<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
------------------------------
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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
(Exact name of registrant as specified in its charter)
Georgia 58-0521233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 886-7571
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 ___
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant: Not Applicable.
(Cover page 1 of 2 pages)
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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 February 28, 1999
------------------------------------- --------------------------------
Common Stock, $100 Par Value 1,700 shares
Non-Voting Common Stock, No Par Value 168,300 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to security holders for the
fiscal year ended December 31, 1998 are incorporated by reference into
Parts I, II and IV of this Form 10-K.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
(Cover page 2 of 2 pages)
<PAGE>
PART I
Item 1. BUSINESS:
The Company, Page 1; Business, Pages 5 - 12; and Financial
Statements, Pages 19 - 35 of Registrant's Annual Report to security
holders for the fiscal year ended December 31, 1998, the ("Annual
Report"), are incorporated herein by reference.
Item 2. ROPERTIES:
Map on inside front cover page; paragraph 1 of The Company, Page 1;
and Footnote 7 Commitments) of Notes to Consolidated Financial
Statements, Page 31 of Registrant's Annual Report are incorporated
herein by reference.
Item 3. LEGAL PROCEEDINGS:
Two proceedings are pending against 1st Franklin Financial
Corporation ("the Company") in Alabama alleging violations of
consumer lending laws. Management believes that the Company's
operations are in compliance with the applicable regulations and
that the actions are without merit, and the Company is diligently
contesting these remaining complaints. Based upon current
information currently available to the Company, the Company does
not believe that the current pending legal proceedings would,
individually or in the aggregate, have a material adverse effect
upon the Company, although there can be no assurance thereof.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
Source of Funds, Page 12 of the Company's Annual Report is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA:
Selected Consolidated Financial Information, Page 4 of Company's
Annual Report is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Management's Discussion of Operations, Pages 13 - 18 of Company's
Annual Report is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Pages 19 - 35 of Company's Annual Report are incorporated herein by
reference.
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Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
The Company has neither had any disagreements on accounting or
financial disclosures with its accountants nor changed such
accountants.
- --------------------------
Forward Looking Statements:
Certain statements contained or incorporated by reference herein under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Market for Registrant's Common Stock and Related
Stockholder Matters" and elsewhere in this Annual Report on Form 10-K
may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the
Company to be materially different from any future results, performance, or
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, among other things, the ability to manage cash flow and working
capital, adverse economic conditions including the interest rate environment,
federal and state regulatory changes and other factors referenced elsewhere
herein.
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<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
DIRECTORS
Director Since
and
Date on Which Position
Name of Director Age Term Will Expire With Company
---------------- --- ---------------- ------------
Ben F. Cheek, III (3)(4)(5) 62 Since 1967; Chairman of
When successor Board
elected and qualified
Lorene M. Cheek (2)(4)(6) 89 Since 1946; None
When successor
elected and qualified
Jack D. Stovall (1)(2) 63 Since 1983; None
When successor
elected and qualified
Robert E. Thompson (1)(2) 67 Since 1970; None
When successor
elected and qualified
______________________________________________________________________
(1) Member of Audit Committee.
(2) Mrs. Cheek is an honorary member of the Board of Trustees of Tallulah
Falls School; Dr. Thompson is a physician at Toccoa Clinic; and
Mr. Stovall is President of Stovall Building Supplies, Inc. These
positions have been held by each respective Director for more than
five years.
(3) Reference is made to "Executive Officers" for a discussion of Ben F.
Cheek, III's business experience.
(4) Member of Executive Committee.
(5) Son of Lorene M. Cheek.
(6) Mother of Ben F. Cheek, III.
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<PAGE>
EXECUTIVE OFFICERS
Name, Age, Position
and Family Relationship Business Experience
- ----------------------- -------------------------------------------------
Ben F. Cheek, III, 61 Joined the Company in 1961 as attorney and became
Chairman of Board Vice President in 1962, President in 1972 and
Chairman of Board in 1989.
T. Bruce Childs, 61 Joined the Company in 1958 and was named Vice
President President in charge of Operations in 1973 and
No Family Relationship President in 1989.
Lynn E. Cox, 40 Joined the Company in 1983 and became Secretary
Secretary in 1989.
No Family Relationship
A. Roger Guimond, 43 Joined the Company in 1976 as an accountant and
Vice President and became Chief Accounting Officer in 1978, Chief
Chief Financial Officer Financial Officer in 1991 and Vice President
No Family Relationship in 1992.
Linda L. Sessa, 43 Joined the Company in 1984 and became Treasurer in
Treasurer 1989.
No Family Relationship
The term of office of each Executive Officer expires when a successor is
elected and qualified. There was no, nor is there presently any arrangement
or understanding between any officer and any other person (except directors
or officers of the registrant acting solely in their capacities as such)
pursuant to which the officer was selected.
No event such as a bankruptcy, criminal or securities violation proceeding
has occurred within the past 5 years with regard to any Director or
Executive Officer of the Company.
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Item 11. EXECUTIVE COMPENSATION:
(b) Summary Compensation Table:
Other All
Name Annual Other
and Compen- Compen-
Principal Salary Bonus sation sation
Position Year $ $ $ $ *
-------- ---- ------- ------- ------ -------
Ben F. Cheek, III 1998 264,000 171,893 2,852 251,638
Chairman and 1997 264,000 210,081 3,044 181,504
CEO 1996 252,000 217,932 3,431 98,336
T. Bruce Childs 1998 282,000 172,613 4,066 228,281
President 1997 264,000 210,081 3,459 163,878
1996 246,000 217,692 3,179 87,633
A. Roger Guimond 1998 152,400 59,717 1,650 80,978
Vice President 1997 142,200 72,001 1,650 54,647
and CFO 1996 132,000 74,362 1,650 29,589
* Represents Company contributions to profit-sharing plan and reported
compensation from premiums on life insurance policies for the benefit
of Ben F. Cheek, III in the amount of $6,842 for 1998, $5,931 for 1997
and $4,931 for 1996. Includes Company contributions to profit-sharing
plan for the benefit of T. Bruce Childs and A. Roger Guimond.
(g) Compensation of Directors:
Directors who are not employees of the Company receive $2,000 per year
for attending scheduled board meetings.
(k) Board Compensation Committee Report on Executive Compensation:
The Company has no official executive compensation committee. Ben F.
Cheek, III (Chairman of the Company) establishes the bases for all
executive compensation. The Company is a family owned business with
Ben F. Cheek, III being the majority stockholder.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners as of December 31, 1998:
Ownership listed below represents ownership in the Company with respect
to any person (including any "group" as that term is used in Section
13(d)(3) of the Exchange Act) who is known to the Company to be the
beneficial owner of more than five percent of any class of the Company's
voting securities.
Name and Address of Amount and Nature of Percent
Beneficial Owner Title of Class Beneficial Ownership Of Class
---------------- -------------- -------------------- --------
Ben F. Cheek, III Voting Common 1,160 Shares - Direct 68.24%
225 Valley Drive Stock
Toccoa, Georgia 30577
John Russell Cheek Voting Common 441 Shares - Direct 25.94%
181 Garland Road Stock
Toccoa, Georgia 30577
(b) Security Ownership of Management as of December 31, 1998:
Ownership listed below represents ownership in the Company, of (i)
Directors and named Executive Officers of the Company and (ii) all
Directors and Executive Officers of the Company as a group:
Amount and Nature of Percent
Name Title of Class Beneficial Ownership f Class
---- -------------- ---------- ---------
Ben F. Cheek, III Voting Common Stock 1,160 Shares-Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%
T. Bruce Childs Voting Common Stock None None
Non-Voting Common Stock None None
A. Roger Guimond Voting Common Stock None None
Non-Voting Common Stock None None
__________________________________________
All Directors and
Executive Officers
as a Group Voting Common Stock 1,160 Shares-Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%
(1) Effective January 1, 1997, the Company elected S Corporation status
for income tax reporting purposes. Because partnerships are
ineligible to be S Corporation shareholders, Cheek Investments, L.P.
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distributed its shares of the Company to its eight partners (six
trusts, Ben F. Cheek, III and Elizabeth Cheek, wife of Ben F. Cheek,
III). Ben F. Cheek, III and Elizabeth Cheek are grantors of the
trusts. Below is a table of ownership of non-voting common stock
attributable to Ben F. Cheek, III:
No. of
Name Shares Percentage
---- ------ ----------
Ben F. Cheek, III 574 .34%
Elizabeth Cheek 574 .34%
Ben Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Ben Cheek Trust B (f/b/o Virginia C. Herring) 18,949 11.26%
Ben Cheek Trust C (f/b/o David W. Cheek) 18,949 11.26%
Elizabeth Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Elizabeth Cheek Trust B (f/b/o Virginia C. Herring) 18,948 11.26%
Elizabeth Cheek Trust C (f/b/o David W. Cheek) 18,948 11.26%
------- -----
114,840 68.24%
======= =====
(c) The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Company leases its Home Office building and print shop for a
total of $12,600 per month from Franklin Enterprises, Inc. under
leases which expire December 31, 2004. Franklin Enterprises, Inc.
is 66.67% owned by Ben F. Cheek, III, a Director and Executive
Officer of the Company. In Management's opinion, these leases are
at rates which approximate those obtainable from independent third
parties.
The Company leases its Hartwell branch office for a total of $300
per month from John R. Cheek. John R. Cheek owns 25.94% of the
Company's voting shares of common stock. Rent is also paid to
Cheek Investments, Inc. in the amount of $350 per month for the
Clarkesville branch office. Cheek Investments is owned by Ben F.
Cheek, III. In Management's opinion, these leases are at rates
which approximate those obtainable from independent third parties.
Beneficial owners of the Company are also beneficial owners of
Liberty Bank & Trust ("Liberty"). The Company and Liberty have
certain management and data processing agreements whereby the
Company provides certain administrative and data processing
services to Liberty for a fee. Annual income recorded by the
Company during the three year period ended December 31, 1998
related to these agreements was $63,800, which in Management's
opinion approximates the Company's actual cost of these services.
Liberty leases its office space and equipment from the Company for
$5,000 per month, which in Management's opinion is at a rate which
approximates that obtainable from independent third parties.
At December 31, 1998, the Company maintained $2,100,000 of
certificates of deposit with Liberty at market rates and terms.
The Company also had $2,356,345 in demand deposits with Liberty at
December 31, 1998.
During 1998, a loan was extended to a real estate development
partnership of which one of the Company's beneficial owners (David
Cheek) is a partner. David Cheek owns less than 5% of the
Company's stock. The balance on this commercial loan was
$1,498,502 at December 31, 1998.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) 1. Financial Statements:
Incorporated by reference from Registrant's Annual Report to
security holders for the fiscal year ended December 31, 1998:
Report of Independent Public Accountants.
Consolidated Statements of Financial Position at December 31,
1998 and 1997.
Consolidated Statements of Income for the three years ended
December 31, 1998.
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1998.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
None - Financial statement schedules are omitted because of the
absence of conditions under which they are required or because
the required information is given in the financial statements or
notes thereto.
3. Exhibits:
2. (a) Articles of Merger of 1st Franklin Corporation with and
into 1st Franklin Financial Corporation dated December 31,
1994 (incorporated herein by reference to Exhibit 3(2)(a)
from Form 10-K for the fiscal year ended December 31, 1994).
3. (a) Restated Articles of Incorporation as amended January 26,
1996 (incorporated herein by reference to Exhibit 3(3)(a)
from Form 10-K for the fiscal year ended December 31, 1995).
(b) Bylaws (incorporated herein by reference to Exhibit 3(3)(b)
from Form 10-K for the fiscal year ended December 31, 1995).
4. (a) Executed copy of Indenture dated October 31, 1984,
covering the Variable Rate Subordinated Debentures -
Series 1 (incorporated herein by reference from
Registration Statement No. 2-94191, Exhibit 4a).
(b) Modification of Indenture dated March 29, 1995
(incorporated herein by reference to Exhibit 3(4)(b) from
Form 10-K for the fiscal year ended December 31, 1994).
9. Not applicable.
10. (a) Credit Agreement dated May, 1993 between the registrant
and SouthTrust Bank of Georgia, N.A.. (Incorporated
herein by reference from Form 10-K for the fiscal year
ended December 31, 1993.)
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(b) Revolving Credit Agreement dated October 1, 1985 as amended
November 10, 1986; March 1, 1988; August 31, 1989 and
May 1, 1990, among the registrant and the banks named
therein (Incorporated by reference to Exhibit 10 to the
registrant's Form SE dated November 9, 1990.)
(c) Fifth Amendment to Revolving Credit Agreement dated
April 23, 1992. (Incorporated by reference to Exhibit
10(c) to the Registrant's Form SE dated November 5, 1992.)
(d) Sixth Amendment to Revolving Credit Agreement dated July 20,
1992. Incorporated by reference to Exhibit 10(d) to the
Registrant's Form SE dated November 5, 1992.)
(e) Seventh Amendment to Revolving Credit Agreement dated June
20, 1994. (Incorporated by reference to Exhibit 10(e) from
Form 10-K for the fiscal year ended December 31, 1994.)
(f) Merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation Consent, Waiver and Eighth Amendment
to Revolving Credit and Term Loan Agreement. (Incorporated
herein by reference to Exhibit 10(f) from Form 10-K for the
fiscal year ended December 31, 1994.)
(g) Ninth Amendment to Revolving Credit Agreement and Term
Loan Agreement dated June 20, 1996. (Incorporated herein
by reference to Exhibit 10(g) from Form 10-K for the fiscal
year ended December 31, 1996.)
(h) Tenth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated January 23, 1998. (Incorporated herein by
reference to Exhibit 10(h) from the registrant's Form S-2
Registration dated March 6, 1998.)
(i) Eleventh Amendment to Revolving Credit Agreement and Term
Loan Agreement dated May 27, 1998.
11. Computation of Earnings per Share is self-evident from the
Consolidated Statement of Income and Retained Earnings in the
Registrant's Annual Report to Security Holders for the fiscal
year ended December 31, 1998, incorporated by reference herein.
12. Ratio of Earnings to Fixed Charges.
13. Registrant's Annual Report to security holders for fiscal year
ended December 31, 1998.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Registrant.
22. Not applicable.
23. Consent of Independent Public Accountants.
24. Not applicable.
27. Financial Data Schedule.
28. Not applicable.
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<PAGE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By s/Ben F. Cheek, III
Date: March 30, 1999 -------------------
-------------- Ben F. Cheek, III
Chairman of Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated:
Signatures Title Date
---------- ----- ----
s/ Ben F, Cheek, III Chairman of Board; March 30, 1999
- ----------------------- Chief Executive --------------
(Ben F. Cheek, III) Officer
s/ T. Bruce Childs President March 30, 1999
- ----------------------- --------------
(T. Bruce Childs)
s/ A. Roger Guimond Vice President; March 30, 1999
- ----------------------- Principal Financial --------------
(A. Roger Guimond) Officer
Principal Accounting Officer
s/ Lorene M. Cheek Director March 30, 1999
- ----------------------- --------------
(Lorene M. Cheek)
s/ Jack D. Stovall Director March 30, 1999
- ----------------------- --------------
(Jack D. Stovall)
s/ Robert E. Thompson Director March 30, 1999
- ----------------------- --------------
(Robert E. Thompson)
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
(a) Except to the extent that the materials enumerated in (1) and/or (2)
below are specifically incorporated into this Form by reference (in
which case see Rule 12b-23b), every registrant which files an annual
report on this Form pursuant to Section 15(d) of the Act shall furnish
to the Commission for its information, at the time of filing its
report on this Form, four copies of the following:
(1) Any annual report to security holders covering the registrant's
last fiscal year; and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security
holders with respect to any annual or other meeting of security
holders.
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(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of
the Act, except to the extent that the registrant specifically
incorporates it in its annual report on this Form by reference.
(c) This Annual Report on Form 10-K incorporates by reference portions
of the Registrant's Annual Report to security holders for the fiscal
year ended December 31, 1998, which is filed as Exhibit 13 hereto.
The Registrant is a privately held corporation and therefore does not
distribute proxy statements or information statements.
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<PAGE>
<PAGE>
Exhibit 10(i)
May 27, 1998 CoreStates
Bank
Mr. Roger Guimond, Vice President and CFO
1st Franklin Financial Corporation
213 E. Tugalo Street
P.O. Box 880
Toccoa, GA 30577
Re: Eleventh Amendment of Section 6.14 of Revolving Credit and Term Loan
Agreement
Dear Roger:
Reference is hereby made to that certain Revolving Credit and Term Loan
Agreement dated October 1, 1985, as amended from time to time (all of which
are hereinafter collectively referred to as the "Credit Agreement") by and
among 1st Franklin Financial Corporation ("Company"), CoreStates Bank, N.A.,
Fleet Bank, N.A., SouthTrust Bank of Georgia, N.A. and Harris Trust and
Savings Bank, as lenders (collectively, the "Banks") and CoreStates Bank, N.A.
as Agent for the Banks (in such capacity, the "Agent"). All capitalized terms
not otherwise defined herein shall have the meanings respectively ascribed to
them in the Credit Agreement.
The Borrower, the Banks and the Agent hereby agree to amend the Agreement as
follows:
1. Section 5.08(b)(v) is deleted in its entirety
This letter may be executed in counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may
execute this letter agreement by signing any such counterpart. The Credit
Agreement, as amended hereby and as previously amended, remains in full force
and effect.
Each of the undersigned, by its signature hereto, hereby evidences its consent
to the terms and conditions of this letter to be effective only upon the
Agent's receipt of an executed counterpart or facsimile by Company and Banks
and delivery thereof to the Borrower.
<PAGE>
Agreed to this 28th day of May, 1998
1st Franklin Financial Corporation CoreStates Bank, N.A., as Agent and Bank
By: s/ A. Roger Guimond By: s/ Robert S. Ritter;
------------------------ --------------------------------
A. Roger Guimond; VP/CFO Robert S. Ritter; Vice President
Print Name and Title Print Name and Title
Harris Trust and Savings Bank
Attest: s/ Judy Sheriff By: s/ Jerome P. Crokin
--------------- --------------------------------
Judy Sheriff Jerome P. Crokin; Vice President
Print Name and Title
Southtrust Bank of Georgia, N.A Fleet Bank, N.A.
By: s/ Robert S. Lockett By: s/ Robert Kruger
---------------------------- -------------------------------
Robert S. Lockett; Vice Pres. Robert Kruger;
Print Name and Title Assist. Vice President
Print Name and Title
<PAGE>
<PAGE>
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31
-------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except ratio data)
Income Before Income Taxes . . . $ 8,859 $ 6,744 $ 8,418 $ 8,969 $10,319
Interest on Indebtedness . . . . 8,723 8,801 8,312 8,048 5,556
Portion of rents
representative of the
interest factor. . . . . . . . 665 603 518 449 419
------- ------- ------- ------- -------
Earnings as adjusted . . . . $18,247 $16,148 $17,248 $17,466 $16,294
======= ======= ======= ======= =======
Fixed Charges:
Interest on Indebtedness . . . . $ 8,723 $ 8,801 $ 8,312 $ 8,048 $ 5,556
Portion of rents
representative of the
interest factor. . . . . . . . 665 603 518 449 419
------- ------- ------- ------- -------
Fixed Charges . . . . . . . $ 9,388 $ 9,404 $ 8,830 $ 8,497 $ 5,975
======= ======= ======= ======= =======
Ratio of Earnings
to Fixed Charges. . . . . . 1.94 1.72 1.95 2.06 2.73
==== ==== ==== ==== ====
<PAGE>
<PAGE>
Exhibit 13
1st FRANKLIN FINANCIAL CORPORATION
ANNUAL REPORT
DECEMBER 31, 1998
FRONT COVER AND BACK COVER
(Individual Photos of the 25 "Circle of Diamonds" Branch Managers)
<PAGE>
INSIDE FRONT COVER PAGE OF ANNUAL REPORT
(Graphic showing state maps of Alabama, Georgia, Louisiana, Mississippi, North
Carolina and South Carolina which is regional operating territory of Company
and listing of branch offices)
<TABLE>
<CAPTION>
1st FRANKLIN FINANCIAL CORPORATION BRANCH OFFICES
ALABAMA
-------
<S> <C> <C> <C> <C> <C>
Alexander City Birmingham Enterprise Hamilton Muscle Shoals Scottsboro
Andalusia Clanton Fayette Huntsville Opp Selma
Arab Cullman Florence Jasper Ozark Sylacaug
Athens Decatur Gadsden Madison Prattville Troy
Bessemer Dothan Geneva Moulton Russellville (2) Tuscaloosa
<CAPTION>
GEORGIA
-------
<S> <C> <C> <C> <C> <C>
Adel Calhoun Covington Greensboro Manchester Savannah
Albany Canton Cumming Griffin McDonough Statesboro
Alma Carrollton Dallas Hartwell McRae Swainsboro
Americus Cartersville Dalton Hawkinsville Milledgeville Sylvania
Arlington Cedartown Dawson Hazlehurst Monroe Sylvester
Athens (2) Chatsworth Douglas Hinesville Montezuma Thomaston
Bainbridge Clarkesville Douglasville(2) Hogansville Monticello Thomson
Barnesville Claxton East Ellijay Jackson Moultrie Tifton
Baxley Clayton Eastman Jasper Nashville Toccoa
Blakely Cleveland Elberton Jefferson Newnan Valdosta
Blue Ridge Cochran Forsyth Jesup Perry Vidalia
Bremen Commerce Fort Valley LaGrange Richmond Hill Warner Robins
Brunswick Conyers Gainesville Lavonia Rome Washington
Buford Cordele Garden City Lawrenceville Royston Waycross
Butler Cornelia Georgetown Madison Sandersville Winder
Cairo
<CAPTION>
LOUISIANA
---------
<S> <C> <C> <C> <C> <C>
Alexandria Leesville Jena Marksville Natchitoches New Iberia **
Pineville DeRidder
<CAPTION>
MISSISSIPPI
-----------
<S> <C> <C> <C> <C> <C>
Bay St. Louis Columbia Gulfport Jackson McComb Picayune
Carthage Grenada Hattiesburg Kosciusko Pearl
<CAPTION>
NORTH CAROLINA
--------------
<S> <C>
Monroe Pineville
<CAPTION>
SOUTH CAROLINA
--------------
<S> <C> <C> <C> <C> <C>
Aiken Columbia Gaffney Lancaster Orangeburg Union
Anderson Conway Greenville Laurens Rock Hill York
Cayce Easley Greenwood Marion Seneca
Clemson Florence Greer Newberry Spartanburg
</TABLE>
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** Opened first quarter 1999
<PAGE>
TABLE OF CONTENTS
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Ben F. Cheek, Jr. Office of the Year . . . . . . . . . . . . . 2
Chairman's Letter . . . . . . . . . . . . . . . . . . . . . . . 3
Selected Consolidated Financial Information . . . . . . . . . . 4
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management's Discussion of Operations . . . . . . . . . . . . . 13
Management's Report . . . . . . . . . . . . . . . . . . . . . . 18
Report of Independent Public Accountants. . . . . . . . . . . . 19
Financial Statements. . . . . . . . . . . . . . . . . . . . . . 20
Directors and Executive Officers. . . . . . . . . . . . . . . . 36
Corporate Information . . . . . . . . . . . . . . . . . . . . . 36
THE COMPANY
1st Franklin Financial Corporation has been engaged in the consumer finance
business since 1941, particularly in direct cash loans and real estate loans.
The business is operated through 93 branch offices in Georgia, 31 in Alabama,
22 in South Carolina, 11 in Mississippi, 7 in Louisiana and 2 in North
Carolina. At December 31, 1998, the Company had 628 employees.
As of December 31, 1998, the resources of the Company were invested
principally in loans which comprised 64% of the Company's assets. The
majority of the Company's revenues are derived from finance charges earned on
loans and other outstanding receivables. Remaining revenues are derived from
earnings on investment securities, insurance income and other miscellaneous
income.
-1-
<PAGE>
JASPER, GEORGIA
1998 BEN F. CHEEK, JR. "OFFICE OF THE YEAR"
*********************
** PICTURE OF EMPLOYEES **
*********************
This award is presented annually in recognition of the office that represents
the highest overall performance within the Company. Congratulations to the
entire Jasper Staff for this significant achievement. The Friendly Franklin
Folks salute you!
-2-
<PAGE>
TO OUR INVESTORS, EMPLOYEES AND FRIENDS:
It is with a great deal of pleasure and enthusiasm that we at 1st Franklin
Financial present this our 1998 Annual Report. We believe that a great deal
was accomplished during the year and are pleased to share these results with
you. We intend to build on these accomplishments as we move into the new
millennium by continuing to improve in the delivery of our traditional
products and services as well as exploring new opportunities in the ever
expanding consumer finance industry.
While I hope you will read the entire Annual Report, please allow me to
point out a few of the year's highlights in this letter. Our pre-tax
earnings for the year increased by 31% over 1997 and our finance receivables
grew by 5%. This represented solid growth in our receivables portfolio but
was not as much as we have seen in the past few years. Competition for
business from the borrowing public continues to be very strong but we
recognize this to be an opportunity to improve our skills in the areas of
product innovation and customer service. In fact, we are already developing
new ideas to assist in this effort. The addition of 9 new offices during the
year certainly helped in our efforts to keep our receivables growing by
adding a number of new customers in new places. We opened 2 new offices in
Mississippi; 2 in Louisiana; 1 in South Carolina; 2 in Georgia; and 2 in
North Carolina. These new locations join the efforts of our older offices to
build a high quality portfolio of receivables. We will continue to seek out
new office opportunities during the coming year.
I am pleased to report that our Investment Center continues to provide all
of the funding needed to meet our lending needs. During the year the
Investment Center enjoyed a 5% growth. Our investors have been and continue
to be a vital part of the 1st Franklin team and their confidence and support
in the years ahead is what will allow our growth to continue. Many thanks to
all of you.
In the section of this Annual Report entitled "Managements Discussion of
Operations" you will find a complete update on our preparations for what is
known as the Year 2000 issue ("Y2K"). I urge you to read this update and I
invite any questions you might have as we move toward the year 2000. Let me
just say that I am very pleased and proud of the work that has been done over
the last number of months by our co-workers who have been preparing and
testing all of our systems. We will complete our preparation and testing by
June 1, 1999. We will be ready for Y2K seven months ahead of time.
Finally, I always like to end my letter with a word of thanks to all of
you who help to make our company the premier consumer finance company in the
southeastern United States. To my co-workers, our investors, customers,
bankers and our many friends in the 166 locations in which we are allowed to
serve, a heartfelt thank you. Without you 1st Franklin Financial can do
nothing. With you, I feel we can do anything we set our mind to.
Very sincerely yours,
s\Ben F. Cheek, III
Chairman of the Board and CEO
-3-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below is selected consolidated financial data of the Company.
This information should be read in conjunction with "Management's Discussion
of Operations" and the more detailed financial statements and notes thereto
included herein.
Year Ended December 31
-------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In 000's, except ratio data)
Selected Income Statement Data:
- ------------------------------
Revenues . . . . . . . . . . $ 65,683 $ 61,498 $ 58,415 $ 55,157 $ 49,334
Net Interest Income. . . . . 37,289 34,470 32,534 30,147 28,111
Interest Expense . . . . . . 8,723 8,801 8,312 8,048 5,556
Provision for
Loan Losses. . . . . . . . 7,031 6,916 6,266 4,631 3,238
Income Before
Income Taxes . . . . . . . 8,859 6,744 8,418 8,969 10,319
Net Income . . . . . . . . . 7,268 1,816 6,238 6,507 7,165
Ratio of Earnings to
Fixed Charges. . . . . . . 1.94 1.72 1.95 2.06 2.73
Selected Balance Sheet Data:
- ---------------------------
Loans, Net . . . . . . . . . $138,548 $132,701 $129,684 $120,763 $108,667
Total Assets . . . . . . . . 216,675 201,166 191,904 182,084 136,468
Senior Debt. . . . . . . . . 104,446 98,930 94,740 95,541 66,677
Subordinated Debt. . . . . . 38,961 37,247 34,942 30,617 21,603
Stockholders' Equity . . . . 61,364 54,734 53,414 47,747 40,605
Ratio of Total Liabilities
to Stockholders' Equity. . 2.53 2.68 2.59 2.81 2.36
-4-
<PAGE>
BUSINESS
The Company is engaged in the consumer finance business, particularly in
making consumer loans to individuals in relatively small amounts for
relatively short periods of time and in making first and second mortgage
loans on real estate in larger amounts and for longer periods of time. The
Company also purchases sales finance contracts from various retail dealers.
At December 31, 1998, direct cash loans comprised 75% of the Company's
outstanding loans, real estate loans 19% and sales finance contracts 6%.
In connection with this business, the Company writes credit insurance as
an agent for a nonaffiliated company specializing in such insurance. Two
wholly owned subsidiaries, Frandisco Life Insurance Company and Frandisco
Property and Casualty Insurance Company, reinsure the life, the accident and
health and the property insurance so written.
The following table shows the sources of the Company's earned finance
charges over each of the past five periods:
Year Ended December 31
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
Direct Cash Loans . . . . $33,579 $30,566 $28,440 $25,898 $22,962
Real Estate Loans . . . . 7,112 7,196 7,238 7,058 7,284
Sales Finance Contracts . 1,998 2,268 2,417 2,757 2,472
------- ------- ------- ------- -------
Total Finance Charges . $42,689 $40,030 $38,095 $35,713 $32,718
======= ======= ======= ======= =======
Direct cash loans are made primarily to people who need money for some
unusual or unforeseen expense or for the purpose of paying off an
accumulation of small debts or for the purchase of furniture and appliances.
These loans are repayable in 6 to 48 monthly installments and generally do
not exceed $10,000 in principal amount. The loans are generally secured by
personal property, motor vehicles and/or real estate. Interest and fees
charged on these loans are in compliance with applicable federal and state
laws.
First and second mortgage loans on real estate are made to homeowners who
wish to improve their property or who wish to restructure their financial
obligations. They are generally made in amounts from $3,000 to $50,000 on
maturities of 35 to 180 months. Interest and fees charged on these loans are
in compliance with applicable federal and state laws.
Sales finance contracts are purchased from retail dealers. These
contracts have maturities that range from 3 to 48 months and generally do not
individually exceed $7,500 in principal amount. The interest rates charged
on these contracts are in compliance with applicable federal and state laws.
Prior to the making of a loan, a credit investigation is undertaken to
determine the income, existing indebtedness, length and stability of
employment, and other relevant information concerning the customer. In
granting the loan, the Company is granted a security interest in real or
personal property of the borrower. In making direct cash loans, emphasis is
placed upon the customer's ability to repay rather than upon the potential
resale value of the underlying security. In making real estate and sales
finance loans, however, more emphasis is placed upon the marketability and
value of the underlying collateral.
-5-
<PAGE>
The Company competes with several national and regional finance companies,
as well as a variety of local finance companies in the communities which it
serves. The Company believes it competes effectively in the market place
primarily based on its emphasis on customer service.
The business of the Company consists mainly of the making of loans to
salaried people and wage earners who depend on their earnings to make their
repayments. The continued profitable operation of the Company will therefore
depend to a large extent on the continued employment of these people and their
ability to meet their obligations as they become due. In the event of a
sustained recession or a significant downturn in business with consequent
unemployment or continued increases in the number of personal bankruptcies
among the Company's typical customer base, the Company's collection ratios
and profitability could be detrimentally affected.
The average annual yield on loans made by the Company (the % of finance
charges earned to average net outstanding balance) has been as follows:
Year Ended December 31
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Direct Cash Loans. . . . . . . . 30.07% 30.25% 30.75% 31.26% 31.76%
Real Estate Loans. . . . . . . . 20.59 21.76 21.53 22.73 24.37
Sales Finance Contracts. . . . . 19.70 20.97 20.77 22.28 21.27
Information regarding the Company's operations:
As of December 31
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Number of Branch Offices . . . . 166 157 144 128 117
Number of Employees . . . . . . 628 596 575 527 473
Average Total Loans
Outstanding Per
Branch ( in 000's) . . . . . . $1,060 $1,064 $1,138 $1,208 $1,202
Average Number of Loans
Outstanding Per Branch . . . . 624 644 701 765 814
-6-
<PAGE>
DESCRIPTION OF LOANS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
DIRECT CASH LOANS:
- -----------------
<S> <C> <C> <C> <C> <C>
Number of Loans Made
to New Borrowers . . . . . 30,282 28,656 27,636 25,840 26,616
Number of Loans Made
to Former Borrowers. . . . 16,083 14,626 14,410 14,740 13,185
Number of Loans Made
to Present Borrowers . . . 69,712 65,096 63,329 61,304 60,014
Total Number of Loans
Made . . . . . . . . . . . 116,077 108,378 105,375 101,884 99,815
Total Volume of Loans
Made (in 000's). . . . . . $196,401 $180,541 $173,196 $164,034 $150,658
Average Size of
Loans Made . . . . . . . . $ 1,692 $ 1,666 $ 1,644 $ 1,610 $ 1,509
Number of Loans
Outstanding. . . . . . . . 86,819 83,264 80,733 76,549 72,993
Total of Loans
Outstanding (in 000's) . . $131,636 $123,039 $117,141 $107,960 $ 96,620
Percent of Total Loans . . . 75% 74% 72% 70% 69%
Average Balance on
Outstanding Loans. . . . . $ 1,516 $ 1,478 $ 1,451 $ 1,410 $ 1,324
<CAPTION>
REAL ESTATE LOANS:
- -----------------
<S> <C> <C> <C> <C> <C>
Total Number of Loans
Made . . . . . . . . . . . 2,226 2,155 2,240 2,674 2,264
Total Volume of Loans
Made (in 000's). . . . . . $ 20,669 $ 22,921 $ 22,398 $ 22,379 $ 18,755
Average Size of
Loans Made . . . . . . . . $ 9,285 $ 10,636 $ 9,999 $ 8,369 $ 8,284
Number of Loans
Outstanding. . . . . . . . 4,105 4,101 4,214 4,188 3,811
Total of Loans
Outstanding (in 000's) . . $ 33,465 $ 32,630 $ 33,507 $ 32,653 $ 29,150
Percent of Total Loans . . . 19% 19% 20% 21% 21%
Average Balance on
Outstanding Loans. . . . . $ 8,152 $ 7,957 $ 7,951 $ 7,797 $ 7,649
<CAPTION>
SALES FINANCE CONTRACTS:
- -----------------------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Purchased. . . . . . . . . 13,490 14,662 17,499 19,195 21,744
Total Volume of Contracts
Purchased (in 000's) . . . $ 14,612 $ 15,034 $ 17,150 $ 18,885 $ 20,489
Average Size of Contracts
Purchased. . . . . . . . . $ 1,083 $ 1,025 $ 980 $ 984 $ 942
Number of Contracts
Outstanding. . . . . . . . 12,710 13,801 15,941 17,151 18,395
Total of Contracts
Outstanding (in 000's) . . $ 10,882 $ 11,334 $ 13,201 $ 13,955 $ 14,806
Percent of Total Loans . . . 6% 7% 8% 9% 10%
Average Balance on
Outstanding Contracts. . . $ 856 $ 821 $ 828 $ 814 $ 805
</TABLE>
-7-
<PAGE>
LOANS ACQUIRED, LIQUIDATED AND OUTSTANDING
Year Ended December 31
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
LOANS ACQUIRED
--------------
DIRECT CASH LOANS. . . . .$195,634 $177,844 $169,825 $164,034 $150,217
REAL ESTATE LOANS. . . . . 20,317 21,532 20,971 22,000 17,916
SALES FINANCE CONTRACTS. . 14,360 13,943 16,131 17,676 19,386
NET BULK PURCHASES . . . . 1,371 5,177 5,818 1,588 2,383
-------- -------- -------- -------- --------
TOTAL LOANS ACQUIRED . .$231,682 $218,496 $212,745 $205,298 $189,902
======== ======== ======== ======== ========
LOANS LIQUIDATED
----------------
DIRECT CASH LOANS. . . . .$187,804 $174,643 $164,016 $152,694 $136,633
REAL ESTATE LOANS. . . . . 19,833 23,798 21,544 18,876 19,779
SALES FINANCE CONTRACTS. . 15,065 16,901 17,904 19,736 18,782
-------- -------- -------- -------- --------
TOTAL LOANS LIQUIDATED .$222,702 $215,342 $203,464 $191,306 $175,194
======== ======== ======== ======== ========
LOANS OUTSTANDING
-----------------
DIRECT CASH LOANS. . . . . $131,636 $123,039 $117,141 $107,960 $ 96,620
REAL ESTATE LOANS. . . . . 33,465 32,630 33,507 32,653 29,150
SALES FINANCE CONTRACTS. . 10,882 11,334 13,201 13,955 14,806
-------- -------- -------- -------- --------
TOTAL LOANS OUTSTANDING. $175,983 $167,003 $163,849 $154,568 $140,576
======== ======== ======== ======== ========
UNEARNED FINANCE CHARGES
------------------------
DIRECT CASH LOANS. . . . . $ 17,573 $ 16,062 $ 16,270 $ 17,030 $ 16,114
REAL ESTATE LOANS. . . . . 345 84 12 43 --
SALES FINANCE CONTRACTS. . 1,416 1,504 1,829 2,007 2,140
-------- -------- -------- -------- --------
TOTAL UNEARNED
FINANCE CHARGES . . . . $ 19,334 $ 17,650 $ 18,099 $ 19,049 $ 18,297
======== ======== ======== ======== ========
-8-
<PAGE>
DELINQUENCIES
Delinquent accounts are classified at the end of each month according to
the number of installments past due at that time, based on the original or
extended terms of the contract. When 80% of an installment has been paid, it
is not considered delinquent for the purpose of this classification. When
three installments are past due, the account is classified as being 60-89
days past due; when four or more installments are past due the account is
classified as being 90 days or more past due.
The table below shows the amount of certain classifications of
delinquencies and the ratio such delinquencies bear to related outstanding
loans.
Year Ended December 31
---------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except % data)
DIRECT CASH LOANS:
- -----------------
60-89 Days Past Due. . . . . $2,631 $2,593 $2,404 $1,914 $1,353
Percentage of Outstanding. . 2.00% 2.11% 2.05% 1.77% 1.40%
90 Days or More Past Due . . $6,358 $5,137 $5,419 $3,286 $2,482
Percentage of Outstanding. . 4.83% 4.18% 4.63% 3.04% 2.57%
REAL ESTATE LOANS:
- -----------------
60-89 Days Past Due. . . . . $ 335 $ 432 $ 426 $ 254 $ 299
Percentage of Outstanding. . 1.00% 1.33% 1.27% .78% 1.03%
90 Days or More Past Due . . $ 879 $ 932 $1,334 $1,196 $ 919
Percentage of Outstanding. . 2.63% 2.86% 3.98% 3.66% 3.15%
SALES FINANCE CONTRACTS:
- -----------------------
60-89 Days Past Due. . . . . $ 187 $ 285 $ 339 $ 295 $ 281
Percentage of Outstanding. . 1.72% 2.52% 2.57% 2.11% 1.90%
90 Days or More Past Due . . $ 413 $ 439 $ 602 $ 463 $ 293
Percentage of Outstanding. . 3.80% 3.87% 4.56% 3.32% 1.98%
-9-
<PAGE>
LOSS EXPERIENCE
Net losses (charge-offs less recoveries) and their percentage to the
average net loans (loans less unearned finance charges) and to the
liquidations (payments, refunds, renewals and charge-offs of customer's loans)
are shown in the following table:
Year Ended December 31
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except % data)
DIRECT CASH LOANS
-----------------
Average Net Loans. . . . . . $106,502 $101,051 $ 92,489 $ 82,847 $ 72,298
Liquidations . . . . . . . . $187,804 $174,643 $164,016 $152,694 $136,633
Net Losses . . . . . . . . . $ 5,879 $ 5,992 $ 4,617 $ 3,753 $ 2,475
Net Losses as % of Average
Net Loans. . . . . . . . . 5.52% 5.93% 4.99% 4.53% 3.42%
Net Losses as % of
Liquidations . . . . . . . 3.13% 3.43% 2.81% 2.46% 1.81%
REAL ESTATE LOANS
-----------------
Average Net Loans. . . . . . $ 32,587 $ 33,066 $ 33,614 $ 31,050 $ 29,889
Liquidations . . . . . . . . $ 19,833 $ 23,798 $ 21,544 $ 18,876 $ 19,779
Net Losses . . . . . . . . . $ 94 $ 141 $ 49 $ 22 $ 43
Net Losses as % of Average
Net Loans. . . . . . . . . .29% .43% .15% .07% .14%
Net Losses as % of
Liquidations . . . . . . . .47% .59% .23% .12% .22%
SALES FINANCE CONTRACTS
-----------------------
Average Net Loans. . . . . . $ 9,514 $ 10,817 $ 11,640 $ 12,377 $ 11,623
Liquidations . . . . . . . . $ 15,065 $ 16,901 $ 17,904 $ 19,736 $ 18,782
Net Losses . . . . . . . . . $ 398 $ 714 $ 478 $ 434 $ 353
Net Losses as % of Average
Net Loans. . . . . . . . . 4.18% 6.60% 4.11% 3.51% 3.04%
Net Losses as % of
Liquidations . . . . . . . 2.64% 4.22% 2.67% 2.20% 1.88%
ALLOWANCE FOR LOAN LOSSES
The Allowance for Loan Losses is determined based on the Company's
previous loss experience, a review of specifically identified loans where
collection is doubtful and Management's evaluation of the inherent risks
and change in the composition of the Company's loan portfolio. Such
allowance is, in the opinion of management, sufficient to provide adequate
protection against probable loan losses on the current loan portfolio.
The allowance is maintained out of income except in the case of bulk
purchases when it is provided in the allocation of the purchase price.
-10-
<PAGE>
CREDIT INSURANCE
- ----------------
When authorized to do so by the borrowers, the Company writes various
credit insurance products in connection with its loans. The Company writes
such insurance as an agent for a non-affiliated insurance company.
Frandisco Life Insurance Company and Frandisco Property and Casualty
Insurance Company, wholly owned subsidiaries of the Company, reinsure the
insurance written from the non-affiliated insurance company.
REGULATION AND SUPERVISION
- --------------------------
State laws require that each office in which a small loan business is
conducted be licensed by the state and that the business be conducted
according to the applicable statutes and regulations. The granting of a
license depends on the financial responsibility, character and fitness of
the applicant, and, where applicable, the applicant must show finding of a
need through convenience and advantage documentation. As a condition to
obtaining such license, the applicant must consent to state regulation and
examination and to the making of periodic reports to the appropriate
governing agencies. Licenses are revocable for cause, and their
continuance depends upon compliance with the law and regulations issued
pursuant thereto. The Company has never had any of its licenses revoked.
All lending operations are carried on under the provisions of the
Federal Consumer Credit Protection Act ("Truth-in-Lending Act"), the Fair
Credit Reporting Act and the Federal Real Estate Settlement Procedures Act.
The Truth-in-Lending Act requires disclosure to the customer of the finance
charge, the annual percentage rate, the total of payments and other
information on all loans.
A Federal Trade Commission ruling prevents the Company and other
consumer lenders from using certain household goods as collateral on direct
cash loans. The Company collateralizes such loans with non-household goods
such as automobiles, boats and other exempt items.
The Company is also subject to state regulations governing insurance
agents in the states in which it sells credit insurance. State insurance
regulations require that insurance agents be licensed and limit the premium
amount charged for such insurance.
-11-
<PAGE>
SOURCE OF FUNDS
- ---------------
The sources of the Company's funds stated as a % of total liabilities
and stockholder's equity and the number of persons investing in the
Company's debt securities is as follows:
Year Ended December 31
-------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Bank Borrowings. . . . . . . . . -% -% -% -% 1%
Public Senior Debt . . . . . . . 48 49 49 52 48
Public Subordinated Debt . . . . 18 19 18 17 16
Other Liabilities. . . . . . . . 6 5 5 5 5
Stockholders' Equity . . . . . . 28 27 28 26 30
--- --- --- --- ---
Total. . . . . . . . . . . . . 100% 100% 100% 100% 100%
=== === === === ===
Number of Investors. . . . . . . 6,871 6,732 6,333 5,925 5,486
All of the Company's outstanding common stock is held by five related
individuals and is not traded in an established public trading market.
The Company's average interest rate on borrowings, computed by dividing
the interest paid by the average indebtedness outstanding, has been as
follows:
Year Ended December 31
---------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Senior Borrowings. . . . . . . . 6.09% 6.12% 6.29% 6.97% 6.26%
Subordinated Borrowings. . . . . 6.23 6.58 6.86 6.92 6.14
All Borrowings . . . . . . . . . 6.13 6.25 6.67 6.96 6.25
The Company's financial ratios relating to debt are as follows:
At December 31
---------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total Liabilities to
Stockholders' Equity . . . . . 2.53 2.68 2.59 2.81 2.36
Unsubordinated Debt to
Subordinated Debt plus
Stockholders' Equity . . . . . 1.16 1.19 1.17 1.32 1.19
-12-
<PAGE>
MANAGEMENT'S DISCUSSION OF OPERATIONS
Financial Condition:
- -------------------
The Company's asset base grew $15.5 million or 8% during 1998 with
total assets reaching $216.7 million at December 31, 1998 as compared to
$201.2 million at December 31, 1997. Geographic expansion of the branch
office network continued with the opening of nine new branch offices two
of which were in the state of North Carolina. Entry into North Carolina
adds a sixth state to the Company's regional operation base and the overall
expansion brings the total number of loan offices to 166.
Growth in the asset base occurred primarily in the Company's
investment portfolio which increased $14.2 million (43%) during the year.
The Company's principal sources of working capital to fund operations and
expansion have been cash generated from current operations and the sale of
its debt securities. During 1998, these funding sources outpaced the
working capital required for ongoing daily operations, thereby creating a
surplus of cash. In an attempt to maximize yields, Management invested
the cash surplus in the Company's investment portfolio. The Company's
investment portfolio consists mainly of U.S. Treasury bonds, Government
Agency bonds and various Georgia municipal bonds. Management has
designated a significant portion of these investment securities as
"available for sale" with any unrealized gain or loss accounted for in
the Company's equity section, net of deferred taxes for those investments
held by the Company's insurance subsidiaries. Rising bond market values
during the current year also contributed to the increase in the
investment portfolio. Increases in bond market values resulted in a
$.3 million increase, net of deferred taxes for those investments held
by the insurance subsidiaries, in the portfolio's fair market value
during the year. The remainder of the investment portfolio represents
securities carried at amortized cost and designated "held to maturity,"
as Management has both the ability and intent to hold these securities
to maturity.
A strong fourth quarter resulted in net receivables (gross
receivables less unearned finance charges) increasing $7.3 million (5%)
overall for the year, compared to an increase of only $.6 million during
the first nine months. Business generated by new locations opened
during the previous 24 months and the seasonal upswing in business
activity due to the holiday season is attributed with the increase
in net loans. This gain in net loans also contributed to the growth
in total assets.
The aforementioned increases in sales of the Company's public debt
securities caused senior debt to increase $5.5 million (6%) and
subordinated debt to increase $1.7 million (5%) during 1998 as compared
to 1997.
Results of Operations:
- ---------------------
Gross revenues for the three years ended December 31, 1998 were
$65.7 million, $61.5 million and $58.4 million, respectively. The upward
trend in revenues is directly attributable to a continued growth in the
Company's average net receivables and the income associated therewith.
During 1998, average net receivables rose $3.7 million (3%) to
$148.6 million as compared to $144.9 million during 1997. Average net
receivables increased $3.6 million (2%) during 1997 as compared to 1996.
Pre-tax profits were $8.9 million during the current year as
compared to $6.7 million during 1997 and $8.4 million during 1996. The
aforementioned higher revenues and improvement in the Company's cost
efficiency ratio were responsible for the higher profits during the year
just ended. During 1998, low inflation and the low interest rate
environment enabled Management to reduce the Company's cost efficiency
ratio to 70.0% as compared to 71.9% during 1997 and 68.3% during 1996.
The cost efficiency ratio measures operating expenses against total
revenues net of interest and insurance expenses. Pre-tax profits
declined during 1997 as compared to 1996 as the ratio increased during
the comparable periods.
Net Interest Income
Net interest income represents the margin by which interest income
on earning assets (loans and investment securities) exceeds interest
expense on its interest-bearing debt. The Company's principal source of
-13-
<PAGE>
earnings revolves around its net interest margin. Net interest income
increased $2.8 million (8%) during 1998 as compared to 1997 and $1.9
million (6%) during 1997 as compared to 1996. These increases in the
margin spreads were primarily due to the interest income earned on the
aforementioned higher levels of average net outstanding receivables and
due to higher investment income.
Average senior and subordinated debt outstanding increased $3.3
million (2%) during 1998 as compared to 1997 and $9.8 million (8%)
during 1997 as compared to 1996. Although average borrowings increased,
lower market rates of interest enabled the Company to reduce average
borrowing costs resulting in a slight decline in interest expense for
the current year. Interest expense during 1997 increased 6% as compared
to 1996. The Company's average interest rate on borrowings declined
to 6.13% during 1998 as compared to 6.25% and 6.67% during 1997 and 1996,
respectively.
Net Insurance Income
A $1.4 million (10%) increase in net insurance income during 1998
made a significant contribution in the aforementioned growth in revenues
and pre-tax profits. Changes in net insurance income generally correspond
to changes in the level of average net outstanding receivables. As
average net receivables increase, the Company typically sees an increase
in the number of loan customers requesting credit insurance, thereby
leading to higher levels of insurance in-force. Higher levels of
insurance in-force generally results in higher insurance income.
Claims and insurance commissions approximated those experienced in 1997.
Net insurance income during 1997 was only marginally higher than 1996.
Provision for Loan Losses
Net charge-offs were $6.4 million, $6.8 million and $5.1 million
during the three years ended December 31, 1998, respectively. Higher
recovery rates on loans previously charged off resulted in the decline
in net charge-offs during the current year as compared to 1997. Write-
offs during 1997 were substantially higher than those in 1996 causing a
significant increase in net charge-offs during the comparable periods.
Although net losses were lower during the year just ended, rising
bankruptcy filings and problem delinquencies continue to have a
deteriorating impact on the credit quality of the Company's loan
receivables. Accounts 60 days or more delinquent increased to 6.1%
of net receivables during 1998 as compared to 5.9% during the previous
year. Management is carefully monitoring the credit worthiness of its
loan portfolio and historically has been conservative in regards to the
amount of the Company's loan loss allowance. See Note 2 to the Notes to
Consolidated Financial Statements on page 28 for additional discussion.
In order to provide adequate protection against probable losses in the
current portfolio, Management raised the loan loss reserve during 1998
as it had done during each of the previous two years. The increase in
the reserve led to a slight increase (2%) in the provision for loan
losses during the year ended December 31, 1998 as compared to the prior
year. Increases in loan losses and an increase in the reserve during
1997 caused a $.6 million (10%) increase in the provision for loan
losses as compared to 1996. Also contributing to the increases in the
provision during the three year period was the growth in the loan
portfolio.
Other Operating Expenses
Merit salary increases and additional employees required to staff
22 new locations opened since the beginning of 1997 caused personnel
expense to increase $1.6 million (8%) during the current year as compared
to 1997 and $1.5 million (8%) during 1997 as compared to 1996. Higher
profits during 1998 resulted in higher accruals for incentive bonuses and
profit sharing expenses, which also contributed to the overall increase in
personnel expense during the current year.
Start-up cost and additional overhead associated with the expansion
of operations were the primary factors responsible for the increase in
occupancy expenses and other operating expenses during the two years ended
December 31, 1998. Occupancy expenses rose $.3 million (7%) during 1998
as compared to 1997 and $.6 million (12%) during 1997 as compared to 1996.
Other operating expenses increased $.1 million (1%) and $1.3 million
(16%) during the period ended December 31, 1998 and 1997, respectively.
Major advertising expenditures during each period were a key factor for
the increases. Other factors adding to the increase in other operating
-14-
<PAGE>
expenses were increases in computer expenses, supervision expenses and
taxes and licenses.
The increase in other operating expenses during 1998 was much lower
than the prior year due to a decline in legal expenses. Legal expenses
incurred in connection with the Alabama lawsuits added to the increase in
other operating expenses during 1997. Settlement agreements were reached
with certain borrowers who had previously asserted claims or had stated
their intention to file claims against the Company. Although the Company
and its employees deny any wrongdoing or any breach of a legal obligation
or duty to the claimants, Management, in recognition of the expense and
uncertainty of litigation, felt it was in the best interest of the Company
to dispose of those cases.
Income Taxes
Effective income tax rates for the years ended December 31, 1998,
1997 and 1996 were 18.0%, 73.1% and 25.9%, respectively. The rate was
higher during 1997 as a result of the Company electing S Corporation
status for income tax reporting purposes effective January 1, 1997. The
taxable income or loss of an S Corporation is includable in the individual
tax returns of the stockholders of the Company. Over the years the Company
had prepaid federal and state income taxes due to certain temporary
differences between reported income and expenses for financial statement
purposes and for income tax purposes. Election of S Corporation status
required elimination of all accumulated prepaid/deferred tax assets and
liabilities. Accordingly, deferred income tax assets and liabilities were
eliminated and no provisions for current and deferred income taxes were
made by the Company other than amounts related to prior years when the
Company was a taxable entity. Deferred income tax assets and liabilities
continue to be recognized and provisions for current and deferred income
taxes continue to be made by the Company's subsidiaries. The Company
took a one-time charge of approximately $3.6 million during the first
quarter of 1997 to expense the previously deferred income tax asset which
it was not permitted to expense prior to election of becoming an S
Corporation.
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 overall tax rate below statutory rates.
Investments in tax-exempt securities also allowed the property and
casualty insurance company to reduce its effective tax rate below
statutory rates.
Liquidity:
- ---------
Liquidity is the ability of the Company to meet short-term financial
obligations, either through the collection of receivables or by generating
additional funds through liability management. 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 and the continued availability of unused bank credit from its
lenders. The previously discussed increases in net cash flows during the
current year provided a positive effect on liquidity.
Most of the Company's loan portfolio is financed through public debt
securities which, because of redemption features, have a shorter average
maturity than the loan portfolio. The difference in maturities may
adversely affect liquidity if the Company does not continue to sell debt
securities at interest rates and terms that are responsive to the demands
of the marketplace or maintain sufficient unused bank borrowings.
In addition to the debt securities program, the Company has two
external sources of funds through its credit agreements. One agreement
provides for available borrowings of $21.0 million (all of which was
available at December 31, 1998 and 1997) and the Company has an additional
$2.0 million credit agreement (all of which was available at December 31,
1998 and 1997).
Liquidity was not adversely affected during the current year by
the aforementioned increase in accounts classified as 60 days or more
delinquent. The increase in the loan loss allowance also did not affect
liquidity as the allowance is maintained out of income; however, earnings
could be further impacted if loss rates increase.
Market Risk:
- -----------
Volatility of market rates of interest can impact the Company's
investment portfolio and the interest rates paid on its debt securities.
These exposures are monitored and managed by the Company as an integral
part of its overall cash management program. It is Management's goal to
mitigate any adverse affect movements in interest rates may have on the
financial condition and operations of the Company. The information in
the table below sumarizes the Company's risk associated with marketable
debt securities and debt obligations as of December 31, 1998. Rates
associated with the marketable debt securities represent weighted
averages based on the coupon rate of each individual security. No
adjustment has been made to yield, even though many of the investments
are tax-exempt. For debt obligations, the table presents principal cash
flows and related weighted average interest rates by contractual maturity
dates. The structure of subordinated debenture debt incorporates various
interest adjustment periods which allows the holder to redeem prior to
the contractual maturity without penalty. It is expected that actual
maturities on certain debentures will be prior to the contractual
maturity. Management estimates the carrying value of senior and
subordinated debt to approximates their fair values when compared to
instruments of similar type, terms and maturity.
Loans are excluded from the information below since interest rates
charged on loans are based on rates allowable under federal and state
guidelines. Management does not believe that changes in market interest
rates will significantly impact rates charged on loans. The Company has
no exposure to foreign currency risk.
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
--------------------------------------------------------
2004 & Fair
1999 2000 2001 2002 2003 More Total Value
---- ---- ---- ---- ---- ---- ----- -----
(In millions)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marketable debt securities. $2 $6 $7 $6 $6 $19 $46 $47
Average Interest Rate . . . 5.8% 5.3% 5.5% 5.1% 5.2% 5.3% 5.3%
<CAPTION>
Liabilities:
Senior Debt:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Notes. . . . . . . $55 - - - - - $55 $55
Average Interest Rate . . 5.1% - - - - - 5.1%
Commercial Paper. . . . . $50 - - - - - $50 $50
Average Interest Rate . . 6.2% - - - - - 6.2%
Subordinated Debentures . . $10 $7 $10 $12 - - $39 $39
Average Interest Rate . . . 6.7% 6.3% 6.3% 6.2% - - 6.4%
</TABLE>
Legal Proceedings:
- -----------------
Two legal proceedings remain pending against the Company in Alabama
alleging violations of consumer lending laws. Based on current information,
the Company does not believe the financial condition and operating results of
the Company would be materially affected in the event of an unfavorable
outcome, although there can be no assurance thereof. 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 these proceedings.
Year 2000 Issues:
- ----------------
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date fields containing
a two-digit year is commonly referred to as the Year 2000 Compliance issue
or "Y2K". There has been an increasing amount of public attention lately
concerning the impact that the Y2K date change could have on businesses,
utilities and other organizations that rely on computerized systems to
help run their operations. Prior to the invention of the computer chip,
cost and storage problems associated with the limited computer memory
-16-
<PAGE>
available pressured programmers to conserve computer memory by abbreviating
calendar dates as two-digits rather than four-digit numbers. Even after
the invention of computer chips and declines in the cost of computer
memory, the practice of abbreviating the year to two-digits remained
common practice. Software programs using this technique record the year
1998 as "98". This approach will work until the Year 2000 when the "00"
may be read as 1900 instead of 2000, which could result in major system
failures or miscalculations.
Although the Company is not a banking institution, it does provide
data processing services to Liberty Bank & Trust, a state chartered
community bank located in Toccoa, Georgia. As a service provider, the
Company is adhering to the Interagency Guidelines Establishing Year 2000
Standards for Safety and Soundness (Guidelines) which set forth safety
and soundness standards pursuant to the Federal Financial Institutions
Examination Council ("FFIEC"). During the last two years the Company has
been identifying and evaluating the impact of the Year 2000 issue. In
1998, the Company officially created a Year 2000 Committee ("Y2K Committee")
to oversee compliance with respect to both information technology ("IT")
systems and non-IT systems. The Y2K Committee is comprised of upper
level mangement of both the Company and the bank for which it provides
data processing services. Individuals serving on the committee have a
wide range of expertise regarding the operations and technological aspects
of the business.
Assessments have been made regarding all areas of Company operations.
Each area was classified as "mission critical", "mission necessary" or
"mission desirable". Testing plans were formalized and the testing of
the majority of systems was completed by December 31, 1998. All
remaining systems will be tested prior to June 1, 1999. Principal
emphasis was placed on testing procedures with the Company's principal
outside vendor for loan processing operations and the Company's principal
outside vendor for software used to provide banking services to Liberty
Bank & Trust. The banking software package is also used to administer
the Company's debt securities. The Y2K Committee is communicating with
major software vendors, utilities suppliers and other service providers to
ensure compliance issues are resolved.
During the first quarter of 1999, the Y2K Committee began remediation
contingency planning in the unlikely event a system does fail, particularly
a "mission critical" area. All plans will 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 in the year 1999 or 2000.
During technology upgrades made in 1997, the Company was careful to
ensure Year 2000 compliance. Costs associated with education and testing
in connection with Y2K compliance has been approximately $5,000 during
1998. Expenses during 1999 are budgeted at $20,000.
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. Examples of critical services would be in the
utilities and telecommunications areas.
New Accounting Standards:
- ------------------------
In June 1997, the FASB issued Financial Accounting Standard Number
130 (SFAS 130) "Reporting Comprehensive Income", effective for fiscal
years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS
130 was adopted during 1998.
Also in June 1997, the FASB issued Financial Accounting Standard
Number 131 (SFAS 131) "Disclosure about Segments of an Enterprise and
Related Information," effective for financial statements beginning after
December 15, 1997. This statement requires companies to determine
segments based on how management makes decisions about allocating
resources to segments and measuring their performance. Disclosures for
each segment are similar to those required under current standards, with
the addition of certain quarterly disclosure requirements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company adopted this accounting
standard in 1998 and disclosure is provided in footnote 10 of Notes to
Consolidated Financial Statements.
-17-
<PAGE>
During the first quarter of 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires capitalization of computer software
costs that meet certain criteria. The statement is effective for fiscal
years beginning after December 15, 1998. The Company adopted SOP 98-1
effective January 1, 1999. SOP 98-1 is not expected to have a material
impact on the Company's financial position or results of operations.
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.
Forward Looking Statements:
- --------------------------
Certain information in the previous discussion and other statements
contained in this annual report which are not historical facts may be
forward-looking statements that involve risks and uncertainties. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements
contained herein. Possible factors which could cause future results to
differ from expectations are, but are not limited to, adverse economic
conditions including the interest rate environment, federal and state
regulatory changes, unfavorable outcome of litigation, Year 2000 issues
and other factors referenced elsewhere.
MANAGEMENT'S REPORT
-------------------
The accompanying financial statements were prepared in accordance
with generally accepted accounting principles by the management of the
Company who assumes responsibility for their integrity and reliability.
The Company maintains a system of internal accounting controls which
is supported by a program of internal audits with appropriate management
follow-up action. The integrity of the financial accounting system is
based on careful selection and training of qualified personnel, on
organizational arrangements which provide for appropriate division of
responsibilities and on the communication of established written policies
and procedures.
The financial statements of the Company have been audited by Arthur
Andersen LLP, independent public accountants. Their report expresses
their opinion as to the fair presentation of the financial statements and
is based upon their independent audit conducted in accordance with
generally accepted auditing standards.
The Audit Committee, comprised solely of outside directors, meets
periodically with the independent public accountants, the internal
auditors and representatives of management to discuss auditing and
financial reporting matters. The independent public accountants have
free access to meet with the Audit Committee without management
representatives present to discuss the scope and results of their audit
and their opinions on the quality of financial reporting.
-18-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO 1st FRANKLIN FINANCIAL CORPORATION:
We have audited the accompanying consolidated statements of
financial position of 1ST FRANKLIN FINANCIAL CORPORATION (a Georgia
corporation) AND SUBSIDIARIES as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of 1st
Franklin Financial Corporation and subsidiaries as of December 31, 1998
and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
s\ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 26, 1999
-19-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
CASH AND CASH EQUIVALENTS:
Cash and Due From Banks. . . . . . . . . . $ 2,408,142 $ 1,894,366
Short-term Investments,
$300,000 in trust in 1998
and 1997 (Note 4). . . . . . . . . . . . 17,703,536 23,227,711
---------- ----------
20,111,678 25,122,077
---------- ----------
LOANS (Note 2):
Direct Cash Loans. . . . . . . . . . . . . 131,635,924 123,038,889
First Mortgage Real Estate Loans . . . . . 27,852,628 26,730,352
Second Mortgage Real Estate Loans. . . . . 5,612,540 5,899,901
Sales Finance Contracts. . . . . . . . . . 10,881,849 11,333,638
------------ ------------
175,982,941 167,002,780
Less: Unearned Finance Charges . . . . . 19,334,116 17,649,653
Unearned Insurance Premiums
and Commissions. . . . . . . . . 11,446,901 10,683,061
Allowance for Loan Losses. . . . . 6,653,763 5,968,818
------------ ------------
Net Loans . . . . . . . . . . 138,548,161 132,701,248
------------ ------------
MARKETABLE DEBT SECURITIES (Note 3):
Available for Sale, at fair market value. 39,938,412 31,688,998
Held to Maturity, at amortized cost . . . 7,205,113 1,252,757
------------ ------------
47,143,525 32,941,755
------------ ------------
OTHER ASSETS:
Land, Buildings, Equipment and Leasehold
Improvements, less accumulated
depreciation and amortization of
$8,382,863 and $7,427,927 in
1998 and 1997, respectively (Note 5) . . 4,687,343 4,888,671
Due from Nonaffiliated Insurance Company . 1,038,554 915,387
Miscellaneous. . . . . . . . . . . . . . . 5,145,649 4,596,434
------------ ------------
10,871,546 10,400,492
------------ ------------
TOTAL ASSETS . . . . . . . . . $216,674,910 $201,165,572
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-20-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---- ----
SENIOR DEBT (Note 5):
Senior Demand Notes, including
accrued interest . . . . . . . . . . . . $ 54,819,670 $ 50,877,380
Commercial Paper . . . . . . . . . . . . . 49,626,360 47,860,445
Notes Payable to Banks . . . . . . . . . . -- 191,762
------------ ------------
104,446,030 98,929,587
------------ ------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. . . . 11,904,342 10,255,315
------------ ------------
SUBORDINATED DEBT (Note 6) . . . . . . . . . 38,960,747 37,246,521
------------ ------------
Total Liabilities . . . . . . . . . . . . 155,311,119 146,431,423
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred Stock; $100 par value
6,000 shares authorized; no
shares outstanding . . . . . . . . . . . -- --
Common Stock:
Voting Shares; $100 par value;
2,000 shares authorized; 1,700 shares
outstanding. . . . . . . . . . . . . . 170,000 170,000
Non-Voting Shares; no par value;
198,000 shares authorized;
168,300 shares outstanding as of
December 31, 1998 and 1997 . . . . . . -- --
Accumulated Other Comprehensive Income . . 556,423 342,810
Retained Earnings. . . . . . . . . . . . . 60,637,368 54,221,339
------------ ------------
Total Stockholders' Equity. . . . . . . 61,363,791 54,734,149
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. . . . . . $216,674,910 $201,165,572
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-21-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
INTEREST INCOME:
Finance Charges . . . . . . . . . $42,688,691 $40,030,163 $38,094,669
Investment Income . . . . . . . . 3,323,660 3,241,054 2,751,712
----------- ----------- -----------
46,012,351 43,271,217 40,846,381
INTEREST EXPENSE: ----------- ----------- -----------
Senior Debt . . . . . . . . . . . 5,966,615 6,128,495 5,774,336
Subordinated Debt . . . . . . . . 2,756,586 2,672,987 2,537,655
----------- ----------- -----------
8,723,201 8,801,482 8,311,991
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . . 37,289,150 34,469,735 32,534,390
PROVISION FOR
LOAN LOSSES (Note 2). . . . . . . 7,031,251 6,915,794 6,266,201
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . 30,257,899 27,553,941 26,268,189
----------- ----------- -----------
NET INSURANCE INCOME:
Premiums and Commissions. . . . . 19,080,146 17,655,350 17,078,994
Insurance Claims and Expenses . . (4,079,280) (4,077,775) (3,816,991)
----------- ----------- -----------
15,000,866 13,577,575 13,262,003
----------- ----------- -----------
OTHER REVENUE (Note 8). . . . . . . 590,924 571,837 490,078
----------- ----------- -----------
OPERATING EXPENSES (Note 8):
Personnel Expense . . . . . . . . 21,884,828 20,330,220 18,850,308
Occupancy Expense . . . . . . . . 5,424,248 5,084,344 4,519,937
Other Expense . . . . . . . . . . 9,682,014 9,544,449 8,231,915
----------- ----------- -----------
36,991,090 34,959,013 31,602,160
----------- ----------- -----------
INCOME BEFORE INCOME TAXES. . . . . 8,858,599 6,744,340 8,418,110
PROVISION FOR
INCOME TAXES (Note 9) . . . . . . 1,590,814 4,928,030 2,180,358
----------- ----------- -----------
NET INCOME. . . . . . . . . . . . . $ 7,267,785 $ 1,816,310 $ 6,237,752
=========== =========== ===========
EARNINGS PER SHARE
Voting Common Stock; 1,700
Shares Outstanding all periods . $42.75 $10.68 $36.69
====== ====== ======
Non-Voting Common Stock; 168,300
Shares Outstanding all periods . $42.75 $10.68 $36.69
====== ====== ======
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-22-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------ Retained Comprehensive
Shares Amount Earnings Income Total
------- -------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995. . . . . . 170,000 $170,000 $47,325,758 $251,145 $47,746,903
Comprehensive Income:
Net Income for 1996 . . . . . . . . -- -- 6,237,752 --
Net change in unrealized gain on. .
available-for-sale securities . . -- -- -- (207,857)
Total Comprehensive Income. . . . . -- -- -- -- 6,029,895
Cash distributions paid . . . . . . -- -- (362,742) -- (362,742)
------- -------- ----------- -------- -----------
Balance at December 31, 1996. . . . . . 170,000 170,000 53,200,768 43,288 53,414,056
Comprehensive Income:
Net Income for 1997 . . . . . . . . -- -- 1,816,310 --
Net change in unrealized gain on
available-for-sale securities . . -- -- -- 299,522
Total Comprehensive Income. . . . . -- -- -- -- 2,115,832
Cash distributions paid . . . . . . -- -- (795,739) -- (795,739)
------- -------- ----------- -------- -----------
Balance at December 31, 1997. . . . . . 170,000 170,000 54,221,339 342,810 54,734,149
Comprehensive Income:
Net Income for 1998 . . . . . . . . -- -- 7,267,785 --
Net change in unrealized gain on
available-for-sale securities . . -- -- -- 213,613 --
Total Comprehensive Income. . . . . -- -- -- 7,481,398
Cash distributions paid . . . . . . -- -- (851,756) -- (851,756)
------- -------- ----------- -------- -----------
Balance at December 31, 1998. . . . . . 170,000 $170,000 $60,637,368 $556,423 $61,363,791
======= ======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Disclosure of reclassification amount:
- -------------------------------------
Unrealized holding gains (losses) arising during period,
net of applicable income taxes . . . . . . . . . . . . . . $224,200 $299,636 $(211,545)
Less: Reclassification adjustment for (gains)
losses included in income, net of applicable
income taxes . . . . . . . . . . . . . . . . . . (10,587) (114) 3,688
-------- -------- ---------
Net unrealized gains (losses) on securities,
net of applicable income taxes . . . . . . . . . . . . . . $213,613 $299,522 $(207,857)
======== ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-23-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . $ 7,267,785 $ 1,816,310 $ 6,237,752
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses. . . . . . . . . 7,031,251 6,915,794 6,266,201
Depreciation and Amortization . . . . . . 1,253,361 1,202,836 1,126,296
Provision (Benefit) for Deferred Taxes . . 115,929 3,661,156 (364,809)
Gain (Loss) on sale of marketable
securities and equipment and premium
amortization on securities . . . . . . . 41,872 (12,492) (22,711)
Increase in Miscellaneous Assets . . . . . (672,382) (285,244) (1,591,088)
Increase in Other Liabilities. . . . . . . 1,484,998 67,560 628,484
------------ ------------ ------------
Net Cash Provided. . . . . . . . . . . 16,522,814 13,365,920 12,280,125
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased . . . . . . . . . (118,900,788) (114,175,268) (110,117,402)
Loan payments . . . . . . . . . . . . . . . . . 106,022,624 104,242,345 94,929,949
Purchases of marketable securities. . . . . . . (32,709,322) (28,845,752) (12,339,320)
Sales of marketable securities. . . . . . . . . 66,658 -- 3,251,608
Redemptions of marketable securities. . . . . . 18,235,000 19,645,000 7,000,000
Principal payments on marketable securities . . 411,562 365,678 472,366
Capital expenditures. . . . . . . . . . . . . . (1,063,006) (2,677,986) (1,759,762)
Proceeds from sale of equipment . . . . . . . . 25,146 71,370 39,565
------------ ------------ ------------
Net Cash Used. . . . . . . . . . . . . (27,912,126) (21,374,613) (18,522,996)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Notes Payable to
Banks and Senior Demand Notes . . . . . . . . . 3,750,528 5,291,424 3,181,177
Commercial Paper issued . . . . . . . . . . . . 25,385,223 29,816,406 25,319,703
Commercial Paper redeemed . . . . . . . . . . . (23,619,308) (30,918,084) (29,301,703)
Subordinated Debt issued. . . . . . . . . . . . 6,841,431 6,877,593 7,999,461
Subordinated Debt redeemed. . . . . . . . . . . (5,127,205) (4,573,535) (3,673,913)
Dividends / Distributions Paid. . . . . . . . . (851,756) (795,739) (362,742)
------------ ------------ ------------
Net Cash Provided. . . . . . . . . . . 6,378,913 5,698,065 3,161,983
------------ ------------ ------------
NET DECREASE IN
CASH AND CASH EQUIVALENTS. . . . . . . . (5,010,399) (2,310,628) (3,080,888)
CASH AND CASH EQUIVALENTS, beginning. . . . . . . 25,122,077 27,432,705 30,513,593
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ending . . . . . . . . $ 20,111,678 $ 25,122,077 $ 27,432,705
============ ============ ============
Cash paid during the year for: Interest. . . . . $ 8,837,764 $ 8,670,194 $ 8,343,828
Income Taxes . . . . . . $ 1,391,790 $ 1,550,958 $ 2,344,697
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-24-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
1st Franklin Financial Corporation (the "Company") is a consumer
finance company which acquires and services direct cash loans, real estate
loans and sales finance contracts through 166 branch offices. (See inside
front cover for branch office locations.)
Basis of Consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Fair Values of Financial Instruments:
The following methods and assumptions are used by the Company in
estimating fair values for financial instruments:
Cash and Cash Equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the relatively short
period of time between the origination of the instruments and their
expected realization.
Loans. The fair value of the Company's direct cash loans and sales
finance contracts approximate the carrying value since the estimated
life, assuming prepayments, is short-term in nature. The fair value
of the Company's real estate loans approximate the carrying value
since the rate charged by the Company approximates market.
Marketable Debt Securities. The fair values for marketable debt
securities are based on quoted market prices. If a quoted market
price is not available, fair value is estimated using market prices
for similar securities. See Note 3 for the fair value of
marketable debt securities.
Senior Debt. The carrying value of the Company's senior debt
approximates fair value due to the relatively short period of
time between the origination of the instruments and their
expected payment.
Subordinated Debt. The carrying value of the Company's
subordinated debt approximates fair value due to the repricing
frequency of the debt.
Other significant assets and liabilities, which are not considered
financial instruments and for which fair values have not been estimated,
include premises and equipment and deferred taxes.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could vary from
these estimates, however, in the opinion of Management, such variances
would not be material.
-25-
<PAGE>
Income Recognition:
Although generally accepted accounting principles require other
methods to be used for income recognition, the Company uses the Rule of
78's method to recognize interest and insurance income on loans which
have precomputed charges. Since the majority of these loans are paid
off or renewed in less than one year and because the interest and
insurance charges are contractually rebated using the Rule of 78's method,
the results obtained by using the Rule of 78's closely approximate those
that would be obtained if other generally accepted methods were used.
Finance charges are precomputed and included in the gross amount of
certain direct cash loans, sales finance contracts and certain real estate
loans. These precomputed charges are deferred and recognized as income on
an accrual basis using the Rule of 78's (which approximates the interest
method). Finance charges on the other direct cash loans and real estate
loans are recognized as income on a simple interest accrual basis.
Income is not accrued on a loan that is more than 60 days past due.
When material, the Company defers loan fees and recognizes them as
an adjustment to yield over the contractual life of the related loan.
The Company's method of accounting for such fees does not materially
differ from generally accepted accounting principles for such fees.
The property and casualty credit insurance policies written by the
Company are reinsured by the property and casualty insurance subsidiary.
The premiums are deferred and earned on a Rule of 78's basis (which
approximates the pro-rata method).
The credit life and accident and health policies written by the
Company are reinsured by the life insurance subsidiary. The premiums
are deferred and earned using the pro-rata method for level-term life
policies, the Rule of 78's (which approximates the pro-rata method) for
decreasing-term life policies and an average of the pro-rata method and
Rule of 78's for accident and health policies.
Claims of the insurance subsidiaries are expensed as incurred and
reserves are established for incurred but not reported (IBNR) claims.
Policy acquisition costs of the insurance subsidiaries are deferred
and amortized to expense over the life of the policies on the same methods
used to recognize premium income.
Depreciation and Amortization:
Office machines, equipment and company automobiles are recorded at
cost and depreciated on a straight-line basis over a period of three to
ten years. Leasehold improvements are amortized over seven years using
the double declining method for book and tax.
Income Taxes:
No provision for income taxes has been made for the Company since it
elected S Corporation status in 1997. The Company's insurance subsidiaries
remain taxable and deferred income taxes are provided where applicable.
(Note 9)
Collateral Held for Resale:
When the Company takes possession of the collateral which secures a
loan, the collateral is recorded at the lower of its estimated resale value
or the loan balance. Any losses incurred at that time are charged against
the Allowance for Loan Losses.
Bulk Purchases:
A bulk purchase is a group of loans purchased by the Company from
another lender. Bulk purchases are recorded at the outstanding loan
balance and an allowance for losses is established in accordance with
management's evaluation of the specific loans purchased and their
comparability to similar type loans in the Company's existing portfolio.
-26-
<PAGE>
For loans with precomputed charges, unearned finance charges are
also recorded based on the Rule of 78's (which approximates the interest
method). Any difference between the purchase price of the loans and
their net balance (outstanding balance less allowance for losses and
unearned finance charges) is amortized or accreted to income over the
estimated average life of the loans purchased.
Marketable Debt Securities:
Management has designated a significant portion of the marketable
debt securities held in the Company's investment portfolio at December
31, 1998 and 1997 as being available-for-sale. This portion of the
investment portfolio is reported at fair market value with unrealized
gains and losses excluded from earnings and reported, net of taxes, in
accumulated other comprehensive income which is a separate component of
stockholders' equity. The remainder of the investment portfolio is
carried at amortized cost and designated as held-to-maturity as Management
has both the ability and intent to hold these securities to maturity.
Stock Dividend:
On January 26, 1996, the Company paid a stock dividend of 99 shares
of Non-Voting Common Stock for each outstanding share of Voting Common
Stock. The Non-Voting Common Stock has terms similar to the Company's
Voting Common Stock, other than its non-voting status. The consolidated
financial statements for prior periods have been adjusted to reflect the
effect of this dividend. All references to common shares and per share
information have been restated to reflect the stock dividend.
Earnings per Share Information:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share", that specifies the computation,
presentation and disclosure requirements for earnings per share. The
Company adopted the new Standard in the quarter ended December 31, 1997.
The Company has no contingently issuable common shares, thus basic and
diluted share amounts are the same.
2. LOANS
There were $10,804,227 and $9,819,348 of loans in a non-accrual
status at December 31, 1998 and 1997, respectively.
Contractual Maturities of Loans:
An estimate of contractual maturities stated as a percentage of the
loan balances based upon an analysis of the Company's portfolio as of
December 31, 1998 is as follows:
1st Mortgage 2nd Mortgage Sales
Due In Direct Cash Real Estate Real Estate Finance
Calendar Year Loans Loans Loans Contracts
----- ----- ----- ---------
1999. . . . . 72.84% 19.83% 19.76% 75.45%
2000. . . . . 23.96 18.48 19.92 20.78
2001. . . . . 2.19 16.56 18.02 3.24
2002. . . . . .52 12.64 14.11 .29
2003. . . . . .19 9.14 9.98 .14
2004 & later. .30 23.35 18.21 .10
------ ------ ------ ------
100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======
Experience of the Company has shown that a majority of its loans
will be renewed many months prior to their final contractual maturity
dates. Accordingly, the above contractual maturities should not be
regarded as a forecast of future cash collections.
Cash Collections on Principal:
During the years ended December 31, 1998 and 1997, cash collections
applied to principal of loans totaled $106,022,624 and $104,242,345,
respectively, and the ratios of these cash collections to average net
-27-
<PAGE>
receivables were 71.35% and 71.92%, respectively.
Allowance for Loan Losses:
The Allowance for Loan Losses is based on the Company's previous
loss experience, a review of specifically identified loans where
collection is doubtful and Management's evaluation of the inherent risks
and changes in the composition of the Company's loan portfolio. Such
allowance is, in the opinion of Management, sufficient to provide
adequate protection against probable losses in the current loan
portfolio. Specific provision for loan losses is made for impaired
loans based on a comparison of the recorded carrying value in the loan
to either the present value of the loan's expected cash flow, the loan's
estimated market price or the estimated fair value of the underlying
collateral.
When a loan becomes five installments past due, it is charged off
unless management directs that it be retained as an active loan. In
making this charge off evaluation, no installment is counted as being
past due if at least 80% of the contractual payment has been paid. The
amount charged off is the unpaid balance less the unearned finance charges
and the unearned insurance premiums.
An analysis of the allowance for the years ended December 31, 1998,
1997 and 1996 is shown in the following table:
1998 1997 1996
---- ---- ----
Beginning Balance. . . . . . . . $5,968,818 $5,753,221 $4,511,826
Provision for Loan Losses. . . 7,031,251 6,915,794 6,266,201
Bulk Purchase Accounts . . . . 24,663 146,606 118,365
Charge-Offs. . . . . . . . . . (8,503,698) (8,257,856) (6,348,280)
Recoveries . . . . . . . . . . 2,132,729 1,411,053 1,205,109
---------- ---------- ----------
Ending Balance . . . . . . . . . $6,653,763 $5,968,818 $5,753,221
========== ========== ==========
3. MARKETABLE DEBT SECURITIES
Debt securities available for sale are carried at estimated fair
market value. The amortized cost and estimated fair market values of
these debt securities are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
December 31, 1998: ---- ----- ------ -----
- -----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies . . . . . . . . . $ 9,423,166 $106,662 $( 6,110) $ 9,523,718
Obligations of states and
political subdivisions . . . . 28,321,157 641,761 (35,788) 28,927,130
Corporate Securities . . . . . . 1,466,768 21,421 (625) 1,487,564
----------- -------- -------- -----------
$39,211,091 $769,844 $(42,523) $39,938,412
=========== ======== ======== ===========
December 31, 1997:
- -----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies . . . . . . . . . $16,905,147 $ 48,754 $(21,016) $16,932,885
Obligations of states and
political subdivisions . . . . 13,372,979 430,307 (105) 13,803,181
Corporate Securities . . . . . . 945,263 9,358 (1,689) 952,932
----------- -------- -------- -----------
$31,223,389 $488,419 $(22,810) $31,688,998
=========== ======== ======== ===========
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<PAGE>
Debt securities designated as "Held to Maturity" are carried at
amortized cost based on Management's intent to hold such securities to
maturity. The amortized cost and estimated fair market values of these
debt securities are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
December 31, 1998: ---- ----- ------ -----
- -----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies . . . . . . . . . $ 2,756,782 $ 33,843 $ -- $ 2,790,625
Obligations of states and
political subdivisions . . . . 3,663,617 52,835 -- 3,716,452
Corporate Securities . . . . . . 784,714 25,470 (2,430) 807,754
----------- -------- -------- -----------
$ 7,205,113 $112,148 $ (2,430) $ 7,314,831
=========== ======== ======== ===========
December 31, 1997:
- -----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies . . . . . . . . . $ 495,537 $ 4,072 $ -- $ 499,609
Obligations of states and
political subdivisions . . . . 757,220 8,225 -- 765,445
----------- -------- -------- -----------
$ 1,252,757 $ 12,297 $ -- $ 1,265,054
=========== ======== ======== ===========
The amortized cost and estimated fair market values of marketable
debt securities at December 31, 1998, by contractual maturity, are shown
below:
Available for Sale Held to Maturity
------------------------ -----------------------
Estimated Estimated
Amortized Fair Market Amortized Fair Market
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less . . $ 1,791,022 $ 1,801,383 $ 249,922 $ 251,953
Due after one year
through five years. . . . 24,121,390 24,413,653 3,774,068 3,809,029
Due after five years
through ten years 11,299,131 11,627,811 3,181,123 3,253,849
Due after ten years . . . . 1,999,548 2,095,565 -- --
----------- ----------- ---------- ----------
$39,211,091 $39,938,412 $7,205,113 $7,314,831
=========== =========== ========== ==========
Sales of investments in debt securities available-for-sale during
1998 generated proceeds of $66,658 and a gain of $977. Proceeds from
redemptions of investment securities due to call provisions and
redemptions due to regular scheduled maturities during 1998 were
$18,235,000. Gross gains of $13,278 and gross losses of $(2,258) were
realized on these redemptions. There were no proceeds generated due
to sales of investment securities.
Proceeds from redemptions of investment securities due to call
provisions and redemptions due to regular scheduled maturities during
1997 were $19,645,000. Gross gains of $2,837 and gross losses of
$(3,782) were realized on these redemptions. There were no proceeds
generated due to sales of investment securities.
Proceeds from sales of investments in debt securities available
for sale during 1996 were $3,251,608. Gross gains of $13,473 and gross
losses of $(14,544) were realized on these sales.
-29-
<PAGE>
4. PLEDGED ASSETS
At December 31, 1998, certain Short-term Investments of the
insurance subsidiaries were on deposit with the Georgia Insurance
Commissioner to meet the deposit requirements of Georgia insurance laws.
5. SENIOR DEBT
The Company has a Credit Agreement with four major banks which
provides for maximum borrowings of $21,000,000. All borrowings are on
an unsecured basis at 1/4% above the prime rate of interest. An annual
facility fee is paid quarterly based on 5/8% of the available line less
the average borrowings during the quarter. In addition, an agent fee
equal to 1/8% per annum of the total loan commitment is paid quarterly.
The Credit Agreement has a commitment termination date of June 30
in any year in which written notice of termination is given by the banks.
If written notice is given in accordance with the agreement, the
outstanding balance of the loans shall be paid in full on the date
which is three and one half years after the commitment termination date.
The banks also may terminate the agreement upon the violation of any of
the financial ratio requirements or covenants contained in the agreement
or in June of any calendar year if the financial condition of the
Company becomes unsatisfactory to the banks. Such financial ratio
requirements include a minimum equity requirement, an interest expense
coverage ratio and a minimum debt to equity ratio.
The Company has an additional Credit Agreement for $2,000,000
which is used for general operating purposes. This agreement provides
for borrowings on an unsecured basis at 1/8% above the prime rate of
interest and has a termination date of July 1, 1999.
A bank loan was entered into in 1986, which carried an interest
rate of 70% of the prime rate of interest repayable in 180 monthly
installments. This loan was collateralized by land and a building.
The Company paid off this loan in December, 1998.
The Senior Demand Notes are unsecured obligations which are payable
on demand. The interest rate payable on any Senior Demand Note is a
variable rate, compounded daily, established from time to time by the
Company.
Commercial Paper is issued by the Company in amounts in excess of
$50,000, with maturities of less than 270 days and at negotiable interest
rates.
Additional data related to the Company's Senior Debt is as follows:
Weighted
Average Maximum Average Weighted
Interest Amount Amount Average
Year Ended Rate at end Outstanding Outstanding Interest Rate
December 31 of Year During Year During Year During Year
- ----------- ------- ----------- ----------- -----------
(In thousands, except % data)
1998:
- ----
Bank. . . . . . . . . -- % $ 192 $ 156 5.95%
Senior Notes. . . . . 5.13 54,820 52,801 5.61
Commercial Paper. . . 6.18 49,626 46,725 6.37
All Categories. . 5.63 104,446 99,682 5.97
1997:
- ----
Bank. . . . . . . . . 5.95% $ 241 $ 217 5.95%
Senior Notes. . . . . 5.92 52,383 47,814 5.92
Commercial Paper. . . 6.52 53,372 50,164 6.52
All Categories. . 6.21 101,302 98,195 6.23
1996:
- ----
Bank. . . . . . . . . 5.95% $ 291 $ 267 5.98%
Senior Notes. . . . . 5.92 49,406 42,836 5.92
Commercial Paper. . . 6.51 52,944 48,432 6.60
All Categories. . 6.22 95,541 91,535 6.28
-30-
<PAGE>
6. SUBORDINATED DEBT
The payment of the principal and interest on the subordinated debt
is subordinate and junior in right of payment to all unsubordinated
indebtedness of the Company.
Subordinated debt consists of Variable Rate Subordinated Debentures
which mature four years after date of issue. The maturity date is
automatically extended for an additional four years unless the holder or
the Company redeems the debenture on its original maturity date. The
debentures have various minimum purchase amounts with varying interest
rates and interest adjustment periods for each respective minimum purchase
amount. Interest rates on the debentures are adjusted at the end of each
adjustment period. The debentures may be redeemed by the holder at the
applicable interest adjustment date without penalty. Redemptions at any
other time are subject to an interest penalty. The Company may redeem
the debentures for a price equal to 100% of the principal.
Interest rate information on the Subordinated Debt at December 31
is as follows:
Weighted Average Rate at Weighted Average Rate
End of Year During Year
------------------------ ---------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
6.39% 6.61% 6.81% 6.52% 6.68% 7.03%
Maturity information on the Company's Subordinated Debt at
December 31, 1998 is as follows:
Amount Maturing
-------------------------------------
Based on Maturity Based on Interest
Date Adjustment Period
----------------- -----------------
1999. . . . . . $10,234,604 $31,089,437
2000. . . . . . 7,248,982 6,784,484
2001. . . . . . 9,581,125 486,398
2002. . . . . . 11,896,036 600,428
----------- -----------
$38,960,747 $38,960,747
=========== ===========
7. COMMITMENTS AND CONTINGENCIES
The Company's operations are carried on in locations which are
occupied under lease agreements. The lease agreements usually provide
for a lease term of five years with a renewal option for an additional
five years. Rent expense was $1,996,393, $1,807,899 and $1,531,183 for
the years ended December 31, 1998, 1997 and 1996, respectively. Under
the existing noncancelable leases, the Company's minimum aggregate rental
commitment at December 31, 1998, amounts to $1,882,582 for 1999,
$1,563,603 for 2000, $1,117,797 for 2001, $685,072 for 2002, $345,718
for 2003 and $5,700 for the year 2004 and beyond. The total commitment
is $5,600,472.
The Company is defendant in several lawsuits arising in the course
of its normal business activities in the state of Alabama. Each of the
complaints seek compensatory and punitive damages. During the current
year, the Company reached settlement agreements with certain borrowers
-31-
<PAGE>
who had previously asserted claims or had stated their intention to file
claims against the Company. All remaining actions are still in their
early stages and their outcome currently is not determinable. Management
is vigorously defending these actions. 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 therefore that the suits are without merit and that the resolutions
of the suits should not have a material effect on the Company.
8. RELATED PARTY TRANSACTIONS
Beneficial owners of the Company are also beneficial owners of
Liberty Bank & Trust ("Liberty"). The Company and Liberty have management
and data processing agreements whereby the Company provides certain
administrative and data processing services to Liberty for a fee.
Income recorded by the Company in 1998, 1997 and 1996 related to these
agreements was $63,800 each year, which in Management's opinion
approximates the Company's actual cost of these services.
Liberty leases its office space and equipment from the Company
for $5,000 per month, which in Management's opinion is at a rate which
approximates that obtainable from independent third parties.
At December 31, 1998, the Company maintained $2,100,000 of
certificates of deposit with Liberty at market rates and terms. The
Company also had $2,356,345 in demand deposits with Liberty at December
31, 1998.
The Company leases a portion of its properties (see Note 7) for
an aggregate of $13,250 per month from certain officers or stockholders.
In Management's opinion, these leases are at rates which approximate
those obtainable from independent third parties.
During 1998, a loan was extended to a real estate development
partnership of which one of the Company's shareholders is a partner.
The balance on this commercial loan was $1,498,502 at December 31, 1998.
9. INCOME TAXES
Effective January 1, 1997, the Company elected S Corporation status
for income tax reporting purposes for the parent company (the "Parent").
The taxable income or loss of an S Corporation is includable in the
individual tax returns of the stockholders of the Company. Accordingly,
deferred income tax assets and liabilities were eliminated and no
provisions for current and deferred income taxes were made by the
Parent other than amounts related to prior years when the Parent was
a taxable entity and for amounts attributable to state income taxes
for the state of Louisiana, which does not recognize S Corporation
status for income tax reporting purposes. Deferred income tax assets
and liabilities will continue to be recognized and provisions for current
and deferred income taxes will be made by the Company's subsidiaries.
The Company took a one-time charge of $3.6 million during 1997 in order
to recognize the effect of the S Corporation election.
The Provision for Income Taxes for the years ended December 31, 1998,
1997 and 1996 is made up of the following components:
1998 1997 1996
---- ---- ----
Current - Federal . . . . . . . . $1,453,990 $1,251,503 $2,353,773
Current - State . . . . . . . . . 21,040 15,371 191,394
---------- ---------- ----------
Total Current. . . . . . . . . 1,475,030 1,266,874 2,545,167
---------- ---------- ----------
Prepaid - Federal . . . . . . . . 115,929 3,343,020 (309,371)
Prepaid - State . . . . . . . . . -- 318,136 (55,438)
Total Prepaid. . . . . . . . . 115,929 3,661,156 (364,809)
---------- ---------- ----------
Total Provision. . . . . . $1,590,814 $4,928,030 $2,180,358
========== ========== ==========
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<PAGE>
Temporary differences create deferred federal tax assets and
liabilities which are detailed below for December 31, 1998 and 1997:
Deferred Tax
Assets (Liabilities)
---------------------------
1998 1997
---- ----
Insurance Commissions . . . . . . $(2,111,122) $(1,960,573)
Unearned Premium Reserves. . . . . 573,841 523,446
Unrealized Gains on
Marketable Debt Securities . . . (170,898) (122,799)
Other. . . . . . . . . . . . . . . (34,880) (19,104)
----------- -----------
$(1,743,059) $(1,579,030)
=========== ===========
The Company's effective tax rate for the years ended December 31,
1998, 1997 and 1996 is analyzed as follows:
1998 1997 1996
---- ---- ----
Statutory Federal income tax rate. . . 34.0% 34.0% 34.0%
State income tax, net of Federal
tax effect . . . . . . . . . . . . . .2 3.3 1.1
Net tax effect of IRS regulations
on life insurance subsidiary . . . . (6.8) (8.9) (7.9)
Tax effect of S Corporation status . . (6.9) 53.7 --
Other items. . . . . . . . . . . . . . (2.5) (9.0) (1.3)
---- ---- ----
Effective Tax Rate . . . . . . . . 18.0% 73.1% 27.9%
==== ==== ====
10. SEGMENT FINANCIAL INFORMATION:
In June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard Number 131 (SFAS 131) "Disclosure about
Segments of an Enterprise and Related Information," which the Company
adopted in 1998. SFAS 131 requires companies to determine segments
based on how management makes decisions about allocating resources to
segments and measuring their performance.
The Company has three reportable segments: Division I, Division II
and Division III. Each segment is comprised of a number of branch
offices that are aggregated based on vice president responsibility and
geographical location. Division I is comprised of offices located in
Northeast Georgia, South Carolina and North Carolina. Offices in Central
and South Georgia comprise Divison II. Divison III is comprised of
branch offices in Alabama, Louisiana, Mississippi and West Georgia.
Accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Performance is
measured based objectives set at the beginning of each year and include
various factors such as segment profit, growth in earning assets and
delinquency and loan loss management. All segment revenues result from
transactions with third parties. The Company does not allocate income
taxes or corporate headquarter expenses to the segments.
-33-
<PAGE>
Below is a performance recap of each of the Company's reportable
segments for the three years ended December 31, 1998 followed by a
reconcilement to consolidated Company data:
<TABLE>
<CAPTION>
Division I Division II Division III Total Segments
Year 1998: ---------- ----------- ------------ --------------
- ---------
<S> <C> <C> <C> <C>
Revenues:
Finance Charges Earned . . $13,668,361 $14,101,316 $14,861,961 $ 42,631,638
Insurance Income . . . . . 4,327,262 5,911,613 5,130,705 15,369,580
Other. . . . . . . . . . . 92,156 116,311 154,960 363,427
----------- ----------- ----------- ------------
18,087,779 20,129,240 20,147,626 58,364,645
----------- ----------- ----------- ------------
Expenses:
Interest Cost. . . . . . . 2,082,298 2,439,714 2,336,803 6,858,815
Provision for Loan Losses. 2,008,540 2,140,347 1,884,195 6,033,082
Depreciation . . . . . . . 246,633 187,281 376,404 810,318
Other. . . . . . . . . . . 8,242,026 7,778,589 9,787,743 25,808,358
----------- ----------- ----------- ------------
12,579,497 12,545,931 14,385,145 39,510,573
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 5,508,282 $ 7,583,309 $ 5,762,481 $ 18,854,072
=========== =========== =========== ============
Segment Assets:
Net Receivables. . . . . . $44,690,958 $50,874,052 $51,447,448 $147,012,458
Cash . . . . . . . . . . 53,502 49,830 63,497 166,829
Net Fixed Assets . . . . . 568,992 326,368 787,921 1,683,281
Other Assets . . . . . . . 318,517 417,648 631,598 1,367,763
----------- ----------- ----------- ------------
Total Segment Assets . . $45,631,969 $51,667,898 $52,930,464 $150,230,331
=========== =========== =========== ============
<CAPTION>
Division I Division II Division III Total Segments
Year 1997: ---------- ----------- ------------ --------------
- ---------
<S> <C> <C> <C> <C>
Revenues:
Finance Charges Earned . . $13,254,994 $13,780,391 $13,027,893 $ 40,063,278
Insurance Income . . . . . 4,434,218 5,378,050 4,699,936 14,512,204
Other. . . . . . . . . . . 95,694 111,584 153,259 360,537
----------- ----------- ----------- ------------
17,784,906 19,270,025 17,881,088 54,936,019
----------- ----------- ----------- ------------
Expenses:
Interest Cost. . . . . . . 2,146,429 2,450,451 2,251,674 6,848,554
Provision for Loan Losses. 1,997,027 2,186,624 2,663,151 6,846,802
Depreciation . . . . . . . 258,989 213,026 410,537 882,552
Other. . . . . . . . . . . 7,602,911 7,452,571 8,774,662 23,830,144
----------- ----------- ----------- ------------
12,005,356 12,302,672 14,100,024 38,408,052
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 5,779,550 $ 6,967,353 $ 3,781,064 $ 16,527,967
=========== =========== =========== ============
Segment Assets:
Net Receivables. . . . . . $42,960,935 $49,709,002 $48,867,850 $141,537,787
Cash . . . . . . . . . . 52,601 46,532 62,168 161,301
Net Fixed Assets . . . . . 527,464 408,556 899,458 1,835,478
Other Assets . . . . . . . 459,098 418,820 679,250 1,557,168
----------- ----------- ----------- ------------
Total Segment Assets . . $44,000,098 $50,582,910 $50,508,726 $145,091,734
=========== =========== =========== ============
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
Division I Division II Division III Total Segments
Year 1996: ---------- ----------- ------------ --------------
- ---------
<S> <C> <C> <C> <C>
Revenue:
Finance Charges Earned . . $13,373,935 $13,496,647 $11,206,962 $ 38,077,544
Insurance Income . . . . . 4,732,061 5,444,964 4,214,140 14,391,165
Other. . . . . . . . . . . 76,925 95,745 122,148 294,818
----------- ----------- ----------- ------------
18,182,921 19,037,356 15,543,250 52,763,527
----------- ----------- ----------- ------------
Expenses:
Interest Cost. . . . . . . 2,337,307 2,547,835 2,088,450 6,973,592
Provision for Loan Losses. 1,885,839 1,745,410 1,511,922 5,143,171
Depreciation . . . . . . . 288,205 246,696 332,116 867,017
Other. . . . . . . . . . . 6,991,762 6,965,187 6,944,069 20,901,018
----------- ----------- ----------- ------------
11,503,113 11,505,128 10,876,557 33,884,798
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 6,679,808 $ 7,532,228 $ 4,666,693 $ 18,878,729
=========== =========== =========== ============
Segment Assets:
Net Receivables. . . . . . $43,780,639 $49,508,726 $44,286,661 $137,576,026
Cash . . . . . . . . . . 33,184 45,826 50,188 129,198
Other Assets . . . . . . . 452,620 323,423 507,636 1,283,679
----------- ----------- ----------- ------------
Total Segment Assets . . $44,266,443 $49,877,975 $44,844,485 $138,988,903
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
RECONCILEMENT: 1998 1997 1996
- ------------- ---- ---- ----
<S> <C> <C> <C>
Revenues:
Total revenues from
reportable segments. . . . . . . . . $ 58,364,645 $ 54,936,019 $ 52,763,527
Corporate finance charges earned
not allocated to segments. . . . . . 57,053 (33,114) 17,126
Reclass of investment income net
against interest cost. . . . . . . . 1,791,207 1,895,684 1,256,385
Reclass of insurance expense
against insurance income . . . . . . 4,694,936 4,563,973 4,267,132
Timing difference of insurance
income allocation to segments. . . . 548,083 (75,457) (83,977)
Other revenues not allocated
to segments. . . . . . . . . . . . . 227,497 211,299 195,260
------------ ------------ ------------
Consolidated Revenues. . . . . . . $ 65,683,421 $ 61,498,404 $ 58,415,453
============ ============ ============
Profit or Loss:
Total profit or loss for
reportable segments. . . . . . . . . $ 18,854,072 $ 16,527,967 $ 18,878,729
Corporate earnings not allocated . . . 832,632 102,728 128,409
Corporate expenses not allocated . . . (10,828,106) (9,886,355) (10,589,028)
Income taxes not allocated . . . . . . (1,590,814) (4,928,030) (2,180,358)
------------ ------------ ------------
Consolidated Profit. . . . . . . . $ 7,267,784 $ 1,816,310 $ 6,237,752
============ ============ ============
Assets:
Total assets for reportable segments . $150,230,331 $145,091,734 $138,988,903
Reclass accrued interest
receivable on loans. . . . . . . . . 912,684 915,538 729,246
Loans held at corporate
home office level. . . . . . . . . . 2,293,491 947,36 1,559,800
Unearn insurance at corporate level. . (5,016,709) (4,730,626) (4,436,105)
Allowance for loan losses at
corporate level. . . . . . . . . . . (6,653,763) (5,968,818) (5,753,221)
Cash and cash equivalents
held at corporate level. . . . . . . 19,944,849 24,960,776 27,303,507
Investment securities at
corporate level. . . . . . . . . . . 47,143,525 32,941,755 23,729,982
Fixed assets at corporate level. . . . 3,004,062 3,053,193 3,457,902
Other assets at corporate level. . . . 4,816,440 3,954,653 6,324,336
------------ ------------ ------------
Consolidated Assets. . . . . . . . . $216,674,910 $201,165,572 $191,904,350
============ ============ ============
</TABLE>
-35-
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Directors
- ---------
Principal Occupation, Has Served as a
Name Title and Company Director Since
---- ----------------- --------------
Ben F. Cheek, III Chairman of Board, 1967
1st Franklin Financial Corporation
Lorene M. Cheek Housewife 1946
Jack D. Stovall President, 1983
Stovall Building Supplies, Inc.
Robert E. Thompson Physician, Toccoa Clinic 1970
Executive Officers
- ------------------
Served in this
Name Position with Company Position Since
---- --------------------- --------------
Ben F. Cheek, III Chairman of Board 1989
T. Bruce Childs President 1989
Lynn E. Cox Secretary 1989
A. Roger Guimond Vice President
and Chief Financial Officer 1991
Linda L. Sessa Treasurer 1989
CORPORATE INFORMATION
Corporate Offices General Counsel Independent Accountants
----------------- --------------- -----------------------
P.O. Box 880 Jones, Day, Reavis & Pogue Arthur Andersen LLP
213 East Tugalo Street Atlanta, Georgia Atlanta, Georgia
Toccoa, Georgia 30577
(706) 886-7571
Information
- -----------
Informational inquiries, including requests for a Prospectus
describing the Company's current securities offering or the Form 10-K
annual report filed with the Securities and Exchange Commission should
be addressed to the Company's Secretary.
-36-
<PAGE>
INSIDE BACK COVER PAGE OF ANNUAL REPORT
BRANCH OPERATIONS
Division I Division III
Northeast Georgia & South Carolina: Alabama, Louisiana, Mississippi and
- ---------------------------------- Northeast Georgia:
Isabel Youngblood, Senior -----------------------------------
Vice President Jack R. Coker, Vice President
Ronald F. Morrow, Area Robert J. Canfield, Area
Vice President Vice President
Regina K. Bond, Supervisor J. Michael Culpepper, Area Vice
K. Donald Floyd, Supervisor Vice President
Michael D. Lyles, Supervisor Ronald E. Byerly, Supervisor
Brian L. McSwain, Supervisor Susan C. Cantrell, Supervisor
Harriet H. Moss, Supervisor Anne Renee Hebert, Supervisor
Melvin L. Osley, Supervisor Jack L. Hobgood, Supervisor
Virginia K. Palmer, Supervisor Bruce S. Hooper, Supervisor
Timothy M. Schmotz, Supervisor Janice B. Hyde, Supervisor
Tami D. Settlemyer, Supervisor H. Timothy Love, Supervisor
Johnny M. McEntyre, Supervisor
Johnny M. Olive, Supervisor
R. Darryl Parker, Supervisor
Henrietta R. Reathford, Supervisor
R. Gaines Snow, Supervisor
Division II ADMINISTRATION
- ----------- --------------
Central & South Georgia: Ben F. Cheek, IV, Statistics &
A. Jarrell Coffee, Vice President Planning
Donald C. Carter, Supervisor Lynn E. Cox, Investment Center
Judy A. Landon, Supervisor Samuel P. Greer, Internal Audit
Jeffrey C. Lee, Supervisor Phoebe P. Martin, Human Resources &
Thomas C. Lennon, Supervisor Marketing
Dianne H. Moore, Supervisor Pamela S. Rickman, Operations
Marcus C. Thomas, Supervisor Coordinator
Linda L. Sessa, Data Processing
<PAGE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Franklin Securities, Inc., a Georgia company, was incorporated on May 4,
1982, as a wholly owned subsidiary to handle securities transactions. The
subsidiary is currently in an inactive status.
Frandisco Property and Casualty Insurance Company, a Georgia company, was
incorporated on August 7, 1989, as a wholly owned subsidiary to reinsure the
property and casualty insurance policies written by the Company in connection
with its credit transactions.
Frandisco Life Insurance Company of Georgia was incorporated on August 7,
1989, as a wholly owned subsidiary to reinsure the life and the accident and
health insurance policies written by the Company in connection with its
credit transactions. Effective December 27, 1990, Frandisco Life Insurance
Company of Georgia was merged with Frandisco Life Insurance Company of
Arizona (incorporated on August 16, 1978 as a wholly owned subsidiary) with
Frandisco Life Insurance Company of Georgia becoming the surviving Company.
T & T Corporation, a Georgia company, is 50% owned subsidiary of the
Company. This corporation owns a building adjacent to the Company's
headquarters which the Company leases.
<PAGE>
<PAGE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-01007.
s/Arthur Andersen LLP
Atlanta, Georgia
March 30, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 20,111,678
<SECURITIES> 47,143,525
<RECEIVABLES> 145,201,924
<ALLOWANCES> 6,653,763
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,070,206
<DEPRECIATION> 8,382,863
<TOTAL-ASSETS> 216,674,910
<CURRENT-LIABILITIES> 116,350,372
<BONDS> 143,406,777
<COMMON> 170,000
0
0
<OTHER-SE> 61,193,791
<TOTAL-LIABILITY-AND-EQUITY> 216,674,910
<SALES> 0
<TOTAL-REVENUES> 65,683,421
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 41,070,370
<LOSS-PROVISION> 7,031,251
<INTEREST-EXPENSE> 8,723,201
<INCOME-PRETAX> 8,858,599
<INCOME-TAX> 1,590,814
<INCOME-CONTINUING> 7,267,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,267,785
<EPS-PRIMARY> 42.75
<EPS-DILUTED> 42.75
</TABLE>
