-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, T5RlEWBwatulHyJb2hYTZLKiFqWZpWH4jPXMv+Pq/EisJq8lBHssKKXJOIQ5Q0UO gSmKnQMdxooK8D+IrJ2DRw== 0000038723-94-000015.txt : 19940404 0000038723-94-000015.hdr.sgml : 19940404 ACCESSION NUMBER: 0000038723-94-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FRANKLIN FINANCIAL CORP CENTRAL INDEX KEY: 0000038723 STANDARD INDUSTRIAL CLASSIFICATION: 6141 IRS NUMBER: 580521233 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 002-27985 FILM NUMBER: 94519503 BUSINESS ADDRESS: STREET 1: 213 E TUGALO ST STREET 2: P O BOX 880 CITY: TOCCOA STATE: GA ZIP: 30577 BUSINESS PHONE: 4048867571 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN DISCOUNT CO DATE OF NAME CHANGE: 19840115 10-K 1 SEC FORM 10-K: PART I THRU SIGNATURE 1 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, 1993 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) 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 and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ 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 1 of 2 pages) 2 State the aggregate market value of the voting stock held by nonaffiliates of the Registrant: Not Applicable. 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, 1994 ---------------------------- -------------------------------- Common Stock, $100 Par Value 1,700 shares DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 are incorporated by reference into Parts I, II and IV of this Form 10-K. (Cover page 2 of 2 pages) 3 PART I Item 1. BUSINESS: The Company, Page 1; Business, Pages 9 - 17; and Financial Statements, Pages 20-32 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 are incorporated herein by reference. Item 2. PROPERTIES: Paragraph 1 of The Company, Page 1; Footnote 7 (Commitments) of Notes to Consolidated Financial Statements, Page 30; and map on back cover of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 are incorporated herein by reference. Item 3. LEGAL PROCEEDINGS: Other than ordinary routine litigation incidental to the finance business, there are no material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: Not applicable. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: Source of Funds, Page 16 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA: Selected Consolidated Financial Information, Page 4 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 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 5 - 8 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: Pages 20 - 32 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993 are incorporated herein by reference. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: Not applicable. - 1 - 4 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 W. Richard Acree (1)(2) 66 Since 1970; None When successor elected and qualified Ben F. Cheek, III (3)(4)(5) 57 Since 1967; Chairman of When successor Board elected and qualified Lorene M. Cheek (2)(4)(6) 84 Since 1946; None When successor elected and qualified Jack D. Stovall (1)(2) 58 Since 1983; None When successor elected and qualified Robert E. Thompson (1)(2) 62 Since 1970; None When successor elected and qualified _______________________________________________________________________ (1) Member of Audit Committee. (2) Mr. Acree is President of Acree Oil Company, a distributor of petroleum products in Northeast Georgia; 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. (3) Reference is made to the business experience of executive officers of the Company as detailed below. (4) Member of Executive Committee. (5) Son of Lorene M. Cheek. (6) Mother of Ben F. Cheek, III. - 2 - 5 EXECUTIVE OFFICERS Name, Age, Position and Family Relationship Business Experience Ben F. Cheek, III, 57 Joined the Company in 1961 as attorney Chairman of Board and became Vice President in 1962, President in 1972 and Chairman of Board in 1989. T. Bruce Childs, 57 Joined the Company in 1958 and was named President Vice President in charge of Operations in No Family Relationship 1973 and President in 1989. Lynn E. Cox, 36 Joined the Company in 1983 and became Secretary Secretary in 1989. No Family Relationship A. Roger Guimond, 39 Joined the Company in 1976 as an Vice President accountant and became Chief Accounting and Chief Financial Officer Officer in 1978, Chief Financial Officer No Family Relationship in 1991 and Vice President in 1992. Linda L. Sessa, 39 Joined the Company in 1984 and became Treasurer Treasurer in 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 bankruptcy, criminal proceedings or securities violation proceeding has occurred within the past 5 years with regard to any Director or Executive Officer of the Company. - 3 - 6 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 1993 216,000 154,653 2,867 44,268 Chairman and 1992 204,000 124,106 2,592 45,594 CEO 1991 188,000 101,209 2,770 39,164 T. Bruce Childs 1993 194,000 153,773 7,179 34,878 President 1992 178,000 123,066 4,683 34,878 1991 164,000 100,249 3,583 30,969 A. Roger Guimond 1993 96,000 36,790 1,650 15,354 Vice President 1992 84,000 29,145 1,625 11,427 and CFO 1991 70,800 23,349 2,000 8,961 * 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 $5,984 for 1993, $7,310 for 1992 and $5,168 for 1991. (g) Compensation of Directors: Directors who are not employees of the Company receive $1,000 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 wholly-owned subsidiary of 1st Franklin Corporation ("Parent"). 1st Franklin Corporation is a family owned business with Ben F. Cheek, III being the majority stockholder. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: (a) Security Ownership of Certain Beneficial Owners: Name and Address of Amount and Nature of Percent Beneficial Owner Title of Class Beneficial Ownership Of Class ---------------- -------------- -------------------- -------- 1st Franklin Corporation Common 1700 Shares - Direct 100.00% 213 East Tugalo Street Toccoa, Georgia 30577 - 4 - 7 (b) Security Ownership of Management: Ownership listed below represents ownership in 1st Franklin Corporation which in turn is sole owner of 1st Franklin Financial Corporation, of (i) Directors and named Executive Officers of the Company and (ii) all Directors and Executive Officers as a group: Amount and Nature of Percent Name Title of Class Beneficial Ownership Of Class ----------------- -------------- --------------------- -------- Ben F. Cheek, III Common Stock 1,160 Shares - Direct 68.24% T. Bruce Childs Common Stock None None A. Roger Guimond Common Stock None None __________________________________________ All Directors and Executive Officers as a Group Common Stock 1,160 Shares - Direct 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 $10,600 per month from Franklin Enterprises, Inc. under leases which expire January 1, 1995. 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's Credit Agreement with four major banks provides for maximum borrowings of $21,000,000. The Company also has two additional Credit Agreements for $1,500,000 and $2,000,000 which are used for general operating purposes. Repayment of borrowings under the three Agreements are guaranteed by the Company's Parent. As the result of normal recurring intercompany transactions, the Parent owed the Company $2,231,455 at December 31, 1993. Beneficial owners of the Company's parent 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 1993, 1992 and 1991 related to these agreements was $63,800, $63,800, and $78,375 per year, respectively, which in Management's opinion approximates the Company's actual cost of these services. At December 31, 1993, the Company maintained $500,000 of certificates of deposit and $172,989 in a money market account with Liberty at market rates and terms. The Company also had $2,038,013 in demand deposits with Liberty at December 31, 1993. - 5 - 8 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) 1. Financial Statements: Incorporated by reference from the Registrant's Annual Report to security holders for the fiscal year ended December 31, 1993: Report of Independent Public Accountants. Consolidated Statements of Financial Position at December 31, 1993 and 1992. Consolidated Statements of Income and Retained Earnings for the three years ended December 31, 1993. Consolidated Statements of Cash Flows for the three years ended December 31, 1993. 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: 3. (a) Restated Articles of Incorporation as amended December 29, 1983 (incorporated herein by reference from Form 10-K for the fiscal year ended December 31, 1983). 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). 9. Not applicable. 10. (a) Credit Agreement dated May, 1993 between the registrant and SouthTrust Bank of Georgia, N.A. (b) Credit Agreement dated March 17, 1992 with addendum dated March 20, 1992 between the registrant and Georgia Federal Bank, FSB. (Incorporated by reference to Exhibit 10(a) to the registrant's Form SE dated November 5, 1992.) (c) 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.) - 6 - 9 (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.) 11. Not applicable due to Company being a wholly-owned subsidiary. 12. Ratio of Earnings to Fixed Charges. 13. Registrant's Annual Report to security holders for fiscal year ended December 31, 1993. 18. Not applicable. 19. Not applicable. 21. Subsidiaries of Registrant. 23. Not applicable. 23. Consent of Independent Public Accountants. 25. Not applicable. 28. Not applicable. (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1993. - 7 - 10 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 March 29, 1994 Ben F. Cheek, III -------------- ----------------- Date 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 ---------- ----- ---- Ben F. Cheek, III Chairman of Board; March 29, 1994 Chief Executive Officer T. Bruce Childs President March 29, 1994 A. Roger Guimond Vice President; March 29, 1994 Chief Financial Officer W. Richard Acree Director March 29, 1994 Lorene M. Cheek Director March 29, 1994 Jack D. Stovall Director March 29, 1994 Robert E. Thompson Director March 29, 1994 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: - 8 - 11 (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. (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, 1993, which is filed as Exhibit 13 hereto. The Registrant is a wholly-owned subsidiary of 1st Franklin Corporation and therefore does not distribute proxy statements or information statements. - 9 - EX-10 2 FORM 10-K EXHIBIT 10(A) 1 Exhibit 10(a) REVOLVING NOTE $ 2,000,000.00 Atlanta Georgia May, 1993 - -------------- ------- ------- ------------ (City) (State) (Date) For value received, the undersigned (whether one or more, hereinafter called the "Obligors") promise(s) to pay to the order of SouthTrust Bank of Georgia, N.A. (hereinafter called the "Bank" or, together with any other holder of this note, the "Holder"), at any office of the Bank in Atlanta , Georgia , or at such other place as the Holder may designate, the sum of Two million and no/100's------------ Dollars, or such lesser amount as may be outstanding and unpaid hereunder, together with interest on each advance made under this note at the rate and on the date(s) provided below from the date each advance hereunder is made to the earlier of the date such advance is repaid or maturity of this note, and with interest on the unpaid principal balance after maturity at the rate which is 2 percent per annum in excess of the rate stated below or the maximum rate allowed by law, whichever is less, from maturity until said indebtedness is paid in full. Interest will accrue on the above-stated principal sum daily at the rate per annum which is 0.125 percentage points in excess of the Base Rate. As used in this note, the term "Base Rate" means the rate of interest designated by the Bank periodically as its Base Rate. The Base Rate is not necessarily the lowest rate charged by the Bank. The Base Rate on the date of this note is 6.00 percent. The rate of interest payable under this note will change to reflect any change in the Base Rate. X on any day the Base Rate changes. on the _____day of each - --- month hereafter. - --- on the day each payment of interest is due as provided. _______________________ Obligors may prepay this note in full at any time without penalty. The Obligors promise to pay the above-stated principal sum in full: on _______________, 19___. X on demand. --- ___ on demand, but if no demand is made, then on ____________, 19___. The Obligors promise to pay accrued interest on the unpaid balance of the principal sum: X monthly on the 1st day of each month beginning June 1, 19___, and at - --- maturity. ___ quarterly beginning on _________________ , 19___, on the same day every three months thereafter, and at maturity. - 1 - 2 Until the earlier of maturity of this note, or the occurrence of any event giving Bank the right to accelerate maturity of this note as provided below, or written or oral notice to any Obligor of Bank's election to terminate the line of credit (which notice Bank may give at its discretion), the undersigned may borrow hereunder, prepay the principal sum in whole or in part without penalty, and reborrow hereunder, so long as the aggregate unpaid principal balance of such borrowings does not exceed the principal amount of this note at any time. Bank may require that borrowings be made only upon at least one banking day's written notice to Bank. For the privilege of having such credit available, the undersigned agrees to pay Bank a commitment fee of 0.125 percent per annum on the unused portion of the principal sum of this note, such fee to be calculated and payable as follows: $2,000,000 times 0.125% equals $2,500 payable at closing._________________________________________________________________ Interest on the principal sum will be calculated at the rate set forth above on the basis of a 360-day year and the actual number of days elapsed by multiplying the principal sum by the per annum rate set forth above, multiplying the product thereof by the actual number of days elapsed, and dividing the product so obtained by 360. Obligors acknowledge that the rate of interest payable under this Note, computed on the basis of a 365-day year and expressed in simple interest terms as of the date hereof, is 6.21 percent per annum. The interest rate payable hereunder may be calculated in simple interest terms per annum (on the basis of a 365-day year) on any date by taking the sum of (a) the Base Rate in effect on such date, plus (b) 0.125 percent and multiplying such sum by a fraction, the numerator of which is 365 and the denominator of which is 360. If payment of the principal sum of this note is late 10 days or more, in addition to interest after maturity as provided above, Obligors agree to pay a late charge equal to one-half of one percent (1/2%) of the amount of the payment which is late, subject to a minimum late charge of $.50 and a maximum late charge of $250.00. This note is secured by every security agreement, pledge, assignment, stock power, mortgage, deed of trust, security deed and/or other instrument covering personal or real property (all of which are hereinafter included in the term "Separate Agreements") which secures an obligation so defined as to include this note, including without limitation all such Separate Agreements which are of even date herewith and/or described in the space below. In addition, as security for the payment of any and all liabilities and obligations of the Obligors to the Holder (including this note and the indebtedness evidenced by this note and all extensions, renewals and modifications thereof, and all writings delivered in substitution therefor) and all claims of every nature of the Holder against the Obligors, whether present or future, and whether joint, several, absolute, contingent, matured, unmatured, liquidated, unliquidated, direct or indirect (all of the foregoing are hereinafter included in the term Obligations), the Obligors hereby assign to the Holder and grant to the Holder a security interest in and security title to the property described below: (Describe Separate Agreements and Collateral) - 2 - 3 If this note is payable on demand, or on demand but not later than a stated date, all of the Obligations shall be due and payable in full upon demand by the Holder, whether or not any default described below has occurred and whether or not the Holder reasonably deems itself to e insecure. If this note has no provision for payment on demand, the following terms apply: if default occurs in the payment of any principal or interest or any other sum under this note exactly when due or with respect to any promise or agreement contained in this note (time being of the essence of every provision of this note); or if for any reason whatever the Collateral shall cease to be satisfactory to the Holder; or in the event of death of (if an individual), or dissolution of (if a partnership or corporation), insolvency of, general assignment for the benefit of creditors by, filing of petition under any chapter of the Federal Bankruptcy Code by or against, filing of an application in any court for receiver for, entry of any judgment against, or issuance of a levy or write of execution, attachment or garnishment against, or against any of the property of, any Obligor or any indorser or guarantor of this note; or if any Obligor, indorser or guarantor of this note transfers all or any valuable part of his, her or its assets outside the ordinary course of business, or wastes, loses, or dissipates or permits waste, loss or dissipation of any valuable part of such person's assets; or if any Obligor, indorser or guarantor of this note is a partnership and any general partner of such partnership withdraws or is removed; or if any Obligor, indorser or guarantor of this note is a corporation and ownership or power to vote more than 50 percent of the voting stock of such corporation is transferred, directly or indirectly (including through any voting trust, irrevocable proxy, or the like), during any 12-month period; or if there occurs any default or event authorizing acceleration as contained in any Separate Agreement; or if at any time in the sole opinion of the Holder the financial responsibility of any Obligor or any indorser or guarantor of this note shall become impaired or the Holder otherwise deems itself to be insecure; then, if any of the foregoing occur, all unpaid amounts of any or all of the Obiligations (including this note) and all accrued but unpaid interest theron shall, at the option of the Holder and without notice or demand, become immediately due and payable, notwithstanding any time or credit allowed under any of the Obligations or under any instrument evidencing the same. With respect to any and all Obligations, to the extent permitted by applicable law, the Obligors and any indorsers of this note jointly and severally waive the following: (1) all rights of exemption of property from levy or sale under execution or other process for the collection of debts under the constitution and laws of the United States or of any state thereof; (2) demand, presentment, protest, notice of dishonor, suit against any party and all other requirements necessary to charge or hold any Obligor or indorser liable on any Obligation; (3) any further receipt for or acknowledgment of the Collateral now or hereafter deposited and any statement of indebtedness; (4) all statutory provisions and requirements for the benefit of any Obligor or indorser, now or hereafter in force (to the extent that same may be waived); (5) the right to interpose any set-off or counterclaim of any nature or description in any litigation in which the Holder and any Obligor or indorser shall be adverse parties. The Obigors and indorsers agree that any Obligations of any Obligor may, from time to time, in whole or in part, be renewed, extended, modified, accelerated, compromised, discharged or released by the Holder, and any Collateral, lien and/or right of set-off securing any Obligation may, from time to time, in whole or in part be exchanged, sold, released, or otherwise impaired, all without notice to or further reservations of rights against any Obligor or any other person and all without in any way affecting or discharging the liability of any Obligor or indorser. - 3 - 4 The Obligors jointly and severally agree to pay all filing fees and taxes in connection with this note or the Collateral and all costs of collecting or attempting to collect this note after default, including an attorney's fee in the amount which is 15% of the unpaid balance of this note upon default by Obligors if an attorney, not a salaried employee of the Holder, is consulted with reference to suit or otherwise. The Obligors are jointly and severally liable for the payment of this note and have subscribed their names hereto without condition that anyone else should sign or become bound hereon and without any other condition whatever being made. The provisions printed on the back of this page are a part of this note. The provisions of this note are binding on the heirs, executors, administrators, successors and assigns of each and every Obligor and shall inure to the benefit of the Holder, its successors and assigns. This note is executed under the seal of each of the Obligors and of the indorsers, if any. The provisions on the reverse side are a part of this note. Address of Obligors: 213 East Tugalo Street ________________________________(SEAL) ---------------------- First Franklin Financial Corporation Toccoa, Georgia 30577 ---------------------- By____________________________________ No. 8 Title Officer: Ken Davis Signature_______________________(SEAL) --------- Branch: 302/Middle Market Signature_______________________(SEAL) ----------------- - 4 - 5 Additional Terms and Conditions of Revolving Note (Terms Continued from Reverse Side) As additional Collateral for the payment of all Obligations, the Obligors jointly and severally transfer, assign, pledge, and set over to the Holder, and grant the Holder a continuing lien upon and security interest in, any and all property of each Obligor that for any purpose, whether in trust for any Obligor or for custody, pledge, collection or otherwise, is now or hereafter in the actual or constructive possession of, or in transit to, the Holder in any capacity, its correspondents or agents, and also a continuing lien upon and right of set-off against all deposits and credits of each Obligor with, and all claims of each Obligor against, the Holder now or at any time hereafter existing. The Holder is hereby authorized, at any time or times and without prior notice, to apply such property, deposits, credits, and claims, in whole or in part and in such order as the Holder may elect, to the payment of, or as a reserve against, one or more of the Obligations, whether other Collateral therefor is deemed adequate or not. All such property, deposits, credits and claims of the Obligors are included in the term Collateral, and the Holder shall have (unless prohibited by law) the same rights with respect to such Collateral as it has with respect to other Collateral. Without the necessity for notice to or consent of any Obligor, the Holder may exercise any rights of any of the Obligors with respect to any Collateral, including without limitation thereto the following rights: (1) to record or register in, or otherwise transfer into, the name of the Holder or its nominee any part of the Collateral, without disclosing that the Holder's interest is that of a secured party; (2) to pledge or otherwise transfer any or all of the Obligations and/or Collateral, whereupon any pledgee or transferee shall have all rights of the Holder hereunder, and the Holder shall thereafter be fully discharged and relieved from all responsibility and liability for the Collateral so transferred but shall retain all rights and powers hereunder as to all Collateral not so transferred; (3) to take possession of any Collateral and to receive any proceeds of and dividends and income on any Collateral, including money, and to hold the same as Collateral or apply the same to any of the Obligations, the manner, order and extent of such application to be in the sole discretion of the Holder; (4) to exercise any and all rights of voting, conversion, exchange, subscription or other rights or options pertaining to any Collateral; and (5) to liquidate, demand, sue for, collect, compromise, receive and receipt for the cash or surrender value of any Collateral. If for any reason whatsoever the Collateral shall cease to be satisfactory to the Holder, the Obligors shall upon demand deposit with the Holder additional Collateral satisfactory to the Holder. Surrender of this note, upon payment or otherwise, shall not affect the right of the Holder to retain the Collateral as security for other Obligations. Upon default, the Obligors agree to assemble the Collateral and make it available to Holder at such place or places as the Holder shall designate. - 5 - 6 The Holder shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral which is in its possession if it takes such reasonable actions for that purpose as the pledgor of such Collateral shall request in writing, but the Holder shall have sole power to determine whether such actions are reasonable. Any omission to do any act not requested by the pledgor shall not be deemed a failure to exercise reasonable care. The Obligors shall be responsible for the preservation of the Collateral and shall take all steps to preserve rights against prior parties. The Holder shall have the right to, but shall not be obligated to, preserve rights against prior parties. The Holder shall not be liable for, and no Obligor, indorser, or guarantor shall be discharged to any extent on account of, any failure to realize upon, or to exercise any right or power with respect to, any of the Obligations or Collateral, or for any delay in so doing. The Holder, without making any demands whatsoever, shall have the right to sell all or any part of the Collateral, although the Obligations may be contingent or unmatured, whenever the Holder considers such sale necessary for its protection. Sale of the Collateral may be made, at any time and from time to time, at any public or private sale, at the option of the Holder, without advertisement or notice to any Obligor, except such notice as is required by law and cannot be waived. The Holder may purchase the Collateral at any such sale (unless prohibited by law) free from any equity of redemption and from all other claims. After deducting all expenses, including legal expenses and attorney's fees, for maintaining and selling the Collateral and collecting the proceeds of sale, the Holder shall have the right to apply the remainder of said proceeds in payment of, or as a reserve against, any of the Obligations, the manner, order and extent of such application to be in the sole discretion of the Holder. To the extent notice of any sale or other disposition of the Collateral is required by law to be given to any Obligor, the requirement of reasonable notice shall be met by sending such notice, as provided below, at least ten (10) calendar days before the time of sale or disposition. The Obligors shall remain liable to the Holder for the payment of any deficiency, with interest at the rate provided hereinabove. However, the Holder shall not be obligated to resort to any Collateral but, as its election, may proceed to enforce any of the Obligations in default against any or all of the Obligors. The Obligors understand that the Bank may enter into participation agreements with participating banks whereby the Bank will sell undivided interests in this note to such other banks. The Obligors consent that the Bank may furnish information regarding the Obligors, including financial information, to such banks from time to time and also to prospective participating banks in order that such banks may make an informed decision whether to purchase a participation in this note. The Obligors hereby grant to each such participating bank, to the extent of its participation in this note, the right to set off deposit accounts maintained by the Obligors, or any of them, with such bank, against unpaid sums owed under this note. Upon written request from the Holder, the Obligors agree to make each payment under this note directly to each such participating bank in proportion to the participant's interest in this note as set forth in such request from the Holder. - 6 - 7 If, at any time, the rate or amount of interest, late charge, attorneys' fees or any other charge payable under this note shall exceed the maximum rate or amount permitted by applicable law, then, for such time as such rate or amount would be excessive, its application shall be suspended and there shall be charged instead the maximum rate or amount permitted under such law, and any excess interest or other charge paid by the Obligors or collected by the Holder shall be refunded to the Obligors or credited against the principal sum of this note, at the election of the Holder or as required by applicable law. Obligors agree that the late charge provided in this note is a reasonable estimate of probable additional unanticipated internal costs to the Holder of reporting and accounting for the late payment, that such costs are difficult or impossible to estimate accurately, and that the agreement to pay a late charge is a reasonable liquidated damages provision. The Holder shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies, and no waiver of any kind shall be valid, unless in writing and signed by the Holder. All rights and remedies of the Holder under the terms of this note and under any statutes or rules of law are cumulative and may be exercised successively or concurrently. The Obligors jointly and severally agree that the Holder shall be entitled to all rights of a holder in due course of a negotiable instrument. This note shall be governed by and construed in accordance with the substantive laws of the United States and the state where the office of the Bank set forth above in the first paragraph of this note is located, without regard to the rules of such state governing conflicts of law. Any provision of this note which may be unenforceable or invalid under any law shall be ineffective to the extent of such unenforceability or invalidity without affecting the enforceability or validity of any other provision hereof. Any notice required to be given to any person shall be deemed sufficient if delivered to such person or if mailed, postage prepaid, to such person's address as it appears on this note or, if none appears, to any address of such person in the Holder's files. The Holder shall have the right to correct patent errors in this note. Time is of the essence of the payment and performance of this note. EACH INDORSER OF THIS NOTE AGREES TO BE BOUND BY THE PROVISIONS PRINTED OR OTHERWISE APPEARING ABOVE AND ON THE FACE OF THIS NOTE, INCLUDING THE PROVISION FOR PAYMENT OF ATTORNEYS, FEES FOR COLLECTION. Signature _______________________________ Address _________________________________ - 7 - EX-12 3 FORM 10-K EXHIBIT 12 1 Exhibit 12 RATIO OF EARNINGS TO FIXED CHARGES ---------------------------------- Year Ended December 31 ----------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (In thousands, except ratio data) Income Before Income Taxes . . . . . . $ 8,427 $6,286 $5,375 $4,941 $4,613 Interest on Indebtedness . . . . . . 4,890 4,398 4,692 4,666 4,352 Portion of rents representative of the interest factor. . . 362 304 257 230 207 ------- ------- ------- ------ ------ Earnings as adjusted. . . . . . $13,679 $10,988 $10,324 $9,837 $9,172 ======= ======= ======= ====== ====== Fixed Charges: Interest on indebtedness . . . . . . $ 4,890 $4,398 $4,692 $4,666 $4,352 Portion of rents representative of the interest factor. . . 362 304 257 230 207 ------- ------ ------ ------ ------ Fixed Charges . . . . $ 5,252 $4,702 $4,949 $4,896 $4,559 ======= ====== ====== ====== ====== Ratio of Earnings to Fixed Charges . . . . 2.60 2.34 2.09 2.01 2.01 ==== ==== ==== ==== ==== EX-13 4 FORM 10-K EXHIBIT 13 1 Exhibit 13 1st FRANKLIN FINANCIAL CORPORATION ANNUAL REPORT DECEMBER 31, 1993 2 ****************************** ** PICTURE OF CORPORATE OFFICE ** ****************************** Our Company is focused on people: customers, employees and the communities in which they live and work. 3 TABLE OF CONTENTS The Company . . . . . . . . . . . . . . . . . . . . . . . . 1 Ben F. Cheek, Jr. Office of the Year . . . . . . . . . . . 2 Chairman's Letter . . . . . . . . . . . . . . . . . . . . . 3 Selected Consolidated Financial Information . . . . . . . . 4 Management's Discussion of Operations . . . . . . . . . . . 5 Business. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Management's Report . . . . . . . . . . . . . . . . . . . . 18 Report of Independent Public Accountants. . . . . . . . . . 19 Financial Statements. . . . . . . . . . . . . . . . . . . . 20 1st Franklin Financial Corporation Investment Center. . . . 33 Directors and Management. . . . . . . . . . . . . . . . . . 34 Corporate Information . . . . . . . . . . . . . . . . . . . 34 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 81 branch offices in Georgia, 20 in Alabama and 11 in South Carolina. The Company is a wholly owned subsidiary of 1st Franklin Corporation. As of December 31, 1993, the resources of the Company were invested principally in loans which comprise 78% of the Company's assets. Approximately 68% of the Company's revenues for the fiscal year were derived from finance charges earned on these loans, 31% from insurance income earned on insurance written thereon and 1% from other sources, principally income from investments. On the basis of total capital funds employed (common stockholder's equity and subordinated debt), American Banker recently ranked the Company as the 61st largest finance company in the United States. - 1 - 4 DOUGLAS, GEORGIA 1993 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 Douglas Staff for this significant achievement. The Friendly Franklin Folks salute you! From left to right: Marc Thomas, Manager; Martha Bohannon, Teresa Lewis, Ashley Purser, Joey Hawkins, Chevonne Jackson, Dianne Moore, Supervisor, Jarrell Coffee, Vice President. -2- 5 March 29, 1994 TO OUR INVESTORS, EMPLOYEES AND FRIENDS: During this past year, we witnessed industry after industry and business after business seek a more profitable and productive operation through merger, consolidation and staff reduction. Nationally, the financial services industry followed this same pattern but in most instances, not for the same reasons. Within our industry, 1993 was one of the most profitable years ever, so the primary motivation for companies to join forces was the desire to expand or consolidate market share and prepare for future expansion. To me, this indicates a strong, vital and growing industry and one in which we at 1st Franklin look forward to playing a bigger and more meaningful part. Hopefully, the following report will evidence that fact to you. I am pleased and excited to tell you that we met or exceeded all of our growth and profit goals during this past year. The net consumer loans and sales finance receivables in our branch offices grew by 18% to $109,845,791 which placed our end of the year assets at $125,472,170. Our net profit for the year increased by 30% which provided additional support in our capital base for a continuation of our growth and expansion objectives. This excellent earnings performance permitted us to open branch offices in 10 new communities -- Greenwood, Orangeburg and York in South Carolina and Alexander City, Bessemer, Decatur, Enterprise, Florence, Russellville and Scottsboro in Alabama. These new offices will play an important role in helping us meet our growth and profit goals in the years ahead. A substantial portion of our funding requirements for 1993 came from a $12,500,000 growth in our Investment Center. You, our investors, have always been a valuable and dependable "partner" in the growth and success of 1st Franklin. This year however, was exceptional and we are deeply grateful for your confidence and support. Finally as you read through this Annual Report and study the results and accomplishments of what I consider to be an excellent business year, please keep one thing in mind. None of this could have been done without the dedication to excellence and the hard work of 456 individuals who together make up the 1st Franklin team. I salute them for producing a banner year. Very sincerely yours, Ben F. Cheek, III --------------------- Chairman of the Board -3- 6 SELECTED CONSOLIDATED FINANCIAL INFORMATION Set forth below is selected financial data of the Company. This information should be read in conjunction with the more detailed financial statements and notes thereto included elsewhere herein. Year Ended December 31 ------------------------------------------------ 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (In 000's, except ratio data) Selected Income Statement Data: Revenues . . . . . . . . $ 41,580 $34,569 $30,702 $28,189 $23,818 Net Interest Income. . . 23,469 19,485 16,800 14,573 12,898 Interest Expense . . . . 4,890 4,398 4,692 4,666 4,352 Provision for Loan Losses. . . . . . 2,407 2,209 2,137 1,790 1,193 Income Before Income Taxes . . . . . 8,427 6,286 5,375 4,941 4,613 Net Income . . . . . . . 5,961 4,587 3,858 3,668 3,377 Ratio of Earnings to Fixed Charges. . . . . 2.60 2.34 2.09 2.01 2.01 Selected Balance Sheet Data: Loans, Net . . . . . . . $ 97,485 $ 82,820 $70,748 $63,419 $57,158 Total Assets . . . . . . 125,472 107,260 89,903 79,612 71,334 Senior Debt. . . . . . . 60,148 47,380 34,111 30,603 26,190 Subordinated Debt. . . . 20,856 21,436 22,246 20,497 20,857 Stockholder's Equity . . 36,974 30,726 26,139 22,281 18,613 Ratio of Total Liabilities to Stockholder's Equity. 2.39 2.49 2.44 2.57 2.83 - 4 - 7 MANAGEMENT'S DISCUSSION OF OPERATIONS Financial Condition: The 1993 year at 1st Franklin Financial Corporation resulted in another strong financial performance for the Company, surpassing 1992's record year. Total assets increased $18,212,585 (17%) to $125,472,170 at December 31, 1993 as compared to $107,259,585 at December 31, 1992 mainly due to growth in the Company's loan and investment portfolios. Net earnings increased $1,374,067 (30%) during the current year as compared to 1992. The Company continued to position itself as a regional operation with the opening of 7 new branch offices in Alabama and 3 new branch offices in South Carolina, bringing the total number of offices to 112 in three states. Overall increases in consumer loan demand and additional business generated in new branch offices opened during the last two years enabled the Company to increase net receivables (gross receivables less unearned finance charges) $16,845,330 (18%) to $109,845,791 at December 31, 1993 from $93,000,461 at December 31, 1992. The Company's investment portfolio grew by $5,620,458 (79%) during the current year mainly due to increases in funds generated by the Company's insurance subsidiaries and due to transfers of cash and cash equivalents into higher yielding marketable debt securities. Cash and Cash Equivalents decreased $2,747,075 (32%) during 1993 and, as a result of increased sales of the Company's debt securities, senior debt increased $12,767,663 (27%) during the same period. The majority of such funds were used to finance the aforementioned increase in the Company's loan portfolio. Funds were also used to decrease other liabilities. Net Interest Income: The Company's net interest margin (the margin between the amount the Company earns on loans and investments and the amount the Company pays on securities and other borrowings) increased $3,983,786 (20%) during 1993 as compared to 1992 and $2,685,727 (16%) during 1992 as compared to 1991. These increases in the margin spreads were primarily due to higher levels of average net receivables outstanding. Average net receivables outstanding were $16,146,447 higher during the current year as compared to 1992 and $9,688,869 higher during 1992 as compared to 1991 resulting in increased interest income. Declining interest rates on the Company's borrowings during the last two years have also contributed to the increase in the net interest margin. Although average borrowings increased, lower market rates of interest enabled the Company to decrease average borrowing cost to 6.29% during 1993 as compared to 6.82% during 1992 and 8.24% during 1991. - 5 - 8 Net Insurance Income: The aforementioned increase in average net receivables also led to the $1,955,877 (24%) and $1,102,422 (15%) increase in net insurance income during the comparable periods. Changes in net insurance income generally correspond to changes in the level of average net receivables outstanding. Increases in average net receivables normally lead to higher levels of insurance in-force which increases insurance income. Provision For Loan Losses: During 1993 net charge-offs were $1,874,078 as compared to $1,590,979 during 1992 mainly due to higher levels of average net receivables outstanding. This resulted in the Provision for Loan Losses increasing $197,842 (9%) during the year just ended. Net charge-offs decreased $482,619 during 1992 as compared to 1991. The decrease in loan charge-offs during this period is mainly attributed to a leveling off of record bankruptcy filings the Company experienced during the years prior to 1992. Although net charge-offs declined during 1992, Management made the decision to increase the loan loss allowance to 3.33% of net receivables effective December 31, 1992 from 3.00% which had been in effect at December 31, 1991. This decision was based on a more conservative review of the loan portfolio. The Provision for Loan Losses increased $71,408 (3%) during 1992 as compared to 1991 due to the increase in the allowance for loan losses. Other Operating Expenses: The Company has opened 27 new branch offices during the two year period just ended (10 in 1993 and 17 in 1992) and the additional personnel required to operate these offices contributed to the $2,453,486 (21%) and $1,487,159 (14%) increase in Personnel Expense during 1993 and 1992, respectively. Increases in employee compensation based on cost-of-living and/or merit salary raises, increases in claims of the Company's self-insured group medical plan and increases in other accrued employee benefits also contributed to the increase in Personnel Expense. Additional expenses related to the new offices opened particularly rent, telephone, utilities, maintenance and depreciation were the major cause of the $426,339 (15%) and $602,029 (26%) increase in Occupancy Expense during 1993 and 1992, respectively. During 1992, the Company completed a two year project to convert its branch operations to a new enhanced version of computer software and hardware. Increases in depreciation expense related to fixed assets purchased for the conversion also contributed to the increase in Occupancy Expense in 1992. Increases in advertising expenses, computer expenses, collection expenses, legal and audit expenses, supervision expenses, postage and supplies were the main causes of the $806,689 (17%) increase in Other Operating Expenses during 1993 as compared to 1992. The conversion to the new enhanced computer information system used by the branch operations caused increases in computer expenses during 1992 which was the primary causes of the $718,575 (17%) increase in Other Operating Expenses during 1992 as compared to 1991. An increase in premium tax expense charged to the Company's property insurance subsidiary was another major factor contributing to the increase in Other Operating Expenses during 1992. - 6 - 9 Income Taxes: Effective income tax rates for the years ended December 31, 1993, 1992 and 1991 were 29.3%, 27.0% and 28.2%, respectively. Certain tax benefits provided by law to life insurance companies substantially reduce the life insurance subsidiary's effective tax rate and thus decreases the Company's overall tax rate below statutory rates. The increase in the effective rate for 1993 was mainly due to the Parent Company and the property insurance subsidiary, which are taxed at higher rates, earning a larger portion of the pretax income as compared to 1992 and 1991. Utilization of loss carryforwards to offset capital gains resulted in the rate decreasing during 1992. Although the Company also utilized loss carryforwards during 1993, the rate increased due to the aforementioned increase in the share of pretax income earned by the Parent Company and property insurance subsidiary. In February 1992, the Financial Accounting Standards Board issued Statement No. 109, "Accounting for Income Taxes". Under Statement No. 109, deferred income taxes are determined based on current enacted income tax rates. The Company adopted Statement No. 109 effective January 1, 1993. The effect of the implementation of Statement No. 109 was not material to the Company's results of operations or its financial position. 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 which meet the investment requirements of the public and the continued availability of unused bank credit from its lenders. Net cash flows from financing activities, excluding bank borrowings, increased $12,484,787 during 1993 as compared to the prior year. During this same period, collections on loans increased $10,999,275 thereby providing a positive effect on liquidity. The majority 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 which are responsive to the demands of the marketplace or maintain sufficient unused bank borrowings. In addition to the debt securities program, the Company has three external sources of funds through the use of three Credit Agreements. One agreement provides for available borrowings of $21,000,000. Available borrowings were $8,800,000 and $8,766,000 at December 31, 1993 and 1992, respectively, relating to this agreement. The Company also has an additional $1,500,000 ($1,000,000 prior to March 31, 1992) agreement for general operating purposes. Available borrowings under this agreement were $1,377,444 and $1,114,420 at December 31, 1993 and 1992, respectively. A third Credit Agreement was negotiated in May, 1993 providing an additional $2,000,000 (all of which was available at year end) for general operating purposes. This recent $2,000,000 credit agreement will replace the $1,500,000 credit agreement when it matures in 1994. - 7 - 10 Liquidity was not adversely affected by delinquent accounts as the percentage of outstanding receivables 60 days or more past due decreased to 4.0% of receivables at December 31, 1993 from 4.5% of receivables at December 31, 1992. During 1994 the Company plans to open an additional 8 to 10 new branch offices. Management does not expect any significant adverse impact on liquidity during 1994 as a result of these expansion plans. The Georgia Insurance Department adopted regulations during 1993 which reduce premium rates that may be charged on credit life insurance. These regulations became effective on November 1, 1993, and apply to credit life insurance offered by the Company to its customers from and after that date. The lower rates did not have a material impact on current year earnings. In future years, the Company expects the earnings generated by recently opened new branch offices and increases in overall volume to offset the loss of revenue due to lower insurance rates. - 8 - 11 BUSINESS The Company is engaged in the business of making consumer loans to individuals in relatively small amounts and 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, 1993 direct cash loans comprised 66% of the Company's outstanding loans, real estate loans 24% and sales finance contracts 10%. 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 ----------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (In thousands) Direct Cash Loans . . . . . $18,618 $14,669 $12,624 $10,963 $ 9,904 Real Estate Loans . . . . . 6,722 6,587 6,454 5,909 5,371 Sales Finance Contracts . . 2,249 1,825 1,523 1,455 1,435 ------- ------- ------- ------- ------- Total Finance Charges . . $27,589 $23,081 $20,601 $18,327 $16,710 ======= ======= ======= ======= ======= 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. These loans are repayable in 6 to 48 monthly installments and generally do not exceed $5,000 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 120 months. Interest and fees 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 exceed $5,000 in principal amount. The interest rates charged on these contracts are in compliance with applicable federal and state laws. - 9 - 12 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 takes 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. The Company is in competition with several national and regional finance companies, as well as a variety of local finance companies in the communities which it serves. The Company 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, 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 --------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Direct Cash Loans . . . . . 31.81% 31.87% 32.55% 32.54% 32.89% Real Estate Loans . . . . . 22.70 23.42 23.70 23.75 23.46 Sales Finance Contracts . . 20.47 20.66 20.94 22.53 22.89 Information regarding the Company's operations: As of December 31 ----------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Number of Branch Offices. . 112 102 85 77 73 Number of Employees . . . . 456 390 346 312 304 Average Total Loans Outstanding Per Branch ( in 000's). . . $1,124 $1,037 $1,041 $1,034 $983 Average Number of Loans Outstanding Per Branch. . 778 761 772 758 757 - 10 - 13 DESCRIPTION OF LOANS Year Ended December 31 ---------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- DIRECT CASH LOANS: Number of Loans Made to New Borrowers . . . . 24,978 23,479 17,779 14,101 14,086 Number of Loans Made to Former Borrowers. . . 11,710 9,639 7,901 7,903 6,486 Number of Loans Made to Present Borrowers . . 54,311 44,866 37,708 34,236 30,411 Total Number of Loans Made . . . . . . . . . . 90,999 77,984 63,388 56,240 50,983 Total Volume of Loans Made (in 000's). . . . . $127,103 $100,176 $77,111 $68,607 $60,921 Average Size of Loans Made . . . . . . . $ 1,397 $ 1,285 $ 1,216 $ 1,220 $ 1,195 Number of Loans Outstanding. . . . . . . 66,209 57,458 47,489 42,099 38,380 Total of Loans Outstanding (in 000's) . $ 82,595 $ 65,560 $51,027 $45,518 $39,690 Percent of Total Loans . . 66% 62% 58% 57% 55% Average Balance on Outstanding Loans. . . . $ 1,247 $ 1,141 $ 1,075 $ 1,081 $ 1,034 REAL ESTATE LOANS: Total Number of Loans Made . . . . . . . . . . 2,315 1,886 3,345 2,024 1,875 Total Volume of Loans Made (in 000's). . . . . $ 20,330 $15,366 $15,693 $17,769 $15,805 Average Size of Loans Made . . . . . . . $ 8,782 $ 8,147 $ 4,692 $ 8,779 $ 8,429 Number of Loans Outstanding. . . . . . . 3,930 3,796 3,836 3,663 3,333 Total of Loans Outstanding (in 000's) . $ 30,174 $28,171 $28,388 $26,394 $24,631 Percent of Total Loans . . 24% 27% 32% 33% 34% Average Balance on Outstanding Loans. . . . $ 7,678 $ 7,421 $ 7,401 $ 7,206 $ 7,390 SALES FINANCE CONTRACTS: Number of Contracts Purchased. . . . . . . . 20,726 20,507 17,463 14,330 17,958 Total Volume of Contracts Purchased (in 000's) . . $ 18,770 $17,512 $13,160 $10,580 $12,205 Average Size of Contracts Purchased. . . . . . . . $ 906 $ 854 $ 754 $ 738 $ 680 Number of Contracts Outstanding. . . . . . . 17,020 16,405 14,303 12,588 13,529 Total of Contracts Outstanding (in 000's) . $ 13,099 $12,053 $ 9,096 $ 7,744 $ 7,421 Percent of Total Loans . . 10% 11% 10% 10% 11% Average Balance on Outstanding Contracts. . $ 770 $ 735 $ 636 $ 615 $ 549 - 11 - 14 LOANS ACQUIRED, LIQUIDATED AND OUTSTANDING Year Ended December 31 ------------------------------------------------ 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (in thousands) LOANS ACQUIRED DIRECT CASH LOANS . . . . $127,084 $ 98,488 $ 74,672 $67,645 $59,525 REAL ESTATE LOANS . . . . 19,485 13,779 11,195 11,412 10,966 SALES FINANCE CONTRACTS . 17,759 15,814 11,694 9,323 8,861 NET BULK PURCHASES. . . . 1,875 4,973 8,403 8,576 9,579 -------- -------- -------- ------- ------- TOTAL LOANS ACQUIRED. . . $166,203 $133,054 $105,964 $96,956 $88,931 ======== ======== ======== ======= ======= LOANS LIQUIDATED DIRECT CASH LOANS . . . . $110,068 $ 85,643 $ 71,602 $62,779 $56,068 REAL ESTATE LOANS . . . . 18,327 15,583 13,699 16,006 12,419 SALES FINANCE CONTRACTS . 17,724 14,555 11,808 10,257 10,974 -------- -------- -------- ------- ------- TOTAL LOANS LIQUIDATED. . $146,119 $115,781 $ 97,109 $89,042 $79,461 ======== ======== ======== ======= ======= LOANS OUTSTANDING DIRECT CASH LOANS . . . . $ 82,595 $ 65,560 $ 51,027 $45,518 $39,690 REAL ESTATE LOANS . . . . 30,174 28,171 28,388 26,394 24,631 SALES FINANCE CONTRACTS . 13,099 12,053 9,096 7,744 7,421 -------- -------- -------- ------- ------- TOTAL LOANS OUTSTANDING . $125,868 $105,784 $ 88,511 $79,656 $71,742 ======== ======== ======== ======= ======= UNEARNED FINANCE CHARGES DIRECT CASH LOANS . . . . $ 14,125 $ 10,959 $ 8,340 $ 7,429 $ 6,393 REAL ESTATE LOANS . . . . 65 133 176 206 198 SALES FINANCE CONTRACTS . 1,832 1,691 1,212 1,060 989 -------- -------- -------- ------- ------- TOTAL UNEARNED FINANCE CHARGES . . . . $ 16,022 $ 12,783 $ 9,728 $ 8,695 $ 7,580 ======== ======== ======== ======= ======= - 12 - 15 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. As of December 31 ------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (in thousands, except % data) DIRECT CASH LOANS: 60-89 Days Past Due. . . . . . $1,120 $ 850 $ 819 $ 802 $633 Percentage of Outstanding. . . 1.36% 1.30% 1.61% 1.76% 1.59% 90 Days or More Past Due . . . $1,781 $1,524 $1,643 $1,085 $824 Percentage of Outstanding. . . 2.16% 2.32% 3.22% 2.38% 2.08% REAL ESTATE LOANS: 60-89 Days Past Due. . . . . . $ 439 $ 364 $ 627 $ 395 $549 Percentage of Outstanding. . . 1.46% 1.29% 2.21% 1.50% 2.23% 90 Days or More Past Due . . . $1,206 $1,551 $1,796 $ 963 $451 Percentage of Outstanding. . . 4.00% 5.51% 6.33% 3.65% 1.83% SALES FINANCE CONTRACTS: 60-89 Days Past Due. . . . . . $ 195 $ 165 $ 140 $ 132 $202 Percentage of Outstanding. . . 1.49% 1.37% 1.54% 1.70% 2.72% 90 Days or More Past Due . . . $ 298 $ 265 $ 261 $ 195 $242 Percentage of Outstanding. . . 2.27% 2.20% 2.87% 2.52% 3.26% - 13 - 16 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 ------------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (in thousands, except % data) DIRECT CASH LOANS Average Net Loans . . . . $ 58,538 $46,026 $38,786 $33,686 $30,110 Liquidations. . . . . . . $110,068 $85,643 $71,603 $62,784 $56,068 Net Losses. . . . . . . . $ 1,582 $ 1,388 $ 1,788 $ 1,317 $ 994 Net Losses as % of Average Net Loans . . . . . . . 2.70% 3.02% 4.61% 3.91% 3.14% Net Losses as % of Liquidations. . . . . . 1.44% 1.62% 2.50% 2.10% 1.68% REAL ESTATE LOANS Average Net Loans . . . . $ 29,608 $28,124 $27,235 $24,886 $22,890 Liquidations. . . . . . . $ 18,327 $15,583 $13,699 $16,001 $12,419 Net Losses. . . . . . . . $ 20 $ 7 $ 63 $ 172 $ 17 Net Losses as % of Average Net Loans . . . . . . . .07% .02% .23% .69% .07% Net Losses as % of Liquidations. . . . . . .11% .04% .46% 1.07% .14% SALES FINANCE CONTRACTS Average Net Loans . . . . $ 10,984 $ 8,833 $ 7,274 $ 6,461 $ 6,268 Liquidations. . . . . . . $ 17,724 $14,555 $11,807 $10,257 $10,974 Net Losses. . . . . . . . $ 272 $ 196 $ 223 $ 214 $ 217 Net Losses as % of Average Net Loans . . . . . . . 2.48% 2.22% 3.06% 3.31% 3.46% Net Losses as % of Liquidations. . . . . . 1.53% 1.35% 1.89% 2.09% 1.98% ALLOWANCE FOR LOAN LOSSES The Allowance for Loan Losses is determined based on the Company's previous loss experience, a review of specifically identified potentially uncollectible loans 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 possible 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. - 14 - 17 CREDIT INSURANCE When authorized to do so by the borrowers, the Company writes life, accident and health, property and automobile insurance in connection with its loans. Non-recording insurance is written on direct cash loans and sales finance contracts where the security instrument is not recorded. 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 In Georgia direct cash loans of less than $3,000 in principal amount are made under the Georgia Industrial Loan Act. Direct cash loans in excess of $3,000 and the larger first and second mortgage real estate loans are not subject to the Georgia Industrial Loan Act and the rates are negotiable subject to State Usury Laws. First and second mortgage real estate loans are made in compliance with the Georgia Residential Mortgage Act. Sales finance contracts are made under the Georgia Retail Installment and Home Solicitation Sales Act. All loans and sales finance contracts in South Carolina are made under the South Carolina Consumer Protection Code. Rates are negotiable. Maximum rates are filed with the Department of Consumer Affairs and posted in each location. In Alabama direct cash loans of less than $750 in principal amount are made under the Alabama Small Loan Act. Direct cash loans in excess of $750 in principal amount are made under the Alabama Consumer Finance Law, with a negotiable rate allowed on loans in excess of $2,000 in principal amount. The larger first and second mortgage real estate loans are made under the Alabama Consumer Finance Law at a negotiable rate. Sales finance contracts are made under the Alabama Consumer Finance Law, with a negotiable rate allowed on contracts in excess of $2,000 in principal amount. State laws require that each office in which a small loan business is conducted be licensed by the state. Georgia law also requires a license for conducting mortgage loan business in the state. 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 complicance 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") and the Fair Credit Reporting Act. On all loans made, the finance charge, the annual percentage rate, the total of payments and other disclosures required by the Truth-in-Lending Act are disclosed to the customer. On real estate loans, the three-day right of rescission is observed and the required disclosures are made. - 15 - 18 A Federal Trade Commission ruling prevents the Company and other consumer lenders from using 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 has not experienced any adverse impact on the quality of its receivables as the primary credit consideration in making direct cash loans is the customer's ability to repay the loan. 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. 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 -------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Bank Borrowings . . . . . 10% 12% 13% 15% 11% Public Senior Debt. . . . 38 32 25 23 26 Public Subordinated Debt. 16 20 25 26 29 Other Liabilities . . . . 6 7 8 8 8 Stockholder's Equity. . . 30 29 29 28 26 --- --- --- --- --- Total . . . . . . . . . 100% 100% 100% 100% 100% === === === === === Number of Investors . . . 4,400 4,195 3,964 3,845 3,746 All of the Company's outstanding common stock is held by 1st Franklin Corporation 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 --------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Senior Borrowings . . . . 6.24% 6.52% 8.09% 8.83% 9.42% Subordinated Borrowings . 6.37 7.25 8.43 8.96 9.17 All Borrowings. . . . . . 6.29 6.82 8.24 8.89 9.30 - 16 - 19 The Company's financial ratios relating to debt are as follows: At December 31 -------------------------------------------- 1993 1992 1991 1990 1989 Total Liabilities to Stockholder's Equity. . 2.39 2.49 2.44 2.57 2.83 Unsubordinated Debt to Subordinated Debt plus Stockholder's Equity. . 1.17 1.06 .86 .86 .81 - 17 - 20 MANAGEMENT'S REPORT The accompanying financial statements were prepared in accordance with generally accepted accounting principles by the management of 1st Franklin Financial Corporation 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 & Co., 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 - 21 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 wholly owned subsidiary of 1st Franklin Corporation) AND SUBSIDIARIES as of December 31, 1993 and 1992, and the related Consolidated Statements of Income and Retained Earnings and Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1993. 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, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Atlanta, Georgia February 23, 1994 - 19 - 22 1st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 1993 AND 1992 ASSETS 1993 1992 ---- ---- CASH AND CASH EQUIVALENTS: Cash and Due From Banks . . . . . . . . . . $ 1,229,556 $ 1,881,492 Short-term Investments, $300,000 in trust in 1993 and 1992 (Note 4). . . . . . . . . . . . 4,596,509 6,691,648 ------------ ------------ 5,826,065 8,573,140 ------------ ------------ LOANS (Note 2): Direct Cash Loans . . . . . . . . . . . . . 82,595,004 65,559,967 First Mortgage Real Estate Loans. . . . . . 24,920,180 23,325,718 Second Mortgage Real Estate Loans . . . . . 5,254,556 4,845,074 Sales Finance Contracts . . . . . . . . . . 13,098,609 12,052,891 ------------ ------------ 125,868,349 105,783,650 Less: Unearned Finance Charges . . . . . . 16,022,558 12,783,189 Unearned Insurance Premiums and Commissions. . . . . . . . . . 8,707,500 7,088,127 Allowance for Loan Losses. . . . . . 3,653,121 3,091,983 ------------ ------------ Net Loans. . . . . . . . . . . . . 97,485,170 82,820,351 MARKETABLE DEBT SECURITIES (Note 3) . . . . . 12,764,567 7,144,109 ------------ ------------ OTHER ASSETS: Equipment and Leasehold Improvements, less accumulated depreciation and amortization of $3,809,663 and $3,389,107 in 1993 and 1992, respectively . . . . . . . . . . . . . . 2,511,114 2,609,496 Prepaid Income Taxes, net (Note 9). . . . . 1,531,076 1,391,038 Due from Nonaffiliated Insurance Company. . 696,624 577,843 Miscellaneous . . . . . . . . . . . . . . . 4,657,554 4,143,608 ------------ ------------ 9,396,368 8,721,985 ------------ ------------ TOTAL ASSETS. . . . . . . . . . . . $125,472,170 $107,259,585 ============ ============ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. - 20 - 23 1st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 1993 AND 1992 LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992 ---- ---- SENIOR DEBT (Note 5): Senior Demand Notes, including accrued interest. . . . . . . . . . . . . $ 26,685,656 $ 20,840,884 Commercial Paper. . . . . . . . . . . . . . 21,139,665 13,919,750 Notes Payable to Banks. . . . . . . . . . . 12,322,556 12,619,580 ------------ ------------ 60,147,877 47,380,214 ------------ ------------ ACCOUNTS PAYABLE AND ACCRUED EXPENSES . . . . 7,495,036 7,718,060 ------------ ------------ SUBORDINATED DEBT (Note 6). . . . . . . . . . 20,855,733 21,435,633 ------------ ------------ Total Liabilities . . . . . . . . . . . 88,498,646 76,533,907 ------------ ------------ COMMITMENTS (Note 7) STOCKHOLDER'S EQUITY: Common stock; par value $100 per share; 2,000 shares authorized; 1,700 shares outstanding. . . . . . . . . 170,000 170,000 Net Unrealized Gains on Investment Securities Available for Sale . . . . . . 286,905 -- Retained Earnings . . . . . . . . . . . . . 36,516,619 30,555,678 ------------ ------------ Total Stockholder's Equity. . . . . . . . 36,973,524 30,725,678 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. . . . . . . $125,472,170 $107,259,585 ============ ============ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. - 21 - 24 1st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 1993 1992 1991 ---- ---- ---- INTEREST INCOME: Finance Charges . . . . . . . . $27,589,389 $23,080,510 $20,600,659 Investment Income . . . . . . . 769,959 803,374 891,466 ----------- ----------- ----------- 28,359,348 23,883,884 21,492,125 ----------- ----------- ----------- INTEREST EXPENSE: Senior Debt . . . . . . . . . . 3,265,122 2,522,844 2,593,348 Subordinated Debt . . . . . . . 1,624,977 1,875,577 2,099,041 ----------- ----------- ----------- 4,890,099 4,398,421 4,692,389 ----------- ----------- ----------- NET INTEREST INCOME . . . . . . . 23,469,249 19,485,463 16,799,736 PROVISION FOR LOAN LOSSES (Note 2). . . . . . 2,406,512 2,208,670 2,137,262 ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . 21,062,737 17,276,793 14,662,474 ----------- ----------- ----------- NET INSURANCE INCOME: Premiums and Commissions. . . . 12,893,679 10,444,021 8,970,344 Insurance Claims and Expenses . (2,649,444) (2,155,663) (1,784,408) ----------- ----------- ----------- 10,244,235 8,288,358 7,185,936 ----------- ----------- ----------- OTHER REVENUE (Note 8). . . . . . 327,034 240,597 239,190 ----------- ----------- ----------- OPERATING EXPENSES (Note 8): Personnel Expense . . . . . . . 14,207,265 11,753,779 10,266,620 Occupancy Expense . . . . . . . 3,304,386 2,878,047 2,276,018 Other Expense . . . . . . . . . 5,694,908 4,888,219 4,169,644 ----------- ----------- ----------- 23,206,559 19,520,045 16,712,282 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES. . . . 8,427,447 6,285,703 5,375,318 PROVISION FOR INCOME TAXES (Note 9) . . . . . 2,466,506 1,698,829 1,517,356 ----------- ----------- ----------- NET INCOME. . . . . . . . . . . . 5,960,941 4,586,874 3,857,962 RETAINED EARNINGS, beginning. . . 30,555,678 25,968,804 22,110,842 ----------- ----------- ----------- RETAINED EARNINGS, ending . . . . $36,516,619 $30,555,678 $25,968,804 =========== =========== =========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. - 22 - 25
1st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 Increase (Decrease) in Cash and Cash Equivalents 1993 1992 1991 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . $ 5,960,941 $ 4,586,874 $ 3,857,962 Adjustments to reconcile net income to net cash provided by operating activities: Provision for Loan Losses. . . . . . . . . . . 2,406,512 2,208,670 2,137,262 Depreciation and Amortization. . . . . . . . . 890,805 716,551 487,259 Prepaid Income Taxes . . . . . . . . . . . . . (322,952) (323,034) (62,748) Gain on sale of marketable securities and equipment. . . . . . . . . . . . . . . . (234,507) (323,795) (16,422) (Increase) Decrease in Miscellaneous Assets. . (515,697) (1,723,865) 47,235 Increase (Decrease) in Other Liabilities . . . (223,024) 309,900 1,177,222 ------------ ------------ ------------ Net Cash Provided. . . . . . . . . . . . . 7,962,078 5,451,301 7,627,770 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Loans originated or purchased. . . . . . . . . (85,431,146) (71,641,927) (57,533,042) Loan payments. . . . . . . . . . . . . . . . . 68,359,815 57,360,540 48,067,391 Purchases of marketable securities . . . . . . (11,543,876) (6,011,483) (3,148,042) Sales of marketable securities . . . . . . . . 6,151,337 4,702,268 1,224,520 Redemptions of securities. . . . . . . . . . . 300,000 480,998 700,000 Principal payments on securities . . . . . . . 47,660 26,249 15,011 Capital expenditures . . . . . . . . . . . . . (806,101) (1,707,287) (1,078,534) Proceeds from sale of equipment. . . . . . . . 25,395 39,777 8,057 ------------ ------------ ------------ Net Cash Used. . . . . . . . . . . . . . . (22,896,916) (16,750,865) (11,744,639) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in Notes Payable to Banks and Senior Demand Notes . . . . . . 5,547,748 8,255,439 2,994,190 Commercial Paper issued. . . . . . . . . . . . 12,038,076 11,092,191 9,298,849 Commercial Paper redeemed. . . . . . . . . . . (4,818,161) (6,078,408) (8,785,427) Subordinated Debt issued . . . . . . . . . . . 4,843,874 3,299,673 5,030,646 Subordinated Debt redeemed . . . . . . . . . . (5,423,774) (4,109,563) (3,281,823) ------------ ------------ ------------ Net Cash Provided. . . . . . . . . . . . . 12,187,763 12,459,332 5,256,435 ------------ ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . (2,747,075) 1,159,768 1,139,566 CASH AND CASH EQUIVALENTS, beginning . . . . . . 8,573,140 7,413,372 6,273,806 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, ending. . . . . . . . $ 5,826,065 $ 8,573,140 $ 7,413,372 ============ ============ ============ Cash paid during the year for: Interest . . . . $ 4,854,986 $ 4,616,836 $ 4,510,356 Income Taxes . . 2,509,569 2,201,997 1,409,443 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 23 - 26 1st FRANKLIN FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 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 112 branch offices. The Company is a wholly owned subsidiary of 1st Franklin Corporation (the "Parent"). 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. 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 all 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 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 the requirements of the Financial Accounting Standards Board's Statement No. 91, "Accounting for Non-Refundable Fees and Costs Associated With Originating or Acquiring Loans and Initial Direct Costs of Leases". The property and casualty credit insurance policies written by the Company are reinsured by the property insurance subsidiary. The premiums are deferred and earned on a Rule of 78's basis (which approximates the pro-rata method). - 24 - 27 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: The Company and its insurance subsidiaries have certain temporary differences between reporting income and expenses for financial statement purposes and for income tax purposes. Deferred income taxes are provided where applicable. 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. 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 average life of the loans purchased. Marketable Debt Securities: Effective December 31, 1993, the Company adopted the Financial Accounting Standards Board's Statement of Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," related to the method of accounting for investment securities. Management has designated all marketable debt securities held in the Company's investment portfolio at December 31, 1993 as being available-for-sale. The respective investment portfolio is reported at fair market value at year end, with unrealized gains and losses excluded from earnings and reported in a separate component of Stockholder's Equity, net of taxes. Prior to December 31, 1993, it had been Management's intention to hold securities to maturity and the respective securities were stated at cost, adjusted for amortization of premium and accretion of discounts. - 25 - 28 2. LOANS There were $5,038,929 and $4,719,440 of loans in a non-accrual status at December 31, 1993 and 1992, 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, 1993 is as follows: 1st Mortgage 2nd Mortgage Sales Due In Direct Cash Real Estate Real Estate Finance Calendar Year Loans Loans Loans Contracts - --------------- ----- ----- ----- --------- 1994. . . . . . 73.17% 15.98% 15.23% 73.08% 1995. . . . . . 24.72 16.35 16.49 22.17 1996. . . . . . 1.77 15.07 17.13 4.38 1997. . . . . . .20 12.53 16.27 .26 1998. . . . . . .06 9.76 12.85 .11 1999 & later. . .08 30.31 22.03 -- ------ ------ ------ ------ 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, 1993 and 1992, cash collections applied to principal of loans totaled $68,359,815 and $57,360,540, respectively, and the ratios of these cash collections to average net receivables were 68.96% and 69.12%, respectively. Allowance for Loan Losses: The Allowance for Loan Losses is based on the Company's previous loss experience, a review of specifically identified potentially uncollectible loans 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 possible losses on the current loan portfolio. 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 computation, 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. - 26 - 29 An analysis of the allowance for the years ended December 31, 1993, 1992 and 1991 is shown in the following table: 1993 1992 1991 ---- ---- ---- Beginning Balance. . . . . . $3,091,983 $2,363,480 $2,130,187 Provision for Loan Losses. 2,406,512 2,208,670 2,137,262 Bulk Purchase Accounts . . 28,704 110,812 169,629 Charge-Offs. . . . . . . . (2,523,801) (2,251,123) (2,672,195) Recoveries . . . . . . . . 649,723 660,144 598,597 ---------- ---------- ---------- Ending Balance . . . . . . . $3,653,121 $3,091,983 $2,363,480 ========== ========== ========== 3. MARKETABLE DEBT SECURITIES The amortized cost and estimated market values of debt securities are as follows: Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- December 31, 1993: - ----------------- U.S. Treasury Securities and obligations of U.S. government corporations and agencies . . . . . $ 4,689,224 $100,769 $ (8,790) $ 4,781,203 Obligations of states and political subdivisions 7,195,722 236,385 (904) 7,431,203 Corporate Securities . . 526,832 31,170 (5,841) 552,161 ----------- -------- -------- ----------- $12,411,778 $368,324 $(15,535) $12,764,567 =========== ======== ======== =========== December 31, 1992: - ----------------- U.S. Treasury Securities and obligations of U.S. government corporations and agencies . . . . . $ 6,075,901 $ 95,567 $(51,231) $ 6,120,237 Obligations of states and political subdivisions 789,976 5,075 (6,864) 788,187 Corporate Securities . . 278,232 15,175 -- 293,407 ----------- -------- -------- ----------- $ 7,144,109 $115,817 $(58,095) $ 7,201,831 =========== ======== ======== =========== Corporate securities as of December 31, 1992 include brokered certificates of deposits with average maturities of 3 years. - 27 - 30 The amortized cost and estimated market values of debt securities at December 31, 1993, by contractual maturity, are shown below: Estimated Amortized Market Cost Value ---- ----- Due in one year or less . . . . . . . . $ 299,488 $ 299,523 Due after one year through five years . 2,015,426 2,045,698 Due after five years through ten years. 7,825,463 8,042,486 Due after ten years . . . . . . . . . . 2,271,401 2,376,860 ----------- ----------- $12,411,778 $12,764,567 =========== =========== Proceeds from sales of investments in debt securities during 1993 were $6,151,337. Gross gains of $223,982 and gross losses of $(954) were realized on these sales. Proceeds from sales of investments in debt securities during 1992 were $4,702,268. Gross gains of $225,126 and gross losses of $(793) were realized on these sales. 4. PLEDGED ASSETS At December 31, 1993, certain Short-term Investments of the insurance subsidaries 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. A 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 termination date of December 31, 1995. The banks may, however, terminate the agreement upon the violation of any of the financial ratio requirements or covenants contained in the agreement or in May 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. Repayment of borrowings under the Credit Agreement is guaranteed by the Parent. - 28 - 31 The Company has two additional Credit Agreements for $1,500,000 and $2,000,000 which are used for general operating purposes. Borrowings under the $1,500,000 agreement are on an unsecured basis at 1/4% above the prime rate of interest. This agreement has a termination date of June 1, 1994. Borrowings under the $2,000,000 agreement are on an unsecured basis a 1/8% above the prime rate of interest. This agreement has a termination date of July 1, 1994. Available borrowings on the $1,500,000 and $2,000,000 credit agreements at December 31, 1993 were $1,377,444 and $2,000,000, respectively. Repayment of borrowings under each of these Credit Agreements is guaranteed by the Parent. 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) 1993: - ---- Bank. . . . . . . 6.25% $12,620 $10,638 6.25% Senior Notes. . . 6.02 26,967 23,602 6.03 Commercial Paper. 6.49 21,270 17,729 6.50 All Categories. 6.23 60,148 51,968 6.23 1992: - ---- Bank. . . . . . . 6.25% $12,620 $ 8,999 6.52% Senior Notes. . . 6.03 20,841 15,984 6.21 Commercial Paper. 6.53 16,277 13,444 6.95 All Categories. 6.24 47,380 38,427 6.54 1991: - ---- Bank. . . . . . . 6.74% $13,356 $11,501 8.79% Senior Notes. . . 6.58 13,685 11,265 7.42 Commercial Paper. 7.73 10,524 9,280 8.43 All Categories. 6.93 34,111 32,046 8.21 - 29 - 32 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 ------------------------ --------------------- 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- 6.42% 6.96% 8.30% 6.63% 7.57% 8.82% Maturity information on the Company's Subordinated Debt at December 31, 1993 is as follows: Amount Maturing ------------------------------------------- Based on Maturity Based on Interest Year of Maturity Date Adjustment Period ------------------- ---- ----------------- 1994. . . . . . . $ 4,109,204 $16,480,922 1995. . . . . . . 3,507,271 3,983,907 1996. . . . . . . 5,166,447 271,684 1997. . . . . . . 8,072,811 119,220 ----------- ----------- $20,855,733 $20,855,733 =========== =========== 7. COMMITMENTS 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 $1,085,694, $911,447 and $769,450 for the years ended December 31, 1993, 1992 and 1991, respectively. Under the existing noncancelable leases, the Company's minimum aggregate rental commitment at December 31, 1993, amounts to $1,106,416 for 1994, $807,916 for 1995, $520,196 for 1996, $300,553 for 1997, $157,250 for 1998 and $2,800 for 1999. The total commitment is $2,895,131. - 30 - 33 8. RELATED PARTY TRANSACTIONS Repayment of borrowings under the Company's Credit Agreements is guaranteed by the Parent. See Note 5. As a result of normal recurring intercompany transactions, the Parent owed the Company $2,231,455 at December 31, 1993. Beneficial owners of the Company's parent 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 1993, 1992 and 1991 related to these agreements was $63,800, $63,800 and $78,375, respectively, which in management's opinion approximates the Company's actual cost of these services. At December 31, 1993, the Company maintained $500,000 of certificates of deposit and $172,989 in a money market account with Liberty at market rates and terms. The Company also had $2,038,013 in demand deposits with Liberty at December 31, 1993. The Company leases a portion of its properties (see Note 7) for an aggregate of $11,750 per month from certain officers or stockholders of the Parent. In management's opinion, these leases are at rates which approximate those obtainable from independent third parties. 9. INCOME TAXES The Provision for Income Taxes for the years ended December 31, 1993, 1992 and 1991 is made up of the following components: 1993 1992 1991 ---- ---- ---- Current - Federal . . . . . . . $2,434,468 $1,755,456 $1,411,924 Current - State . . . . . . . . 354,990 266,407 168,180 ---------- ---------- ---------- Total Current . . . . . . . . 2,789,458 2,021,863 1,580,104 ---------- ---------- ---------- Prepaid - Federal . . . . . . . (251,968) (254,435) (44,216) Prepaid - State . . . . . . . . (70,984) (68,599) (18,532) ---------- ---------- ---------- Total Prepaid . . . . . . . . (322,952) (323,034) (62,748) ---------- ---------- ---------- Total Provision . . . . . . $2,466,506 $1,698,829 $1,517,356 ========== ========== ========== - 31 - 34 Temporary differences create deferred federal tax assets and liabilities which are detailed below for December 31, 1993: Deferred Deferred Tax Tax Assets Liabilities ------ ----------- Depreciation. . . . . . . . . . $ -- $ 99,372 Provision for Loan Losses . . . 1,318,565 -- Insurance Commissions . . . . . -- 451,930 Unearned Premium Reserves . . . 647,678 -- Unrealized Gains (Losses) on Investment Securities . . . . -- 65,883 Other . . . . . . . . . . . . . 231,680 50,202 ---------- -------- $2,197,923 $667,387 ========== ======== The Company's effective tax rate for the years ended December 31, 1993, 1992 and 1991 is analyzed as follows: 1993 1992 1991 ---- ---- ---- Statutory Federal income tax rate. . 34.0% 34.0% 34.0% State income tax, net of Federal tax effect . . . . . . . . . . . . 2.2 2.0 1.8 Net tax effect of IRS regulations on life insurance subsidiary . . . (6.8) (7.8) (7.3) Other items. . . . . . . . . . . . . ( .1) (1.2) (.3) ---- ---- ---- Effective Tax Rate . . . . . . . 29.3% 27.0% 28.2% ==== ==== ==== In February 1992, the Financial Accounting Standards Board issued Statement No. 109, "Accounting for Income Taxes". Under Statement No. 109, deferred income taxes are determined based on current enacted income tax rates. The Company adopted Statement No. 109 effective January 1, 1993. The effect of the implementation of Statement No. 109 was not material to the Company's results of operations or its financial position. - 32 - 35 1st FRANKLIN FINANCIAL CORPORATION INVESTMENT CENTER CORPORATE OFFICE - TOCCOA, GEORGIA ******************** ** PICTURE OF EMPLOYEES ** ******************** Our dedicated staff works diligently to offer innovative services and to earn the trust and confidence our investors have placed in this organization. From left to right: Lynn Cox, Investment Center Director, Sandra Oliver, Shelby Gober, Melissa Craig, Joyce Robinson, Jodi Cash. - 33 - 36 DIRECTORS AND MANAGEMENT Directors - --------- Principal Occupation, Has Served as a Name Title and Company Director Since ---- ----------------- -------------- W. Richard Acree President, Acree Oil Company, 1970 Toccoa, Georgia 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 1991 and Chief Financial Officer Linda L. Sessa Treasurer 1989 CORPORATE INFORMATION Corporate Offices General Counsel Independent Accountants ----------------- --------------- ----------------------- P.O. Box 880 Jones, Day, Reavis & Pogue Arthur Andersen & Co. 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. - 34 - 37 BACK COVER PAGE OF ANNUAL REPORT (A map showing the locations of the following offices:) 1st FRANKLIN FINANCIAL CORPORATION BRANCH OFFICES Alabama Offices: Georgia Offices: Georgia Offices: --------------- --------------- --------------- Alexander City Cartersville McRae Arab Cedartown Milledgeville Athens Chatsworth Monroe Bessemer Clarkesville Montezuma Clanton Claxton Monticello Cullman Clayton Moultrie Decatur Cleveland Nashville Dothan Cochran Newnan Enterprise Commerce Perry Eufaula Conyers Rome Florence Cordele Royston Gadsden Cornelia Savannah Huntsville Covington Statesboro Jasper Cumming Swainsboro Ozark Dallas Sylvaina Prattville Douglas Sylvester Russellville Douglasville Thomaston Scottsboro Eastman Tifton Selma Elberton Toccoa Sylacauga Ellijay Valdosta Forsyth Vidalia Georgia Offices: Fort Valley Warner Robbins --------------- Gainesville Washington Adel Garden City Winder Albany Griffin Alma Hartwell Americus Hawkinsville South Carolina Offices: Athens Hazlehurst ---------------------- Barnesville Hinesville Aiken Baxley Hogansville Anderson Blue Ridge Jackson Cayce Bremen Jasper Clemson Brunswick Jefferson Easley Buford Jesup Greenwood Butler Lavonia Laurens Cairo Lawrenceville Orangeburg Calhoun Madison Seneca Canton Manchester Union Carrollton McDonough York EX-21 5 SEC FORM 10-K EXHIBIT 21 1 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. 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. EX-23 6 SEC FORM 10-K EXHIBIT 23 1 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. 33-49151. Arthur Andersen & Co. Atlanta, Georgia March 29, 1994 -----END PRIVACY-ENHANCED MESSAGE-----