The accompanying unaudited condensed consolidated financial statements of 1st Franklin Financial Corporation and subsidiaries ("1st Franklin", "1FFC", the "Company", "our" or "we") should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto as of December 31, 2025 and for the year then ended included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the "SEC"). Inter-company accounts and transactions have been eliminated from the accompanying unaudited condensed consolidated financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the Company's consolidated financial position as of March 31, 2026 and December 31, 2025, its consolidated results of operations and comprehensive income for the three months ended March 31, 2026 and 2025 and its consolidated cash flows for the three months ended March 31, 2026 and 2025. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC, the Company believes that the disclosures herein are adequate to make the information presented not misleading.

The Company’s financial condition and results of operations as of and for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at and as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Earnings per share is net income available to shareholders divided by the weighted average number of shares of common stock outstanding during the period. The Company has no dilutive securities outstanding.

Interest income is recognized using the effective interest method, whereby the Company recognizes interest revenue equitably over the term of the loan. Unearned finance charges on pre-compute loans are rebated utilizing statutory methods, which often is the Rule of 78's method. The difference between income recognized under the effective interest and Rule of 78's method is recognized at the time of rebate as an adjustment to interest income.

Premiums on property and casualty credit, credit life and accident and health insurance policies are deferred and earned over the insurance coverage term using either the pro-rata method or the effective yield method. Rebates are computed using statutory methods. The difference between income recognized under the effective interest and statutory method is recognized at the time of rebate as an adjustment to income.

Policy acquisition costs of the Frandisco insurance subsidiaries are deferred and amortized to expense over the life of the policies on the same methods used to recognize premium income.

The Company sells auto club memberships as an agent for a third party. The Company has no further obligations after the date of sale as all claims for benefits are paid and administered by the third party. Commissions received from the sale of auto club memberships are earned at the time the membership is sold.

During the three months ended March 31, 2026, and 2025, the Company recognized interest revenue of $93.0 million and $85.8 million, respectively, insurance revenue of $17.8 million and $15.4 million, respectively, and other revenues of $2.0 million and $1.7 million, respectively.

Operating segments are components of a business about which separate financial information is available and evaluated regularly in deciding how to allocate resources and assessing performance as prescribed under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280 – Segment Reporting ("ASC 280"). ASC 280 requires entities to report certain financial information about operating segments in interim and annual financial statements.

Management has determined that 1FFC has one reportable segment that encompasses its core consumer finance activities. As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, this reflects a change in the Company's reportable segment in prior reporting periods as decisions to allocate resources were historically primarily driven on a geographical basis in two reportable segments. The impact of the change in reportable segments is not material to the consolidated results of the Company and did not have a material impact on the decision making process to allocate resources.

The Company's operations are divided among geographic regions through its branch network. Those regions have similar economic characteristics and products. The segment provides one primary product to our customer base which is delivered through a variety of channels including the Company's branch network, live checks, and the internet. Due to the nature of 1FFC's loan product offerings, there are no individually significant customers. The Company allocates resources and assesses operational and financial performance on a consolidated basis because its product offerings require similar marketing strategies, and do not significantly differ on the basis of geographic areas and/or related regulatory environments. The Company's Chief Operating Officer is the Chief Operating Decision Maker ("CODM") and is responsible for allocating resources and assessing financial performance.

The CODM uses the net income results to assess performance and enable decision making when allocating resources. Total assets as presented on the Consolidated Statements of Financial Position is used to measure segment assets. The CODM reviews significant expense categories that align with those presented in the Consolidated Statements of Income. Net income is also used to monitor budget versus actual results, assess internal forecasts, and benchmark performance.

In November 2024, the FASB issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), further clarified by ASU No. 2025-01. The update requires disclosure of specified information about certain expenses, including: employee compensation, depreciation and intangible asset amortization included in each relevant expense caption. The update also requires disclosure of certain other expenses, gains and losses that are already required to be disclosed in the same disclosure as other disaggregation requirements. This guidance is effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. 1FFC is currently evaluating the impact of this update on its consolidated financial statements.

In November 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. The update expands the population of acquired financial assets subject to the gross-up approach in Topic 326 to include acquired seasoned loans without credit deterioration (excluding credit cards). This guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods with early adoption permitted. The amendments in this update are to be applied prospectively to loans that are acquired on or after the initial application date. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The update provides a comprehensive list of interim disclosures that are required by GAAP to provide clarity about the current requirements. The update also includes a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. This guidance is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this update can be applied prospectively or retrospectively. 1FFC does not expect the new guidance to have a material impact on its consolidated financial statements.