . . . . 2,015,506 1,353,012 3,710,556 2,670,169
----------- ----------- ----------- -----------
NET INTEREST INCOME. . . . 7,394,567 6,822,125 14,899,780 13,881,532
Provision for
Loan Losses . . . . . 997,968 706,243 1,643,405 1,228,185
----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES . . . . 6,396,599 6,115,882 13,256,375 12,653,347
----------- ----------- ----------- -----------
NET INSURANCE INCOME . . . 3,158,247 2,948,332 6,318,962 5,791,679
----------- ----------- ----------- -----------
OTHER REVENUE. . . . . . . 84,892 73,724 184,166 161,706
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES:
Personnel Expense. . . 4,607,775 3,942,627 8,951,192 7,958,432
Occupancy. . . . . . . 944,648 942,135 1,888,145 1,823,412
Other. . . . . . . . . 1,600,686 1,536,876 3,533,755 3,304,261
----------- ----------- ----------- -----------
Total . . . . . . . 7,153,109 6,421,638 14,373,092 13,086,105
----------- ----------- ----------- -----------
INCOME BEFORE
INCOME TAXES . . . . . 2,486,629 2,716,300 5,386,411 5,520,627
Provision for
Income Taxes . . . . 733,006 836,573 1,618,644 1,729,684
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . 1,753,623 1,879,727 3,767,767 3,790,943
RETAINED EARNINGS,
beginning of period. . . 43,143,080 36,132,084 41,128,936 34,220,868
Dividends on
Common Stock . . . . 77,447 64,137 77,447 64,137
----------- ----------- ----------- -----------
RETAINED EARNINGS,
end of period. . . . . . $44,819,256 $37,947,674 $44,819,256 $37,947,674
=========== =========== =========== ===========
EARNINGS PER SHARE
(1,700 shares
outstanding
all periods) . . . . . $1,031.54 $1,105.72 $2,216.33 $2,229.97
========= ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended
June 30
---------------------------
(Unaudited)
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . $ 3,767,767 $ 3,790,943
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for Loan Losses . . . . . 1,643,405 1,228,185
Depreciation and Amortization . . . 519,364 485,490
Other, net. . . . . . . . . . . . . (74,262) (16,375)
Decrease in Miscellaneous assets. . 34,827 193,942
(Decrease) in Accounts Payable and
Accrued Expenses . . . . . . . (826,404) (1,714,327)
----------- -----------
Net Cash Provided by
Operating Activities. . . . 5,064,697 3,967,858
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased . . . . . (50,158,736) (46,202,410)
Loan Payments . . . . . . . . . . . . . 44,383,009 40,051,750
Purchases of marketable debt securities (5,365,279) (1,465,543)
Sales of marketable securities. . . . . -- 103,897
Redemptions of securities . . . . . . . -- 300,000
Other, net. . . . . . . . . . . . . . . (454,076) (505,725)
----------- -----------
Net Cash Provided by
Operating Activities. . . . . (11,595,082) (7,718,031)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Senior Debt . . . . . . . . 18,152,769 4,149,894
Subordinated Debt Issued. . . . . . . . 8,313,184 2,526,305
Subordinated Debt redeemed. . . . . . . (1,892,980) (2,782,542)
Dividends Paid. . . . . . . . . . . . . (77,447) (64,137)
----------- -----------
Net Cash Provided by
Financing Activities. . . . . 24,495,526 3,829,520
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS. . . . . . . . . . 17,965,141 79,347
CASH AND CASH EQUIVALENTS, beginning . . . 6,689,544 5,827,748
----------- -----------
CASH AND CASH EQUIVALENTS, ending. . . . . $24,654,685 $ 5,907,095
=========== ===========
Cash Paid during the period for:
Interest . . . . . . . . . . . . $ 3,534,395 $ 2,506,682
Income Taxes . . . . . . . . . . 1,626,076 1,710,533
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
-NOTES-
1. The accompanying interim financial information of 1st Franklin Financial
Corporation and subsidiaries (the Company) should be read in conjunction
with the annual financial statements and notes thereto as of December 31,
1994 and for the years then ended included in the Company's December 31,
1994 Annual Report.
2. Effective December 31, 1994, 1st Franklin Corporation (formerly the Parent
of the Company) was merged into the Company, with the Company being the
surviving corporation. All financial data for prior years have been
restated to reflect results of the merger.
3. In the opinion of Management of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's financial
position as of June 30, 1995, and December 31, 1994, and the results of
its operations and its cash flows for the six months ended June 30, 1995
and 1994. While certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission, the
Company believes that the disclosures herein are adequate to make the
information presented not misleading.
4. The results of operations for the six months ended June 30, 1995, are
not necessarily indicative of the results to be expected for the full
fiscal year.
5. The computation of Earnings per Share is self-evident from the
Consolidated Statement of Income and Retained Earnings.
<PAGE>
BRANCH OPERATIONS
Jarrell Coffee. . . . Vice President
Jack Coker. . . . . . Vice President
Isabel Vickery. . . . Vice President
SUPERVISORS
Richard Asmussen Jack Hobgood Melvin Osley
Robert Canfield Wayne Jones Dale Palmer
Susie Cantrell Judy Landon David Reynolds
Donald Carter Jeff Lee Timothy Schmotz
Mike Culpepper Tommy Lennon Joe Seale
Jimmy Davis Dianne Moore Bob Seawright
Tony Ellison Ronnie Morrow Gaines Snow
Donald Floyd
OFFICES
Alabama Offices: Georgia Offices: Georgia Offices:
- --------------- --------------- ---------------
Alexander City Cartersville McDonough
Arab Cedartown McRae
Athens Chatsworth Milledgeville
Bessemer Clarkesville Monroe
Birmingham Claxton Montezuma
Clanton Clayton Monticello
Cullman Cleveland Moultrie
Decatur Cochran Nashville
Dothan Commerce Newnan
Enterprise Conyers Perry
Florence Cordele Richmond Hill
Gadsden Cornelia Rome
Huntsville Covington Royston
Jasper Cumming Savannah
Ozark Dallas Statesboro
Prattville Douglas Swainsboro
Russellville Douglasville Sylvania
Scottsboro Eastman Sylvester
Selma Elberton Thomaston
Sylacauga Ellijay Thomson
Troy Forsyth Tifton
Tuscaloosa Fort Valley Toccoa
Gainesville Valdosta
Georgia Offices: Garden City Vidalia
- --------------- Georgetown Warner Robins
Adel Greensboro Washington
Albany Griffin Winder
Alma Hartwell
Americus Hawkinsville South Carolina Offices:
Athens Hazlehurst ----------------------
Barnesville Hinesville Aiken
Baxley Hogansville Anderson
Blue Ridge Jackson Cayce
Bremen Jasper Clemson
Brunswick Jefferson Easley
Buford Jesup Greenwood
Butler Lavonia Laurens
Cairo Lawrenceville Orangeburg
Calhoun Madison Seneca
Canton Manchester Union
Carrollton York
<PAGE>
DIRECTORS
W. Richard Acree
President, Acree Oil Company
Ben F. Cheek, III
Chairman and Chief Executive Officer
1st Franklin Financial Corporation
Lorene M. Cheek
Homemaker
Jack D. Stovall
President, Stovall Building Supplies, Inc.
Dr. Robert E. Thompson
Physician, Toccoa Clinic
EXECUTIVE OFFICERS
Ben F. Cheek, III
Chairman and Chief Executive Officer
T. Bruce Childs
President and Chief Operating Officer
A. Roger Guimond
Vice President and Chief Financial Officer
Lynn E. Cox
Secretary
Linda L. Sessa
Treasurer
INVESTMENT CENTER
Lynn E. Cox
Account Executive
Phoebe P. Martin
Account Executive
Sandra N. Oliver
New Accounts
COUNSEL
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
AUDITORS
Arthur Andersen LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 24,654,685
<SECURITIES> 19,580,227
<RECEIVABLES> 143,811,336
<ALLOWANCES> 4,208,476
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,999,132
<DEPRECIATION> 5,224,150
<TOTAL-ASSETS> 164,563,827
<CURRENT-LIABILITIES> 91,586,487
<BONDS> 112,536,156
<COMMON> 170,000
0
0
<OTHER-SE> 44,784,480
<TOTAL-LIABILITY-AND-EQUITY> 164,563,827
<SALES> 0
<TOTAL-REVENUES> 26,842,718
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,102,346
<LOSS-PROVISION> 1,643,405
<INTEREST-EXPENSE> 3,710,556
<INCOME-PRETAX> 5,386,411
<INCOME-TAX> 1,618,644
<INCOME-CONTINUING> 3,767,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,767,767
<EPS-PRIMARY> 2,216.33
<EPS-DILUTED> 0
</TABLE>
