1st FRANKLIN FINANCIAL CORP 8-K

What Happened

• On December 23, 2025, 1st Franklin Financial Corporation announced a First Amendment to its Loan and Security Agreement with BMO Bank N.A. (agent) and other lenders, and concurrently issued $18.7 million aggregate principal of subordinated notes.
• The First Amendment changes how certain capital measures are calculated under the loan (it allows Qualifying Subordinated Debt to be added to Adjusted Tangible Net Worth and subtracted from Funded Debt for certain ratio calculations). The subordinated notes qualify as such Qualifying Subordinated Debt.
• The Subordinated Notes bear interest at 6.5% per year, payable monthly, and mature on June 6, 2028. They were issued to related parties: Virginia C. Barrett (President & CEO) and directors Ben F. Cheek, IV and David Cheek. An equal amount of the Company’s commercial paper previously held by those related parties was deemed redeemed concurrently.

Key Details

• Amendment and notes dated: December 23, 2025; 8-K filed December 29, 2025.
• Subordinated Notes: $18.7 million principal; 6.5% interest; maturity June 6, 2028.
• Related-party holders: Company President/CEO and two directors; they hold all voting common stock.
• Contract change: “Qualifying Subordinated Debt” now counts toward Adjusted Tangible Net Worth and reduces Funded Debt for certain covenant ratios.

Why It Matters

• The amendment and subordinated notes can improve the Company’s reported capital ratios under the loan agreement, which may help with covenant compliance and borrowing flexibility under the Amended Loan Agreement.
• Because the notes were issued to related parties (executive and directors), investors should note the transaction’s related-party nature for governance and conflict-of-interest considerations.
• The subordinated notes are unsecured and subordinated to the bank loan, and they have a mid-2028 maturity, so they affect the company’s capital structure and repayment timeline without reducing senior loan obligations.