Exhibit 19 |
1st |
FRANKLIN |
FINANCIAL |
CORPORATION |
QUARTERLY |
REPORT TO INVESTORS |
AS OF AND FOR THE |
SIX MONTHS ENDED |
JUNE 30, 2002 |
<PAGE> 1 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview: 1st Franklin Financial Corporation is engaged in the consumer finance business, particularly in making consumer loans to individuals in relatively small amounts for relatively short periods of time, and in making first and second mortgage loans on real estate in larger amounts and for longer periods of time. We also purchase sales finance contracts from various retail dealers. Direct cash loans are made primarily to people who need money for some unusual or unforeseen expense or for the purpose of paying off an accumulation of small debts or for the purchase of furniture and appliances. These loans are repayable in 6 to 48 monthly installments and generally do not exceed $10,000 in principal amount. The loans are generally secured by personal property, motor vehicles and/or real estate. We believe that the interest and fees we charge 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. These loans are generally made in amounts ranging from $3,000 to $50,000 on maturities of 35 to 180 months. We believe that the interest and fees we charge on these loans are in compliance with applicable federal and state laws. Sales finance contracts are purchased from retail dealers. These contracts have maturities that range from 3 to 48 months and generally do not individually exceed $7,500 in principal amount. We believe that the interest rates we charge on these contracts are in compliance with applicable federal and state laws. The Company provides credit to individuals and families through a network of 195 branch offices located in five southeastern states. Included in the network are four new branch offices opened during the six months just ended and two offices opened during July 2002. Effective August 13, 2002, Management engaged Deloitte and Touche LLP as independent auditors to conduct the Company's audits.
Financial Condition: Loan originations have been robust during the first half of 2002 resulting in a 3% increase in the Company's net loan portfolio. The growth in loan receivables led to a $5.7 million (2%) increase in total Company assets at June 30, 2002 as compared to assets at December 31, 2001. We project lending activity to continue to improve during the remainder of the year. We determine the allowance for loan losses by reviewing our previous loss experience, reviewing specifically identified loans where collection is doubtful and evaluating the inherent risks and change in the composition of our loan portfolio. In both the first and the second quarter of 2002, we have recorded loan loss provisions in excess of the net charge-offs, which increased the allowance for loan losses from $10.2 million to $11.1 million. While net charge-offs to average net receivables have decreased from 7.4% for the year 2001 to an annualized rate of 4.2% for the six-month period ended June 30, 2002, we believe that the increase in our loan portfolio and the continued weakened economy justify the increase in the allowance for loan losses during the six months just ended. The allowance for loan losses as of June 30, 2002 represented 5.6% of outstanding net receivables, as compared to 5 .4% at the end of 2001. Delinquent accounts more than 60 days past due increased slightly from 6.7% of loans outstanding to 7.0% from December 31, 2001 to June 30, 2002. The Company's investment portfolio consists mainly of U.S. Treasury bonds, Government Agency bonds and various municipal bonds A significant portion of these investment securities have been designated as “available for sale” (64% as of June 30, 2002 and 71% as of December 31, 2001) with any unrealized gain or loss accounted for in the Company’s equity section, net of deferred income taxes for those investments held by the Company's insurance subsidiaries. The remainder of the investment portfolio represents securities carried at amortized cost and designated “held to maturity”, as Management has both the ability and intent to hold these securities to maturity. Results of Operations: Results of operations for the quarter ended June 30, 2002 closely paralleled the performance for the six months just ended; therefore, the discussion which follows will cover the six-month period as a whole. The discussion will not encompass a separate analysis of the quarterly performance unless otherwise noted. The Company achieved significant improvement in operating results during the first half of 2002 as compared to the same period in 2001. Total revenues, which include interest income, insurance income and other revenue, were $22.4 million and $44.3 million during the three- and six-month periods ended June 30, 2002, representing an 8% and 7% increase, respectively, as compared to the same periods a year ago. Profit momentum has picked up. Net income increased 305% or $4.4 million during the six-month period ended June 30, 2002 and 452% or $2.0 million during the three-month period ended June 30, 2002 as compared to the same periods a year ago. The Company is poised to continue to out-perform the prior year and we believe it will likely post strong net earnings growth the remainder of the year. Net Interest Income Growth in net income during the current year is mainly due to improvement in the Company's net interest margin. The net interest margin (the margin between earnings on loans and investments and interest paid on senior and subordinated debt, before provision for loan losses) grew $2.3 million (20%) and $4.3 million (19%) during the three- and six-month periods ended June 30, 2002 as compared to the same periods a year ago. Interest income earned on higher levels of average net receivables outstanding contributed an additional $1.4 million (11%) and $2.8 million (10%) to the interest margin during the three- and six-month periods ended June 30, 2002 as compared to the same periods in 2001. Average annualized yields on the loan portfolio were 30.3% and 30.0% during the three and six months ended June 30, 2002, respectively, as compared to 29.3% and 29.1% during the same periods in 2001. Another key element contributing to the growth in the Company's net interest margin was a $1.0 million (33%) and $1.9 million (31%) decline in interest expense during the three- and six-month periods ended June 30, 2002 as compared to the same periods in 2001. Although average debt levels were higher during the three- and six-month periods just ended as compared to the same periods in 2001, the lower interest rate environment has allowed us to reduce the overall borrowing cost on the Company's debt. Average interest rates on outstanding borrowings decreased from 7.0% for the six months ended June 30, 2001 to 4.6% for the six months ended June 30, 2002, and from 7.0% to 4.5% for the quarters then ended. We believe interest rates will continue to remain below prior year levels for the remainder of 2002. Insurance Income In connection with the consumer finance business, we write credit insurance as an agent for a non-affiliated company specializing in such insurance. Two of our 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. Higher levels of average net receivables also led to a $.3 million (5%) and $.6 million (6%) increase in net insurance income for the three- and six-month periods just ended as compared to the same periods in 2001. As average net receivables increase, the Company typically sees an increase in the number of customers requesting credit insurance, thereby leading to higher levels of insurance in-force. In addition, our loss and expense ratio on insurance has remained relatively stable in the six-month period just ended as compared to the same period in 2001. Provision for Loan Losses The Company’s performance during the previous year was hurt by credit quality problems. Loan losses reached record levels and bankruptcy filings soared. For the six-month period just ended, the provision for loan losses in the consolidated statements of income and retained earnings comprised $4.2 million of net charge-offs during the period and $1.0 million related to the increase in the allowance for loan losses. During the six months ended June 30, 2002, net charge-offs were below levels experienced during 2001, resulting in a decrease in the provision for loan losses of $.2 million (4%). The increase in the allowance for loan losses during the period is primarily related to the growth of the loan portfolio, as we expect overall loan losses to be lower this year as compared to 2001. For the quarter just ended, net charge-offs were actually higher than the same quarter a year ago causing a $.2 million (8%) increase in the provision for loan losses for the current three month period. Other Operating Expenses Cost reduction efforts initiated at the beginning of the current year and modest inflation enabled the Company to hold increases in other operating expenses to $.2 million (2%) and $.7 million (3%) during the three- and six-month periods just ended as compared to the same periods in 2001. Increases in advertising expenditures, collection expenses, consultant fees, management meeting expenses, legal/audit fees and supply expenditures were the primary factors causing higher other operating costs during the current periods. The Company is evaluating various computer systems to replace the system currently being used to administer its loan operations. We currently use a service bureau to process our loans; however, the service will no longer be offered after 2004. Costs to network our branch offices and implement a new computer system could have a significant impact on capital expenditures and operating expenses during the second half of this year and 2003. Another factor which may have an impact on operating expenses during the remainder of this year are new salary administration policies implemented July 1, 2002. Effective income tax rates were 15% and 40% during the six-month periods ended June 30, 2002 and 2001, respectively, and 17% and 52% during the three-month periods then ended. The Company files under S Corporation status for income tax reporting purposes. Taxable income or loss of an S Corporation is included in the individual tax returns of the stockholders of the Company. Income taxes are reported for the Company's insurance subsidiaries. The decline in the rate during the current period was due to higher taxable income being earned by the Company and correspondingly being passed to the shareholders for tax reporting. Also contributing to the decrease in the tax rate were certain tax benefits provided by law to life insurance companies, which substantially reduced the effective tax rate of the Company's insurance subsidiary below statutory rates. Quantitive and Qualitative Disclosures about Market Risk: As previously discussed, the lower interest rate environment has enabled the Company to reduce interest expense during the current year. We believe rates will remain below prior year levels during the remainder of the year. There was no change during the six-month period just ended that would have a material impact on our exposure to changes in market conditions. Please refer to the market risk analysis discussed in our annual report on Form 10-K as of and for the year ended December 31, 2001 for a detailed analysis of our market risk exposure. Liquidity and Capital Resources: As of June 30, 2002 and December 31, 2001, the Company had $25.1 million and $26.4 million, respectively, invested in cash and short-term investments readily convertible in cash with original maturities of three months or less. Beneficial owners of the Company are also beneficial owners of Liberty Bank & Trust. As of June 30, 2002, the Company maintained $2,000,000 of certificates of deposit with Liberty Bank & Trust at market rates and terms. The Company also had $1,108,128 in demand deposits with Liberty Bank & Trust at June 30, 2002. The Company’s investments in marketable securities can be converted into cash, if necessary. As of June 30, 2002 and December 31, 2001, respectively, 70% and 66% of the Company’s cash and cash equivalents and investment securities were maintained in the insurance subsidiaries. State insurance regulations limit the use an insurance company can make of its assets. Dividend payments to the Company by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to the greater of 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At December 31, 2001, Frandisco Property and Casualty Insurance Company and Frandisco Life Insurance Company had a statutory surplus of $19.8 million and $20.2 million, respectively. The maximum aggregate amount of dividends these subsi diaries can pay to the Company in 2002 without prior approval of the Georgia Insurance Commissioner is approximately $6.5 million. Liquidity requirements of the Company are financed through the collection of receivables and through the issuance of debt securities. Continued liquidity of the Company is therefore dependent on the collection of its receivables and the sale of debt securities that meet the investment requirements of the public. In addition to the securities program, the Company has two external sources of funds through the use of two credit agreements. One agreement provides for available borrowings of $21.0 million, all of which was available at June 30, 2002 and December 31, 2001. Another agreement provides for an additional $2.0 million for general operating purposes. Available borrowings under this agreement were $2.0 million at June 30, 2002 and December 31, 2001. Other: The Company has a legal proceeding pending against it in the state of Mississippi alleging fraud and deceit in the Company's sale of credit insurance, refinancing practices and use of arbitration agreements. The plaintiffs seek statutory, compensatory and punitive damages. Action has been taken to remove the case to federal court and to compel arbitration. Management believes that it is too early to assess the Company's potential liability in connection with this suit. The Company is diligently contesting and defending this case. Recent Accounting Pronouncements: In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 eliminates pooling of interest accounting and requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 eliminates the amortization of goodwill and certain other intangible assets and requires that goodwill be evaluated for impairment by applying a fair value test. The Company adopted SFAS No. 141 effective July 1, 2001 and SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 will have a material impact on our financial statements. The FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets in August 2001. SFAS No. 144 establishes new rules for measuring impairment of long-lived assets and accounting for discontinued operations. The Company adopted SFAS 144 effective January 1, 2002 and the adoption of this standard did not have a significant impact on our financial statements Critical Accounting Policies: The accounting and reporting policies of the Company and its subsidiaries are in accordance with accounting principles generally accepted in the United States and conform to general practices within the financial services industry. The more critical accounting and reporting policies include accounting for securities, loans, revenue recognition, the allowance for loan losses and income taxes. In particular, the Company's accounting policies relating to the allowance for loan losses and income taxes involve the use of estimates and require significant judgments to be made by management. Different assumptions in the application of these policies could result in material changes in the consolidated financial position or consolidated results of operations. Please refer to Note 1 in the "Notes to Consolidated Financial Statements" in the Company’s Form 10-K as of and for the y ear ended December 31, 2001 for details regarding all of 1st Franklin's critical and significant accounting policies. <PAGE> 5 Forward Looking Statements: Certain information in the previous discussion and other statements contained in the Quarterly Report, which are not historical facts, may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may involve known and unknown risks and uncertainties. The Company's results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. Possible factors, which could cause future results to differ from expectations, are, but not limited to, adverse economic conditions including the interest rate environment, federal and state regulatory changes, unfavorable outcome of litigation and other factors referenced elsewhere. |
<PAGE> 6 |
1st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||
June 30, | December 31, | |
2002 | 2001 | |
(Unaudited) | (Audited) | |
ASSETS | ||
CASH AND CASH EQUIVALENTS | $ 25,117,791 | $ 26,443,827 |
LOANS: Direct Cash Loans 1st Mortgage Real Estate 2nd Mortgage Real Estate Sales Finance Contracts Less: Unearned Finance Charges Unearned Insurance Premiums and Commissions Allowance for Loan Losses Net Loans
| 174,269,705 30,818,264 5,692,318 17,030,827 227,811,114 26,497,293 14,458,557 11,103,207 175,752,057 | 176,441,894 27,452,841 4,842,832 14,306,614 223,044,181 27,394,560 15,519,392 10,171,907 169,958,322 |
INVESTMENT SECURITIES: Available for Sale, at fair market Held to Maturity, at amortized cost | 37,009,454 20,680,654 57,690,108 | 39,459,120 16,099,074 55,558,194 |
OTHER ASSETS | 10,058,352 | 10,977,572 |
TOTAL ASSETS | $ 268,618,308 | $ 262,937,915 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
SENIOR DEBT | $ 127,098,816 | $ 124,844,754 |
OTHER LIABILITIES | 13,200,006 | 14,004,509 |
SUBORDINATED DEBT | 50,905,818 | 52,769,260 |
Total Liabilities | 191,204,640 | 191,618,523 |
STOCKHOLDERS' EQUITY: | ||
Preferred Stock; $100 par value | -- | -- |
Common Stock Voting Shares; $100 par value; 2,000 shares authorized; 1,700 shares outstanding Non-Voting Shares; no par value; 198,000 shares authorized; 168,300 shares outstanding as of June 30, 2002 and December 31, 2001 | 170,000 -- | 170,000 -- |
Accumulated Other Comprehensive Income | 1,191,826 | 878,150 |
Retained Earnings | 76,051,842 | 70,271,242 |
Total Stockholders' Equity | 77,413,668 | 71,319,392 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 268,618,308 | $ 262,937,915 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements | ||
<PAGE> 7 | ||
1st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS | |||||||||||
Quarter Ended | Six Months Ended | ||||||||||
June 30 | June 30 | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||
INTEREST INCOME | $ 15,698,600 | $ 14,407,040 | $ 30,946,644 | $ 28,491,369 | |||||||
INTEREST EXPENSE | 1,997,410 | 2,996,328 | 4,088,066 | 5,950,602 | |||||||
NET INTEREST INCOME | 13,701,190 | 11,410,712 | 26,858,578 | 22,540,767 | |||||||
Provision for Loan Losses | 3,319,665 | 3,079,980 | 5,154,079 | 5,348,868 | |||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 10,381,525 | 8,330,732 | 21,704,499 | 17,191,899 | |||||||
NET INSURANCE INCOME Premiums and Commissions Insurance Claims and Expenses | 6,468,002 1,231,109 5,236,893 | 6,158,101 1,188,154 4,969,947 | 12,951,992 2,416,972 10,535,020 | 12,188,267 2,273,369 9,914,898 | |||||||
OTHER REVENUE | 185,132 | 228,442 | 387,652 | 438,447 | |||||||
OTHER OPERATING EXPENSES: Personnel Expense Occupancy Expense Other Total | 8,045,793 1,674,266 3,131,140 12,851,199 | 7,891,031 1,605,844 3,114,301 12,611,176 | 15,950,253 3,316,628 6,561,990 25,828,871 | 15,924,493 3,256,690 5,980,625 25,161,808 | |||||||
INCOME BEFORE INCOME TAXES | 2,952,351 | 917,945 | 6,798,300 | 2,383,436 | |||||||
Provision for Income Taxes | 494,972 | 473,128 | 1,008,200 | 952,613 | |||||||
NET INCOME | 2,457,379 | 444,817 | 5,790,100 | 1,430,823 | |||||||
RETAINED EARNINGS, Beginning of Period | 73,603,963 | 70,058,297 | 70,271,242 | 69,086,351 | |||||||
Distributions on Common Stock | 9,500 | -- | 9,500 | 14,060 | |||||||
RETAINED EARNINGS, End of Period | $ 76,051,842 | $ 70,503,114 | $ 76,051,842 | $ 70,503,114 | |||||||
BASIC EARNINGS PER SHARE: Voting Common Stock; 1,700 shares Outstanding all periods Non-Voting Common Stock; 168,300 shares Outstanding all periods | $14.46 $14.46 | $ 2.62 $ 2.62 | $34.06 $34.06 | $ 8.42 $ 8.42 | |||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements | |||||||||||
<PAGE> 8 | |||||||||||
1ST FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
Six Months Ended | ||
June 30 | ||
(Unaudited) | ||
2002 | 2001 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Income | $ 5,790,100 | $ 1,430,823 |
Adjustments to reconcile net income to net cash Provided by operating activities: Provision for Loan Losses Depreciation and Amortization Deferred Income Taxes Other, net Decrease in miscellaneous assets Decrease in Accounts Payable and Accrued Expenses Net Cash Provided | 5,154,079 670,213 (106,459) 92,373 770,619 (765,150) 11,605,775 | 5,348,868 668,537 89,761 39,153 1,153,370 (1,313,253) 7,417,259 |
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Loans originated or purchased Loan payments Purchases of marketable debt securities Principal payments on securities Redemptions of securities Other, net Net Cash Used | (76,615,022) 65,667,208 (8,258,443) 92,548 6,352,400 (551,622) (13,312,931) | (70,250,287) 63,902,346 (6,449,547) 174,997 12,873,448 (434,699) (183,742) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Increase in Senior Debt Subordinated debt issued Subordinated debt redeemed Distributions paid Net Cash Provided | 2,254,062 2,898,857 (4,762,299) (9,500) 381,120 | 7,103,555 8,591,347 (2,727,997) (14,060) 12,952,845 |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (1,326,036) | 20,186,362 |
CASH AND CASH EQUIVALENTS, beginning | 26,443,827 | 10,369,709 |
CASH AND CASH EQUIVALENTS, ending | $ 25,117,791 | $ 30,556,071 |
Cash Paid during the period for: Interest Income Taxes | $ 4,122,522 1,387,000 | $ 5,863,789 1,419,000 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. | ||
<PAGE> 9 | ||
-NOTES- | |
Note 1 - Basis of Presentation | |
The accompanying interim financial information of 1st Franklin Financial Corporation and subsidiaries (the "Company") should be read in conjunction with the annual financial statements and notes thereto as of December 31, 2001 and for the year then ended included in the Company's December 31, 2001 Annual Report. | |
In the opinion of Management of the Company, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of June 30, 2002 and December 31, 2001 and the results of its operations and its cash flows for the six months ended June 30, 2002 and 2001. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Compan y believes that the disclosures herein are adequate to make the information presented not misleading. | |
The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full fiscal year. | |
The computation of earnings per share is self-evident from the Consolidated Statements of Income and Retained Earnings. | |
Note 2 – Impact of Recently Issued Accounting Standards | |
In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 eliminates pooling of interest accounting and requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 eliminates the amortization of goodwill and certain other intangible assets and requires that goodwill be evaluated for impairment by applying a fair value test. The Company adopted SFAS No. 141 effective July 1, 2001 and SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 did not have a material impact on the financi al statements. The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" in August 2001. SFAS No. 144 establishes new rules for measuring impairment of long-lived assets and accounting for discontinued operations. The Company adopted SFAS 144 effective January 1, 2002 and the adoption of this standard did not have a significant impact on our financial statements. | |
Note 3 - Allowance for Loan Losses | |||
An analysis of the allowance for the six month periods ended June 30, 2002 and 2001 is shown in the following table: | |||
Six Months Ended June 30, 2002 | Six Months Ended June 30, 2001 | ||
Beginning Balance Provision for Loan Losses Charge-offs Recoveries Ending Balance | $ 10,171,907 5,154,079 (6,181,287) 1,958,508 $ 11,103,207 | $ 9,095,431 5,348,868 (5,990,160) 1,451,292 $ 9,905,431 | |
<PAGE> 10 | |||
Note 4 - Marketable Debt Securities | |||||
Debt securities available for sale are carried at estimated fair market 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 market values of these debt securities are as follows: | |||||
As of June 30, 2002 | As of December 31, 2001 | ||||
Amortized Cost | Estimated Fair Market Value | Amortized Cost | Estimated Fair Market Value | ||
Available for Sale: U.S. Treasury Securities and obligations of U.S. government corporations and agencies Obligations of states and political subdivisions Corporate securities | $ 3,628,966 29,325,518 2,588,137 $ 35,542,621 | $ 3,766,294 30,489,264 2,753,896 $ 37,009,454 | $ 4,059,308 32,024,522 2,289,240 $ 38,373,070 | $ 4,197,896 32,792,331 2,468,893 $ 39,459,120 | |
Held to Maturity: U.S. Treasury Securities and obligations of U.S. government corporations and agencies Obligations of states and political subdivisions Corporate securities | $ 7,166,730 12,239,984 1,273,940 $ 20,680,654 | $ 7,272,660 12,569,498 1,323,533 $ 21,165,691 | $ 5,268,048 10,060,623 770,403 $ 16,099,074 | $ 5,335,021 10,045,003 795,433 $ 16,175,457 | |
Note 5 – Commitments and contingencies | |
The Company has a legal proceeding pending against it in the state of Mississippi alleging fraud and deceit in the Company's sale of credit insurance, refinancing practices and use of arbitration agreements. The plaintiffs seek statutory, compensatory and punitive damages. Action has been taken to remove the case to federal court and to compel arbitration. Management believes that it is too early to assess the Company's potential liability in connection with this suit. The Company is diligently contesting and defending this case. | |
Note 6 – Income Taxes | |
Effective income tax rates were 15% and 40% during the six-month periods ended June 30, 2002 and 2001, respectively, and 17% and 52% during the three-month periods then ended. The Company files under S Corporation status for income tax reporting purposes. Taxable income or loss of an S Corporation is included in the individual tax returns of the stockholders of the Company. Income taxes are reported for the Company's insurance subsidiaries. The decline in the rate during the current period was due to higher taxable income being earned by the Company and correspondingly being passed to the shareholders for tax reporting. Also contributing to the decrease in the tax rate were certain tax benefits provided by law to life insurance companies, which substantially reduced the effective tax rate of the Company's insurance subsidiary below statutory rates. | |
Note 7 – Other Comprehensive Income | |
Comprehensive income was $3,214,490 and $6,103,776 for the three- and six-month periods ended June 30, 2002, as compared to $1,412,854 and $1,826,242 for the same periods in 2001. <PAGE> 11
Accumulated other comprehensive income consists solely of unrealized gains and losses on investment securities available for sale, net of applicable deferred taxes. | |
Note 8 – Related party transactions | |
Beneficial owners of the Company are also beneficial owners of Liberty Bank & Trust ("Liberty"). At June 30, 2002, the Company maintained $2,000,000 of certificates with Liberty at market rates and terms. The Company also had $1,108,128 in demand deposits with Liberty at June 30, 2002. The Company also engages from time to time in other transactions with related parties. Please refer to the "Related Parties" disclosure in our Annual Report on Form 10-K as of and for the year ended December 31, 2001 for additional information on related party transactions. | |
Note 9 - Segment Financial Information | |
The following table summarizes assets, revenues and profit by business segment. A reconcilement to consolidated net income is also provided. Effective July 1, 2001, Management realigned its business segments with its geographic regions. Due to the significant changes implemented in the management reporting system with regard to business segment reporting, it is not practicable to conform prior year financial data for the new business segments nor current year financial data for the prior business segments for reporting. | |
Division | Division | Division | Division | Division | ||
I | II | III | IV | V | Total | |
(in Thousands) | ||||||
Segment Revenues: 3 Months ended 6/30/02 6 Months ended 6/30/02 | $ 2,425 4,757 | $ 6,773 13,677 | $ 6,363 12,924 | $ 3,041 5,915 | $ 1,933 3,723 | $ 20,535 40,996 |
Segment Profit: 3 Months ended 6/30/02 6 Months ended 6/30/02 | $ 592 1,265 | $ 2,878 5,990 | $ 2,316 5,374 | $ 1,100 2,205 | $ 374 775 | $ 7,260 15,609 |
Segment Assets: 6/30/02 | $ 22,489 | $ 65,621 | $ 59,781 | $ 28,703 | $ 16,967 | $ 193,561 |
3 Months Ended 6/30/02 (in 000's) | 6 Months Ended 6/30/02 (in 000's) | |||||
Reconcilement of Profit: Profit per segments Corporate earnings not allocated Corporate expenses not allocated Income Taxes not allocated | $ 7,260 586 (4,894) (495) $ 2,457 | $ 15,609 874 (9,685) (1,008) $ 5,790 | ||||
<PAGE> 12 | ||||||
BRANCH OPERATIONS
Jack R. Coker | Senior Vice President | |||||
J.Michael Culpepper | Vice President | |||||
Kay S. Lovern | Vice President | |||||
Dianne H. Moore | Vice President | |||||
Ronald F. Morrow | Vice President | |||||
Michael J. Whitaker | Vice President | |||||
SUPERVISORS | |||
Bert Brown | Renee Hebert | Mike Lyles | Dale Palmer |
Ronald Byerly | Jack Hobgood | Jimmy Mahaffey | Darryl Parker |
Debbie Carter | Bruce Hooper | Roy Metzger | Hilda Phillips |
Rick Childress | Janice Hyde | Brian McSwain | Henrietta Reathford |
Bryan Cook | Judy Landon | Harriet Moss | Michelle Rentz |
Donald Floyd | Jeff Lee | Mike Olive | Gaines Snow |
Shelia Garrett | Tommy Lennon | Melvin Osley | Marc Thomas |
Brian Gray | |||
BRANCH OPERATIONS | |||||
ALABAMA | |||||
Alexander City | Clanton | Fayette | Huntsville (2) | Ozark | Selma |
Andalusia | Cullman | Florence | Jasper | Pelham | Sylacauga |
Arab | Decatur | Gadsden | Moulton | Prattville | Troy |
Athens | Dothan | Geneva | Muscle Shoals | Russellville (2) | Tuscaloosa |
Bessemer | Enterprise | Hamilton | Opp | Scottsboro | Wetumpka |
Birmingham | |||||
GEORGIA | |||||
Adel | Canton | Dallas | Griffin (2) | McRae | Stockbridge |
Albany | Carrollton | Dalton | Hartwell | Milledgeville | Swainsboro |
Alma | Cartersville | Dawson | Hawkinsville | Monroe | Sylvania |
Americus | Cedartown | Douglas (2) | Hazlehurst | Montezuma | Sylvester |
Arlington | Chatsworth | Douglasville | Hinesville (2) | Monticello | Thomaston |
Athens (2) | Clarkesville | East Ellijay | Hogansville | Moultrie | Thomson |
Bainbridge | Claxton | Eastman | Jackson | Nashville | Tifton |
Barnesville | Clayton | Eatonton | Jasper | Newnan | Toccoa |
Baxley | Cleveland | Elberton | Jefferson | Perry | Valdosta (2) |
Blakely | Cochran | Forsyth | Jesup | Pooler | Vidalia |
Blue Ridge | Commerce | Fort Valley | LaGrange | Richmond Hill | Villa Rica |
Bremen | Conyers | Gainesville | Lavonia | Rome | Warner Robins |
Brunswick | Cordele | Garden City | Lawrenceville | Royston | Washington |
Buford | Cornelia | Georgetown | Madison | Sandersville | Waycross |
Butler | Covington | Glennville | Manchester | Savannah | Waynesboro |
Cairo | Cumming | Greensboro | McDonough | Statesboro | Winder |
Calhoun | |||||
LOUISIANA | |||||
Alexandria | Franklin | Lafayette | Marksville | Natchitoches | Opelousas |
Crowley | Houma | Leesville | Morgan City | New Iberia | Pineville |
DeRidder | Jena | ||||
<PAGE> 13 | |||||
BRANCH OPERATIONS | |||||
(Continued) | |||||
MISSISSIPPI | |||||
Bay St. Louis | Forest | Hattiesburg | Jackson | McComb | Picayune |
Carthage | Grenada | Hazlehurst | Kosciusko | Newton | Winona |
Columbia | Gulfport | Houston | Magee | Pearl | |
SOUTH CAROLINA | |||||
Aiken | Columbia | Gaffney | Laurens | North Augusta | Spartanburg |
Anderson | Conway | Greenville | Lexington | Orangeburg | Summerville |
Cayce | Dillon | Greenwood | Lugoff | Rock Hill | Union |
Chester | Easley | Greer | Marion | Seneca | York |
Clemson | Florence | Lancaster | Newberry | Simpsonville | |
<PAGE> 14 | |||||
DIRECTORS |
Ben F. Cheek, III Chairman and Chief Executive Officer 1st Franklin Financial Corporation |
Ben F. Cheek, IV Vice Chairman |
Lorene M. Cheek Homemaker |
Jack D. Stovall President, Stovall Building Supplies, Inc. |
Dr. Robert E. Thompson Physician, Toccoa Clinic |
EXECUTIVE OFFICERS |
Ben F. Cheek, III Chairman and Chief Executive Officer |
Ben F. Cheek, IV Vice Chairman |
Virginia C. Herring President |
A. Roger Guimond Executive Vice President and Chief Financial Officer |
A. Jarrell Coffee Executive Vice President and Chief Operating Officer |
Phoebe P. Martin Executive Vice President - Human Resources |
Lynn E. Cox Area Vice President / Corporate Secretary and Treasurer |
LEGAL COUNSEL |
Jones, Day, Reavis & Pogue 3500 Sun Trust Plaza 303 Peachtree Street, N.E. Atlanta, Georgia 30308-3242 |
AUDITORS |
Deloitte & Touche LLP 191 Peachtree Street, N.E. Atlanta, Georgia 30303 |
<PAGE > 15 |
