Exhibit 15 | ||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
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To: The Board of Directors of 1st Franklin Financial Corporation | ||||
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We have audited the consolidated financial statements of 1st Franklin Financial Corporation and subsidiaries (the “Company’) as of December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, and have issued our report thereon dated March 15, 2007; such financial statements and report are included in the Company’s 2006 Annual Report to security holders and are incorporated herein by reference. Our audits also included the financial statement schedule of the Company listed in Item 15. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set fo rth therein. /s/ DELOITTE & TOUCHE LLP Atlanta, Georgia March 15, 2007 | ||||
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SCHEDULE I | ||||
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CONDENSED FINANCIAL INFORMATION OF REGISTRANT | ||||
1st FRANKLIN FINANCIAL CORPORATION | ||||
(Parent Company Only) | ||||
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DECEMBER 31, 2006 AND 2005 | ||||
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ASSETS | ||||
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| 2006 | 2005 |
CASH AND CASH EQUIVALENTS: |
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Cash and Due From Banks | $ 4,259,542 | $ 2,156,052 | |
Short-term Investments | 12,638 | 242,392 | |
| 4,272,180 | 2,398,444 | |
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LOANS: |
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Direct Cash Loans | 261,553,883 | 241,313,264 | |
Real Estate Loans | 23,562,615 | 23,382,248 | |
Sales Finance Contracts | 33,724,032 | 30,345,466 | |
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318,840,530 |
295,040,978 | |
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Less: | Unearned Finance Charges | 30,169,411 | 34,661,179 |
| Unearned Insurance Commissions | 10,760,935 | 9,752,241 |
| Allowance for Loan Losses | 18,085,085 | 16,885,085 |
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| 259,825,099 | 233,742,473 |
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INVESTMENTS IN SUBSIDIARIES | 85,392,353 | 76,157,561 | |
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MARKETABLE DEBT SECURITIES: |
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Available for Sale, at fair market value | 741,623 | 645,271 | |
Held to Maturity, at amortized cost | -- | -- | |
| 741,623 | 645,271 | |
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OTHER ASSETS: |
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Land, Buildings, Equipment and Leasehold Improvements, |
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less accumulated depreciation and amortization |
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of $13,361,391 and $12,770,424 in 2006 and 2005, respectively | 7,062,439 | 7,217,783 | |
Miscellaneous | 3,276,851 | 2,832,288 | |
| 10,339,290 | 10,050,071 | |
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TOTAL ASSETS | $ 360,570,545 | $ 322,993,820 |
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SCHEDULE I | ||
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CONDENSED FINANCIAL INFORMATION OF REGISTRANT | ||
1st FRANKLIN FINANCIAL CORPORATION | ||
(Parent Company Only) | ||
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DECEMBER 31, 2006 AND 2005 | ||
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||
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| 2006 | 2005 |
SENIOR DEBT: |
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Notes Payable to Banks | $ 24,827,681 | $ 9,018,370 |
Senior Demand Notes, including accrued interest | 48,880,076 | 64,120,201 |
Commercial Paper | 107,794,812 | 107,574,284 |
| 181,502,569 | 180,712,855 |
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 13,146,259 | 11,947,883 |
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SUBORDINATED DEBT | 67,189,657 | 38,901,635 |
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Total Liabilities | 261,838,485 | 231,562,373 |
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STOCKHOLDERS' EQUITY: |
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Preferred Stock; $100 par value |
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6,000 shares authorized; no shares issued or outstanding | -- | -- |
Common Stock: |
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Voting Shares; $100 par value; |
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2,000 shares authorized; 1,700 shares issued and outstanding | 170,000 | 170,000 |
Non-Voting Shares; no par value; |
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198,000 shares authorized; 168,300 shares issued and |
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outstanding as of December 31, 2006 and 2005 | -- | -- |
Accumulated Other Comprehensive Income | 611,307 | 514,955 |
Retained Earnings | 97,950,753 | 90,746,492 |
Total Stockholders' Equity | 98,732,060 | 91,431,447 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 360,570,545 | $ 322,993,820
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SCHEDULE I | |||
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CONDENSED FINANCIAL INFORMATION OF REGISTRANT | |||
1st FRANKLIN FINANCIAL CORPORATION | |||
(Parent Company Only) | |||
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STATEMENTS OF INCOME | |||
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |||
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| 2006 | 2005 | 2004 |
INTEREST INCOME: |
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Finance Charges | $ 77,914,247 | $ 69,228,623 | $ 66,068,779 |
Investment Income | 22,131 | 103,791 | 35,621 |
| 77,936,378 | 69,332,414 | 66,104,400 |
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INTEREST EXPENSE: |
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Senior Debt | 8,875,312 | 6,309,551 | 5,073,818 |
Subordinated Debt | 3,118,314 | 1,706,478 | 2,063,150 |
| 11,993,626 | 8,016,029 | 7,136,968 |
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NET INTEREST INCOME | 65,942,752 | 61,316,385 | 58,967,432 |
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PROVISION FOR LOAN LOSSES | 19,108,562 | 19,483,632 | 18,096,969 |
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 46,834,190 | 41,832,753 | 40,870,463 |
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NET INSURANCE INCOME | 14,821,492 | 13,516,256 | 14,169,770 |
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OTHER REVENUE | 2,147,104 | 985,194 | 903,917 |
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OPERATING EXPENSES: |
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Personnel Expense | 40,378,370 | 35,926,511 | 34,312,589 |
Occupancy Expense | 8,979,037 | 8,622,917 | 8,287,737 |
Other Expense | 16,000,405 | 14,295,115 | 15,998,782 |
| 65,357,812 | 58,844,543 | 58,599,108 |
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LOSS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | (1,555,026) | (2,510,340) | (2,654,958) |
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PROVISION FOR INCOME TAXES | 21,504 | 12,647 | 39,428 |
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EQUITY IN EARNINGS OF SUBSIDIARIES, Net of Tax | 9,248,292 | 7,631,686 | 7,675,608 |
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NET INCOME | 7,671,762 | 5,108,699 | 4,981,222 |
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RETAINED EARNINGS, Beginning of Period | 90,746,492 | 86,105,294 | 82,622,954 |
Distributions on Common Stock | 467,501 | 467,501 | 1,498,882 |
RETAINED EARNINGS, End of Period | $ 97,950,753 | $ 90,746,492 | $ 86,105,294 |
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SCHEDULE I | |||
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1st FRANKLIN FINANCIAL CORPORATION | |||
(Parent Company Only) | |||
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STATEMENTS OF CASH FLOWS | |||
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |||
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| 2006 | 2005 | 2004 |
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income | $ 7,671,762 | $ 5,108,699 | $ 4,981,222 |
Adjustments to reconcile net income to net |
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cash provided by operating activities: |
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Provision for Loan Losses | 19,108,562 | 19,483,632 | 18,096,969 |
Depreciation and Amortization | 1,888,433 | 1,827,138 | 1,754,700 |
Equity in undistributed earnings of subsidiaries | (9,234,792) | (7,628,545) | (7,661,108) |
Loss on sale of marketable securities and |
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equipment and premium amortization on securities | (82,129) | (354,789) | 43,347 |
(Increase) Decrease in Miscellaneous Assets | (444,563) | (614,315) | 410,047 |
Increase (Decrease) in Other Liabilities | 1,198,376 | (967,352) | (1,308,689) |
Net Cash Provided | 20,105,649 | 16,854,468 | 16,316,488 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Loans originated or purchased | (231,849,878) | (196,159,931) | (196,761,835) |
Loan payments | 186,658,690 | 170,655,269 | 165,955,472 |
Purchases of securities, available for sale | -- | -- | -- |
Sales of securities, available for sale | -- | -- | -- |
Redemptions of securities, available for sale | -- | -- | -- |
Principal payments on securities, available for sale | -- | -- | 248,854 |
Capital expenditures | (2,089,399) | (2,086,599) | (3,499,585) |
Proceeds from sale of equipment | 438,439 | 581,808 | 210,732 |
Net Cash Used | (46,842,148) | (27,009,453) | (33,846,362) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net increase (decrease) in Notes Payable to |
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Banks and Senior Demand Notes | 569,186 | (3,579,488) | 8,812,994 |
Commercial Paper issued | 44,177,066 | 44,700,469 | 28,626,116 |
Commercial Paper redeemed | (43,956,538) | (29,075,878) | (16,975,372) |
Subordinated Debt issued | 35,526,664 | 6,669,812 | 5,754,767 |
Subordinated Debt redeemed | (7,238,642) | (9,078,706) | (8,520,172) |
Dividends / Distributions Paid | (467,501) | (467,501) | (1,498,882) |
Net Cash Provided | 28,610,235 | 9,168,708 | 16,199,451 |
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NET INCREASE (DECREASE) IN |
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CASH AND CASH EQUIVALENTS | 1,873,736 | (986,277) | (1,330,423) |
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CASH AND CASH EQUIVALENTS, beginning | 2,398,444 | 3,384,721 | 4,715,144 |
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CASH AND CASH EQUIVALENTS, ending | $ 4,272,180 | $ 2,398,444 | $ 3,384,721 |
Cash paid during the year for: | Interest | $ 11,694,753 | $ 7,964,734 | $ 7,101,750 |
| Income Taxes | 31,785 | 50,125 | 39,856 |
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