<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 October 31, 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 Nine Months Ended September 30, 1996.
See Exhibit 19
Consolidated Statements of Financial Position:
September 30, 1996 and December 31, 1995
Consolidated Statements of Income:
Quarters and Nine Months Ended September 30, 1996 and
September 30, 1995
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1996 and September 30, 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 Nine
Months Ended September 30, 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 Nine Months
Ended September 30, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended September 30, 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: November 13, 1996
<PAGE>
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
INDEX TO EXHIBITS
Exhibit Page
No. No.
-- --
19 Quarterly Report to Investors for the Nine Months Ended
September 30, 1996 .................................. 4
27 Financial Data Schedule ................................. 13
<PAGE>
<PAGE>
Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1996
<PAGE>
MANAGEMENT'S LETTER
Financial Condition:
- -------------------
Net receivables (gross receivables less unearned finance charges)
increased $4.9 million (4%) to $140.4 million at September 30, 1996 from
$135.5 million at December 31, 1995. Over half this increase occurred during
the quarter just ended resulting from the purchase of five branch offices and
their related receivables from other finance companies. During September,
Management negotiated the purchase of four branch offices in Alabama and one
office in Georgia adding approximately $3.0 million in net receivables to the
Company's loan portfolio. An overall increase in consumer lending in existing
loan offices also contributed to the increase in loan receivables.
The Company's investment portfolio increased $2.6 million (12%) during the
nine months just ended as compared to the prior year-end. This increase was
primarily due to Management transferring surplus funds from cash and cash
equivalents into higher yielding bonds in order to maximize investment
returns. Although realized investment income increased, volatility in bond
market values during the current period resulted in a net unrealized loss of
$41,603 in 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 bonds held as available for sale.
Cash and Cash Equivalents declined $3.0 million during the current year as
a direct result of the aforementioned purchase of new branch offices and the
corresponding increase in the loan portfolio and the transfer of surplus funds
into investment securities. Funds were also used to redeem maturing
commercial paper and for various other operating expenditures.
Results of Operations:
- ---------------------
During the current year total revenues increased $2.3 million (6%) as
compared to the same period in 1995 primarily due to increases in interest
income. Average net receivables were $136.3 million during the nine months
ended September 30, 1996 as compared to $124.5 million during the same
nine-month period ended September 30, 1995. Interest income rose $.6 million
(6%) and $1.9 million (7%) during the quarter and nine-month period just ended
as compared to the same periods a year ago, respectively, as a result of the
higher level of average net outstanding receivables.
Third quarter net earnings experienced a slight increase over the same
quarter a year ago mainly due to lower interest expense. A decline in average
borrowing cost to 6.53% during 1996 as compared to 7.06% during 1995 enabled
the Company to decrease interest expense during the quarter just ended and to
hold the increase for the nine month period to a moderate level even though
overall borrowings were up 16% as compared to the prior year. Net earnings
for the nine months just ended declined $.5 million (8%) as compared to the
same period in 1995 mainly due to higher loan losses and increases in other
operating expenses.
Rising loan delinquencies and increases in personal bankruptcies continue
to have a deteriorating impact on the credit quality of the Company's loan
receivables. Net charge-offs increased $.2 million (17%) and $.8 million
(30%) during the quarter and nine month periods ended September 30, 1996 and
1995, respectively. This increase in net charge-offs caused the Company's
provision for loan losses to increase $.4 million (37%) and $1.0 million (34%)
during the comparable periods. Management is carefully monitoring the upward
trend in loan losses and historically has been conservative in regards to the
amount of the Company's loan loss reserve. As a result, the Company
increased the reserve in August and September based on current loss rates and
will continue to monitor the adequacy of the reserve through the remainder of
the year.
Other operating expenses increased $.2 million (4%) during the quarter
ended September 30, 1996 as compared to the quarter ended September 30, 1995
and $2.0 million (9%) during the nine-month period ended September 30, 1996 as
compared to the same nine-month period a year ago. Higher payroll and
employee benefit costs, increases in advertising expenses, computer expenses,
legal and audit expenses, rent expense, and telephone expense were the main
causes of the increases.
<PAGE>
Effective income tax rates were 27.8% and 28.5% for the quarters ended
September 30, 1996 and 1995 and 27.3% and 29.6% for the nine months just ended
as compared to the same period a year ago, respectively. Certain tax benefits
provided by law to life insurance companies substantially reduce the life
insurance subsidiary's effective tax rate and thus decrease the Company's
consolidated tax rate below statutory rates. Rates are lower during the
current year due to the fact that the Company's insurance subsidiary earned a
higher portion of the consolidated taxable income.
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
$29.4 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 $3.5 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 September 30, 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 September 30, 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 5.8% of receivables at September 30, 1996 from 4.8% of receivables at
December 31, 1995.
Management continually reviews potentially uncollectible loans and
evaluates the inherent risks and change in the composition of the Company's
loan portfolio. Current loss rates indicated a need to increase the allowance
for loan losses to provide adequate protection against increasing loan losses
on the current portfolio during August and September. The increase in the
allowance did not affect liquidity as the allowance is maintained out of
income, however, earnings could further be impacted if loss rates continue at
the current level.
Legal Proceedings:
- -----------------
The Company has various legal proceedings pending against it in the state
of Alabama and one case in the state of Georgia alleging different violations
of consumer lending laws and violations in connection with the sale of credit
insurance and loan refinancing. The outcome of the various actions is
currently not determinable. Financial condition and operating results of the
Company could be materially affected in the event of an unfavorable outcome.
However, Management contends that the Company's 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. Since the end of September, two new branch
offices have been opened in Alabama, two in Georgia and four branch offices
have been opened in Mississippi. The Company has also gained approval to open
a branch office in Louisiana.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
1996 1995
------------ ------------
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS. . . . . . . . . . . . $ 27,560,112 $ 30,513,593
------------ ------------
LOANS, net . . . . . . . . . . . . . . . . . . . 126,032,168 120,762,867
------------ ------------
INVESTMENT SECURITIES:
Available for Sale, at fair market value . . . 21,542,082 17,194,375
Held to Maturity, at amortized cost. . . . . . 3,445,156 5,186,492
------------ ------------
24,987,238 22,380,867
------------ ------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . 9,707,246 8,426,661
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . $188,286,764 $182,083,988
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DEBT . . . . . . . . . . . . . . . . . . $ 93,439,070 $ 95,540,664
OTHER LIABILITIES . . . . . . . . . . . . . . . 8,233,993 8,179,506
SUBORDINATED DEBT . . . . . . . . . . . . . . . 34,242,863 30,616,915
------------ ------------
Total Liabilities . . . . . . . . . . . . . 135,915,926 134,337,085
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock . . . . . . . . . . . . . . . . . 170,000 170,000
Net Unrealized Gain (Loss) on
Investment Securities Available
for Sale . . . . . . . . . . . . . . . . . (41,603) 251,145
Retained Earnings . . . . . . . . . . . . . . 52,242,441 47,325,758
------------ ------------
Total Stockholders' Equity . . . . . . . . 52,370,838 47,746,903
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . $188,286,764 $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
Quarter Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
(Unaudited) (Unaudited)
1996 1995 1996 1995
----------- ----------- ----------- -----------
INTEREST INCOME. . . . . . $10,285,749 $ 9,709,198 $30,237,097 $28,319,534
INTEREST EXPENSE . . . . . 2,107,581 2,153,487 6,171,363 5,864,043
----------- ----------- ----------- -----------
NET INTEREST INCOME. . . . 8,178,168 7,555,711 24,065,734 22,455,491
Provision for
Loan Losses. . . . . . 1,638,581 1,196,934 3,813,237 2,840,339
----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES. . . . . 6,539,587 6,358,777 20,252,497 19,615,152
----------- ----------- ----------- -----------
NET INSURANCE INCOME . . . 3,430,753 3,248,524 9,939,399 9,567,486
----------- ----------- ----------- -----------
OTHER REVENUE. . . . . . . 118,320 107,638 323,234 291,804
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES:
Personnel Expense. . . . 4,618,551 4,215,632 14,336,442 13,166,824
Occupancy. . . . . . . . 1,082,115 1,033,911 3,198,968 2,922,056
Other. . . . . . . . . . 1,756,706 1,915,505 5,965,543 5,449,260
----------- ----------- ----------- -----------
Total . . . . . . . . 7,457,372 7,165,048 23,500,953 21,538,140
----------- ----------- ----------- -----------
INCOME BEFORE
INCOME TAXES . . . . . . 2,631,288 2,549,891 7,014,177 7,936,302
Provision for
Income Taxes . . . . . 731,204 727,948 1,916,123 2,346,592
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . 1,900,084 1,821,943 5,098,054 5,589,710
RETAINED EARNINGS,
beginning of period. . . 50,433,042 44,819,256 47,325,758 41,128,936
Dividends on
Common Stock . . . . . 90,685 77,447 181,371 154,894
----------- ----------- ----------- -----------
RETAINED EARNINGS,
end of period. . . . . . $52,242,441 $46,563,752 $52,242,441 $46,563,752
=========== =========== =========== ===========
EARNINGS PER SHARE:
Voting Common Stock;
1700 Shares Outstanding
all Periods. . . . . . $11.18 $10.72 $30.01 $32.90
Non-Voting Common Stock; ====== ====== ====== ======
168,201 Shares
Outstanding
Sept. 30, 1996 . . . . $11.18 $10.72 $30.01 $32.90
====== ====== ====== ======
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
September 30
-------------------------
(Unaudited)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . $ 5,098,054 $ 5,589,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses . . . . . . . . . 3,813,237 2,840,339
Depreciation and Amortization . . . . . . . 808,096 791,157
Other, net. . . . . . . . . . . . . . . . . (71,975) (115,260)
(Increase) Decrease in
Miscellaneous assets . . . . . . . . . . (1,286,232) 35,519
Increase(Decrease) in Accounts Payable
and Accrued Expenses . . . . . . . . . . 54,487 (515,280)
----------- -----------
Net Cash Provided by
Operating Activities . . . . . . . 8,415,667 8,626,185
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased. . . . . . . . . (80,240,730) (75,797,595)
Loan Payments. . . . . . . . . . . . . . . . . 71,158,192 66,039,180
Purchases of marketable debt securities. . . . (7,345,008) (6,615,279)
Principal payments on securities . . . . . . . 407,347 --
Sales of marketable securities . . . . . . . . 768,750 510,000
Redemptions of securities. . . . . . . . . . . 3,200,000 475,000
Other, net . . . . . . . . . . . . . . . . . . (660,682) (738,723)
----------- -----------
Net Cash Provided by
Operating Activities. . . . . . . (12,712,131) (16,127,417)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Senior Debt . . . . . . (2,101,594) 22,788,429
Subordinated Debt Issued . . . . . . . . . . . 6,335,536 10,584,108
Subordinated Debt redeemed . . . . . . . . . . (2,709,588) (2,796,295)
Dividends Paid . . . . . . . . . . . . . . . . (181,371) (154,894)
----------- -----------
Net Cash Provided by
Financing Activities . . . . . . . 1,342,983 30,421,348
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . (2,953,481) 22,920,116
CASH AND CASH EQUIVALENTS, beginning . . . . . . 30,513,593 6,689,544
----------- -----------
CASH AND CASH EQUIVALENTS, ending. . . . . . . . $27,560,112 $29,609,660
=========== ===========
Cash Paid during the period for: Interest . . . $ 6,109,841 $ 5,700,418
Income Taxes . 1,679,197 2,363,221
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 September 30, 1996 and December 31,
1995 and the results of its operations and its cash flows for the nine
months ended September 30, 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 nine months ended September 30, 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
J. Michael Culpepper. . . . . . Area Vice President
Ronald F. Morrow . . . . . . . Area Vice President
SUPERVISORS
-----------
Regina Bond Jeff Lee Ed Pulsifer
Susie Cantrell Tommy Lennon Henrietta Reathford
Donald Carter Mike Lyles David Reynolds
Jimmy Davis Johnny McEntyre Timothy Schmotz
Tony Ellison Dianne Moore Bob Seawright
Donald Floyd Melvin Osley Barbara Sims
Jack Hobgood Dale Palmer Gaines Snow
Terry Honeycutt Darryl Parker Marc Thomas
Judy Landon Judy Paul Stewart York
OFFICES
-------
Alabama Offices: Georgia Offices: Georgia Offices:
- --------------- --------------- ---------------
Alexander City Carrollton McRae
Andalusia Cartersville Milledgeville
Arab Cedartown Monroe
Athens Chatsworth Montezuma
Bessemer Clarkesville Monticello
Birmingham Claxton Moultrie
Clanton Clayton Nashville
Cullman Cleveland Newnan
Decatur Cochran Perry
Dothan Commerce Richmond Hill
Enterprise Conyers Rome
Fayette Cordele Royston
Florence Cornelia Sandersville
Gadsden Covington Savannah
Hamilton Cumming Statesboro
Huntsville Dallas Swainsboro
Jasper Dalton Sylvania
Muscle Shoals Dawson Sylvester
Opp Douglas Thomaston
Ozark Douglasville Thomson
Prattville Eastman Tifton
Russellville Elberton Toccoa
Scottsboro Ellijay Valdosta
Selma Forsyth Vidalia
Sylacauga Fort Valley Warner Robins
Troy Gainesville Washington
Tuscaloosa Garden City Winder
Georgetown
Georgia Offices: Greensboro South Carolina Offices:
- --------------- Griffin ----------------------
Adel Hartwell Aiken
Albany Hawkinsville Anderson
Alma Hazlehurst Cayce
Americus Hinesville Clemson
Athens Hogansville Columbia
Barnesville Jackson Easley
Baxley Jasper Gaffney
Blakely Jefferson Greenville
Blue Ridge Jesup Greenwood
Bremen LaGrange Lancaster
Brunswick Lavonia Laurens
Buford Lawrenceville Orangeburg
Butler Madison Seneca
Cairo Manchester Union
Calhoun McDonough York
Canton
<PAGE>
DIRECTORS
---------
W. Richard Acree
President, Acree Oil Company
Ben F. Cheek, III
Chairman and Chief Executive Officer
1st Franklin Financial Corporation
Lorene M. Cheek
Homemaker
Jack D. Stovall
President, Stovall Building Supplies, Inc.
Dr. Robert E. Thompson
Physician, Toccoa Clinic
EXECUTIVE OFFICERS
------------------
Ben F. Cheek, III
Chairman and Chief Executive Officer
T. Bruce Childs
President and Chief Operating Officer
A. Roger Guimond
Vice President and Chief Financial Officer
Lynn E. Cox
Secretary
Linda L. Sessa
Treasurer
INVESTMENT CENTER
-----------------
Lynn E. Cox
Account Executive
Phoebe P. Martin
Account Executive
Sandra N. Oliver
New Accounts
COUNSEL
-------
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
AUDITORS
--------
Arthur Andersen LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 27,560,112
<SECURITIES> 24,987,238
<RECEIVABLES> 158,644,264
<ALLOWANCES> 5,021,210
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,903,198
<DEPRECIATION> 6,186,464
<TOTAL-ASSETS> 188,286,764
<CURRENT-LIABILITIES> 101,673,063
<BONDS> 127,427,671
<COMMON> 170,000
0
0
<OTHER-SE> 52,200,838
<TOTAL-LIABILITY-AND-EQUITY> 188,286,764
<SALES> 0
<TOTAL-REVENUES> 43,248,378
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,249,601
<LOSS-PROVISION> 3,813,237
<INTEREST-EXPENSE> 6,171,363
<INCOME-PRETAX> 7,014,177
<INCOME-TAX> 1,916,123
<INCOME-CONTINUING> 5,098,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,098,054
<EPS-PRIMARY> 30.01
<EPS-DILUTED> 0
</TABLE>
