<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 March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
----------------
Commission File Number 2-27985
----------------
1st Franklin Financial Corporation
A Georgia Corporation I.R.S. Employer No. 58-0521233
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(706) 886-7571
----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
- ---------------------------------------------- -----------------------------
Voting Common Stock, par value $100 per share 1,700 Shares
Non-Voting Common Stock, par value $1 per share 168,201 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 Three Months Ended March 31, 1996. See Exhibit 19
Consolidated Statements of Financial Position:
March 31, 1996 and December 31, 1995
Consolidated Statements of Income:
Quarters Ended March 31, 1996 and March 31, 1995
Consolidated Statements of Cash Flows:
Quarters Ended March 31, 1996 and March 31, 1995
Notes to Consolidated Financial Statements
ITEM 2. Managements' Discussion and Analysis of Financial Condition and
Results of Operations.
The information required hereunder is set forth under
"Management's Letter" of the Company's Quarterly Report to
Investors for the Three Months Ended March 31, 1996. See Exhibit 19
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
19 Quarterly Report to Investors for the Three
Months Ended March 31, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended March 31,1996.
<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
s/ Ben F. Cheek, III
--------------------
Chairman of Board
s/ A. Roger Guimond
-----------------------
Vice President and
Chief Financial Officer
Date: May 10, 1996
<PAGE>
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
INDEX TO EXHIBITS
Exhibit No. Page No.
- ---------- -------
19 Quarterly Report to Investors for the Three Months Ended
March 31, 1996 .......................................... 4
27 Financial Data Schedule.................................... 13
<PAGE>
<PAGE>
Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
THREE MONTHS ENDED
MARCH 31, 1996
<PAGE>
MANAGEMENT'S LETTER
Financial Condition:
- -------------------
Lending activity during the first two or three months of each new year are
typically the slowest for the Company due to a post- Christmas downswing in
loan demand. The first three months of 1996 proved to be no exception as
net receivables (gross receivables less unearned finance charges) declined
$2.2 million (2%) as compared to December 31, 1995. Total assets decreased
$6.1 million (3%) during the same period mainly due to the decrease in the
loan portfolio and a $5.3 million (17%) decrease in cash and cash
equivalents. Funds were mainly used to redeem maturing commercial paper and
for disbursement of the Company's annual employee incentive bonus accrued
from the prior year.
Overall liabilities declined $7.7 million (6%) as a direct result of the
aforementioned commercial paper redemptions and the disbursement of the
employee incentive bonus.
Volatility in bond market values during the current period resulted in a net
unrealized loss of $16,649 on bonds held as available for sale in the
Company's investment portfolio. At December 31, 1995, the Company had a
$251,145 net unrealized gain on these same bonds.
Results of Operations:
- ---------------------
Total revenues increased $1.0 million (7%) during the quarter ended March
31, 1996 as compared to the same quarter in 1995 primarily due to increases
in interest income. Average net receivables were $133.3 million as compared
to $121.2 million during the comparable periods and interest earned on loans
increased $.5 million (6%) as a direct result of this growth in average net
outstanding receivables. Interest income from investments increased $.3
million (64%) as a result of surplus cash being invested in short-term
instruments and increases in investment securities by the Company's
insurance subsidiaries.
Although total revenues increased during the current quarter, net earnings
declined $.2 million (11%) during the same comparable period in 1995
primarily due to higher interest cost and increases in loan losses. Average
debt securities outstanding were $97.3 million during the current quarter as
compared $75.8 million during the same quarter in 1995. The higher average
borrowings caused interest expense to increase $.4 million (21%) during the
current period as compared to the same period a year ago.
Net charge-offs increased $.3 million (48%) during the quarter just ended as
compared to the same period a year ago, mainly due to the aforementioned
increase in average net receivables outstanding and increases in
bankruptcies. This increase in net charge-offs caused the Company's
provision for loan losses to increase $.3 million (47%) during the
comparable periods.
Other operating expenses increased $.7 million (10%) during the quarter
ended March 31, 1996 as compared to the same quarter a year ago. Higher
payroll and employee benefit costs, increases in rent expense, telephone
expense, advertising, and computer expenses were factors primarily
responsible for the increase in other operating expenses.
Effective income tax rates were 28.3% and 30.5% for the quarters ended March
31, 1996 and 1995, 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 general tax
rate below statutory rates. The decrease in the effective rate for the
quarter just ended was mainly due to the life insurance subsidiary earning a
larger portion of pretax income than the Company and the property insurance
subsidiary, which are taxed at higher rates.
<PAGE>
Liquidity:
- ---------
Liquidity requirements of the Company are financed through the collection of
receivables and through the issuance of public debt securities. Although
net cash flows from financing activities, excluding bank borrowing,
decreased $20.3 million during the quarter just ended as compared to the
same quarter a year ago, liquidity was not adversely affected as the Company
maintained a strong cash position and collections on loans increased $2.3
million during the comparable periods. 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 borrowing of
$21 million. Available borrowings were $21 million at March 31, 1996 and
December 31, 1995, relating to this agreement. Another agreement provides
for an additional $2 million for general operating purposes. Available
borrowings under this agreement were $2 million at March 31, 1996 and
December 31, 1995.
Liquidity was not adversely affected by delinquent accounts even though the
percentage of outstanding receivables 60 days or more past due increased to
5.0% of receivables at March 31, 1996 from 4.8% of receivables at December
31, 1995.
Various legal proceedings are pending against the Company in Alabama
alleging different violations of Alabama consumer lending laws and
violations in connection with the sale of credit insurance and loan
refinancing. 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 the remaining complaints.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, December 31,
1996 1995
---- ----
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS . . . . . . . . . $ 25,205,537 $ 30,513,593
------------ ------------
LOANS, net . . . . . . . . . . . . . . . . 119,606,057 120,762,867
------------ ------------
INVESTMENT SECURITIES:
Available for Sale, at market value . . 18,383,763 17,194,375
Held to Maturity, at amortized cost . . 4,439,853 5,186,492
------------ ------------
22,823,616 22,380,867
------------ ------------
OTHER ASSETS . . . . . . . . . . . . . . . . 8,306,183 8,426,661
------------ ------------
TOTAL ASSETS . . . . . . . . . . $175,941,393 $182,083,988
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DEBT. . . . . . . . . . . . . . . . . $ 88,936,470 $ 95,540,664
OTHER LIABILITIES. . . . . . . . . . . . . . 6,231,451 8,179,506
SUBORDINATED DEBT . . . . . . . . . . . . . 31,510,219 30,616,915
------------ ------------
Total Liabilities . . . . . . . . . 126,678,140 134,337,085
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock - Voting; 1,700 Shares
Outstanding all Periods. . . . . . . 170,000 170,000
Common Stock - Non-Voting;
168,201 Shares Outstanding
March 31, 1996 . . . . . . . . . . . 168,201 --
Net Unrealized Gain (Loss) on
Investment Securities Available
for Sale . . . . . . . . . . . . . . (16,649) 251,145
Retained Earnings . . . . . . . . . . . 48,941,701 47,325,758
------------ ------------
Total Stockholders' Equity . . . . . 49,263,253 47,746,903
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . $175,941,393 $182,083,988
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
-------------------------
(Unaudited)
1996 1995
---- ----
INTEREST INCOME. . . . . . . . . . . . . . . $ 9,999,822 $ 9,200,263
INTEREST EXPENSE . . . . . . . . . . . . . . 2,047,541 1,695,050
----------- -----------
NET INTEREST INCOME. . . . . . . . . . . . . 7,952,281 7,505,213
Provision for Loan Losses . . . . . . . . 948,374 645,437
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . 7,003,907 6,859,776
----------- -----------
NET INSURANCE INCOME . . . . . . . . . . . . 3,298,831 3,160,715
----------- -----------
OTHER REVENUE. . . . . . . . . . . . . . . . 112,498 99,274
----------- -----------
OTHER OPERATING EXPENSES:
Personnel Expense . . . . . . . . . . . . 4,692,503 4,343,417
Occupancy . . . . . . . . . . . . . . . . 1,049,066 943,497
Other . . . . . . . . . . . . . . . . . . 2,185,488 1,933,069
----------- -----------
Total . . . . . . . . . . . . . 7,927,057 7,219,983
----------- -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . 2,488,179 2,899,782
Provision for Income Taxes. . . . . . . . 704,035 885,638
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . 1,784,144 2,014,144
RETAINED EARNINGS, beginning of period . . . 47,325,758 41,128,936
----------- -----------
RETAINED EARNINGS, end of period . . . . . . $49,109,902 $43,143,080
=========== ===========
EARNINGS PER SHARE:
Voting Common Stock; 1700 Shares
Outstanding all periods. . . . . . . . $ 10.50 $ 1,124.24
=========== ===========
Non-Voting Common Stock;
168,201 Shares Outstanding
March 31, 1996 . . . . . . . . . . . $ 10.50 $ --
=========== ===========
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
Three Months Ended
March 31
------------------------
(Unaudited)
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . . $ 1,784,144 $ 2,014,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses . . . . . . . . . . 948,374 645,437
Depreciation and Amortization . . . . . . . . 270,656 256,092
Other, net. . . . . . . . . . . . . . . . . . (19,665) (15,620)
Decrease in Miscellaneous assets. . . . . . . 66,737 623,671
(Decrease) in Accounts Payable and
Accrued Expenses. . . . . . . . . . . . . . (1,948,055) (2,095,077)
----------- -----------
Net Cash Provided by Operating Activities. 1,102,191 1,428,647
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased . . . . . . . . . . (23,725,174) (21,905,562)
Loan Payments . . . . . . . . . . . . . . . . . . 23,933,610 21,633,030
Purchases of marketable debt securities . . . . . (2,544,281) (3,222,735)
Principal payments on securities. . . . . . . . . 6,586 --
Sales of marketable securities. . . . . . . . . . 768,750 --
Redemptions of securities . . . . . . . . . . . . 1,000,000 --
Other, net. . . . . . . . . . . . . . . . . . . . (138,848) (197,778)
----------- -----------
Net Cash Provided by Operating Activities. (699,357) (3,693,045)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Senior Debt. . . . . . . . (6,604,194) 11,707,147
Subordinated Debt Issued. . . . . . . . . . . . . 2,213,006 3,797,319
Subordinated Debt redeemed. . . . . . . . . . . . (1,319,702) (1,242,672)
----------- -----------
Net Cash Provided by Financing Activities. (5,710,890) 14,261,794
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS. . . . . . . . . . . . . . . (5,308,056) 11,997,396
CASH AND CASH EQUIVALENTS, beginning. . . . . . . . 30,513,593 6,689,544
----------- -----------
CASH AND CASH EQUIVALENTS, ending . . . . . . . . . $25,205,537 $18,686,940
=========== ===========
Cash Paid during the period for: Interest. . . . . $ 1,995,122 $ 1,631,380
Income Taxes. . . 62,000 77,000
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, 1995 and for the years then ended included in the
Company's December 31, 1995 Annual Report.
2. In the opinion of Management of the Company, the accompanying
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
Company's financial position as of March 31, 1996, and December 31,
1995, and the results of its operations and its cash flows for the
three months ended March 31, 1996 and 1995. While certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission, the Company believes that the
disclosures herein are adequate to make the information presented not
misleading.
3. The results of operations for the three months ended March 31, 1996,
are not necessarily indicative of the results to be expected for the
full fiscal year.
4. The computation of Earnings per Share is self-evident from the
Consolidated Statement of Income and Retained Earnings.
<PAGE>
BRANCH OPERATIONS
Isabel Vickery Youngblood . . . . . . . Senior Vice President
A. Jarrell Coffee . . . . . . . . . . . Vice President
Jack R. Coker . . . . . . . . . . . . . Vice President
Robert J. Canfield . . . . . . . . . . Area Vice President
Ronald F. Morrow. . . . . . . . . . . . Area Vice President
SUPERVISORS
Susie Cantrell Judy Landon David Reynolds
Donald Carter Jeff Lee Timothy Schmotz
Mike Culpepper Tommy Lennon Joe Seale
Jimmy Davis Mike Lyles Bob Seawright
Tony Ellison Dianne Moore Barbara Sims
Donald Floyd Melvin Osley Gaines Snow
Jack Hobgood Dale Palmer Marc Thomas
Wayne Jones Ed Pulsifer
OFFICES
Alabama Offices: Georgia Offices: Georgia Offices:
- --------------- --------------- ---------------
Alexander City Cartersville McRae
Andalusia Cedartown Milledgeville
Arab Chatsworth Monroe
Athens Clarkesville Montezuma
Bessemer Claxton Monticello
Birmingham Clayton Moultrie
Clanton Cleveland Nashville
Cullman Cochran Newnan
Decatur Commerce Perry
Dothan Conyers Richmond Hill
Enterprise Cordele Rome
Florence Cornelia Royston
Gadsden Covington Sandersville
Huntsville Cumming Savannah
Jasper Dallas Statesboro
Opp Dalton Swainsboro
Ozark Dawson Sylvania
Prattville Douglas Sylvester
Russellville Douglasville Thomaston
Scottsboro Eastman Thomson
Selma Elberton Tifton
Sylacauga Ellijay Toccoa
Troy Forsyth Valdosta
Tuscaloosa Fort Valley Vidalia
Gainesville Warner Robins
Georgia Offices: Garden City Washington
- --------------- Georgetown Winder
Adel Greensboro
Albany Griffin South Carolina Offices:
Alma Hartwell ----------------------
Americus Hawkinsville Aiken
Athens Hazlehurst Anderson
Barnesville Hinesville Cayce
Baxley Hogansville Clemson
Blakely Jackson Columbia
Blue Ridge Jasper Easley
Bremen Jefferson Gaffney
Brunswick Jesup Greenwood
Buford LaGrange Lancaster
Butler Lavonia Laurens
Cairo Lawrenceville Orangeburg
Calhoun Madison Seneca
Canton Manchester Union
Carrollton McDonough 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,205,537
<SECURITIES> 22,823,616
<RECEIVABLES> 150,945,810
<ALLOWANCES> 4,439,722
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,575,595
<DEPRECIATION> 5,867,923
<TOTAL-ASSETS> 175,941,393
<CURRENT-LIABILITIES> 95,167,921
<BONDS> 120,167,427
<COMMON> 169,901
0
0
<OTHER-SE> 48,925,052
<TOTAL-LIABILITY-AND-EQUITY> 175,941,393
<SALES> 0
<TOTAL-REVENUES> 14,345,730
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,927,057
<LOSS-PROVISION> 948,374
<INTEREST-EXPENSE> 2,047,541
<INCOME-PRETAX> 2,488,179
<INCOME-TAX> 704,035
<INCOME-CONTINUING> 1,784,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,784,144
<EPS-PRIMARY> 10.50
<EPS-DILUTED> 0
</TABLE>
