<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, 1999
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, 1999
- --------------------------------------------- -----------------------------
Voting Common Stock, par value $100 per share 1,700 Shares
Non-Voting Common Stock, no par value 168,300 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, 1999.
See Exhibit 19
Consolidated Statements of Financial Position:
March 31, 1999 and December 31, 1998
Consolidated Statements of Income and Retained Earnings:
Three Months Ended March 31, 1999 and March 31, 1998
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1999 and March 31, 1998
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, 1999. 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, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
<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, Chief Financial
Officer and Principal
Accounting Officer
Date: May 14, 1999
<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, 1999 ..................... 4
27 Financial Data Schedule ......................... 14
<PAGE>
<PAGE>
Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
THREE MONTHS ENDED
MARCH 31, 1999
<PAGE>
MANAGEMENT'S LETTER
Financial Condition:
- -------------------
Total assets increased $5.0 million (2%) during the first quarter of
1999 as a result of increases in cash and cash equivalents and increases
in investment securities. Increases in sales of the Company's debt
securities and increases in loan payments were the factors responsible
for the increases in surplus funds.
Loans generated during the first quarter of 1999 reached a record
level as compared to the first quarter of any prior year. Although loan
demand was strong, net receivables (gross receivables less unearned
finance charges) declined $3.1 million or (2%) during the quarter.
Declines during the first quarter of each year are common due to the
Company's cyclical loan business.
Disbursement of the prior year's accrued incentive bonus in February,
1999 and the annual contribution to the Company's employee profit sharing
plan were the primary causes of the $2.1 million (18%) decrease in other
liabilities during the quarter just ended as compared to the prior
year-end.
Results of Operations:
- ---------------------
Average net receivables rose $8.9 million or 6% during the quarter
ended March 31, 1999 as compared to the same quarter in 1998. This growth
in the Company's primary earnings base induced a $.9 million (10%)
increase in the Company's net interest margin during the current period.
Net interest margin represents the difference the margin by which interest
income on earning assets (loans and investment securities) exceeds
interest expense on its interest bearing debt. Also contributing to the
increase in the net interest margin was the fact that there was only a
minimal increase in interest expense. Although the average senior and
subordinated debt on which the Company pays interest increased $10.6
million during the comparable periods, lower market rates enabled
Management to lower borrowing costs therefore keeping the increase in
interest expense minimal.
Net insurance income rose $.4 million or 11% during the comparable
periods as a result of the aforementioned increase in average net
receivables. Higher levels of average net receivables generally lead to
higher levels of insurance in-force because of more customers requesting
insurance. A decrease in claims submitted and general insurance
expenses also contributed to the rise in net insurance income.
The Company's provision for loan losses increased $.2 million or 34%
during the quarter just ended as compared to the same quarter a year ago.
A $.2 million (19%) increase in net charge-offs was primarily responsible
for the increase. In addition, Management raised the loan loss reserve
during the later part of 1998 in order to provide adequate protection
against probable losses. Delinquent accounts 60 days or more past due
increased to 6.2% of net receivables at March 31, 1999 as compared to 6.1%
at prior year-end. Management is carefully monitoring the credit worthiness
of the loan portfolio and will add to the reserve as deemed necessary.
Personnel expense increased $.6 million (10%) during the comparable
periods mainly due to merit salary increases effective January 1. Other
factors also contributing were increases in the accruals for incentive
bonuses and the profit sharing contribution.
Increases in computer expenses, insurance premiums, management meeting
expenses, training, travel and taxes and licenses were primarily
responsible for the $.2 million increase in miscellaneous other operating
expenses.
Effective income tax rates were 14.6% and 13.7% for the quarters ended
March 31, 1999 and 1998, respectively. Income taxes during the periods
reflect only the taxes of the Company's insurance subsidiaries which are
not "S" corporations for income tax reporting purposes. Federal and state
income taxes generated by the "S" corporation are paid by the shareholders,
except in states which don't recognize S corporation status. Certain tax
benefits provided by law to life insurance companies substanially reduce the
life insurance subsidiary's effective tax rate and thus decreases the
Company's general tax rate below statutory rates. Investments in tax exempt
securities by the property and casualty insurance subsidiary also decreases
the effective tax rate.
<PAGE>
Market Risk:
- -----------
There has been no change in the Company's market risk since
December 31, 1998.
Liquidity:
- ---------
Liquidity requirements of the Company are financed through the
collection of receivables and through the issuance of public debt
securities. 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. 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 $21.0 million. Available borrowings were $21.0 million at
March 31, 1999 and December 31, 1998, relating to this agreement.
Another agreement provides for an additional $2.0 million for general
operating purposes. Available borrowings under this agreement were
$2.0 million at March 31, 1999 and December 31, 1998.
Year 2000 Readiness Disclosure:
- ------------------------------
Management continues to focus on Year 2000 readiness. Although the
Company is not a banking institution, the Company is adhering to the
Interagency Guidelines Establishing Year 2000 Standards for Safety and
Soundness which set forth safety and soundness standards pursuant to
the Federal Financial Institutions Examination Council ("FFIEC").
The Company has completed testing of substantially all information
technology ("IT") systems and non-IT systems. Any applications where
testing has not been completed will be completed by June 1, 1999. During
the quarter just ended, the Y2K Committee began focusing on remediation
contingency planning in the unlikely event a system does fail,
particularly a system the committee deemed as "mission critical".
All plans are expected to be completed and tested by mid-year.
Compliance has not had a material affect on the Company's
operating results, nor does Management expect it to during the current
year. Expenses of $20,000 have been budgeted in 1999 for costs the
Company expects to incurr in regards to Year 2000 readiness.
Management does not foresee any problems associated with Year 2000
compliance. However, disruptions in service with respect to the
computer systems of vendors and/or suppliers, which are outside the
control of the Company, could impair the ability of the Company to
obtain necessary services.
Information provided regarding the Company's year 2000 processing
capabilities or readiness are "Year 2000 Readiness Disclosures" in
conformance with the Year 2000 Information and Readiness Disclosure Act
of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998.
This designation applies to information delivered which was through or
derived from past and present Year 2000 disclosures such as in statement
inserts, pamplets sent to investors, quarterly newsletters and annual
reports.
New Accounting Standards:
- ------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for fiscal
years beginning after June 15, 1999. The Statement requires companies
to record derivatives on the balance sheet as assets and liabilities
at fair value. The Statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The Company does not
expect the adoption of this statement to have a material impact
on the financial statements or results of operations of the Company.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS . . . . . . . . . $ 26,248,107 $ 20,111,678
------------ ------------
LOANS, net . . . . . . . . . . . . . . . . . 136,245,650 138,548,161
------------ ------------
INVESTMENT SECURITIES:
Available for Sale, at market value. . . 41,975,844 39,938,412
Held to Maturity, at amortized cost . . 7,299,235 7,205,113
------------ ------------
49,275,079 47,143,525
------------ ------------
OTHER ASSETS . . . . . . . . . . . . . . . . 9,935,019 10,871,546
------------ ------------
AL ASSETS. . . . . . . . . . . $221,703,855 $216,674,910
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DEBT. . . . . . . . . . . . . . . . . $109,002,382 $104,446,030
OTHER LIABILITIES. . . . . . . . . . . . . . 9,808,680 11,904,342
SUBORDINATED DEBT . . . . . . . . . . . . . 39,218,148 38,960,747
------------ ------------
Total Liabilities . . . . . . . . 158,029,210 155,311,119
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock; $100 par value. . . . . -- --
Common Stock . . . . . . . . . . . . . . 170,000 170,000
Accumulated Other Comprehensive Income . 334,576 556,423
Retained Earnings . . . . . . . . . . . 63,170,069 60,637,368
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . $221,703,855 $216,674,910
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended
March 31
--------------------------
(Unaudited)
1999 1998
----------- -----------
INTEREST INCOME. . . . . . . . . . . . . . . . $12,006,290 $11,123,009
INTEREST EXPENSE . . . . . . . . . . . . . . . 2,186,596 2,177,855
----------- -----------
NET INTEREST INCOME. . . . . . . . . . . . . . 9,819,694 8,945,154
Provision for Loan Losses. . . . . . . . . . 973,810 727,980
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . 8,845,884 8,217,174
----------- -----------
NET INSURANCE INCOME . . . . . . . . . . . . . 4,011,272 3,620,380
----------- -----------
OTHER REVENUE. . . . . . . . . . . . . . . . . 133,794 118,514
----------- -----------
OTHER OPERATING EXPENSES:
Personnel Expense. . . . . . . . . . . . . . 6,168,965 5,601,337
Occupancy. . . . . . . . . . . . . . . . . . 1,368,169 1,339,981
Other. . . . . . . . . . . . . . . . . . . . 2,489,733 2,319,758
----------- -----------
Total . . . . . . . . . . . . . . . . . . 10,026,867 9,261,076
----------- -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . 2,964,083 2,694,992
Provision for Income Taxes . . . . . . . . . 431,382 369,000
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . 2,532,701 2,325,992
RETAINED EARNINGS, beginning of period . . . . 60,637,368 54,221,339
----------- -----------
RETAINED EARNINGS, end of period . . . . . . . $63,170,069 $56,547,331
=========== ===========
EARNINGS PER SHARE:
Voting Common Stock; 1,700 Shares
Outstanding all periods. . . . . . . . . $14.90 $13.68
====== ======
Non-Voting Common Stock; 168,300
Shares Outstanding all periods . . . . . $14.90 $13.68
====== ======
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)
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . $ 2,532,701 $ 2,325,992
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses. . . . . . . . . . 973,810 727,980
Depreciation and Amortization. . . . . . . . 304,867 312,142
Deferred Income Taxes. . . . . . . . . . . . 5,584 834
Other, net . . . . . . . . . . . . . . . . . 40,838 5,270
Decrease in Miscellaneous assets . . . . . . 792,485 475,258
Decrease in Accounts Payable and
Accrued Expenses . . . . . . . . . . . . . . (2,049,850) (1,527,487)
----------- -----------
Net Cash Provided . . . . . . . . . . . . 2,600,435 2,319,989
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased. . . . . . . . . . (26,577,415) (23,431,680)
Loan Payments. . . . . . . . . . . . . . . . . . 27,906,116 27,283,307
Purchases of marketable debt securities. . . . . (4,677,994) (4,458,986)
Principal payments on securities . . . . . . . . 152,359 31,220
Redemptions of securities. . . . . . . . . . . . 2,080,000 7,970,000
Other, net . . . . . . . . . . . . . . . . . . . (160,825) (121,553)
----------- -----------
Net Cash Used. . . . . . . . . . . . . . (1,277,759) (7,272,308)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Senior Debt . . . . . . . 4,556,352 (3,149,693)
Subordinated Debt Issued . . . . . . . . . . . . 2,175,107 1,774,326
Subordinated Debt redeemed . . . . . . . . . . . (1,917,706) (1,373,053)
----------- -----------
Net Cash Used. . . . . . . . . . . . . . (4,813,753) (2,748,420)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . 6,136,429 6,843,877
CASH AND CASH EQUIVALENTS, beginning. . . . . . . 20,111,678 25,122,077
----------- -----------
CASH AND CASH EQUIVALENTS, ending . . . . . . . . $26,248,107 $31,965,954
=========== ===========
Cash Paid during the period for: Interest . . . . $ 2,081,860 $ 2,205,668
Income Taxes . . 73,393 18,940
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, 1998 and for the years then ended included in the
Company's December 31, 1998 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, 1999, and December 31,
1998, and the results of its operations and its cash flows for the
three months ended March 31, 1999 and 1998. 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, 1999,
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.
5. In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". The Company had comprehensive income, which is comprised of
net income and unrealized gains or losses on securities held as
available for sale, of $2,310,854 and $2,277,328 for the three months
ended March 31, 1999 and 1998, respectively.
6. The following tables summarize assets, revenues and profit by business
segment. A reconcilement to consolidated net income is also provided.
There has been no differences from the 1998 Annual Report from the
basis of segmentation or the basis of measurement of segment profit.
Division Division Division
I II III Total
-------- -------- -------- ---------
(In Thousands)
Three Months ended 3/31/99:
Segment revenues. . . . . . $ 4,798 $ 5,398 $ 5,460 $ 15,656
Segment profit . . . . . . 1,717 2,281 1,761 5,759
Three Months ended 3/31/98:
Segment revenues. . . . . . $ 4,538 $ 4,901 $ 4,894 $ 14,333
Segment profit . . . . . . 1,424 2,116 1,474 5,014
Segment Assets:
3/31/99 . . . . . . . . . . $45,162 $50,465 $52,066 $147,693
3/31/98 . . . . . . . . . . 42,406 49,576 48,407 140,389
3 Months 3 Months
Ended Ended
3/31/99 3/31/98
-------- --------
Reconcilement: (In Thousands)
Profit:
Profit per segments . . . . . . . . . . . . $ 5,759 $ 5,014
Corporate earnings not allocated. . . . . . 496 529
Corporate expenses not allocated. . . . . . (3,291) (2,848)
Income taxes not allocated. . . . . . . . . (431) (369)
------- --------
$ 2,533 $ 2,326
======= ========
<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
<TABLE>
<CAPTION>
SUPERVISORS
<S> <C> <C> <C>
Regina Bond Bruce Hooper Johnny McEntyre Darryl Parker
Ronald Byerly Janice Hyde Brian McSwain Henrietta Reathford
Susie Cantrell Judy Landon Dianne Moore Timothy Schmotz
Donald Carter Jeff Lee Harriet Moss Tami Settlemyer
Donald Floyd Tommy Lennon Mike Olive Gaines Snow
Renee Hebert Tim Love Melvin Osley Marc Thomas
Jack Hobgood Mike Lyles Dale Palmer
OFFICES
<S> <C> <C> <C>
Alabama Offices: Georgia Offices: Georgia Offices: Louisiana Offices:
- --------------- --------------- --------------- -----------------
Alexander City Brunswick Jesup Pineville
Andalusia Buford LaGrange
Arab Butler Lavonia Mississippi Offices:
Athens Cairo Lawrenceville -------------------
Bessemer Calhoun Madison Bay St. Louis
Birmingham Canton Manchester Carthage
Clanton Carrollton McDonough Columbia
Cullman Cartersville McRae Grenada
Decatur Cedartown Milledgeville Gulfport
Dothan Chatsworth Monroe Hattiesburg
Enterprise Clarkesville Montezuma Jackson
Fayette Claxton Monticello Kosciusko
Florence Clayton Moultrie Magee
Gadsden Cleveland Nashville McComb
Geneva Cochran Newnan Pearl
Hamilton Commerce Perry Picayune
Huntsville Conyers Richmond Hill
Jasper Cordele Rome North Carolina Offices:
Madison Cornelia Royston ----------------------
Moulton Covington Sandersville Monroe
Muscle Shoals Cumming Savannah Pineville
Opp Dallas Statesboro
Ozark Dalton Swainsboro South Carolina Offices:
Prattville Dawson Sylvania ----------------------
Russellville (2) Douglas Sylvester Aiken
Scottsboro Douglasville (2) Thomaston Anderson
Selma Eastman Thomson Cayce
Sylacauga Elberton Tifton Clemson
Troy Ellijay Toccoa Columbia
Tuscaloosa Forsyth Valdosta Conway
Fort Valley Vidalia Easley
Georgia Offices: Gainesville Warner Robins Florence
- --------------- Garden City Washington Gaffney
Adel Georgetown Waycross Greenville
Albany Greensboro Winder Greenwood
Alma Griffin Greer
Americus Hartwell Louisiana Offices: Lancaster
Arlington Hawkinsville ----------------- Laurens
Athens (2) Hazlehurst Alexandria Marion
Bainbridge Hinesville DeRidder Newberry
Barnesville Hogansville Jena Orangeburg
Baxley Jackson Leesville Rock Hill
Blakely Jasper Marksville Seneca
Blue Ridge Jefferson Natchitoches Spartanburg
Bremen New Iberia Union
York
</TABLE>
<PAGE>
DIRECTORS
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
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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 26,248,107
<SECURITIES> 49,275,079
<RECEIVABLES> 172,188,716
<ALLOWANCES> 6,521,668
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,210,441
<DEPRECIATION> 8,667,140
<TOTAL-ASSETS> 221,703,855
<CURRENT-LIABILITIES> 118,811,062
<BONDS> 148,220,530
<COMMON> 170,000
0
0
<OTHER-SE> 63,504,645
<TOTAL-LIABILITY-AND-EQUITY> 221,703,855
<SALES> 0
<TOTAL-REVENUES> 17,111,892
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,994,403
<LOSS-PROVISION> 973,810
<INTEREST-EXPENSE> 2,186,596
<INCOME-PRETAX> 2,964,083
<INCOME-TAX> 431,382
<INCOME-CONTINUING> 2,532,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,532,701
<EPS-PRIMARY> 14.90
<EPS-DILUTED> 14.90
</TABLE>
