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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to _________
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Commission File Number 2-27985
1st FRANKLIN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-0521233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(Address of principal executive offices)
Registrant's telephone number, including area code: (706) 886-7571
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
(Cover page 1 of 2 pages)
State the aggregate market value of the voting stock held by non-
affiliated of the Registrant: Not Applicable.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class Outstanding at February 28, 1997
------------------------------------- --------------------------------
Common Stock, $100 Par Value 1,700 shares
Non-Voting Common Stock, No Par Value 168,300 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to security holders for the
fiscal year ended December 31, 1996 are incorporated by reference into Parts
I, II and IV of this Form 10-K.
(Cover page 2 of 2 pages)
PART I
Item 1. BUSINESS:
The Company, Page 1; Business, Pages 5 - 12; and Financial Statements,
Pages 17-30 of Registrant's Annual Report to security holders for the
fiscal year ended December 31, 1996 are incorporated herein by
reference.
Item 2. PROPERTIES:
Map on inside front cover; paragraph 1 of The Company, Page 1;
Footnote 7 (Commitments) of Notes to Consolidated Financial
Statements, Page 28 of Registrant's Annual Report to security holders
for the fiscal year ended December 31, 1996 are incorporated herein by
reference.
Item 3. LEGAL PROCEEDINGS:
During recent months, the Company entered into settlement agreements
with certain borrowers who had previously asserted claims against the
Company. Although the Company and its employees deny that they are
guilty of any wrongdoing or any breach of any legal obligation or duty
to the Claimants, in recognition of the expense and uncertainty of
litigation, Management felt it was in the best interest of the Company
to dispose of these cases. The following cases previously reported
have been disposed of:
Carl J. White v. 1st Franklin Financial, et al.; Filed in the Circuit
Court of Talladega County, Alabama, Civil Action No. CV-94-374;
previously disclosed in the Company's Form 10-K for the period ended
December 31, 1994. The case was settled on November 26, 1996.
Princess Nobels, et al. v. 1st Franklin , et al.; Filed in the United
States District Court for the Middle District of Alabama, Southern
Division; Civil Action No. CV-94-T-699-N; previously disclosed in the
Company's Form 10-K for the period ended December 31, 1994. The case
was settled during February 1997.
Annie Liptrot, et al. v. 1st Franklin Financial Corporation, et al.;
Filed in the United States District Court for the Middle District of
Alabama; Civil Action No. CV-95-T-1656-N; previously disclosed in the
Company's Form 10-K for the period ended December 31, 1995. The case
was settled during March 1997.
Timothy Anthony and Sandrea M. Anthony vs 1st Franklin Financial
Corporation,et al.; Filed in the United States District Court for
the Middle District of Alabama, Northern Division, Civil Action No.
CV-95-D-479-N; previously reported in the Company's Form 10-Q for the
period ended September 30, 1995. The case was settled during March
1997.
Dorothy McCurdy vs American General Finance, Inc.; et al. Filed in
the U.S. District Court for the Middle District of Alabama, Northern
Division, Civil Action No. 95-D-1291-N; previously reported in the
Company's Form 10-Q for the period ended September 30, 1995. The case
was settled during March 1997.
Other than ordinary routine litigation incidental to the finance
business, there are no other material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
Source of Funds, Page 12 of Registrant's Annual Report to security
holders for the fiscal year ended December 31, 1996 is incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA:
Selected Consolidated Financial Information, Page 4 of Registrant's
Annual Report to security holders for the fiscal year ended December
31, 1996 is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Management's Discussion of Operations, Pages 13 - 16 of Registrant's
Annual Report to security holders for the fiscal year ended December
31, 1996 is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Pages 17 - 30 of Registrant's Annual Report to security holders for
the fiscal year ended December 31, 1996 are incorporated herein by
reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
Not applicable.
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Forward Looking Statements:
The statements contained herein under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Market for the
Registrant's Common Stock and Related Stockholders' Matters" and elsewhere in
this Annual Report on Form 10-K constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Company to be materially different from any future results,
performance, or materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, business the ability to manage cash flow
and working capital, and other factors referenced elsewhere herein.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
DIRECTORS
Director Since
and
Date on Which Position
Name of Director Age Term Will Expire With Company
---------------- --- ---------------- ------------
W. Richard Acree (1)(2) 69 Since 1970; None
When successor
elected and qualified
Ben F. Cheek, III (3)(4)(5) 60 Since 1967; Chairman of
When successor Board
elected and qualified
Lorene M. Cheek (2)(4)(6) 87 Since 1946; None
When successor
elected and qualified
Jack D. Stovall (1)(2) 61 Since 1983; None
When successor
elected and qualified
Robert E. Thompson (1)(2) 65 Since 1970; None
When successor
elected and qualified
_______________________________________________________________________
(1) Member of Audit Committee.
(2) Mr. Acree is President of Acree Oil Company, a distributor of
petroleum products in Northeast Georgia; Mrs. Cheek is an honorary
member of the Board of Trustees of Tallulah Falls School;
Dr. Thompson is a physician at Toccoa Clinic; and Mr. Stovall is
President of Stovall Building Supplies, Inc. These positions have
been held by each respective Director for more than five years.
(3) Reference is made to the business experience of executive officers of
the Company as detailed below.
(4) Member of Executive Committee.
(5) Son of Lorene M. Cheek.
(6) Mother of Ben F. Cheek, III.
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EXECUTIVE OFFICERS
Name, Age, Position
and Family Relationship Business Experience
- ----------------------- -------------------
Ben F. Cheek, III, 60 Joined the Company in 1961 as attorney and became
Chairman of Board Vice President in 1962, President in 1972 and
Chairman of Board in 1989.
T. Bruce Childs, 60 Joined the Company in 1958 and was named Vice
President President in charge of Operations in 1973 and
No Family Relationship President in 1989.
Lynn E. Cox, 39 Joined the Company in 1983 and became Secretary
Secretary in 1989.
No Family Relationship
A. Roger Guimond, 42 Joined the Company in 1976 as an accountant and
Vice President and became Chief Accounting Officer in 1978, Chief
Chief Financial Officer Financial Chief Financial Officer Officer in 1991
No Family Relationship and Vice President in 1992.
Linda L. Sessa, 42 Joined the Company in 1984 and became Treasurer
Treasurer in 1989.
No Family Relationship
The term of office of each Executive Officer expires when a successor
is elected and qualified. There was no, nor is there presently any
arrangement or understanding between any officer and any other person
(except directors or officers of the registrant acting solely in
their capacities as such) pursuant to which the officer was selected.
No event such as bankruptcy, criminal proceedings or securities
violation proceeding has occurred within the past 5 years with regard
to any Director or Executive Officer of the Company.
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Item 11. EXECUTIVE COMPENSATION:
(b) Summary Compensation Table:
Other All
Name Annual Other
and Compen- Compen-
Principal Salary Bonus sation sation
Position Year $ $ $ $ *
-------- ---- ------- ------- ------- -------
Ben F. Cheek, III 1996 252,000 217,932 3,431 98,366
Chairman and 1995 240,000 220,466 3,033 146,114
CEO 1994 228,000 189,693 2,760 34,268
T. Bruce Childs 1996 246,000 217,692 3,179 87,633
President 1995 228,000 219,986 4,236 130,447
1994 210,000 188,973 4,682 31,071
A. Roger Guimond 1996 132,000 74,362 1,650 29,589
Vice President 1995 120,000 74,816 1,650 40,959
and CFO 1994 108,000 62,174 1,650 17,945
* Represents Company contributions to profit-sharing plan, and reported
compensation from premiums on life insurance policies for the benefit of
Ben F. Cheek, III in the amount of $4,931 for 1996, $4,425 for 1995 and
$3,816 for 1994. Includes Company contributions to profit-sharing plan
for the benefit of T. Bruce Childs. Also represents contributions to
profit-sharing plan, and reported compensation from premiums on a life
insurance policy for the benefit of A. Roger Guimond in the amount of
$574 for 1995.
(g) Compensation of Directors:
Directors who are not employees of the Company receive $1,000 per year
for attending scheduled board meetings.
(k) Board Compensation Committee Report on Executive Compensation:
The Company has no official executive compensation committee. Ben F.
Cheek, III (Chairman of the Company) establishes the bases for all
executive compensation. The Company is a family owned business with Ben
F. Cheek, III being the majority stockholder.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners as of January 1, 1997:
Name and Address of Amount and Nature of Percent
Beneficial Owner Title of Class Beneficial Ownership Of Class
- ---------------------- -------------- --------------------- --------
Ben F. Cheek, III Voting Common 1,160 Shares - Direct 68.24%
225 Valley Drive
Toccoa, Georgia 30577
John Russell Cheek Voting Common 441 Shares - Direct 25.94%
181 Garland Road
Toccoa, Georgia 30577
(b) Security Ownership of Management as of January 1, 1997:
Ownership listed below represents ownership in 1st Franklin Financial
Corporation, of (i) Directors and named Executive Officers of the
Company and (ii) all Directors and Executive Officers as a group:
Amount and Nature of Percent
Name Title of Class Beneficial Ownership Of Class
---- -------------- -------------------- --------
Ben F. Cheek, III Voting Common Stock 1,160 Shares - Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%
T. Bruce Childs Voting Common Stock None None
Non-Voting Common Stock None None
A. Roger Guimond Voting Common Stock None None
Non-Voting Common Stock None None
__________________________________________
All Directors and
Executive Officers
as a Group Voting Common Stock 1,160 Shares - Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%
(1) Effective January 1, 1997, the Company elected S Corporation status for
income tax reporting purposes for the Company. Because partnerships are
ineligible as S Corporation shareholders, Cheek Investments, L.P.
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distributed its shares of the Company to its eight partners (six trusts,
Ben F. Cheek, III and Elizabeth Cheek, wife of Ben F. Cheek,III). Ben
F. Cheek, III and Elizabeth Cheek are grantors of the trust. Below is a
recap of ownership in non-voting common stock attributable to Ben F.
Cheek, III:
No Of
Name Shares Percentage
---- ------ ----------
Ben F. Cheek, III 574 .34%
Elizabeth Cheek 574 .34%
Ben Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Ben Cheek Trust B (f/b/o Virginia C. Herring) 18,949 11.26%
Ben Cheek Trust C (f/b/o David W. Herring) 18,949 11.26%
Elizabeth Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Elizabeth Cheek Trust B (f/b/o Virginia C. Herring) 18,948 11.26%
Elizabeth Cheek Trust C (f/b/o David W. Cheek) 18,948 11.26%
------- -----
114,840 68.24%
======= =====
(c) The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Company leases its Home Office building and print shop for a
total of $12,600 per month from Franklin Enterprises, Inc. under
leases which expire December 31, 2004. Franklin Enterprises, Inc.
is 66.67% owned by Ben F. Cheek, III, a director and executive
officer of the Company. In Management's opinion, these leases are
at rates which approximate those obtainable from independent third
parties.
Beneficial owners of the Company are also beneficial owners of
Liberty Bank & Trust ("Liberty"). The Company and Liberty have
management and data processing agreements whereby the Company
provides certain administrative and data processing services to
Liberty for a fee. Income recorded by the Company during the three
year period ended December 31, 1996 related to these agreements was
$63,800 per year which in Management's opinion approximates the
Company's actual cost of these services.
Liberty leases its office space and equipment from the Company for
$4,200 per month, which in Management's opinion is at a rate which
approximates that obtainable from independent third parties.
At December 31, 1996, the Company maintained $2,300,000 of
certificates of deposit with Liberty at market rates and terms. The
Company also had $1,609,087 in demand deposits with Liberty at
December 31, 1996.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) 1. Financial Statements:
Incorporated by reference from the Registrant's Annual Report to
security holders for the fiscal year ended December 31, 1996:
Report of Independent Public Accountants.
Consolidated Statements of Financial Position at
December 31, 1996 and 1995.
Consolidated Statements of Income and Retained Earnings for the
three years ended December 31, 1996.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
None - Financial statement schedules are omitted because of the
absence of conditions under which they are required or because the
required information is given in the financial statements or notes
thereto.
3. Exhibits:
2. (a) Articles of Merger of 1st Franklin Corporation with and into
1st Franklin Financial Corporation dated December 31, 1994
(incorporated herein by reference to Exhibit 3(2)(a) from
Form 10-K for the fiscal year ended December 31, 1994).
3. (a) Restated Articles of Incorporation as amended January 26,
1996 (incorporated herein by reference to Exhibit 3(3)(a)
from Form 10-K for the fiscal year ended December 31, 1995).
(b) Bylaws (incorporated herein by reference to Exhibit 3(3)(b)
from Form 10-K for the fiscal year ended December 31, 1995).
4. (a) Executed copy of Indenture dated October 31, 1984, covering
the Variable Rate Subordinated Debentures - Series 1
(incorporated herein by reference from Registration
Statement No. 2-94191, Exhibit 4a).
(b) Modification of Indenture dated March 29, 1995
(incorporated herein by reference to Exhibit 3(4)(b) from
Form 10-K for the fiscal year ended December 31, 1994).
9. Not applicable.
10. (a) Credit Agreement dated May, 1993 between the registrant and
SouthTrust Bank of Georgia, N.A.. (Incorporated herein by
reference from Form 10-K for the fiscal year ended December
31, 1993.)
(b) Revolving Credit Agreement dated October 1, 1985 as amended
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November 10, 1986; March 1, 1988; August 31, 1989 and May 1,
1990, among the registrant and the banks named therein
(Incorporated by reference to Exhibit 10 to the registrant's
Form SE dated November 9, 1990.)
(c) Fifth Amendment to Revolving Credit Agreement dated April
23, 1992. (Incorporated by reference to Exhibit 10(c) to the
Registrant's Form SE dated November 5, 1992.)
(d) Sixth Amendment to Revolving Credit Agreement dated July 20,
1992. (Incorporated by reference to Exhibit 10(d) to the
Registrant's Form SE dated November 5, 1992.)
(e) Seventh Amendment to Revolving Credit Agreement dated
June 20, 1994. (Incorporated by reference to Exhibit 10(e)
from Form 10-K for the fiscal year ended December 31, 1994.)
(f) Merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation Consent, Waiver and Eighth Amendment
to Revolving Credit and Term Loan Agreement. (Incorporated
herein by reference to Exhibit 10(f) from Form 10-K for the
fiscal year ended December 31, 1994.)
(g) Ninth Amendment to Revolving Credit Agreement and Term
Loan Agreement dated June 20, 1996.
11. Computation of Earnings per Share is self-evident from the
Consolidated Statement of Income and Retained Earnings in the
Registrant's Annual Report to Security Holders for the fiscal
year ended December 31, 1996, incorporated by reference herein.
12. Ratio of Earnings to Fixed Charges.
13. Registrant's Annual Report to security holders for fiscal year
ended December 31, 1996.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Registrant.
22. Not applicable.
23. Consent of Independent Public Accountants.
24. Not applicable.
27. Financial Data Schedule
28. Not applicable.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized:
1st FRANKLIN FINANCIAL CORPORATION
March 27, 1997 By: s/Ben F. Cheek, III
-------------- ---------------------------
Date Ben F. Cheek, III
Chairman of Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated:
Signatures Title Date
---------- ----- ----
s/(Ben F. Cheek, III) Chairman of Board; March 27, 1997
- ---------------------- Chief Executive --------------
Ben F. Cheek, III Officer
s/(T. Bruce Childs) President March 27, 1997
- ---------------------- --------------
T. Bruch Childs
s/(A. Roger Guimond) Vice President; March 27, 1997
- ---------------------- Chief Financial --------------
A. Roger Guimond Officer
s/(W. Richard Acree) Director March 27, 1997
- ---------------------- --------------
W. Richard Acree
s/(Lorene M. Cheek) Director March 27, 1997
- ---------------------- --------------
Lorene M. Cheek
s/(Jack D. Stovall) Director March 27, 1997
- ---------------------- --------------
Jack D. Stovall
s/(Robert E. Thompson) Director March 27, 1997
- ---------------------- --------------
Robert E. Thompson
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
(a) Except to the extent that the materials enumerated in (1) and/or (2)
below are specifically incorporated into this Form by reference (in
which case see Rule 12b-23b), every registrant which files an annual
report on this Form pursuant to Section 15(d) of the Act shall
furnish to the Commission for its information, at the time of filing
its report on this Form, four copies of the following:
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(1) Any annual report to security holders covering the registrant's
last fiscal year and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security
holders with respect to any annual or other meeting of security
holders.
(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of
the Act, except to the extent that the registrant specifically
incorporates it in its annual report on this Form by reference.
(c) This Annual Report on Form 10-K incorporates by reference portions of
the Registrant's Annual Report to security holders for the fiscal
year ended December 31, 1996, which is filed as Exhibit 13 hereto.
The Registrant is a privately held corporation and therefore does not
distribute proxy statements or information statements.
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