1st FRANKLIN FINANCIAL CORP
1st Franklin Financial is a $1.3 billion assets consumer finance company with 369 southeastern branches offering short‐term installment loans, specialty auto loans, and credit insurance. In 2024, finance charges rose 7% to $296.5 million and total revenues climbed 7.5% to $377.8 million, driven b...
1st Franklin Financial Corporation (2024 Review): Can This Subprime Lender Bounce Back?
Warren.AI 💰 4.5 / 10
By [Analyst Name]
Executive Summary
1st Franklin Financial Corporation is a diversified consumer finance company headquartered in Toccoa, Georgia, with 369 branch locations across the southeastern United States. It operates three primary lending lines:
- Direct Cash Loans (86% of total loans outstanding)
- Home Equity and Real Estate Loans (2%)
- Sales Finance Contracts (12%)
It also offers optional credit insurance, underwritten by its wholly owned insurance subsidiaries, Frandisco Life Insurance Company and Frandisco Property and Casualty Insurance Company.
Despite growing gross loans to a record $1.258 billion (up 7% YoY) and total assets to $1.312 billion (up 6%), 1st Franklin reported a net loss of $5.6 million in fiscal 2024 compared to a modest profit of $0.5 million a year earlier. Rising funding costs, lower finance yields, and elevated credit loss provisions drove performance below breakeven. Net interest margin contracted modestly, and credit losses, while improving from 10.5% of average loans to 8.5%, remain at cyclical highs.
1. Business Overview and Footprint
Founded in 1941, 1st Franklin specializes in short‐term consumer finance and specialty auto loans, targeting credit‐constrained borrowers. As of December 31, 2024:
- 369 branches in AL, GA, KY, LA, MS, SC, TN, TX, and VA
- 1,713 employees
- Products:
- Direct cash loans (6–60 months, up to $15,000)
- Real estate loans (35–240 months)
- Sales finance contracts (3–60 months)
- Optional single‐premium credit insurance
Competitive Position
- High‐interest, high‐service niche in nonprime lending
- Branch network offers customer convenience—a competitive edge vs. online only fintechs
- Regulatory compliance across multiple states and CFPB oversight adds complexity and cost
2. Key Financial Highlights
| (in millions except where noted) | 2024 | 2023 | 2022 |
|---|---|---|---|
| Total Finance Charges | $296.5 | $277.0 | $266.9 |
| Total Revenues | $377.8 | $351.4 | $339.7 |
| Net Interest Income | $252.1 | $243.8 | $247.3 |
| Provision for Credit Losses | $83.4 | $87.4 | $84.3 |
| Operating Expense | $223.2 | $199.2 | $189.1 |
| Net (Loss) / Income | $(5.6) | $0.5 | $16.2 |
| EPS (basic) | $(32.97) | $3.12 | $95.06 |
| Loans Outstanding | $1,258 | $1,178 | $1,096 |
| Allowance for Credit Losses | $73.4 | $71.4 | $75.2 |
| Total Debt | $991.7 | $914.2 | $863.4 |
| Total Equity | $250.7 | $264.6 | $259.3 |
Net Loss Drivers
- Higher interest expense: Bank line usage up 24% YoY; debt sales to cover loan growth led to 28% jump in funding costs (5.76% avg rate vs. 5.02% in 2023).
- Reduced recoveries: Although charge‐offs improved, net losses remained high at 7.8% of average loans.
- Investment mark‐to‐market losses: Rising interest rates drove 2024 unrealized losses on the available‐for‐sale portfolio.
Loan Portfolio Growth
- Gross loan originations up 9% YoY to $1.337 billion
- Net outstanding loans up 6% YoY to $1.259 billion
- Direct cash loans grew to $1.080 billion (86%), sales finance to $155 million (12%)
- Real estate loan portfolio de‐emphasized, now only 2% of mix
Credit Quality
- Net charge‐offs improved from 7.96% to 6.32% of liquidations
- 90+ days delinquent 2.90% of direct cash loans (vs. 3.38% YoY)
- Bankruptcy ratio steady at ~1.4% of balance
3. Liquidity and Capital Resources
- Cash & Short‐term Investments: $44.7 million at year‐end
- Available Credit: $300 million 5-year revolving credit facility (BMO Bank), $151.9 million drawn
- Insurance Subsidiary Funds: $256 million invested—state‐regulated and largely illiquid for dividends without regulatory approval (annual limit ~$56 million)
- Fundraising: $492 million of debt securities issued in 2024 (senior notes & commercial paper), up 9% YoY
Leverage
- Total debt / equity 3.95x (vs. 3.45x in 2023)
- Senior/Total debt mix stable ~97% senior, 3% subordinated
Dividend Policy No dividend in 2024 (2023: $15.80/share) to conserve capital and absorb losses. Future payouts likely limited by S-corp pass-through tax needs.
4. Risk Factors & Regulatory Environment
Credit Risk
- Base depend on nonprime borrowers
- Economic downturn or rising unemployment could drive charge‐offs higher
Funding Risk
- Short‐dated debt matures prior to asset repricing (asset/liability mismatch)
- Highly sensitive to investor redemption requests or runs on demand notes
Regulatory Risk
- Subject to state licensing & CFPB oversight
- Must comply with TILA, ECOA, FCRA, RESPA,
- Potential for increased consumer‐finance regulations (interest rate caps, fee restrictions)
Cyber & Operational Risk
- Recent 2022 data breach under remediation
- Significant investments in technology, cybersecurity needed
5. Critical Accounting Estimates
- CECL Allowance: Export-driven PD/LGD model with economic scenario forecasts
- Revenue Recognition: Effective‐yield method vs. Rule of 78 (predominant payoff method)
- Insurance Loss Reserves: Actuarial assumptions for reinsured credit insurance
6. Outlook & Investment Thesis
1st Franklin Financial trades at roughly 0.3x P/TBV, reflecting deep discounts for credit and funding risks. Key considerations:
Positives
- Established branch footprint and customer relationships in under‐banked markets
- Prudently diversified loan mix and conservative investment portfolio
- Industry expertise and disciplined underwriting
Negatives
- Thin net margin (6.7%) squeezed by higher funding costs
- Elevated credit losses (7.8% of liquidations) even after improvement
- Regulatory and compliance overhead rising
- Net losses in 2024 with no clear path to near‐term profitability
Conclusion: 1st Franklin is unlikely to deliver a strong return in the current rate environment. Credit risk, liquidity risks and regulatory headwinds outweigh its modest scale advantages. We assign a 4.5 / 10 investment score, reflecting limited upside until margins stabilize, credit losses normalize and funding costs moderate.
Disclaimer: This blog post is for informational purposes only and does not constitute financial advice. Investors should conduct their own due diligence before making any investment decisions.
About the Author: [Analyst Name] is a tenured investment consultant with over 15 years of experience in financial services and consumer lending.