EX-19 2 ff_ex19.htm QUARTERLY REPORT TO INVESTORS Quarterly Report to Investors

Exhibit 19

 

 

 

 

1st

FRANKLIN

FINANCIAL

CORPORATION

 

 

QUARTERLY

REPORT TO INVESTORS

AS OF AND FOR THE

THREE AND SIX MONTHS ENDED

JUNE 30, 2018



MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following narrative is Management’s discussion and analysis of the foremost factors that influenced 1st Franklin Financial Corporation’s and its consolidated subsidiaries’ (the “Company”, “our” or “we”) financial condition and operating results as of and for the three- and six-month periods ended June 30, 2018 and 2017.  This discussion and analysis and the accompanying unaudited condensed consolidated financial information should be read in conjunction with the Company's audited consolidated financial statements and related notes included in the Company’s 2017 Annual Report.  Results achieved in any interim period are not necessarily reflective of the results to be expected for any other interim or full year period. 

 

Forward-Looking Statements:

 

Certain information in this discussion, and other statements contained in this Quarterly Report which are not historical facts, may be forward-looking statements within the meaning of the federal securities laws.  Such forward-looking statements involve known and unknown risks and uncertainties.  The Company's actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein.  Possible factors which could cause actual future results to differ from expectations include, but are not limited to, adverse general economic conditions, including changes in employment rates or in the interest rate environment, unexpected reductions in the size of or collectability of our loan portfolio, unexpected increases in our allowance for loan losses, reduced sales or increased redemptions of our securities, unavailability of borrowings under our credit facility, federal and state regulatory changes affecting consumer finance companies, unfavorable outcomes in legal proceedings and adverse or unforeseen developments in any of the matters described under “Risk Factors” in our 2017 Annual Report, as well as other factors referenced elsewhere in our filings with the Securities and Exchange Commission from time to time.  The Company undertakes no obligation to update any forward-looking statements, except as required by law. 

 

The Company:

 

We are engaged in the consumer finance business, primarily in making consumer loans to individuals in relatively small amounts for short periods of time.  Other lending-related activities include the purchase of sales finance contracts from various dealers and the making of first and second mortgage real estate loans on real estate.  As of June 30, 2018, the Company’s business was operated through a network of 311 branch offices located in Alabama, Georgia, Louisiana, Mississippi, South Carolina and Tennessee. 

 

We also offer optional credit insurance coverage to our customers when making a loan.  Such coverage may include credit life insurance, credit accident and health insurance, and/or credit property insurance.  Customers may request credit life insurance coverage to help assure that any outstanding loan balance is repaid if the customer dies before the loan is repaid or they may request accident and health insurance coverage to help continue loan payments if the customer becomes sick or disabled for an extended period of time.  Customers may also choose property insurance coverage to protect the value of loan collateral against damage, theft or destruction.  We write these various insurance policies as an agent for a non-affiliated insurance company.  Under various agreements, our wholly-owned insurance subsidiaries, Frandisco Life Insurance Company and Frandisco Property and Casualty Insurance Company, reinsure the insurance coverage on our customers written on behalf of this non-affiliated insurance company. 

 

The Company's operations are subject to various state and federal laws and regulations.  We believe our operations are in compliance with applicable state and federal laws and regulations. 

 

Financial Condition:

 

Total assets of the Company increased $9.3 million (1%) to $727.5 million at June 30, 2018 compared to $718.2 million at December 31, 2017.  Growth in the Company’s loan portfolio was the primary contributing factor causing the increase in assets.  Declines in the Company’s cash and cash equivalents, restricted cash and other assets offset a portion of the growth in total assets. 


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Our net loan portfolio grew to $469.1 million at June 30, 2018 compared to $445.7 million at December 31, 2017, representing a $23.5 million (5%) increase.  Higher loan originations, especially during the second quarter, contributed to the growth.  Included in our net loan portfolio is our allowance for loan losses which reflects Management’s estimate of the level of allowance adequate to cover probable losses inherent in the loan portfolio as of the date of the statement of financial position.  To evaluate the overall adequacy of our allowance for loan losses, we consider the level of loan receivables, historical loss trends, loan delinquency trends, bankruptcy trends and overall economic conditions.  Lower credit loss trends and lower delinquency trends resulted in a $1.5 million reduction in our allowance for loan loss reserve as of June 30, 2018, which also contributed to the increase in our net loan portfolio.  See Note 2, “Allowance for Loan Losses,” in the accompanying “Notes to Unaudited Condensed Consolidated Financial Statements” for further discussion of the Company’s allowance for loan losses.  Management believes the allowance for loan losses is adequate to cover probable losses inherent in the portfolio at June 30, 2018; however, unexpected changes in trends or deterioration in economic conditions could result in additional changes in the allowance.  Any increase in our allowance for loan losses could have a material adverse impact on our results of operations or financial condition in the future. 

 

Cash and cash equivalents (excluding restricted cash) declined $6.7 million (22%) mainly due to the funding of the aforementioned growth in our net loan portofio.   

 

Restricted cash consists of funds maintained in restricted accounts at the Company's  insurance subsidiaries in order to comply with certain requirements imposed on insurance companies by the State of Georgia and to meet the reserve requirements of its reinsurance agreements.  Restricted cash also includes escrow deposits held by the Company on behalf of certain mortgage real estate customers.  At June 30, 2018, restricted cash decreased $.3 million (6%) compared to December 31, 2017 mainly due to Management's decision to move a portion of restricted funds into trust accounts in the investment portfolios for purposes of increasing yields.  See Note 3, "Investment Securities" in the accompaning "Notes to Unaudited Condensed Consolidated Financial Statements" for further discussion of amounts held in trust. 

 

Our investment securities portfolio declined $5.3 million (3%) at June 30, 2018 compared to the prior year-end.  The Company's investment portfolio consists mainly of U.S. Treasury bonds, government agency bonds and various municipal bonds.  A portion of these investment securities have been designated as “available for sale” (99% as of June 30, 2018 and 98% as of December 31, 2017) with any unrealized gain or loss, net of deferred income taxes, accounted for as other comprehensive income in the Company’s Condensed Consolidated Statements of Comprehensive Income.  Volatility in the bond markets during the six months just ended resulted in lower market values on investments which contributed to the reduction in the portfolio.  The remainder of the Company’s investment portfolio represents securities carried at amortized cost and designated as “held to maturity,” as Management does not intend to sell, and does not believe that it is more likely than not that it would be required to sell, such securities before recovery of the amortized cost basis.  Management believes the Company has adequate funding available to meet liquidity needs for the foreseeable future. 

 

Other assets decreased $1.9 million at June 30, 2018 compared to December 31, 2017 mainly due to a payment on two life insurance policies held by the Company.  Also contributing to the decrease in other assets was a reduction in the valuation of fixed assets and a reduction of collateral held on foreclosed properties.   

 

Sales of the Company’s debt securities continue to be a principal source of funding for the Company.  The aggregate amount of senior and subordinated debt outstanding at June 30, 2018 was $473.5 million compared to $460.2 million at December 31, 2017, representing an increase of $13.3 million (3%).  Higher sales of the Company's senior demand notes and commercial paper was responsible for the increase.  

 

Accrued expenses and other liabilities decreased $8.2 million at June 30, 2018 compared to December 31, 2017 mainly due to payment of the Company’s 2017 incentive bonus in February of this year.  Lower accrued salary expense and miscellaneous accounts payable also contributed to the decline.   


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Results of Operations:

 

During the three- and six-month periods ended June 30, 2018, total revenues were $55.1 million and $109.8 million, respectively, compared to $49.3 million and $101.9 million during the same periods a year ago.  Growth in our interest and finance charge revenue earned as a result of the increase in our loan portfolio during the comparable reporting periods was the primary reason for higher revenues. 

 

Net income increased $3.4 million (87%) and $3.7 million (50%) during the three- and six-month periods ended June 30, 2018, respectively, compared to the same periods a year ago.  The aforementioned higher revenues and a reduction in our loan loss provision were the main factors contributing to the increase in net income.   Increases in other revenue, mainly the commissons earned on the sale of auto club memberships, also contributed to the increase in net income. 

 

Net Interest Income

 

Net interest income represents the difference between income on earning assets (loans and investments) and the cost of funds on interest bearing liabilities.  Our net interest income is affected by the size and mix of our loan and investment portfolios as well as the spread between interest and finance charges earned on the respective assets and interest incurred on our debt.  Net interest income increased $5.0 million (14%) and $7.6 million (11%) during the three- and six-month periods ended June 30, 2018, respectively, compared to the same periods in 2017.  An increase in our average net receivables of $79.9 million (18%) during the six months just ended compared to the same period a year ago resulted in higher interest and finance charges earned during the current year. 

 

Although average daily borrowings increased $17.9 million (4%) during the six-month period ended June 30, 2018 compared to the same period in 2017. The continued lower interest rate environment resulted in minimal increases in borrowing costs.  The Company's average borrowing rates were 2.81% during the six-month periods ended June 30, 2017 and 2016.  Interest expense increased approximately $.1 million (4%) and $.3 million (4%) during the three- and six-month periods just ended compared to the same periods a year ago due to the higher average daily borrowings. 

 

Management projects that, based on historical results, average net receivables will grow during the second half of 2018, and earnings are expected to increase accordingly.  However, a decrease in net receivables or an increase in interest rates on outstanding borrowings could negatively impact our net interest margin.   

 

Insurance Income

 

Insurance revenues increased $.4 million (4%) during the three-month period ended June 30, 2018 compared to the same period a year ago mainly due to an increase in loan customers opting for credit insurance on their loans.  A $.3 million increase in insurance claims and expenses during the three-month period just ended offset a portion of the increas in insurance revenues.  During the six-month period just ended, insurance revenues were $.2 million lower than the same period in 2017 and insurance claims and expenses were $.2 million (3%) higher. 

 

Other Revenue

 

Other revenue increased $.3 million during each of the three- and six-month periods ended June 30, 2018 compared to the same periods in 2017 mainly due to increases in sales of auto club memberships to loan customers. 

 

Provision for Loan Losses

 

The Company’s provision for loan losses is a charge against earnings to maintain the allowance for loan losses at a level that Management estimates is adequate to cover probable losses inherent as of the date of the statement of financial position. 

 

Our provision for loan losses decreased during the three-month period just ended compared the the same period a year ago due to lower net charge offs.  During the six-month period ended June 30, 2018, our provision for loan losses decreased $1.5 million (9%) due to lower  


3


net charge offs and a decrease in our allowance for loan losses.  Net charge offs were $8.5 million and $16.7 million during the three- and six-month periods just ended, respectively, compared to $8.5 million and $18.2 million during the same comparable periods a year ago.  

 

Based on lower net charge offs and lower delinquency rates on loans outstanding, Management lowered the allowance for loan losses by $1.5 million at June 30, 2018 from December 31, 2017.  Determining a proper allowance for loan losses is a critical accounting estimate which involves Management’s judgment with respect to certain relevant factors, such as historical and expected loss trends, unemployment rates in various locales, delinquency levels, bankruptcy trends and overall general and industry specific economic conditions. 

 

We believe that the allowance for loans losses is adequate to cover probable losses inherent in our portfolio; however, because the allowance for loan losses is based on estimates, there can be no assurance that the ultimate charge off amount will not exceed such estimates or that our loss assumptions will not increase.  Management may determine it is appropriate to increase the allowance for loan losses in future periods, or actual losses could exceed allowances in any period, either of which events could have a material negative impact on our results of operations in the future. 

 

Other Operating Expenses

 

Other operating expenses increased $2.5 million (8%) and $6.3 million (10%) during the three- and six-month periods ended June 30, 2018, respectively, compared to the same periods a year ago.  Other operating expenses encompass personnel expense, occupancy expense and miscellaneous other expenses.  

 

Personnel expense increased $2.4 million (12%) and $4.0 million (10%) during the three- and six-month periods ended June 30, 2018, respectively, compared to the same periods in 2017.  The increases were primarily due to increases in our employee base, annual merit salary increases, matching contributions to our 401(k) plan and increased payroll taxes.  An increase in claims associated with the Company's self-insured medical program during the quarter just ended also contributed to the increase personnel expense during the quarterly comparable periods. 

 

Higher depreciation expenses, telephone expenses, and increased rent expense caused occupancy expense to increase $.2 million (4%) and $.6 million (7%) during the three- and six-month periods ended June 30, 2018 compared to the same periods a year ago.  Lower maintenance of equipment and office materials expenses offset a portion of the increases in the comparable periods. 

 

During the three-month period ended June 30, 2018, miscellaneous other operating expenses were slightly lower as compared to the same period a year ago.  During the six-month period ended June 30, 2018, miscellaneous other operating expenses increased $1.7 million (11%) compared to the same period in 2017.  Costs were higher primarily due to increases in advertising expenses, computer expenses, insurance premiums paid, legal and audit expenses, and travel expenses. Lower bank charges, aircraft operating expenses, postage expenses and gains on sale of investments offset a portion of the increase during the six-month period just ended. 

 

Income Taxes

 

The Company has elected to be, and is, treated as an S corporation for income tax reporting purposes.  Taxable income or loss of an S corporation is passed through to, and included in the individual tax returns of, the shareholders of the Company, rather then being taxed at the corporate level.  Notwithstanding this election, however, income taxes continue to be reported for, and paid by, the Company's insurance subsidiaries as they are not allowed to be treated as S corporations, and for the Company’s state taxes in Louisiana, which does not recognize S corporation status.  Deferred income tax assets and liabilities are recognized and provisions for current and deferred income taxes continue to be recorded by the Company’s subsidiaries.  The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences.   

 

Effective income tax rates were 10% and 13% during the three- and six-month periods ended June 30, 2018, respectively, compared to 24% and 25% during each of the same periods during 2017.  On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) resulted in  


4


significant changes to the U.S. tax xode, including a reduction in the maximum federal corporate income tax rate from 35% to 21%, effective January 1, 2018.  The impact of the TCJA was the primary cause of the reduction in the Company’s income tax rates during the three- and six-month periods just ended compared to the same periods a year ago.  The tax rates of the Company’s insurance subsidiaries were also below statutory rates due to investments in tax exempt bonds.

 

Quantitative and Qualitative Disclosures About Market Risk:

 

Interest rates continued to be near historical low levels during the reporting period.  The possibility of market fluctuations in market interest rates during the remainder of the year could have an impact on our net interest margin.  Please refer to the market risk analysis discussion contained in our Annual Report as of and for the year ended December 31, 2017 for a more detailed analysis of our market risk exposure.  There were no material changes in our risk exposures in the six months ended June 30, 2018 as compared to those at December 31, 2017. 

 

Liquidity and Capital Resources:

 

As of June 30, 2018 and December 31, 2017, the Company had $23.9 million and $30.6 million, respectively, invested in cash and cash equivalents (excluding restricted cash), the majority of which was held by the parent company.   

 

The Company’s investments in marketable securities can be readily converted into cash, if necessary.  State insurance regulations limit the use an insurance company can make of its assets.  Dividend payments to a parent company by its wholly-owned insurance subsidiaries are subject to annual limitations and are restricted to the greater of 10% of policyholders’ surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiary.  At December 31, 2017, Frandisco Property and Casualty Insurance Company (“Frandisco P&C”) and Frandisco Life Insurance Company (“Frandisco Life”), the Company’s wholly-owned insurance subsidiaries, had policyholders’ surpluses of $91.6 million and $76.0 million, respectively.  The maximum aggregate amount of dividends these subsidiaries can pay to the Company in 2018, without prior approval of the Georgia Insurance Commissioner, is approximately $13.5 million.  No dividends were paid during the six-month period ended June 30, 2018. 

 

The majority of the Company’s liquidity requirements are financed through the collection of receivables and through the sale of short- and long-term debt securities.  The Company’s continued liquidity is therefore dependent on the collection of its receivables and the sale of debt securities that meet the investment requirements of the public.  In addition to its receivables and securities sales, the Company has an external source of funds available under a credit facility with Wells Fargo Preferred Capital, Inc. (the “credit agreement”). The credit agreement, as amended, provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the credit agreement), whichever is less, and has a maturity date of September 11, 2019.  Available borrowings under the credit agreement were $100.0 million at June 30, 2018 and December 31, 2017, at an interest rate of 5.32% and 4.49%, respectively.  The credit agreement contains covenants customary for financing transactions of this type.  At June 30, 2018, the Company was in compliance with all covenants.  Management believes this credit facility, when considered with the Company’s other expected sources of funds, should provide sufficient liquidity for the continued growth of the Company for the foreseeable future.  

 

Critical Accounting Policies:

 

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the financial services industry. The Company’s critical accounting and reporting policies include the allowance for loan losses, revenue recognition and insurance claims reserves.  During the six months ended June 30, 2018, there were no material changes to the critical accounting policies or related estimates disclosed in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2017. 


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Allowance for Loan Losses

 

Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at a level considered adequate to cover probable credit losses inherent in our loan portfolio.  

 

The allowance for loan losses is established based on the determination of the amount of probable losses inherent in the loan portfolio as of the reporting date.  We review, among other things, historical charge off experience, delinquency reports, historical collection rates, economic trends such as unemployment rates, gasoline prices, bankruptcy filings and other information in order to make what we believe are the necessary judgments as to probable losses.  Assumptions regarding probable losses are reviewed periodically and may be impacted by our actual loss experience and changes in any of the factors discussed above. 

 

 

Revenue Recognition

 

Accounting principles generally accepted in the United States require that an interest yield method be used to calculate the income recognized on accounts which have precomputed charges.  An interest yield method is used by the Company on each individual account with precomputed charges to calculate income for those active accounts; however, state regulations often allow interest refunds to be made according to the Rule of 78’s method for payoffs and renewals.  Since the majority of the Company's accounts with precomputed charges are paid off or renewed prior to maturity, the result is that most of those accounts effectively yield on a Rule of 78's basis. 

 

Precomputed finance charges are included in the gross amount of certain direct cash loans, sales finance contracts and certain real estate loans.  These precomputed charges are deferred and recognized as income on an accrual basis using the effective interest method.  Some other cash loans and real estate loans, which do not have precomputed charges, have income recognized on a simple interest accrual basis.  Income is not accrued on any loan that is more than 60 days past due. 

 

Loan fees and origination costs are deferred and recognized as adjustments to the loan yield over the contractual life of the related loan.   

 

The property and casualty credit insurance policies written by the Company, as agent for a non-affiliated insurance company, are reinsured by the Company’s property and casualty insurance subsidiary.  The premiums on these policies are deferred and earned over the period of insurance coverage using the pro-rata method or the effective yield method, depending on whether the amount of insurance coverage generally remains level or declines. 

 

The credit life and accident and health insurance policies written by the Company, as agent for a non-affiliated insurance company, are reinsured by the Company’s life insurance subsidiary.  The premiums are deferred and earned using the pro-rata method for level-term life insurance policies and the effective yield method for decreasing-term life policies.  Premiums on accident and health insurance policies are earned based on an average of the pro-rata method and the effective yield method. 

 

 

Insurance Claims Reserves

 

Included in unearned insurance premiums and commissions on the Unaudited Condensed Consolidated Statements of Financial Position are reserves for incurred but unpaid credit insurance claims for policies written by the Company, as agent for a non-affiliated insurance underwriter, and reinsured by the Company’s wholly-owned insurance subsidiaries.  These reserves are established based on generally accepted actuarial methods.  In the event that the Company’s actual reported losses for any given period are materially in excess of the previously estimated amounts, such losses could have a material adverse effect on the Company’s results of operations. 

 

Different assumptions in the application of any of these policies could result in material changes in the Company’s consolidated financial position or consolidated results of operations.  

 

Recent Accounting Pronouncements:

 

See “Recent Accounting Pronouncements” in Note 1 to the accompanying “Notes to Unaudited Condensed Consolidated Financial Statements” for a discussion of any applicable  


6


recently adopted accounting standards and the expected impact of accounting standards recently issued but not yet required to be adopted.  For pronouncements already adopted, any material impacts on the Company’s consolidated financial statements are discussed in the applicable section(s) of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


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1st FRANKLIN FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

2018

 

2017

ASSETS

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 $ 23,879,783 

 

 $ 30,565,836

 

 

 

 

 

RESTRICTED CASH

 

  4,389,036 

 

  4,677,945

 

 

 

 

 

LOANS:

 

 

 

 

Direct Cash Loans  

 

  559,896,521 

 

  540,380,078

Real Estate Loans 

 

  29,104,340 

 

  27,117,189

Sales Finance Contracts  

 

  42,774,521 

 

  34,314,270

 

 

  631,775,382 

 

  601,811,537

Less:Unearned Finance Charges  

 

  79,999,852 

 

  74,439,222

Unearned Insurance Premiums and Commissions 

 

  41,665,329 

 

  39,212,982

Allowance for Loan Losses  

 

  41,000,000 

 

  42,500,000

Net Loans  

 

  469,110,201 

 

  445,659,333

 

 

 

 

 

INVESTMENT SECURITIES:

 

 

 

 

Available for Sale, at fair value 

 

  202,468,144 

 

  204,568,031

Held to Maturity, at amortized cost  

 

  1,828,839 

 

  5,010,190

 

 

  204,296,983 

 

  209,578,221

 

 

 

 

 

OTHER ASSETS

 

  25,848,019 

 

  27,754,058

 

 

 

 

 

TOTAL ASSETS  

 

 $ 727,524,022 

 

 $ 718,235,393

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

SENIOR DEBT

 

 $ 441,956,628 

 

 $ 426,731,217

ACCRUED EXPENSES AND OTHER LIABILITIES

 

  17,692,913 

 

  25,920,271

SUBORDINATED DEBT

 

  31,545,814 

 

  33,487,903

Total Liabilities  

 

  491,195,355 

 

  486,139,391

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 5)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

Preferred Stock: $100 par value, 6,000 shares 

authorized; no shares outstanding  

 

  -- 

 

  --

Common Stock  

Voting Shares; $100 par value; 2,000 shares 

authorized; 1,700 shares outstanding   

 

  170,000 

 

  170,000

Non-Voting Shares; no par value; 198,000 shares 

authorized; 168,300 shares outstanding  

 

  -- 

 

  --

 

 

 

 

 

Accumulated Other Comprehensive Income  

 

  (40,280)

 

  4,596,132

Retained Earnings  

 

  236,198,947 

 

  227,329,870

Total Stockholders' Equity  

 

  236,328,667 

 

  232,096,002

 

 

 

 

 

TOTAL LIABILITIES AND 

STOCKHOLDERS' EQUITY  

 

 $ 727,524,022 

 

 $ 718,235,393

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements


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1st FRANKLIN FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

INCOME AND RETAINED EARNINGS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

INTEREST INCOME

 

 $ 43,158,250 

 

 $ 38,017,886

 

 $ 86,282,051 

 

 $ 78,449,142 

INTEREST EXPENSE

 

  3,324,117 

 

  3,200,799

 

  6,573,691 

 

  6,320,479 

NET INTEREST INCOME

 

  39,834,133 

 

  34,817,087

 

  79,708,360 

 

  72,128,663 

 

 

 

 

 

 

 

 

 

Provision for Loan Losses  

 

  6,971,067 

 

  6,987,117

 

  15,171,675 

 

  16,664,852 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES  

 

  32,863,066 

 

  27,829,970

 

  64,536,685 

 

  55,463,811 

 

 

 

 

 

 

 

 

 

INSURANCE INCOME

 

 

 

 

 

 

 

 

Premiums and Commissions  

 

  10,513,457 

 

  10,157,923

 

  21,066,067 

 

  21,261,251 

Insurance Claims and Expenses  

 

  2,700,954 

 

  2,409,283

 

  5,281,484 

 

  5,131,072 

Total Net Insurance Income  

 

  7,812,503 

 

  7,748,640

 

  15,784,583 

 

  16,130,179 

 

 

 

 

 

 

 

 

 

OTHER REVENUE

 

  1,471,545 

 

  1,123,653

 

  2,475,769 

 

  2,164,884 

 

 

 

 

 

 

 

 

 

OTHER OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Personnel Expense  

 

  22,631,997 

 

  20,226,917

 

  44,431,272 

 

  40,461,890 

Occupancy Expense  

 

  4,220,660 

 

  4,062,206

 

  8,494,409 

 

  7,927,917 

Other  

 

  7,251,345 

 

  7,331,184

 

  17,319,597 

 

  15,603,849 

Total  

 

  34,104,002 

 

  31,620,307

 

  70,245,278 

 

  63,993,656 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

  8,043,112 

 

  5,081,956

 

  12,551,759 

 

  9,765,218 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes  

 

  783,806 

 

  1,206,958

 

  1,577,918 

 

  2,459,391 

 

 

 

 

 

 

 

 

 

NET INCOME

 

  7,259,306 

 

  3,874,998

 

  10,973,841 

 

  7,305,827 

 

 

 

 

 

 

 

 

 

RETAINED EARNINGS, Beginning

     of Period

 

  230,252,382 

 

  215,439,000

 

  227,329,870 

 

  212,570,553 

 

 

 

 

 

 

 

 

 

Adjustment Resulting from the Adoption Of Accounting Standard (Note 1) 

 

  - 

 

  -

 

  (792,023)

 

  - 

Distributions on Common Stock  

 

  (1,312,741)

 

  401,007

 

  (1,312,741)

 

  (161,375)

 

 

 

 

 

 

 

 

 

RETAINED EARNINGS, End of Period

 

 $ 236,198,947 

 

 $ 219,715,005

 

 $ 236,198,947 

 

 $ 219,715,005 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

170,000 Shares Outstanding for  

All Periods (1,700 voting, 168,300 

non-voting)  

 

 $ 42.70 

 

 $ 22.79

 

 $ 64.55 

 

 $ 42.98 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements


9


1st FRANKLIN FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

Net Income

 

 $ 7,259,306 

 

 $ 3,874,998 

 

 $ 10,973,841 

 

 $ 7,305,827 

 

 

 

 

 

 

 

 

 

Other Comprehensive (Loss) Income:

 

 

 

 

 

 

 

 

Net changes related to available-for-sale Securities: 

 

 

 

 

 

 

 

 

Unrealized (losses) gains  

 

  (271,522)

 

  3,879,219 

 

  (6,630,410)

 

  4,826,168 

Income tax (benefit) expense  

 

  68,246 

 

  (1,298,982)

 

  2,167,606 

 

  (1,619,897)

Net unrealized (losses) gains  

 

  (203,276)

 

  2,580,237 

 

  (4,462,804)

 

  3,206,271 

 

 

 

 

 

 

 

 

 

Less reclassification of gain to 

 

 

 

 

 

 

 

 

net income (1)  

 

  173,608 

 

  883 

 

  173,608 

 

  883 

 

 

 

 

 

 

 

 

 

Total Other Comprehensive 

 

 

 

 

 

 

 

 

(Loss) Income 

 

  (376,884)

 

  2,579,354 

 

  (4,636,412)

 

  3,205,388 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income

 

 $ 6,882,422 

 

 $ 6,454,352 

 

 $ 6,337,429 

 

 $ 10,511,215 

 

(1)Reclassified $188,304 to other operating expenses and $14,696 to provision for income taxes on the Condensed Consolidated Statements of Income and Retained Earnings (Unaudited) during the three- and six-month periods ended June 30, 2018.  

 

Reclassified $1,338 to other operating expenses and $455 to provision for income taxes on the Condensed Consolidated Statements of Income and Retained Earnings (Unaudited) during the three- and six-month periods ended June 30, 2017.

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements


10


 

1ST FRANKLIN FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

 

 

June 30,

 

 

2018

 

2017

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net Income  

 

 $ 10,973,841 

 

 $ 7,305,827 

Adjustments to reconcile net income to net cash 

Provided by operating activities: 

 

 

 

 

Provision for loan losses  

 

  15,171,675 

 

  16,664,852 

Depreciation and amortization  

 

  2,310,174 

 

  2,003,684 

Provision for deferred (prepaid) income taxes  

 

  63,591 

 

  (474,507)

Earnings in equity method investment  

 

  - 

 

  (145,374)

Other  

 

  (187,827)

 

  176,171 

Decrease (increase) in miscellaneous other assets  

 

  1,092,369 

 

  (1,968,026)

Decrease in other liabilities  

 

  (6,900,669)

 

  (878,223)

Net Cash Provided  

 

  22,523,154 

 

  22,684,404 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Loans originated or purchased  

 

  (230,159,232)

 

  (186,259,402)

Loan payments  

 

  191,536,689 

 

  182,159,679 

Purchases of marketable debt securities  

 

  (15,527,033)

 

  (21,942,772)

Redemptions of marketable debt securities  

 

  14,143,275 

 

  5,385,000 

Fixed asset additions, net  

 

  (1,462,396)

 

  (2,611,815)

Net Cash Used 

 

  (41,468,697)

 

  (23,269,310)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Net increase in senior demand notes  

 

  2,749,561 

 

  2,313,387 

Advances on credit line  

 

  264,888 

 

  277,163 

Payments on credit line  

 

  (264,888)

 

  (277,163)

Commercial paper issued  

 

  28,017,701 

 

  25,986,079 

Commercial paper redeemed  

 

  (15,541,851)

 

  (14,160,040)

Subordinated debt securities issued  

 

  3,070,558 

 

  3,849,846 

Subordinated debt securities redeemed  

 

  (5,012,647)

 

  (4,628,923)

Dividends / Distributions  

 

  (1,312,741)

 

  (161,375)

Net Cash Provided  

 

  11,970,581 

 

  13,198,974 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND

RESTRICTED CASH  

 

  (6,974,962)

 

  12,614,068 

 

 

 

 

 

CASH, CASH EQUIVALENTS AND

RESTRICTED CASH, beginning  

 

  35,243,781 

 

  61,112,624 

 

 

 

 

 

CASH, CASH EQUIVALENTS AND

RESTRICTED CASH, ending  

 

 $ 28,268,819 

 

 $ 73,726,692 

 

 

 

 

 

Interest Paid  

 

 $ 6,639,140 

 

 $ 6,318,881 

Income Taxes Paid  

 

  1,690,000 

 

  3,304,000 

Non-cash Exchange of Investment Securities  

 

  341,692 

 

  - 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements


11


-NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-

 

Note 1 – Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of 1st Franklin Financial Corporation and subsidiaries (the "Company") should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto as of December 31, 2017 and for the year then ended included in the Company's 2017 Annual Report filed with the Securities and Exchange Commission.

 

In the opinion of Management of the Company, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the Company's consolidated financial position as of June 30, 2018 and December 31, 2017, its consolidated results of operations and comprehensive income for the three and six-month periods ended June 30, 2018 and 2017 and its consolidated cash flows for the six months ended June 30, 2018 and 2017. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Company believes that the disclosures herein are adequate to make the information presented not misleading.

 

The Company’s financial condition and results of operations as of and for the three- and six-month periods ended June 30, 2018 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.  The preparation of financial statements in accordance with GAAP requires Management to make estimates and assumptions that affect the reported amount of assets and liabilities at and as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates.

 

The computation of earnings per share is self-evident from the accompanying Condensed Consolidated Statements of Income and Retained Earnings (Unaudited).  The Company has no dilutive securities outstanding.

 

Recent Accounting Pronouncements:

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 (“ASC 606”), “Revenue from Contracts with Customers”.  Under the new guidance, companies are required to recognize revenue when the seller satisfies a performance obligation, which would be when the buyer takes control of the good or service.  The Company adopted this guidance using the “modified retrospective” method effective January 1, 2018; as such, the Company applied the guidance only to the most recent period presented in the financial statements.  The Company categorizes its primary sources of revenue into three categories: (1) interest related revenues, (2) insurance related revenue and (3) revenue from contracts with customers.

 

Interest related revenues are specifically excluded from the scope of ASC 606 and accounted for under ASC Topic 310, “Receivables”. 

 

Insurance related revenues are subject to industry-specific guidance within the scope of ASC Topic 944, “Financial Services – Insurance” which remains unchanged. 

 

Other revenues primarily relate to commissions earned by the Company on sales of auto club memberships.  Auto club commissions are revenue from contracts with customers and are accounted for in accordance with the guidance set forth in ASC 606. 

 

Other revenues, as a whole, are immaterial to total revenues.  There was no change to previously reported amounts from the cumulative effect of the adoption of ASC 606.  During the three months ended June 30, 2018 and 2017, the Company recognized interest related income of $43.2 million and $38.0 million, respectively, insurance related income of $10.5 million and $10.2 million, respectively, and other revenues of $1.5 million and $1.1 million, respectively.  During the six months ended June 30, 2018 and 2017, the Company recognized interest related income of $86.3 million and $78.4 million, respectively, insurance related income of $21.1 million and $21.3 million, respectively, and other revenue of $2.5 million and $2.2 million, respectively.


12


In February 2016, the FASB issued ASU 2016-02, “Leases Topic (842): Leases.”  This ASU will increase the transparency of accounting for least transactions.  The update requires disclosures regarding key information about leasing arrangements and requires all leases to be recognized on the balance sheet as a right-to-use asset and a corresponding lease liability.  All of the Company’s leases are currently classified as operating leases, with no lease assets or lease liabilities recorded.  The update is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted.  The FASB continues to issue clarifications, updates and implementation guidance, which we continue to monitor.  The implementation of the accounting update will create lease assets and lease liabilities and have an impact on the Company’s debt covenants.  The Company is working with its lenders to address any issues before implementation and continues to evaluate and quantify the potential impacts of this update on its consolidated financial statements.

 

During the first quarter of 2018, the Company adopted ASU 2016-18, “Restricted Cash” (“ASU 2016-18”), which updated ASC Topic 230, “Statement of Cash Flows.” ASU 2016-18 required companies to include cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  The adoption of this standard resulted in a decrease in net cash used in investing activities of $.5 milion for the six months ended June 30, 2017.

 

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”.  This update allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting resulting from the reduction of the federal corporate income tax rate pursuant to enactment of the Tax Cuts and Jobs Act.  This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.  The Company adopted ASU 2018-02 on January 1, 2018, resulting in a $.8 million reclassification from accumulated other comprehensive income to retained earnings on the Condensed Consolidated Statement of Financial Position and the Condensed Consolidated Statement of Comprehensive (Loss) / Income.

 

There have been no updates to other recent accounting pronouncements described in our 2017 Annual Report and no new pronouncements that Management believes would have a material impact on the Company.

 

Note 2 – Allowance for Loan Losses

 

The allowance for loan losses is based on Management's evaluation of the inherent risks and changes in the composition of the Company's loan portfolio.  Management’s approach to estimating and evaluating the allowance for loan losses is on a total portfolio level based on historical loss trends, bankruptcy trends, the level of receivables at the balance sheet date, payment patterns and economic conditions primarily including, but not limited to, unemployment levels and gasoline prices.  Historical loss trends are tracked on an on-going basis.  The trend analysis includes statistical analysis of the correlation between loan date and charge off date, charge off statistics by the total loan portfolio, and charge off statistics by branch, division and state.  Delinquency and bankruptcy filing trends are also tracked.  If trends indicate an adjustment to the allowance for loan losses is warranted, Management will make what it considers to be appropriate adjustments.  The level of receivables at the balance sheet date is reviewed and adjustments to the allowance for loan losses are made if Management determines increases or decreases in the level of receivables warrants an adjustment.  The Company uses monthly unemployment statistics, and various other monthly or periodic economic statistics, published by departments of the U.S. government and other economic statistics providers to determine the economic component of the allowance for loan losses.  Such allowance is, in the opinion of Management, sufficiently adequate for probable losses in the current loan portfolio.  As the estimates used in determining the loan loss reserve are influenced by outside factors, such as consumer payment patterns and general economic conditions, there is uncertainty inherent in these estimates.  Actual results could vary based on future changes in significant assumptions.


13


Management does not disaggregate the Company’s loan portfolio by loan class when evaluating loan performance.  The total portfolio is evaluated for credit losses based on contractual delinquency and other economic conditions. The Company classifies delinquent accounts at the end of each month according to the number of installments past due at that time, based on the then-existing terms of the contract.  Accounts are classified in delinquency categories based on the number of days past due.  When three installments are past due, Management classifies the account as being 60-89 days past due; when four or more installments are past due, Management classifies the account as being 90 days or more past due.  When a loan becomes five installments past due, it is charged off unless Management directs that it be retained as an active loan. In making this charge off evaluation, Management considers factors such as pending insurance, bankruptcy status and other indicators of collectability. In addition, no installment is counted as being past due if at least 80% of the contractual payment has been paid. In connection with any bankruptcy court-initiated repayment plan and as allowed by state regulatory authorities, the Company effectively resets the delinquency rating of each account to coincide with the court initiated repayment plan. The amount charged off is the unpaid balance less the unearned finance charges and the unearned insurance premiums, if applicable.

 

When a loan becomes 60 days or more past due based on its original terms, it is placed in non-accrual status.  At such time, the accrual of any additional finance charges is discontinued.  Finance charges are then only recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status.  Nonaccrual loans return to accrual status when the loan becomes less than 60 days past due.  There were no loans 60 days or more past due and still accruing interest at June 30, 2018 or December 31, 2016.  The Company’s principal balances on non-accrual loans by loan class as of June 30, 2018 and December 31, 2017 are as follows:

 

Loan Class

 

June 30,

2018

 

December 31, 2017

 

 

 

 

 

Consumer Loans

 

 $ 23,457,476

 

 $ 23,800,601

Real Estate Loans

 

  1,140,569

 

  1,156,255

Sales Finance Contracts

 

  1,050,673

 

  1,097,986

Total  

 

 $ 25,648,718

 

 $ 26,054,842

 

An age analysis of principal balances on past due loans, segregated by loan class, as of June 30, 2018 and December 31, 2017 follows:

 

June 30, 2018

 

30-59 Days

Past Due

 

60-89 Days

Past Due

 

90 Days or

More

Past Due

 

Total

Past Due

Loans

 

 

 

 

 

 

 

 

 

Consumer Loans

 

 $ 15,018,854

 

 $ 8,535,699

 

 $ 16,910,561

 

 $ 40,465,114

Real Estate Loans

 

  890,244

 

  255,233

 

  1,348,125

 

  2,493,602

Sales Finance Contracts

 

  810,062

 

  341,795

 

  881,548

 

  2,033,405

Total  

 

 $ 16,719,160

 

 $ 9,132,727

 

 $ 19,140,234

 

 $ 44,992,121

 

December 31, 2017

 

30-59 Days

Past Due

 

60-89 Days

Past Due

 

90 Days or

More

Past Due

 

Total

Past Due

Loans

 

 

 

 

 

 

 

 

 

Consumer Loans

 

 $ 14,483,119

 

 $ 7,905,817

 

 $ 17,475,439

 

 $ 39,864,375

Real Estate Loans

 

  676,407

 

  321,125

 

  1,170,572

 

  2,168,104

Sales Finance Contracts

 

  749,910

 

  447,157

 

  843,077

 

  2,040,144

Total  

 

 $ 15,909,436

 

 $ 8,674,099

 

 $ 19,489,088

 

 $ 44,072,623

 

In addition to the delinquency rating analysis, the ratio of bankrupt accounts to the total loan portfolio is also used as a credit quality indicator.  The ratio of bankrupt accounts outstanding to total principal loan balances outstanding at June 30, 2018 and December 31, 2017 was 2.30% and 2.23%, respectively.

 

Nearly our entire loan portfolio consists of small homogeneous consumer loans (of the product types set forth in the table below).


14


June 30, 2018

 

Principal

Balance

 

%

Portfolio

 

6 Months

Net

Charge Offs

 

%

Net

Charge Offs

 

 

 

 

 

 

 

 

 

Consumer Loans

 

$ 557,981,537   

 

88.7 %

 

$ 16,089,435   

 

96.5   

Real Estate Loans

 

28,525,987   

 

4.5   

 

9,271   

 

.1   

Sales Finance Contracts

 

42,500,778   

 

6.8   

 

572,969   

 

3.4   

Total  

 

$ 629,008,302   

 

100.0 %

 

$ 16,671,675   

 

100.0 %

 

June 30, 2017

 

Principal

Balance

 

%

Portfolio

 

6 Months

Net

Charge Offs

(Recoveries)

 

%

Net

Charge Offs

 

 

 

 

 

 

 

 

 

Consumer Loans

 

$ 452,294,349   

 

88.9 %

 

$ 17,533,017   

 

96.5   

Real Estate Loans

 

24,856,273   

 

4.9   

 

12,290   

 

.1   

Sales Finance Contracts

 

31,528,712   

 

6.2   

 

619,545   

 

3.4   

Total  

 

$ 508,679,334   

 

100.0 %

 

$ 18,164,852   

 

100.0 %

 

Sales finance contracts are similar to consumer loans in nature of loan product, terms, customer base to whom these products are marketed, factors contributing to risk of loss and historical payment performance, and together with consumer loans, represented approximately 95% of principal balances outstanding in Company’s loan portfolio at both June 30, 2018 and 2017, respectively.  As a result of these similarities, which have resulted in similar historical performance, consumer loans and sales finance contracts represent substantially all loan losses.  Real estate loans and related losses have historically been insignificant, and, as a result, we do not stratify the loan portfolio for purposes of determining and evaluating our loan loss allowance.  Due to the composition of the loan portfolio, the Company determines and monitors the allowance for loan losses on a collectively evaluated, single portfolio segment basis.  Therefore, a roll forward of the allowance for loan loss activity at the portfolio segment level is the same as at the total portfolio level.  We have not acquired any impaired loans with deteriorating quality during any period reported.  The following table provides additional information on our allowance for loan losses based on a collective evaluation:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

Allowance for Credit Losses:

 

 

 

 

 

 

 

 

Beginning Balance

 

 $ 42,500,000 

 

 $ 48,500,000 

 

 $ 42,500,000 

 

 $ 48,500,000 

Provision for Loan Losses 

 

  6,971,067 

 

  6,987,117 

 

  15,171,675 

 

  16,664,852 

Charge-offs  

 

  (12,220,420)

 

  (11,865,974)

 

  (24,369,539)

 

  (25,493,199)

Recoveries  

 

  3,749,353 

 

  3,378,857 

 

  7,697,864 

 

  7,328,347 

Ending Balance

 

 $ 41,000,000 

 

 $ 47,000,000 

 

 $ 41,000,000 

 

 $ 47,000,000 

 

 

 

 

 

 

 

 

 

Ending balance; collectively

evaluated for impairment  

 

 $ 41,000,000 

 

 $ 47,000,000 

 

 $ 41,000,000 

 

 $ 47,000,000 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

Finance receivables:

 

 

 

 

 

 

 

 

Ending balance

 

 $ 629,008,302

 

 $ 508,679,334

 

 $ 629,008,302

 

 $ 508,679,334

Ending balance; collectively

evaluated for impairment  

 

 $ 629,008,302

 

 $ 508,679,334

 

 $ 629,008,302

 

 $ 508,679,334

 

Troubled Debt Restructings ("TDRs") represent loans on which the original terms have been modified as a result of the following conditions: (i) the restructuring constitutes a concession and (ii) the borrower is experiencing financial difficulties. Loan modifications by the Company involve payment alterations, interest rate concessions and/ or reductions in the amount owed by the borrower.  The following table presents a summary of loans that were restructured during the three months ended June 30, 2018.


15


 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

 

Consumer Loans

 

 3,770

 

 $ 9,381,669

 

 $ 9,058,965

Real Estate Loans

 

 13

 

  112,589

 

  105,807

Sales Finance Contracts

 

 139

 

  368,299

 

  355,176

Total  

 

 3,922

 

 $ 9,862,557

 

 $ 9,519,948

 

The following table presents a summary of loans that were restructured during the three months ended June 30, 2017.

 

 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

 

Consumer Loans

 

 3,465

 

 $ 8,028,911

 

 $ 7,738,871

Real Estate Loans

 

 6

 

  41,979

 

  41,833

Sales Finance Contracts

 

 102

 

  260,108

 

  246,752

Total  

 

 3,573

 

 $ 8,330,998

 

 $ 8,027,456

 

The following table presents a summary of loans that were restructured during the six months ended June 30, 2018.

 

 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

 

Consumer Loans

 

 7,591

 

 $ 18,263,137

 

 $ 17,621,888

Real Estate Loans

 

 24

 

  212,000

 

  204,988

Sales Finance Contracts

 

 271

 

  733,623

 

  705,055

Total  

 

 7,886

 

 $ 19,208,760

 

 $ 18,531,931

 

The following table presents a summary of loans that were restructured during the six months ended June 30, 2017.

 

 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

 

Consumer Loans

 

 7,376

 

 $ 16,608,443

 

 $ 15,936,952

Real Estate Loans

 

 14

 

  110,889

 

  109,807

Sales Finance Contracts

 

 231

 

  595,675

 

  572,656

Total  

 

 7,621

 

 $ 17,315,007

 

 $ 16,619,415

 

TDRs that occurred during the twelve months ended June 30, 2018 and subsequently defaulted during the three months ended June 30, 2018 are listed below.  

 

 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

 

 

 

 

Consumer Loans

 

 1,500

 

 $ 2,418,293

Real Estate Loans

 

 -

 

  -

Sales Finance Contracts

 

 44

 

  98,585

Total  

 

 1,544

 

 $ 2,516,878

 

TDRs that occurred during the twelve months ended June 30, 2017 and subsequently defaulted during the three months ended June 30, 2017 are listed below.


16


 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

 

 

 

 

Consumer Loans

 

 1,371

 

 $ 2,054,030

Real Estate Loans

 

 -

 

  -

Sales Finance Contracts

 

 36

 

  60,659

Total  

 

 1,407

 

 $ 2,114,689

 

TDRs that occurred during the twelve months ended June 30, 2018 and subsequently defaulted during the six months ended June 30, 2018 are listed below.

 

 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

 

 

 

 

Consumer Loans

 

 2,689

 

 $ 4,222,580

Real Estate Loans

 

 -

 

  -

Sales Finance Contracts

 

 74

 

  158,563

Total  

 

 2,763

 

 $ 4,381,143

 

TDRs that occurred during the twelve months ended June 30, 2017 and subsequently defaulted during the six months ended June 30, 2017 are listed below.

 

 

 

Number

Of

Loans

 

Pre-Modification

Recorded

Investment

 

 

 

 

 

Consumer Loans

 

 2,470

 

 $ 3,616,911

Real Estate Loans

 

 -

 

  -

Sales Finance Contracts

 

 65

 

  111,240

Total  

 

 2,535

 

 $ 3,728,151

 

The level of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance of loan losses.

 

Note 3 – Investment Securities

 

Debt securities available-for-sale are carried at estimated fair value. Debt securities designated as "Held to Maturity" are carried at amortized cost based on Management's intent and ability to hold such securities to maturity.  The amortized cost and estimated fair values of these debt securities were as follows:

 

 

 

As of June 30, 2018

 

As of December 31, 2017

 

 

 

Amortized

Cost

 

Estimated

Fair

Value

 

 

Amortized

Cost

 

Estimated

Fair

Value

Available-for-Sale:

 

 

 

 

 

 

 

 

Obligations of states and 

political subdivisions 

 

 $ 197,293,008

 

 $ 196,765,115

 

 $ 187,508,758

 

 $ 193,601,243

Mutual funds 

 

  5,195,958

 

  5,308,623

 

  10,261,379

 

  10,508,953

Corporate securities 

 

  130,316

 

  394,406

 

  130,316

 

  457,835

 

 

 $ 202,619,282

 

 $ 202,468,144

 

 $ 197,900,453

 

 $ 204,568,031

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

Obligations of states and 

political subdivisions 

 

 $ 1,828,839

 

 $ 1,818,426

 

 $ 5,010,190

 

 $ 5,015,313

 

Gross unrealized losses on investment securities totaled $4,154,442 and $973,000 at June 30, 2018 and December 31, 2017, respectively.  The following table provides an analysis of investment securities in an unrealized loss position for which other-than-temporary impairments have not been recognized as of June 30, 2018 and December 31, 2017:


17


 

 

Less than 12 Months

 

12 Months or Longer

 

Total

June 30, 2018

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and 

political subdivisions  

 

 $ 56,152,725

 

 $ (1,545,831)

 

 $ 25,071,003

 

 $ (2,565,358)

 

 $ 81,223,728

 

 $ (4,111,189)

Mutual Funds  

 

  1,837,940

 

  (19,643)

 

  -

 

  - 

 

  1,837,940

 

  (19,643)

 

 

  57,990,665

 

  (1,565,474)

 

 $ 25,071,003

 

  (2,565,358)

 

  83,061,668

 

  (4,130,832)

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and 

political subdivisions  

 

  1,422,430

 

  (23,610)

 

  -

 

  - 

 

  1,422,430

 

  (23,610)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total  

 

 $ 59,413,095

 

 $ (1,589,084)

 

 $ 25,071,003

 

 $ (2,565,358)

 

 $ 84,484,098

 

 $ (4,154,442)

 

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

December 31, 2017

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and 

political subdivisions  

 

 $ 3,974,826

 

 $ (14,298)

 

 $ 26,715,587

 

 $ (920,921)

 

 $ 30,690,413

 

 $ (935,219)

Mutual Funds  

 

  1,565,216

 

  (16,397)

 

  -

 

  - 

 

  1,565,216

 

  (16,397)

 

 

  5,540,042

 

  (30,695)

 

  26,715,587

 

  (920,921)

 

  32,255,629

 

  (951,616)

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and 

political subdivisions  

 

  1,233,730

 

  (17,189)

 

  250,767

 

  (4,195)

 

  1,484,497

 

  (21,384)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total  

 

 $ 6,773,772

 

 $ (47,884)

 

 $ 26,966,354

 

 $ (925,116)

 

 $ 33,740,126

 

 $ (973,000)

 

The previous two tables represent 102 and 43 investments held by the Company at June 30, 2018 and December 31, 2017, respectively, the majority of which are rated “A” or higher by Standard & Poor’s.  The unrealized losses on the Company’s investments listed in the above table were primarily the result of interest rate and market fluctuations.  Based on the credit ratings of these investments, along with the consideration of whether the Company has the intent to sell or will be more likely than not required to sell the applicable investment before recovery of amortized cost basis, the Company does not consider the impairment of any of these investments to be other-than-temporary at June 30, 2018 or December 31, 2017.

 

The Company’s insurance subsidiaries internally designate certain investments as restricted to cover their policy reserves and loss reserves.  Funds are held in separate trusts for the benefit of each insurance subsidiary at U.S. Bank National Association ("US Bank").  US Bank serves as trustee under trust agreements with the Company's property and casualty insurance company subsidiary (“Frandisco P&C”), as grantor, and American Bankers Insurance Company of Florida, as beneficiary.  At June 30, 2018, these trusts held $41.6 million in available-for-sale investment securities at market value and $.9 million in held-to-maturity investment securities at amortized cost.  US Bank also serves as trustee under trust agreements with the Company's life insurance company subidiary (“Frandisco Life”), as grantor, and American Bankers Life Assurance Company, as beneficiary.  At June 30, 2018, these trusts held $17.7 million in available-for-sale investment securities at market value and $.4 million in held-to-maturity investment securities at amortized cost.  The amounts required to be held in each trust change as required reserves change.  All earnings on assets in the trusts are remitted to the Company's insurance subsidiaries.  

 

 

Note 4 – Fair Value

 

Under ASC No. 820, fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The following fair value hierarchy is used in selecting inputs used to determine the fair value of an asset or liability, with the highest priority given to Level 1, as these are the most transparent or reliable.  A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements.

 

Level 1 -  Quoted prices for identical instruments in active markets. 


18


Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. 

 

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable. 

 

The following methods and assumptions are used by the Company in estimating fair values of its financial instruments:

 

Cash and Cash Equivalents:  Cash includes cash on hand and with banks.  Cash equivalents are short-term highly liquid investments with original maturities of three months or less.   The carrying value of cash and cash equivalents approximates fair value due to the relatively short period of time between origination of the instruments and their expected realization.  The estimate of the fair value of cash and cash equivalents is classified as a Level 1 financial asset.

 

Loans:  The carrying value of the Company’s direct cash loans and sales finance contracts approximates the fair value since the estimated life, assuming prepayments, is short-term in nature.  The fair value of the Company’s real estate loans approximate the carrying value since the interest rate charged by the Company approximates market rate.  The estimate of fair value of loans is classified as a Level 3 financial asset.

 

Marketable Debt Securities:  The Company values Level 2 securities using various observable market inputs obtained from a pricing service. The pricing service prepares evaluations of fair value for our Level 2 securities using proprietary valuation models based on techniques such as multi-dimensional relational models, and series of matrices that use observable market inputs. The fair value measurements and disclosures guidance defines observable market inputs as the assumptions market participants would use in pricing the asset developed on market data obtained from sources independent of the Company. The extent of the use of each observable market input for a security depends on the type of security and the market conditions at the balance sheet date. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. The Company uses the following observable market inputs (“standard inputs”), listed in the approximate order of priority, in the pricing evaluation of Level 2 securities: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research data.  State, municipalities and political subdivisions securities are priced by our pricing service using material event notices and new issue data inputs in addition to the standard inputs.  See additional information, including the table below, regarding fair value under ASC No. 820, and the  fair value measurement of available-for-sale marketable debt securities.

 

Muual Funds:  The Company estimates the fair value of mutual fund and corporate investments with readily determinable fair values based on quoted prices observed in active markets; therefore, these investments are classified as Level 1.

 

Senior Debt Securities:  The carrying value of the Company’s senior debt securities approximates fair value due to the relatively short period of time between the origination of the instruments and their expected repayment.  The estimate of fair value of senior debt securities is classified as a Level 2 financial liability.

 

Subordinated Debt Securities:  The carrying value of the Company’s variable rate subordinated debt securities approximates fair value due to the re-pricing frequency of the securities.  The estimate of fair value of subordinated debt securities is classified as a Level 2 financial liability.

 

The Company is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value.  The Company performs due diligence to


19


understand the inputs and how the data was calculated or derived.  The Company employs a market approach in the valuation of its obligations of states, political subdivisions and municipal revenue bonds that are available-for-sale.  These investments are valued on the basis of current market quotations provided by independent pricing services selected by Management based on the advice of an investment manager.  To determine the value of a particular investment, these independent pricing services may use certain information with respect to market transactions in such investment or comparable investments, various relationships observed in the market between investments, quotations from dealers, and pricing metrics and calculated yield measures based on valuation methodologies commonly employed in the market for such investments. Quoted prices are subject to our internal price verification procedures.  We validate prices received using a variety of methods including, but not limited, to comparison to other pricing services or corroboration of pricing by reference to independent market data such as a secondary broker.  There was no change in this methodology during any period reported.

 

Assets measured at fair value as of June 30, 2018 and December 31, 2017 were available-for-sale investment securities which are summarized below:

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

June 30,

 

Assets

 

Inputs

 

Inputs

Description

 

2018

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Corporate securities

 

$        394,406 

 

$    394,406 

 

$                  -- 

 

$                 -- 

Mutual funds

 

5,308,623 

 

5,308,623 

 

-- 

 

 

Obligations of states and

political subdivisions

 

196,765,115 

 

-- 

 

196,765,115 

 

-- 

Total

 

$ 202,468,144 

 

$ 5,703,029 

 

$ 196,765,115 

 

$                 -- 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

December 31,

 

Assets

 

Inputs

 

Inputs

Description

 

2017

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Corporate securities

 

$        457,835 

 

$      457,835 

 

$                   -- 

 

$                 -- 

Mutual funds

 

10,508,952 

 

10,508,952 

 

-- 

 

-- 

Obligations of states and

political subdivisions  

 

193,601,244 

 

-- 

 

193,601,244 

 

-- 

Total

 

$ 204,568,031 

 

$ 10,966,787 

 

$ 193,601,244 

 

$                 -- 

 

Note 5 – Commitments and Contingencies

 

The Company is, and expects in the future to be, involved in various legal proceedings incidental to its business from time to time.  Management makes provisions in its financial statements for legal, regulatory, and other contingencies when, in the opinion of Management, a loss is probable and reasonably estimable.  At June 30, 2018, no such known proceedings or amounts, individually or in the aggregate, were expected to have a material impact on the Company or its financial condition or results of operations.

 

Note 6 – Income Taxes

 

Effective income tax rates were approximately 10% and 13% during the three- and six-month periods ended June 30, 2018, respectively, compared to 24% and 25% during the same periods in 2017.  On December 22, 2017, the adoption of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) resulted in significant changes to the U.S. tax code, including a reduction in the maximum federal corporate income tax rate from 35% to 21%, effective January 1, 2018.  The impact of the TCJA was the primary cause of the reduction in the Company’s income tax rates during the quarter just ended compared to the same period a year ago.  The tax rates of the Company’s insurance subsidiaires were also below statutory rates due to investments in tax exempt bonds.


20


The Company has elected to be, and is, treated as an S corporation for income tax reporting purposes. Taxable income or loss of an S corporation is passed through to, and included in the individual tax returns of the shareholders of the Company, rather than being taxed at the corporate level.  Notwithstanding this election, income taxes are reported for, and paid by, the Company's insurance subsidiaries, as they are not allowed by law to be treated as S corporations, as well as for the Company in Louisiana, which does not recognize S corporation status.

 

Note 7 – Credit Agreement

 

Effective September 11, 2009, the Company entered into a credit facility with Wells Fargo Preferred Capital, Inc.  The credit agreement provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the credit agreement), whichever is less and has a maturity date of September 11, 2019.  Available borrowings under the credit agreement were $100.0 million at June 30, 2018 and December 31, 2017, at interest rates of 5.32% and 4.49%, respectively.  The credit agreement contains covenants customary for financing transactions of this type.  At June 30, 2018, the Company was in compliance with all covenants.  

 

Note 8 – Related Party Transactions

 

The Company engages from time to time in transactions with related parties.  Please refer to the disclosure contained in Note 11 “Related Party Transactions” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2017 for additional information on such transactions.

 

Note 9 – Segment Financial Information

 

The Company discloses segment information in accordance with FASB ASC 280.  FASB ASC 280 requires companies to determine segments based on how management makes decisions about allocating resources to segments and measuring their performance.  The Company maintains eight operating divisions, with one reportable business segment.

 

At the end of 2017, the Company had seven divisions which comprised its operations:  Division I through Division V, Division VII and Division VIII.  Each division consisted of branch offices that were aggregated based on vice president responsibility and geographic location.  Division I consisted of offices located in South Carolina.  Offices in North Georgia comprised Division II and Division III consisted of offices in South Georgia.  Division IV represented our Alabama offices, Divison V represented our Mississippi offices, Division VII represented our Tennessee offices and Division VIII represented our Louisiana offices.  During the first quarter of 2018, the Company separated Division II and Division III, which together encompassed operations in Georgia, into three separate divsions, creating Division IX under a newly appointed vice president.  The following divisional financial data has been retrospectively presented to give effect to the current structure.  The change in reporting structure had no impact on previously reported consolidated results.

 

Accounting policies of each of the divisions are the same as those for the Company as a whole.  Performance is measured based on objectives set at the beginning of each year and include various factors such as division profit, growth in earning assets and delinquency and loan loss management.  All division revenues result from transactions with third parties.  The Company does not allocate income taxes or corporate headquarter expenses to the divisions.

 

The following table summarizes revenues, profit and assets by each of the Company's divisions.  Also in accordance therewith, a reconciliation to consolidated net income is provided.  


21


 

 

Division

 

Division

 

Division

 

Division

 

Division

 

Division

 

Division

 

Division

 

 

 

 

I

 

II

 

III

 

IV

 

V

 

VII

 

VIII

 

IX

 

Total

 

 

(in thousands)

Division Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 Months ended 6/30/2018 

 

 $ 7,388

 

 $ 8,023

 

 $ 8,108

 

 $ 8,472

 

 $ 5,046

 

 $ 3,695

 

 $ 3,883

 

 $ 7,090

 

 $ 51,705

3 Months ended 6/30/2017  

 

 $ 5,937

 

 $ 7,863

 

 $ 7,880

 

 $ 7,899

 

 $ 4,286

 

 $ 3,056

 

 $ 3,246

 

 $ 6,490

 

 $ 46,657

6 Months ended 6/30/2018 

 

 $ 14,535

 

 $ 16,016

 

 $ 15,950

 

 $ 17,060

 

 $ 10,172

 

 $ 7,202

 

 $ 7,900

 

 $ 14,405

 

 $ 103,240

6 Months ended 6/30/2017 

 

 $ 12,291

 

 $ 16,483

 

 $ 16,202

 

 $ 15,680

 

 $ 8,933

 

 $ 5,550

 

 $ 6,755

 

 $ 14,116

 

 $ 96,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Division Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 Months ended 6/30/2018 

 

 $ 2,509

 

 $ 3,443

 

 $ 3,393

 

 $ 2,818

 

 $ 1,512

 

 $ 547

 

 $ 818

 

 $ 2,609

 

 $ 17,649

3 Months ended 6/30/2017  

 

 $ 1,327

 

 $ 2,901

 

 $ 2,906

 

 $ 2,662

 

 $ 1,127

 

 $ 283

 

 $ 395

 

 $ 1,541

 

 $ 13,142

6 Months ended 6/30/2018  

 

 $ 4,969

 

 $ 6,554

 

 $ 6,792

 

 $ 6,090

 

 $ 3,267

 

 $ 1,018

 

 $ 1,784

 

 $ 5,389

 

 $ 35,863

6 Months ended 6/30/2017  

 

 $ 3,265

 

 $ 6,368

 

 $ 6,808

 

 $ 5,371

 

 $ 2,514

 

 $ 486

 

 $ 823

 

 $ 3,870

 

 $ 29,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Division Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 6/30/2018 

 

 $ 73,527

 

 $ 86,663

 

 $ 81,242

 

 $ 97,826

 

 $ 49,674

 

 $ 42,604

 

 $ 38,215

 

 $ 72,698

 

 $ 542,449

12/31/2017 

 

 $ 66,354

 

 $ 84,425

 

 $ 77,886

 

 $ 94,981

 

 $ 49,149

 

 $ 38,055

 

 $ 37,053

 

 $ 71,580

 

 $ 519,483

 

 

 

3 Months

Ended

6/30/2018

 

3 Months

Ended

6/30/2017

 

6 Months

Ended

6/30/2018

 

6 Months

Ended

6/30/2017

 

 

(in 000’s)

 

(in 000’s)

 

(in 000’s)

 

(in 000’s)

Reconciliation of Profit:

 

 

 

 

 

 

 

 

Profit per division  

 

 $ 17,649 

 

 $ 13,142 

 

 $ 35,863 

 

 $ 29,505 

Corporate earnings not allocated  

 

  3,438 

 

  2,641 

 

  6,584 

 

  5,865 

Corporate expenses not allocated  

 

  (13,044)

 

  (10,701)

 

  (29,895)

 

  (25,605)

Income taxes not allocated  

 

  (784)

 

  (1,207)

 

  (1,578)

 

  (2,459)

Net Income  

 

 $ 7,259 

 

 $ 3,875 

 

 $ 10,974 

 

 $ 7,306 


22


 

 

BRANCH OPERATIONS

 

 

Joseph R. Cherry  

Vice President

Shelia H. Garrett  

Vice President

John B. Gray  

Vice President

Virginia K. Palmer  

Vice President

Jennifer C. Purser 

Vice President

M. Summer Clevenger  

Vice President

J. Patrick Smith, III  

Vice President

Marcus C. Thomas  

Vice President

Michael J. Whitaker  

Vice President

 

 

 

 

 

REGIONAL OPERATIONS DIRECTORS

 

 

 

 

Sonya Acosta

Dee Dee Dunham

Judy Landon

Deloris O’Neal

Michelle Rentz Benton

Carla Eldridge

Sharon Langford

Faye Page

Maurice Bize

Jimmy Fairbanks

Becki Lawhon

Max Pickens

Derrick Blalock

Chad Frederick

Jeff Lee

Hilda Phillips

Nicholas Blevins

Peyton Givens

Lynn Lewis

Ricky Poole

Bert Brown

Kim Golka

Jeff Lindberg

Gerald Rhoden

Keith Chavis

Tabatha Green

Jimmy Mahaffey

Mike Shankles

Bryan Cook

Brian Hill

Marty Miskelly

Greg Shealy

Richard Corirossi

Tammy Hood

William Murrillo

Cliff Snyder

Joe Daniel

Gail Huff

Josh Nickerson

Harriet Welch

Loy Davis

Jerry Hughes

Mike Olive

Robert Whitlock

Chris Deakle

Steve Knotts

 

 

 

 

 

 

 

 

 

 

 

BRANCH OPERATIONS

 

ALABAMA

Adamsville

Bessemer

Enterprise

Jasper

Oxford

Scottsboro

Albertville

Brewton  (a)

Fayette

Mobile

Ozark

Selma

Alexander City

Center Point

Florence

Moody

Pelham

Sylacauga

Andalusia

Clanton

Fort Payne

Moulton

Prattville

Tallassee

Arab

Cullman

Gadsden

Muscle Shoals

Robertsdale

Troy

Athens

Decatur

Hamilton

Opelika

Russellville (2)

Tuscaloosa

Bay Minette

Dothan (2)

Huntsville (2)

Opp

Saraland

Wetumpka

GEORGIA

Acworth

Canton

Dalton

Greensboro

Manchester

Swainsboro

Adel

Carrollton

Dawson

Griffin

McDonough

Sylvania

Albany (2)

Cartersville

Douglas (2)

Hartwell

Milledgeville

Sylvester

Alma

Cedartown

Douglasville

Hawkinsville

Monroe

Thomaston

Americus

Chatsworth

Dublin

Hazlehurst

Montezuma

Thomasville

Athens (2)

Clarkesville

East Ellijay

Helena

Monticello

Thomson

Augusta

Claxton

Eastman

Hinesville (2)

Moultrie

Tifton

Bainbridge

Clayton

Eatonton

Hiram

Nashville

Toccoa

Barnesville

Cleveland

Elberton

Hogansville

Newnan

Tucker

Baxley

Cochran

Fayetteville

Jackson

Perry

Valdosta

Blairsville

Colquitt

Fitzgerald

Jasper

Pooler

Vidalia

Blakely

Columbus (2)

Flowery Branch

Jefferson

Richmond Hill

Villa Rica

Blue Ridge

Commerce

Forest Park

Jesup

Rome

Warner Robins (2)

Bremen

Conyers

Forsyth

Kennesaw

Royston

Washington


23


 

BRANCH OPERATIONS

(Continued)

 

Brunswick

Cordele

Fort Valley

LaGrange

Sandersville

Waycross

Buford

Cornelia

Ft. Oglethorpe

Lavonia

Sandy Springs

Waynesboro

Butler

Covington

Gainesville

Lawrenceville

Savannah

Winder

Cairo

Cumming

Garden City

Macon

Statesboro

 

Calhoun

Dahlonega

Georgetown

Madison

Stockbridge

 

 

LOUISIANA

Abbeville

Covington

Hammond

LaPlace

Natchitoches

Slidell

Alexandria

Crowley

Houma

Leesville

New Iberia

Sulphur

Baker

Denham Springs

Jena

Marksville

Opelousas

Thibodaux

Bastrop

DeRidder

Kenner

Minden

Pineville

West Monroe

Baton Rouge (b)

Eunice

Lafayette

Monroe

Prairieville

Winnsboro

Bossier City

Franklin

Lake Charles

Morgan City

Ruston

 

 

MISSISSIPPI

Amory

Columbus

Gulfport

Jackson

Newton

Pontotoc

Batesville

Corinth

Hattiesburg

Kosciusko

Olive Branch

Ripley

Bay St. Louis

D’Iberville

Hazlehurst

Magee

Oxford

Senatobia

Booneville

Forest

Hernando

McComb

Pearl

Starkville

Brookhaven

Greenwood

Houston

Meridian

Philadelphia

Tupelo

Carthage

Grenada

Iuka

New Albany

Picayune

Winona

Columbia

 

 

 

 

 

 

 

 

 

 

 

SOUTH CAROLINA

Aiken

Cheraw

Georgetown

Laurens

North Charleston

Spartanburg

Anderson

Chester

Greenwood

Lexington

North Greenville

Summerville

Batesburg-

  Leesvile

Columbia

Greer

Manning

North Myrtle

  Beach

Sumter

Beaufort

Conway

Hartsville

Marion

Orangeburg

Union

Boling Springs

Dillon

Irmo

Moncks Corner

Rock Hill

Walterboro

Camden

Easley

Lake City

Myrtle Beach

Seneca

Winnsboro

Cayce

Florence

Lancaster

Newberry

Simpsonville

York

Charleston

Gaffney

 

 

 

 

 

 

 

 

 

 

TENNESSEE

Athens

Crossville

Gallatin

Lafayette

Morristown

Savannah

Bristol

Dayton

Greeneville

LaFollette

Murfreesboro

Sevierville

Clarksville

Dickson

Hixson

Lebanon

Newport

Tazewell

Cleveland

Dyersburg

Jackson (c)

Lenior City

Powell

Tullahoma

Columbia

Elizabethton

Johnson City

Madisonville

Pulaski

Winchester

Cookeville

Fayetteville

Kingsport

Maryville

 

 

 

 

--------------------------------------------------------------------------------

Note:(a) Opened August 6, 2018 

(b) Opened July 03,2018 

(c) Opened July 30, 2018 

 

 

 


24


 

DIRECTORS

 

 

Ben F. Cheek, IV

Chairman

1st Franklin Financial Corporation

John G. Sample, Jr.

CPA

 

 

Ben F. Cheek, III

Vice Chairman

1st Franklin Financial Corporation

 

C. Dean Scarborough

Realtor

 

 

A. Roger Guimond

Executive Vice President and

Chief Financial Officer

1st Franklin Financial Corporation

 

Keith D. Watson

Chairman

Bowen & Watson, Inc.

 

 

Jim H. Harris, III

Founder / Co-owner

Unichem Technologies

Founder / Owner / President

Moonrise Distillery

 

 

 

EXECUTIVE OFFICERS

 

Ben F. Cheek, IV

Chairman

 

Ben F. Cheek, III

Vice Chairman

 

Virginia C. Herring

President and Chief Executive Officer

 

A. Roger Guimond

Executive Vice President and Chief Financial Officer

 

Ronald F. Morrow

Executive Vice President and Chief Operating Officer

 

Daniel E. Clevenger, II

Executive Vice President - Compliance

 

C. Michael Haynie

Executive Vice President - Human Resources

 

Kay S. O'Shields

Executive Vice President – Chief Learning Officer

 

Chip Vercelli

Executive Vice President – General Counsel

 

Joseph A. Shaw

Executive Vice President – Chief Information Officer

 

Nancy M. Sherr

Executive Vice President – Chief Marketing Officer

 

Lynn E. Cox

Vice President / Corporate Secretary and Treasurer

 

 

LEGAL COUNSEL

 

Jones Day

1420 Peachtree Street, N.E.

Suite 800

Atlanta, Georgia  30309-3053

 

INDEPENDENT AUDITORS

 

Deloitte & Touche LLP

191 Peachtree Street, N.E.

Atlanta, Georgia  30303


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