<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, 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 July 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 Six Months Ended June 30, 1996. See Exhibit 19
Consolidated Statements of Financial Position:
June 30, 1996 and December 31, 1995
Consolidated Statements of Income:
Quarters and Six Months Ended
June 30, 1996 and June 30, 1995
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1996 and June 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 Six Months Ended June 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 Six Months
Ended June 30, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended June 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: August 14, 1996
<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, 1996 ....... 4
27 Financial Data Schedule..................... 13
<PAGE>
<PAGE>
Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
SIX MONTHS ENDED
JUNE 30, 1996
<PAGE>
MANAGEMENT'S LETTER
Financial Condition:
- -------------------
An increase in consumer lending during the 2nd quarter of 1996 resulted
in a $2.1 million (2%) increase in the Company's net receivables (gross
receivables less unearned finance charges) as of June 30, 1996 as compared to
December 31, 1995. Although the Company's loan portfolio increased, total
assets declined $3.1 million (2%) mainly due to a $4.8 million (16%) decrease
in cash and cash equivalents. Funds were 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 $5.8 million (4%) 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 $142,906 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:
- ---------------------
During the current year total revenues increased $1.7 million (6%) as
compared to the same period in 1995 primarily due to increases in interest
income. Average net receivables were $135.1 million during the six months
ended June 30, 1996 as compared to $126.4 million during the same six-month
period ended June 30, 1995. Interest income rose $.5 million (6%) and $1.3
million (7%) during the quarter and six-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.
Although total revenues increased during the current year, net earnings
were $.3 million (19%) and $.6 million (15%) lower during the quarter and six
months ended June 30, 1996 as compared to the same comparable periods in 1995
due to higher loan losses and increases in other operating expenses. An
overall increase in interest cost during the six month period also
contributed to the suppressed profit growth.
Net charge-offs increased $.3 million (31%) and $.6 million (39%) during
the quarter and six month periods ended June 30, 1996 and 1995, respectively.
The higher level of average net receivables outstanding and escalating
bankruptcy filings were the primary causes of the increase in net charge-offs.
This increase in net charge-offs caused the Company's provision for loan
losses to increase $.1 million (23%) and $.5 million (32%) during the
comparable periods.
Other operating expenses increased $1.0 million (13%) during the quarter
ended June 30, 1996 as compared to the quarter ended June 30, 1995 and $1.7
million (12%) during the six-month period ended June 30, 1996 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 25.4% and 29.5% for the quarters ended
June 30, 1996 and 1995 and 27.0% and 30.1% 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. 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.
<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 borrowings,
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 June 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 June 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 5.1% of receivables at June 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. Projections for the remainder of 1996 indicate a need to
increase the allowance for loan losses to provide adequate protection against
increasing loan losses on the current portfolio. The increase in the
allowance will not affect liquidity as the allowance is maintained out of
income, however, Management projects earnings will be negatively impacted by
approximately $.7 million by December 31, 1996.
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 state 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 believes 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. The Company is in the process of applying for
licenses to operate in the state of Mississippi with tentative plans to open
two offices in September, if approved. Louisiana is also being explored as a
potential new market area.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, December 31,
1996 1995
------------ ------------
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS. . . . . . . . . $ 25,707,195 $ 30,513,593
LOANS, net . . . . . . . . . . . . . . . . 123,392,793 120,762,867
INVESTMENT SECURITIES:
Available for Sale, at fair market value 17,648,031 17,194,375
Held to Maturity, at amortized cost. . . 3,692,034 5,186,492
------------ ------------
21,340,065 22,380,867
------------ ------------
OTHER ASSETS . . . . . . . . . . . . . . . 8,593,479 8,426,661
------------ ------------
TOTAL ASSETS . . . . . . . . . . $179,033,532 $182,083,988
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DEBT. . . . . . . . . . . . . . . . $ 88,696,391 $ 95,540,664
OTHER LIABILITIES. . . . . . . . . . . . . 6,880,681 8,179,506
SUBORDINATED DEBT. . . . . . . . . . . . . 32,996,324 30,616,915
------------ ------------
Total Liabilities . . . . . . . . . . 128,573,396 134,337,085
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock. . . . . . . . . . . . . . 170,000 170,000
Net Unrealized Gain (Loss) on
Investment Securities Available
for Sale. . . . . . . . . . . . . . . (142,906) 251,145
Retained Earnings . . . . . . . . . . . 50,433,042 47,325,758
------------ ------------
Total Stockholders' Equity. . . . . . 50,460,136 47,746,903
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . $179,033,532 $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 Six Months Ended
June 30 June 30
------------------------ ------------------------
(Unaudited) (Unaudited)
1996 1995 1996 1995
----------- ----------- ----------- -----------
INTEREST INCOME . . . . . $ 9,951,526 $ 9,410,073 $19,951,348 $18,610,336
INTEREST EXPENSE. . . . . 2,016,241 2,015,506 4,063,782 3,710,556
----------- ----------- ----------- -----------
NET INTEREST INCOME . . . 7,935,285 7,394,567 15,887,566 14,899,780
Provision for
Loan Losses . . . . . 1,226,282 997,968 2,174,656 1,643,405
----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES . . . . 6,709,003 6,396,599 13,712,910 13,256,375
----------- ----------- ----------- -----------
NET INSURANCE INCOME . . 3,209,815 3,158,247 6,508,646 6,318,962
----------- ----------- ----------- -----------
OTHER REVENUE . . . . . . 92,416 84,892 204,914 184,166
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES:
Personnel Expense. . . 5,025,388 4,607,775 9,717,891 8,951,192
Occupancy . . . . . . 1,067,787 944,648 2,116,853 1,888,145
Other. . . . . . . . . 2,023,349 1,600,686 4,208,837 3,533,755
----------- ----------- ----------- -----------
Total. . . . . . . . 8,116,524 7,153,109 16,043,581 14,373,092
----------- ----------- ----------- -----------
INCOME BEFORE
INCOME TAXES. . . . . . 1,894,710 2,486,629 4,382,889 5,386,411
Provision for
Income Taxes . . . . 480,884 733,006 1,184,919 1,618,644
----------- ----------- ----------- -----------
NET INCOME. . . . . . . . 1,413,826 1,753,623 3,197,970 3,767,767
RETAINED EARNINGS,
Beginning of period . . 49,109,902 43,143,080 47,325,758 41,128,936
Dividends on
Common Stock. . . . 90,686 77,447 90,686 77,447
----------- ----------- ----------- -----------
RETAINED EARNINGS, end
of period . . . . . . . $50,433,042 $44,819,256 $50,433,042 $44,819,256
=========== =========== =========== ===========
EARNINGS PER SHARE:
Voting Common Stock;
1700 Shares Outstanding
all Periods all periods) $ 8.32 $10.32 $18.82 $22.18
====== ====== ====== ======
Non-Voting Common Stock;
168,201 Shares
Outstanding June 30, 1996 $ 8.32 $10.32 $18.82 $22.18
====== ====== ====== ======
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)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . $ 3,197,970 $ 3,767,767
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses . . . . . . . . . 2,174,656 1,643,405
Depreciation and Amortization . . . . . . . 543,831 519,364
Other, net. . . . . . . . . . . . . . . . . 56,615 (74,262)
(Increase) Decrease in
Miscellaneous assets . . . . . . . . . . (196,312) 34,827
(Decrease) in Accounts Payable and
Accrued Expenses . . . . . . . . . . . . (1,298,825) (826,404)
----------- -----------
Net Cash Provided by
Operating Activities. . . . . . . . 4,477,935 5,064,697
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased. . . . . . . . . (52,690,333) (50,158,736)
Loan Payments. . . . . . . . . . . . . . . . . 47,885,751 44,383,009
Purchases of marketable debt securities. . . . (3,045,570) (5,365,279)
Principal payments on securities . . . . . . . 72,386 --
Sales of marketable securities . . . . . . . . 768,750 --
Redemptions of securities. . . . . . . . . . . 2,750,000 --
Other, net . . . . . . . . . . . . . . . . . . (469,767) (454,076)
----------- -----------
Net Cash Provided by
Operating Activities . . . . . . . . . (4,728,783) (11,595,082)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Senior Debt. . . . . . . . . . . . (6,844,273) 18,152,769
Subordinated Debt Issued . . . . . . . . . . . 4,312,036 8,313,184
Subordinated Debt redeemed . . . . . . . . . . (1,932,627) (1,892,980)
Dividends Paid . . . . . . . . . . . . . . . . (90,686) (77,447)
----------- -----------
Net Cash Provided by
Financing Activities . . . . . . . . . (4,555,550) 24,495,526
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . (4,806,398) 17,965,141
CASH AND CASH EQUIVALENTS, beginning . . . . . . 30,513,593 6,689,544
----------- -----------
CASH AND CASH EQUIVALENTS, ending. . . . . . . . $25,707,195 $24,654,685
=========== ===========
Cash Paid during the period for: Interest . . . $ 4,040,969 $ 3,534,395
Income Taxes . 992,000 1,626,076
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 June 30, 1996 and December 31, 1995
and the results of its operations and its cash flows for the six months
ended June 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 six months ended June 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 Judy Paul
Susie Cantrell Tommy Lennon Ed Pulsifer
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
Judy Landon Darryl Parker Marc Thomas
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 Greenville
Buford LaGrange Greenwood
Butler Lavonia Lancaster
Cairo Lawrenceville Laurens
Calhoun Madison Orangeburg
Canton Manchester Seneca
Carrollton McDonough Union
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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,707,195
<SECURITIES> 21,340,065
<RECEIVABLES> 156,097,059
<ALLOWANCES> 4,583,200
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,786,770
<DEPRECIATION> 6,006,404
<TOTAL-ASSETS> 179,033,532
<CURRENT-LIABILITIES> 95,577,072
<BONDS> 121,425,953
<COMMON> 170,000
0
0
<OTHER-SE> 50,290,136
<TOTAL-LIABILITY-AND-EQUITY> 179,033,532
<SALES> 0
<TOTAL-REVENUES> 28,553,379
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,932,052
<LOSS-PROVISION> 2,174,656
<INTEREST-EXPENSE> 4,063,782
<INCOME-PRETAX> 4,382,889
<INCOME-TAX> 1,184,919
<INCOME-CONTINUING> 3,197,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,197,970
<EPS-PRIMARY> 18.82
<EPS-DILUTED> 0
</TABLE>
