FIRST FRANKLIN FINANCIAL CORP, S-2, 2000-04-10

FIRST FRANKLIN FINANCIAL CORP
S-2, 2000-04-10
PERSONAL CREDIT INSTITUTIONS

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Registration No. ______________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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1st FRANKLIN FINANCIAL CORPORATION

A Georgia Corporation I.R.S. Employer No. 58-0521233

213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(706) 886-7571
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Agent for Service: Copy To:
A. Roger Guimond Mark L. Hanson
213 East Tugalo Street Jones, Day, Reavis & Pogue
Post Office Box 880 3500 SunTrust Plaza
Toccoa, Georgia 30577 303 Peachtree Street, N.E.
(706) 886-7571 Atlanta, Georgia 30308-3242
(404) 521-3939

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Approximate date of proposed sale to public: From time to time
commencing as soon as possible after the Registration Statement
becomes effective.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following. X

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this Form, check the following. X

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering .

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following.

-----------------------

CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to to be offering aggregate registration
be registered registered price per unit offering price fee (1)
- ------------------------------------------------------------------------------
Variable Rate
Subordinated
Debentures...... $20,000,000 100% $20,000,000 $5,280
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(1) Calculated in accordance with Rule 457(a) by multiplying the maximum
aggregate offering price by .000264.

The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission acting pursuant to said
Section 8(a) may determine.

AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 2000

1st FRANKLIN FINANCIAL CORPORATION

PROSPECTUS dated April __, 2000

$20,000,000 VARIABLE RATE SUBORDINATED DEBENTURES
_________________________________________________

1st Franklin Financial Corporation will issue the Variable Rate Subordinated
Debentures (the "Debentures") in varying minimum purchase amounts that we
will establish each Thursday, on a weekly basis. For each respective
purchase amount, we will establish an interest rate and an interest
adjustment period that may range from one month to four years ("established
features"). The established features will be available for the period from
each Thursday through the following Wednesday and will be applicable to all
Debentures sold we sell during that period. At the end of each interest
adjustment period, the interest rate will automatically adjust to the then
current rate. All other provisions will remain unchanged for the entire term
of the Debenture.

We will publish the established features weekly in a newspaper of general
circulation and, in addition, you can obtain the established features from
our web site at http://www.1ffc.com or from our executive offices in Toccoa,
Georgia. A Rule 424(b)(2) prospectus supplement setting forth the established
features will be filed weekly with the Securities and Exchange Commission.

We may redeem the Debentures. upon at least 30 days written notice, at any
time prior to maturity for a redemption price equal to the principal amount
plus any unpaid interest thereon to the date of redemption. Holders of
Debentures may request redemption of the Debentures at the end of any
interest adjustment period for a redemption price equal to the principal
amount plus any unpaid interest thereon to the date of redemption. In
addition, at the request of a holder of Debentures, we may, at our option,
redeem such holders's Debentures during any interest adjustment period for a
redemption price equal to the principal amount plus interest thereon at the
rate of one-half the stated rate on such Debentures.

The Debentures mature four years from date of issue , subject to automatic
extension for one four year period, but the holder may redeem his or her
Debenture without penalty at the end of any interest adjustment period or at
maturity.

There is not, nor is there likely to be, a market for these securities.

Investing in our Debentures involves risk. See "Risk Factors"
beginning on page 3 for a description of these risks.

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

THESE SECURITIES ARE NOT BANK DEPOSITS NOR BANK OBLIGATIONS AND ARE NOT
INSURED BY THE FDIC.

- -----------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions (a) Company (b)
- -----------------------------------------------------------------------------
Per Debenture........ 100% None 100%
Total.............. $20,000,000 None $20,000,000
- -----------------------------------------------------------------------------

(a) None of the securities described above will be underwritten and no
commissions or other remunerations will be paid in connection with
their sale. We will sell them at face value through our executive
officers.

(b) Before deduction of the Company's expenses, estimated at $36,880.

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 10, 2000.

AVAILABLE INFORMATION

1st Franklin Financial Corporation is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
St., N.W., Washington, D.C. 20549 and at the Commission's Regional Offices or
the public reference offices thereof located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
St., N.W., Washington, D.C. 20549 at the rates prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of that site is
http://www.sec.gov.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company incorporates herein by reference the following documents:

(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1999 and filed pursuant to Section 15(d) of the Exchange
Act with the Commission.

(b) From the Company's annual report to security holders for the year ended
December 31,1999, which is delivered with this Prospectus, the
following:

(i) Description of business furnished in accordance with the provisions
of Rule 14a-3(b)(6) under the Exchange Act;

(ii) Financial statements and information furnished in accordance with
the provisions of Rule 14a-3(b)(1);

(iii) Selected financial data furnished as required by Item 301 of
Regulation S-K;

(iv) Supplementary financial data furnished as required by Item 302 of
Regulation S-K; and

(v) Management's Discussion and Analysis of Financial Condition and
Results of Operations furnished as required by Item 303 of
Regulation S-K.

Any statement in the documents incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement of which it is a part to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as modified or superseded,
to constitute a part of this Prospectus or the Registration Statement of
which it is a part.

Copies of the Form 10-K (other than exhibits) will be provided without charge
upon request to the Company's Secretary at 213 East Tugalo Street, Post
Office Box 880, Toccoa, Georgia 30577, telephone number (706)886-7571 or
1-(800)-282-0709.

REPORTS TO SECURITY HOLDERS

The Company provides each security holder with an annual report containing
financial information that has been examined and reported upon, with an
opinion expressed, by an independent public accountant. Additionally, the
Company provides each security holder with a quarterly report containing
unaudited financial information. Each of these reports for the current year
are also available on the Company's web site at hppt://www.1ffc.com.

-2-

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In that event, you may lose part or all of your
investment.

We are subject to many laws and government regulations, and any changes in
these laws or regulations may materially and adversely affect our financial
condition and our business operations.

Our operations are subject to regulation by federal, state and local
government authorities and are subject to various laws and judicial and
administrative decisions imposing various requirements and restrictions which,
among other things, require that we obtain and maintain certain licenses and
qualifications, limit the interest rates, fees and other charges we are
allowed to charge, limit or prescribe other terms of our loans, require
specified disclosures to borrowers, govern the sale and terms of insurance
products that we offer and the insurers for which we act as agent, and define
our rights to repossess and sell collateral. Although we believe that we are
in compliance in all material respects with applicable federal, state and
local laws, rules and regulations, there can be no assurance that a change in
such laws, or in the interpretation thereof, will not make our compliance
therewith more difficult or expensive, restrict our ability to originate
loans, further limit or restrict the amount of interest and other charges we
earn under such loans, or otherwise adversely affect our financial condition
or business operations.

An increase in the interest we pay on our debt and borrowings can materially
and adversely affect our net interest margin.

The loans we make in the ordinary course of our business are subject to the
interest rate and regulatory provisions of each applicable state's lending
laws and are made at fixed rates which are not adjustable during the term of
the loan. Since the loans are made at fixed interest rates and are made
using the proceeds from the sale of our fixed and variable rate securities
(including the securities offered hereby), we may experience a decrease in
our net interest margin because increased interest costs cannot be passed on
to all of our loan customers. Net interest margin represents the difference
between the amount that we earn on loans and investments and the amount that
we pay on debt securities and other borrowings. An increase in prevailing
interest rates could adversely affect our net interest margin.

A decrease in the sale of our debt securities or an increase in requests for
the redemption of the securities sold hereby may have a material adverse
affect on our liquidity and financial condition.

Our liquidity depends on the sale of our debt securities, the continued
availability of unused bank credit from our lenders and the collection of our
receivables. Numerous investment alternatives have caused investors to
evaluate more critically their investment opportunities. The securities
offered hereby will have interest rates and redemption terms which we believe
will generate sufficient sales of debt securities to meet our liquidity
requirements. Although all of our debt securities are subject to redemption
prior to maturity at the option of the holder thereof, we are not obligated
to accept requests for redemption of Debentures during any interest adjustment
period, and any requests for redemption during an interest adjustment period
are subject to interest at one-half the stated rate. Based upon the our
experience, we do not anticipate that redemptions will have a material
adverse effect on our liquidity. However, there can be no assurance that we
will not experience unanticipated declines in sales of securities or
increases in redemption requests, either of which could have a material
adverse effect on our liquidity or financial condition.

We rely on credit agreements with banks to meet our redemption obligations
and fund a portion of our general operations. If we are unable to continue
to borrow under these credit agreements, or if we are unable to collect our
receivables, we may not be able to meet our obligations under the securities
offered hereunder.

We have a Credit Agreement with three major banks under which we may make
-3-

borrowings in order to meet the redemption requests of our security holders
and our other liquidity and operating requirements. The Credit Agreement
provides for maximum borrowings of $21,000,000 or 70% of the net finance
receivables, whichever is less. Borrowings are on an unsecured basis at 1/4%
above the prime rate of interest. In addition, there is a commitment fee of
5/8% of the available line less average borrowings and an agent's fee of 1/8%
of the total line. The Credit Agreement has a commitment termination date of
June 30 in any year in which written notice of termination is given by the
banks. If written notice is given in accordance with the agreement, the
outstanding balance of the loans shall be paid in full on the date which is
three and one half years after the commitment termination date. The banks
also may terminate the agreement upon the violation of any of the financial
ratio requirements or covenants contained in the agreement or in June of any
calendar year if our financial condition becomes unsatisfactory to the banks.
Such financial ratio requirements include a minimum equity requirement, an
interest expense coverage ratio and a minimum debt to equity ratio.

We have another Credit Agreement that provides for an additional $2,000,000
in borrowings for general operating purposes. This agreement provides for
borrowings on an unsecured basis at 1/8% above the prime rate of interest and
has a commitment termination date of July 1 in any year in which notice of
termination is given by the bank. There can be no assurances that either of
our Credit Agreements will continue to be available to us at their present
amounts, or at all, because each is subject to periodic reviews by the
lenders, which take into account our profitability, economic conditions and
other lending criteria. We believe the available borrowings under the two
aforementioned Credit Agreements will be adequate to meet the our presently
anticipated funding needs for the foreseeable future.

Our liquidity is dependent, among other things, on the collection of our
receivables. We continually monitor the delinquency status of its receivables
and promptly institute collection efforts on each delinquent account.
Delinquencies of our consumer finance receivables are likely to be affected
by general economic conditions. Although current economic conditions have not
had a material adverse effect on our ability to collect our receivables, no
assurances can be given regarding future economic conditions or their effect
on our ability to collect our receivables.

If one or more of the sources of funds discussed above are significantly
curtailed for any reason, our ability to meet our obligations, including our
obligations with respect to the securities offered hereby, could be adversely
affected.

The Debentures are general and unsecured and are subordinate to our Senior
Debt, and the holders of Senior Debt have priority over the Debenture holders
to recover their investment in the event of our bankruptcy or dissolution.

The Debentures will be general, unsecured obligations of 1st Franklin
Financial Corporation and subordinated in right of payment to all of our
Senior Debt (as defined in "Description of Variable Rate Subordinated
Debentures - Subordination"). We are not limited in the amount of
additional Senior Debt or secured obligations we may incur. For information
regarding Senior Debt outstanding as of a recent date, See Appendix I to
this prospectus or the most recent prospectus supplement.

In the event of any insolvency or bankruptcy proceeding, or of any
receivership, liquidation, reorganization or other similar proceeding in
connection therewith, relative to 1st Franklin Financial Corporation or to
our creditors, as such, or to our property, or in the event of any proceeding
for voluntary liquidation, dissolution or other winding up of 1st Franklin
Financial Corporation, whether or not involving insolvency or bankruptcy, then
the holders of Senior Debt will be entitled to receive payment in full of all
principal and interest on all Senior Debt before the holders of the
Debentures are entitled to receive any payments.

The ability of our customers to repay their obligations to us depends on
their continued financial stability; therefore, a recession or economic
downturn which adversely affects the financial resources of our customers
may have a materially adverse effect on our collections and profitability.

Because our business consists mainly of the making of loans to individuals
who depend on their earnings to make their repayments, our continued
profitable operation will depend to a large extent on the continued
-4-

employment of those people and their ability to meet their financial
obligations as they become due. In the event of a sustained recession or a
significant downturn in business with consequent unemployment or continued
increases in the number of personal bankruptcies among our typical customer
base, which events are beyond our control, we could experience increased
credit losses and our collection ratios and profitability could be adversely
affected.

SUMMARY DESCRIPTION OF SECURITIES OFFERED

The following is a summary of the principal features of the securities
being offered hereby. For a more detailed discussion, see "Description
of Variable Rate Subordinated Debentures".

Variable Rate Subordinated Debentures
- -----------------------------------------------------------------------------
Denominations Established weekly by the Company.
- -----------------------------------------------------------------------------
Indenture Trustee The Debentures will be issued pursuant to an
indenture between the Company and Synovus Trust
Company, an affiliate of Columbus Bank and Trust
Company, as trustee.
- -----------------------------------------------------------------------------
Interest Rate Weekly offering rate, compounded daily, for each
established amount.
- -----------------------------------------------------------------------------
Interest Adjustment Rate adjusted at the end of each interest
adjustment period to the current interest rate,
compounded daily.
- -----------------------------------------------------------------------------
Payment of Interest Interest will be earned daily and will be payable
at any time at the holder's request.
- -----------------------------------------------------------------------------
Maturity Four years from date of issue but may be redeemed
at the end of any interest adjustment period
without penalty.
- -----------------------------------------------------------------------------
Redemption by Holder At the end of any interest adjustment period
without penalty; redemption at any other time
subject to an interest penalty.
- -----------------------------------------------------------------------------
Redemption by Company The Company may redeem prior to maturity upon 30
days written notice to holder for a price equal to
principal plus interest accrued to date of
redemption.
- -----------------------------------------------------------------------------
Extension of Maturity Maturity of each Debenture is automatically
extended on its original terms for one additional
four-year term subject to Interest Adjustment.
Holder may prevent such extension by redeeming the
Debenture within 15 days after maturity. The
Company will notify holders 30 days in advance of
maturity date.
- -----------------------------------------------------------------------------
Compound Interest Debentures are offered at interest rates which are
compounded daily. Examples of annualized effective
yields for daily compounded rates are set forth
below:

Example Effective
Nominal Annual
Rates Yield

5.0% 5.13%
6.0 6.18
7.0 7.25
8.0 8.33
9.0 9.42

-5-

THE COMPANY

1st Franklin Financial Corporation has been engaged in the consumer finance
business since 1941, particularly in making and servicing direct cash, real
estate and sales finance loans. The business is operated through 97 branch
offices in Georgia, 33 in Alabama, 22 in South Carolina, 13 in Mississippi,
11 in Louisiana and 2 in North Carolina. We fund our loan demand through a
combination of debt securities and a Credit Agreement with three major banks.
This Agreement provides for borrowings on an unsecured basis up to $21,000,000
or 70% of the net finance receivables (as defined by the Credit Agreement),
whichever is less. Appendix I hereto sets forth the amount of unused
borrowings under the Credit Agreement as of December 31, 1999.

USE OF PROCEEDS

Net proceeds from sales of the securities offered hereby, after payment of
estimated expenses of $35,600, will be placed in the general treasury of the
Company as sales are made. No segregation of proceeds will be made, but the
Company expects to use the net proceeds for the redemption of senior and
subordinated securities as such debtholders request redemption over the next
two years. Such subordinated securities include debentures of the same
series as the Debentures offered hereby; such senior securities include
senior demand notes of the Company, which are sold from time to time in
varying principal amounts and at various interest rates. The Company can not
presently estimate the amount of proceeds which will be required to make
mandatory redemption payments. Any proceeds not used for redemptions will be
used to repay bank borrowings and repay amounts outstanding under the
Company's commercial paper program as such amounts come due, make additional
consumer finance loans and for general operating purposes.

PLAN OF DISTRIBUTION

The Debentures will be offered by the Company through its executive officers.
No selling commissions or other remunerations will be paid directly or
indirectly to any officers, directors or employees of the Company in
connection with the sale of the Debentures. All proceeds from sales of the
Debentures will be placed in the general treasury of the Company as sales are
made (See "Use of Proceeds"). All offering expenses, including registration
fees, printing, advertising, postage and professional fees, will be paid by
the Company.

The offering is to be conducted by the Company through its executive officers
and there is no assurance that all of the securities offered herein will be
sold. The offering, however, is not made contingent upon any minimum amount
of securities being sold.

The Debentures will be sold and redeemed at the Company's executive office
located at 213 East Tugalo Street, Post Office Box 880, Toccoa, Georgia 30577.
The telephone number is (706) 886-7571 or 1-(800)-282-0709.

FORWARD-LOOKING INFORMATION

This registration statement contains certain "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 achievements expressed or implied by such forward-
looking statements. Such factors include the risks we face and that are
described in the "Risk Factors" section above and as otherwise described in
our Form 10-K and the other periodic reports that we file with the Commission
from time to time. If any of the events described in th "Risk Factors"
section and elsewhere in this prospectus occur, they could have an adverse
affect on the Company's business, financial condition and results of
operation. The Company is not obligated to update any forward-looking
statements.
-6-

DESCRIPTION OF VARIABLE RATE SUBORDINATED DEBENTURES

General

In January 1995, Columbus Bank and Trust Company (the prior trustee under the
Variable Rate Indenture) transferred its trust operations to its new separate
trust company affiliate named Synovus Trust Company, which has thereby become
the Trustee (hereinafter called the "Trustee") under the Variable Rate
Indenture. All references to the Trustee in this Prospectus and the
Registration Statement of which it is a part shall be deemed to refer to
Synovus Trust Company unless the context otherwise requires. The Company has
been informed that the counsel to Columbus Bank and Trust Company believes
that pursuant to applicable banking regulations and by agreement with the
Company, Columbus Bank and Trust Company remains responsible to holders of
Debentures for all actions of Synovus Trust Company as if performed by
Columbus Bank and Trust Company itself. The following statements with
respect to the Debentures are subject to the detailed provisions of the
Variable Rate Indenture. Whenever any particular article or section of the
Variable Rate Indenture is referred to, the statement made in connection with
such reference is qualified in its entirety by such reference.

The Debentures are registered and issued without coupons in Series form. Any
amount of any Series may be issued. There is no limit on the principal
amount of Debentures of any Series, or of all Series issuable under the
Variable Rate Indenture. The dollar amount of Debentures outstanding under
the Variable Rate Indenture as of a recent date is set forth on Appendix I.
The Company and the Trustee may amend the Variable Rate Indenture to limit
the principal amount of a particular Series or to allow additional Series of
Debentures with no limitations as to the maximum amount of any increase or
to the number of increases which may be made. The Company may change the
interest rates and the maturities of the Debentures offered herein and of any
subsequent Series which may be offered, provided that no such change shall
affect any Debenture of any Series issued prior to the date of change.

The Debentures are direct obligations of the Company, but are not secured.
Principal and interest are payable at the executive office of the Company in
Toccoa, Georgia. The Debentures are executed by the Company and authenticated
and delivered to the purchaser by the Trustee upon written order of the
Company.

Established Features of Series 1 Debentures

The Variable Rate Subordinated Debentures Series 1 ("Series 1 Debentures")
offered herein are issued and dated as of the date when purchased. The
interest rate for a Series 1 Debenture is compounded daily and is payable at
any time at the holder's request. This request may be made to the Company by
phone, mail or in person at the Investment Center. The Series 1 Debentures
mature four years from date of issue, and may be extended for one additional
four-year term as described under "Extension After Maturity".

Each Thursday, on a weekly basis, the Company establishes various minimum
purchase amounts with varying interest rates and interest adjustment periods
("established features") for each respective minimum purchase amount. The
purchase amount and the interest adjustment period thereby established are
maintained for the term of the Series 1 Debenture. The interest rate at
which the Series 1 Debenture is sold is set only for the initial interest
adjustment period. The Company anticipates that it will offer the Series 1
Debentures with interest rate adjustment periods ranging from one month to
four years.

At the end of each interest adjustment period the Company will notify the
holder by mail of the new interest rate, which will be the same interest
rate that is applicable to all new Series 1 Debentures being offered during
the same week and at the same terms. The new interest rate will be
determined by the Company, in its discretion, based on general market rates
of interest. If the holder elects to retain the Series 1 Debenture at the
new rate, no action is required of the holder as the new rate will become
effective as of the first day of the interest adjustment period. If the
holder elects not to accept the new rate, the holder can redeem the Series 1
Debenture without penalty at the end of the interest adjustment period,
either in person or by mail. See "Redemption at Request of Holder Prior to
Maturity".
-7-

Debentures with the current established features are available for
the period from Thursday through the following Wednesday. The current
established features are applicable to all Series 1 Debentures sold by the
Company during that period. The Company publishes this information in a
newspaper of general circulation and, in addition, such information may be
obtained from the Company's web site maintained at http://www.1ffc.com or
directly from the Company's executive offices in Toccoa, Georgia.
Established features are also set forth in Rule 424(b)(2) prospectus
supplements that are filed weekly with the Securities and Exchange Commission.

Subordination

The payment of the principal of and interest on the Debentures is subordinate
in right of payment, as set forth in Article Ten of the Variable Rate
Indenture, to all Senior Debt of the Company.

The term "Senior Debt" means all indebtedness of the Company outstanding at
any time except debt of the Company that by its terms is not senior in right
of payment to the Debentures, and indebtedness represented by the Company's
outstanding Debentures, all of which are pari passu.

The indebtedness evidenced by the Debentures shall, in case the Debentures
are declared due and payable before their expressed maturity because of the
occurrence of a default under the Variable Rate Indenture, be entitled to
payment only after there shall have been paid in full all principal and
interest on such Senior Debt. Likewise, in the event of any insolvency or
bankruptcy proceeding, or of any receivership, liquidation, reorganization
or other similar proceeding in connection therewith, relative to the Company
or to its creditors, as such, or to its property, or in the event of any
proceeding for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, then the holders
of Senior Debt shall be entitled to receive payment in full of all principal
and interest on all Senior Debt before the holders of the Debentures are
entitled to receive any payments.

The amount of the Company's Senior Debt outstanding at a recent date is set
forth in Appendix I.

Redemption by Company Prior to Maturity

The Company may redeem any Debenture of any Series at any time prior to
maturity for a redemption price equal to the principal amount plus any unpaid
interest thereon to date of redemption. The Company will notify
Debentureholders whose Debentures are to be redeemed not less than 30 nor
more than 60 days prior to the date fixed for redemption. In the event the
entire Series is not called for redemption, the redemption call shall be made
pro rata.

Redemption at Request of Holder Prior to Maturity

At the request of the holder, the Company will redeem any Series 1 Debenture
at the end of any interest adjustment period for a redemption price equal to
the principal amount plus any unpaid interest thereon to date of redemption.

At the request of the holder, the Company may, at its option, redeem any
Series 1 Debenture during any interest adjustment period for a price equal to
the principal amount plus interest at one-half the stated rate on the
Series 1 Debenture.

If the holder dies before maturity, the Company may, at its option, redeem
any Series 1 Debenture for a redemption price equal to the principal amount
plus any unpaid interest thereon to date of redemption. Historically, the
Company has honored all such requests for early redemption.

All redemptions will be made at the Company's executive offices in Toccoa,
Georgia, either in person or by mail.

-8-

Extension After Maturity

The maturity of a Series 1 Debenture will be automatically extended from the
original maturity date for a period equal to the original term of such
Series 1 Debenture unless the holder submits the Series 1 Debenture for
redemption within 15 days after its maturity or the Company tenders the
amount due the holder within 15 days after maturity. In the event of such an
extension, all provisions of the Series 1 Debenture will remain unchanged
with the exception of the interest rate which will be changed in accordance
with the interest adjustment provision. If the Company does not elect to
tender payment, it will notify the holder of this extension provision at
least 30 days prior to the maturity date.

Restrictions Upon the Company

There are no restrictions in the Variable Rate Indenture against the issuance
of additional securities or the incurring of additional debt including Senior
Debt and secured obligations.

Modification of the Variable Rate Indenture

The Variable Rate Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than two-thirds of
the outstanding principal amount of the Debentures, to execute supplemental
indentures adding any provisions to or changing in any manner or eliminating
any of the provisions of the Variable Rate Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of such
Debentures; provided, however, that no such supplemental indenture shall
change the fixed maturity of any Debenture, reduce the principal amount
thereof, reduce the rate, change the time of payment of interest thereon,
reduce the amount of Debentures whose holders must consent to an amendment,
or make any changes regarding the Variable Rate Indenture that relate to
waiver of default, the rights of holders to receive payments, and the
requirements of consent of the Debentureholders, without the consent of the
holder of each Debenture so affected.

The Company and the Trustee may amend the Variable Rate Indenture to allow
the issuance of additional amounts of a particular Series or additional
Series of Debentures without the consent of the Debentureholders. There are
no limitations as to the maximum amount of any increase or to the number of
increases which may be made. The Company may change the interest rates and
the maturities of the Debentures offered hereby and of any subsequent Series
which may be offered without entering into a supplemental indenture, provided
that no such change will affect any Debenture of any Series issued prior
to the date of change.

Events of Default and Notice Thereof

An Event of Default is defined by the Variable Rate Indenture to mean any of
the following: (a) failure to pay principal upon any Debenture when the same
becomes due; (b) failure to pay interest upon any Debenture when the same
becomes due and the Default continues for 30 days; (c) failure, after notice
from the Trustee or from the holders of at least 25% in principal amount of
the Debentures of the affected Series, to observe or perform within 30 days
any of the covenants contained in the Variable Rate Indenture or Debentures;
or (d) the occurrence of certain events of bankruptcy, insolvency or
reorganization.

The Variable Rate Indenture provides that the Trustee shall, within 90 days
after the occurrence thereof, give the registered holders of the Debentures
notice of any existing default known to the Trustee, but, except in case of
a default in the payment of principal or interest, the Trustee may withhold
such notice if and for so long as the Trustee in good faith determines that
the withholding of such notice is in the interest of such holders.

-9-

Rights on Default

The Trustee by notice to the Company, or the holders of at least 25% in
principal amount of the Debentures of the affected Series, may declare the
principal of and accrued interest on all Debentures due upon the happening of
any of the Events of Default specified in the Variable Rate Indenture, but
the holders of a majority of the outstanding principal amount of such
Debentures may waive any default and rescind such declaration if the default
is cured within the 30 day period, except a default in the payment of the
principal of or interest on any Debenture or a default on Senior Debt. The
holders of a majority of the outstanding principal amount of the Debentures
of the affected Series may direct the time, method and place of conducting
any proceeding for any remedy available to, or exercising any power or trust
conferred upon, the Trustee, but the Trustee may decline to follow any
direction that conflicts with law, provisions of the Variable Rate Indenture,
or is unduly prejudicial to the rights of the other Debentureholders or would
involve the Trustee in personal liability. Holders may not institute any
proceeding to enforce the Variable Rate Indenture unless the Trustee refuses
to act for 60 days after request from the holders of at least 25% in
principal amount of the Debentures of the affected Series and during such 60
day period the holders of a majority in principal amount do not give the
Trustee a direction inconsistent with the request, and tender to the Trustee
of satisfactory indemnity. Nevertheless, any holder may enforce the payment
of the principal of and interest on the holder's Debenture when due.

Concerning the Trustee

The Trustee does not have any other business relationship with the Company.
The Trustee maintains its principal corporate trust office in Columbus,
Georgia.

Evidence to be Furnished Trustee

The Variable Rate Indenture provides that, as evidence of compliance with the
conditions precedent provided for in the Variable Rate Indenture relating to
any action to be taken by the Trustee upon the application or demand of the
Company, the Company shall furnish to the Trustee an officer's certificate
and an opinion of counsel stating that all such conditions precedent have
been met. Within 120 days after the end of each fiscal year, the Company
shall file with the Trustee an officer's certificate stating whether or not,
to the best knowledge of the signers, the Company is in default in the
performance of any covenant, agreement or condition contained in the Variable
Rate Indenture and, if so, specifying each such default, and, with respect
to each, the action taken or proposed to be taken by the Company to remedy
such default.

LEGAL OPINION

The validity of the securities offered hereby has been passed upon for the
Company by Jones, Day, Reavis & Pogue, Atlanta, Georgia.

-10-

1st FRANKLIN FINANCIAL CORPORATION

Appendix I to Prospectus
Information as of December 31, 1999

1. Ratio of Earnings to Fixed Charges:

December 31
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
2.00 1.94 1.72 1.95 2.06

2. Unused borrowings under the $21,000,000 Credit
Agreement......................................... $ 20,035,000

3. Debentures outstanding under Indenture............ $ 35,246,639

4. Senior Debt (as defined under the caption
"Description of Variable Rate Subordinated
Debentures - Subordination") outstanding.......... $113,889,641

A more current Appendix I, if appropriate, will be attached to the cover
page of this Prospectus as a supplement. If attached, that supplemental
Appendix I supersedes this information.

-11-

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking
offers to buy, the securities covered by this prospectus only in jurisdictions
where these ofers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of the securities
covered hereby.

TABLE OF CONTENTS

Available Information . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . 2
Reports to Security Holders . . . . . . . . . . . . . . 2
Risk Factors. . . . . . . . . . . . . . . . . . . . . . 3
Summary Description of Securities Offered . . . . . . . 5
The Company . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . 6
Plan of Distribution. . . . . . . . . . . . . . . . . . 6
Forward-Looking Information . . . . . . . . . . . . . . 6
Description of Variable Rate Subordinated Debentures. . 7
Legal Opinion . . . . . . . . . . . . . . . . . . . . . 10
Appendix I. . . . . . . . . . . . . . . . . . . . . . . 11

$20,000,000

Variable Rate Subordinated Debentures -

Series 1

-12-

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution
- -----------------------------------------------------
The expenses to be incurred in the issuance and distribution of the
securities being registered are estimated as follows:

Filing Fee - Securities and Exchange
Commission. . . . . . . . . . . . . . . $ 5,280
Registration Fees in States. . . . . . . . . 1,000
Legal Fees and Expenses. . . . . . . . . . . 8,500
Accounting Fees. . . . . . . . . . . . . . . 2,500
Printing Cost. . . . . . . . . . . . . . . . 500
Advertising. . . . . . . . . . . . . . . . . 5,000
Trustee's Fees . . . . . . . . . . . . . . . 10,600
Postage and Miscellaneous. . . . . . . . . . 3,500
-------
Total . . . . . . . . . . . . . . . . . $36,880
=======

Item 15. Indemnification of Directors and Officers
- ---------------------------------------------------
The registrant has, pursuant to the authority granted in Section 14-2-851
of the Official Code of Georgia Annotated, agreed to indemnify any officer
or director of the registrant against any expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually or
reasonably incurred by him in any action, suit or proceeding brought or
threatened to be brought against him by reason of the fact that he is or
was an officer or director of the registrant if he acted in a manner he
reasonably believed to be in or not opposed to the best interests of the
registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

Item 16. Exhibits
- -----------------
4. (a) The Variable Rate Indenture dated October 31, 1984 between the
registrant and The First National Bank of Gainesville, Trustee.
(Incorporated by reference to Exhibit 4(a) to the registrant's
Amendment No. 1 dated April 24, 1998 to the Registration Statement
on Form S-2, Registration No. 333-47515.)

(b) Form of Variable Rate Subordinated Debenture. (Incorporated by
reference to Exhibit 4(b) to the registrant's Registration
Statement on Form S-2, Registration No. 33-25180.)

(c) Agreement of Resignation, Appointment and Acceptance dated as of
May 28, 1993 between the registrant, the First National Bank of
Gainesville, and Columbus Bank and Trust Company. (Incorporated
herein by reference to Exhibit 4(c) to the registrant's Post-
Effective Amendment No. 1 dated June 8, 1993 to the Registration
Statement on Form S-2, Registration No. 33-49151.)

(d) Modification of Indenture dated March 29, 1995. (Incorporated
herein by reference to Exhibit 4(b) to the registrant's Form 10-K
for the year ended December 31, 1994, No. 2-27985.)

5. Opinion of Counsel (to be filed by amendment).
II-1

10. (a) Credit Agreement dated May, 1993 between the registrant and
SouthTrust Bank of Georgia, N.A..(Incorporated by reference to
Exhibit 10(a) to the registrant's Form 10-K for the year ended
December 31, 1993, No. 2-27985.)

(b) Revolving Credit Agreement dated October 1, 1985 as amended
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) to the
Registrant's Registration Statement on Form S-2, Registration
No. 33-56299.)

(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. (Incorporated herein by reference
to Exhibit 10(g) from Form 10-K for the fiscal year ended
December 31, 1996.)

(h) Tenth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated January 23, 1998. (Incorporated herein by
reference to Exhibit 10(h) from the registrant's Form S-2
Registration statement on Form S-2, Registration No. 333-47515.)

(i) Eleventh Amendment to Revolving Credit Agreement and Term Loan
Agreement dated May 27, 1998. (Incorporated herein by reference
to Exhibit 10(i) from Form 10-K for the fiscal year ended
December 31, 1998.)

(j) Twelfth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated June 30, 1999.

11. Computation of Earnings per Share can be determined from the
Consolidated Statement of Income and Retained Earnings contained in
the Registrant's Annual Report to Security Holders for the fiscal
year ended December 31, 1999, incorporated herein by reference.

12. Calculation of Ratio of Earnings to Fixed Charges.

13. Annual Report to securities holders for the year ended
December 31, 1999.

23. (a) Consent of Independent Public Accountants.

(b) Consent of Counsel (to be filed by amendment).

25. Form T-1 as to the eligibility and qualification of Synovus Trust
Company, Trustee, under the indenture dated as of October 31, 1984
(modified March 29, 1995) between the registrant and Synovus Trust
Company, an affiliate of Columbus Bank and Trust Company.
II-2

25.1-P A copy of the Charter and/or Articles of Incorporation of the
Columbus Bank and Trust Company, (Incorporated by reference to
Exhibit 25.1 of the registrant's Form SE dated June 8, 1993,
filed pursuant to continuing hardship exemption.)

25.1-1 A copy of the Charter and/or Articles of Incorporation of the
Synovus Trust Company. (Incorporated by reference to
Exhibit 25.1-1 of the registrant's Registration Statement on
Form S-2, Registration No. 333-1007 dated February 29, 1996.)

25.4-P Copy of the bylaws of Columbus Bank and Trust, as now in effect.
(Incorporated by reference to Exhibit 25.4 of the registrant's
Form SE dated June 8, 1993, filed pursuant to continuing hardship
exemption.)

25.4-1 Copy of the bylaws of Synovus Trust Company, as now in effect.
(Incorporated by reference to Exhibit 25.4-1 of the registrant's
Registration Statement on form S-2, Registration No. 333-1007
dated February 29, 1996.)

25.6 Consent of Trustee

25.7 Call Report of Trustee's affiliate

Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the registration statement; Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price present no more than a twenty percent change in
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective statement; (iii) to
include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement; (iv) to file weekly with the Securities
and Exchange Commission a Rule 424(b)(2) prospectus supplement
setting forth the established features (as defined in the
prospectus).

(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated

II-3

by reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act
of 1934; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial information.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

II-4

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Toccoa, State of Georgia, on
the 10 day of April, 2000.
1st FRANKLIN FINANCIAL CORPORATION

/s/ Ben F. Cheek, III
------------------------------
Ben F. Cheek, III
Chairman of the Board

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ben F. Cheek, III and A. Roger Guimond, and
each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
registration statement and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and their
substitutes, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, and
their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration
statement or amendment thereto has been signed by the following persons in
the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/s/ Ben F. Cheek, III
- ----------------------
Ben F. Cheek, III Chairman of the Board; April 10, 2000
Principal Executive Officer; --------------
Director

/s/ T. Bruce Childs
- ----------------------
T. Bruce Childs President April 10, 2000
--------------

s/ A. Roger Guimond
- ----------------------
A. Roger Guimond Vice President;
Principal Financial Officer;
Principal Accounting Officer April 10, 2000
--------------

/s/ Lorene M. Cheek
- ----------------------
Mrs. Lorene M. Cheek Director April 10, 2000
--------------

/s/ Jack Stovall
- ----------------------
Jack Stovall Director April 10, 2000
--------------

/s/ Robert E. Thompson
- ----------------------
Robert E. Thompson Director April 10, 2000
--------------

II-5

EXHIBIT INDEX

Exhibit Number Exhibit
- -------------- -------
4. (a) The Variable Rate Indenture dated October 31, 1984 between
the registrant and The First National Bank of Gainesville,
Trustee. (Incorporated by reference to Exhibit 4(a) to the
registrant's Amendment No. 1 dated April 24, 1998 to the
Registration Statement on Form S-2, Registration No. 333-47515.)

(b) Form of Variable Rate Subordinated Debenture. (Incorporated by
reference to Exhibit 4(b) to the registrant's Registration
Statement on Form S-2, Registration No. 33-25180.)

(c) Agreement of Resignation, Appointment and Acceptance dated as of
May 28, 1993 between the registrant, The First National Bank of
Gainesville, and Columbus Bank and Trust Company. (Incorporated
herein by reference to Exhibit 4(c) to the registrant's Post
Effective Amendment No. 1, dated June 8, 1993, to the
Registration Statement on Form S-2, Registration No. 33-49151.)

(d) Modification of Indenture dated March 29, 1995. (Incorporated
herein by reference to Exhibit 4(b) to the registrant's Form 10-K
for the year ended December 31, 1994, No. 2-27985.)

5. Opinion of Counsel (to be filed by amendment).

10. (a) Credit Agreement dated May, 1993 between the registrant and
SouthTrust Bank of Georgia, N.A.. (Incorporated by reference to
Exhibit 10(a) to the registrant's Form 10-K for the year ended
December 31,1993, No. 2-27985.)

(b) Revolving Credit Agreement dated October 1, 1985 as amended
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) to the
registrant's Registration Statement on Form S-2, Registration
No. 33-56299.)

(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.)

(i) Eleventh Amendment to Revolving Credit Agreement and Term Loan
Agreement dated May 27, 1998. (Incorporated herein by reference
to Exhibit 10(i) from Form K for the fiscal year ended
December 31, 1998.)

(j) Twelfth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated June 30, 1999.

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, 1999.
(Incorporated by reference to exhibit 11 to the registrant's Form 10-K
for the year ended December 31, 1999.)

12. Computation of Ratio of Earnings to Fixed Charges

13. Annual Report to the securities holders for the year ended
December 31, 1999.

23. (a) Consent of Arthur Andersen LLP
(b) Consent of Jones, Day, Reavis & Pogue (to be filed by amendment).

25.1-P A copy of the Charter and/or Articles of Incorporation of the
Trustee. (Incorporated by reference to Exhibit 25.1 of the
registrant's Form SE dated June 8, 1993, filed pursuant to
continuing hardship exemption.)

25.1-1 A copy of the Charter and/or Articles of Incorporation of the
Synovus Trust Company. (Incorporated by reference to Exhibit
25.1-1 of the registrant's Registration Statement on Form S-2,
Registration No. 333-1007 dated February 29, 1996.)

25.4-P Copy of the bylaws of Columbus Bank and Trust Company, as now in
effect. (Incorporated by reference to Exhibit 25.4 of the
registrant's Form SE dated June 8, 1993, filed pursuant to
continuing hardship exemption.)

25.6 Consent of Trustee

25.7 Call Report of Trustee's affiliate

Exhibit 10(j)

TWELFTH AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT

This Twelfth Amendment to Revolving Credit and Term Loan
Agreement ("Amendment") dated as of June 30, 1999 by and among 1st
Franklin Financial Corporation ("Company"), First Union National Bank
(successor by merger to CoreStates Bank, N.A.), SouthTrust Bank of
Georgia, N.A. and Harris Trust and Savings Bank (each a "Bank" and
collectively, the "Banks"), First Union National Bank (successor by
merger to CoreStates Bank, N.A.), as agent for Banks (in such
capacity, the "Agent") and Fleet Bank, N.A. ("Exiting Bank").

BACKGROUND

A. Company, Banks, Exiting Bank and Agent entered into that
certain revolving Credit and Term Loan Agreement dated as of
October 1, 1985 (as has been and may hereafter be amended or
modified from time to time, the "Loan Agreement") and certain other
instruments, documents and agreements entered into pursuant thereto
(collectively with the Loan Agreement, the "Existing Loan
Documents"). All capitalized terms which are not defined herein
shall have the meaning ascribed thereto in the Loan Agreement.

B. Exiting Bank has expressed a desire to cease being a Bank under
the Loan Agreement and the parties hereto are willing to accommodate
such request and to effectuate such understanding in the manner
hereinafter set forth. The terms of this Amendment are, subject to
the conditions hereinafter set forth, effective as of the date hereof.

NOW THEREFORE, intending to be legally bound, the parties agree
as follows:

1. Releasing of Exiting Bank. As of the date hereof, Agent,
Banks and Company release Exiting Bank from all of its duties and
obligations under the Existing Loan Documents. All references to
"Banks" contained in the Existing Loan Documents are hereby deemed for
all purposes to refer to the above named Banks.

2. Banks' Commitments. Each Bank's Commitment shall be the
total amount of Loans which each Bank has agreed to make to Company,
as set forth opposite each Bank's name on the signature page of this
Amendment. Prior to the effectiveness of this Amendment, Company
shall execute and deliver to Agent an Amended and Restated Revolving
Credit Note in favor of each Bank (in form and substance satisfactory
to Agent).

3. Representations and Warranties. Company warrants and
represents to Agent and Banks that:

a. Prior Representations. By execution of this Amendment,
Company hereby represents and warrants that all warranties and
representations made to Agent and Banks under the Existing Loan Documents
are true and correct in all material respects as of the date hereof.

-1-

b. Authorization. This execution and delivery by Company
of this Amendment and the performance by it of the transactions herein
contemplated (i) are and will be within its powers, (ii) have been
authorized by all necessary corporate action, and (iii) are not and
will not be in contravention of any order of court or other agency of
government, of law or of any indenture, agreement or undertaking to
which Company is a party or by which the property of Company is bound,
or be in conflict with, result in a breach of or constitute (with due
notice and/or lapse of time) a default under any such indenture,
agreement or undertaking, or result in the imposition of any lien,
charge or encumbrance of any nature on any of the properties of
Company by any party other than Agent or Banks.

c. Valid, Binding and Enforceable. This Amendment and
any assignment or other instrument, document or agreement executed and
delivered in connection wherewith, will be valid, binding and enforceable in
accordance with their respective terms subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights generally and to general equity principles.

d. No Default. There is no Default or Event of Default outstanding
under the Loan Agreement or other Existing Loan Documents.

4. Incorporation into Existing Loan Documents. The parties
acknowledge and agree that this Amendment is incorporated into and made
part of the Existing Loan Documents, the terms and provisions of which,
unless expressly modified herein, are hereby ratified and confirmed and
continue unchanged and in full force and effect. Any future reference to
the Loan Agreement shall mean the Loan Agreement as amended hereby. To the
extent that any term or provision of this Amendment is or may be deemed
expressly inconsistent with any term or provision in the Existing Loan
Documents, the terms and provisions hereof
shall control.

5. Miscellaneous.

a. Headings. The headings of any paragraph of this Amendment are
for convenience only and shall not be used to interpret any provision hereof.

b. Other Instruments. Company shall execute any other documents,
instruments and writings, in form and substance satisfactory to Agent, as
Agent may reasonably request, to carry out the intentions of the parties
hereunder.

c. Governing Law. The terms and conditions of this Amendment
shall be governed by and construed in accordance with the substantive laws
of the Commonwealth of Pennsylvania.

d. Counterparts. This Amendment may be executed in any number of
counterparts each of which shall constitute an original and all of which
taken together shall constitute one and the same instrument. Signature by
facsimile shall bind the parties hereto.

-2

IN WITNESS WHEREOF, the parties have executed this Amendment the
day and year first above written.

COMPANY: 1ST FRANKLIN FINANCIAL CORPORATION

By: /s/ A. R. Guimond
--------------------
Name: A. Roger Guimond
Title: Vice President / CFO

AGENT: FIRST UNION NATIONAL BANK, successor by
merger to CoreStates, N.A.

By: /s/ Robert S. Ritter
--------------------
Name: Robert S. Ritter
Title: Vice President

BANKS: FIRST UNION NATIONAL BANK, successor by merger
to CoreStates Bank, N.A.

Commitment By: /s/ Robert S. Ritter
$7,000,000 --------------------
Name: Robert S. Ritter
Title: Vice President

SOUTHTRUST BANK OF GEORGIA, N.A.

Commitment By: /s/ R. Christopher Mallet
$7,000,000 -------------------------
Name: R. Christopher Mallet
Title: Vice President

HARRIS TRUST AND SAVINGS BANK

Commitment By: /s/ Jerome P. Crokin
$7,000,000 --------------------
Name: Jerome P. Crokin
Title: Managing Director

EXITING LENDER: FLEET BANK, N.A.

By: /s/ Robert Kruger
------------------------
Name: Robert Kruger
Title: Assistant Vice President

AMENDED AND RESTATED REVOLVING CREDIT NOTE
$7,000,000 Dated as of June 30, 1999

FOR VALUE RECEIVED, 1ST FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation ("Company"), promises to pay to the order of FIRST UNION
NATIONAL BANK, successor by merger to CoreStates Bank, N.A. ("Bank"),
at the office of First Union National Bank, successor by merger to
CoreStates Bank, N.A. ("Agent"), at 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107 in lawful money of the United States
of America, in immediately available funds, the sum of Seven Million
Dollars ($7,000,000) or the amount outstanding on said date of all
Loans made by Bank to Company pursuant to Section 2.01 of the
Agreement hereinafter referred to, as conclusively evidenced by
written endorsement with respect thereto by an officer of Bank upon
the Schedule hereto annexed, whichever is less, in accordance with the
terms and conditions of the Agreement.

Company shall also pay to Bank interest (computed on the basis
of the actual number of days elapsed in a year of 360 days) on the
unpaid principal amount hereof in like money, on the last business day
each of June, September, December and March, in each year, commencing
on the first such dates after the date, hereof, and at maturity until
payment in full at a rate per annum determined daily, equal to one
quarter of one percentage point above the rate of interest for loans
established and publicly announced in Philadelphia, Pennsylvania from
time to time by Agent as its Prime Rate ("Prime Rate"). Interest
shall be payable on any overdue amount of principal at a rate of
interest hereon due to a change in the Prime Rate, but in no event
shall interest be payable at a rate higher than that permitted by
applicable law. Company also argees to pay the Facility Service Fee
and Agent's fee described in the Agreement hereinafter referred to.

The outstanding principal balance of this Note may be prepaid by
Company, in whole or in part, at any time or from time to time, but
any partial prepayment shall not be less than the minimum amount
provided in Section 2.01(a) of the Agreement hereinafter referred to.

As used herein, the term "business day" shall mean a day other
than a Saturday, Sunday or legal bank holiday under the laws of the
Commonwealth of Pennsylvania or the State of New York, and the term
"Immediately Available Funds" shall mean funds which are available for
immediate use by Bank at Bank's office hereinabove set forth not later
than the due date of such payment.

This Note is one of the Notes issued pursuant to that certain
Revolving Credit and Term Loan Agreement dated as of October 1, 1985
among Company, Agent, Bank and the other financial institutions a
party thereto from time to time (as has been amended to date, most
recently of even date herewith pursuant to that certain Twelfth
Amendment to Revolving Credit and Term Loan Agreement and as may
hereafter be amended or modified from time to time, the "Agreement").

Upon the occurrence of any one or more of the Events of Default
specified in the Agreement, the amounts then remaining unpaid on this
Note may be declared to be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by Company and Company shall be further obligated to
reimburse the holder hereof for all reasonable out-of-pocket expenses
of the holder in enforcing or attempting to enforce this Note, all as
provided in the Agreement.

This Note amends and restates but does not extinguish Company's
liabilities and outstanding obligations under Company's Fourth Amended
and Restated Revolving Credit Note dated June 20, 1996 to the order of
Bank in the original principal amount of $6,000,000.

This Note and all rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.

1st FRANKLIN FINANCIAL CORPORATION

By: /s/ A. R. Guimond
--------------------
Name: A. Roger Guimond
Title: Vice President / CFO

AMENDED AND RESTATED REVOLVING CREDIT NOTE
$7,000,000 Dated as of June 30, 1999

FOR VALUE RECEIVED, 1ST FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation ("Company"), promises to pay to the order of HARRIS TRUST
AND SAVINGS BANK ("Bank"), at the office of First Union National
Bank, successor by merger to CoreStates Bank, N.A. ("Agent"), at
1345 Chestnut Street, Philadelphia, Pennsylvania 19107 in lawful money
of the United States of America, in immediately available funds, the
sum of Seven Million Dollars ($7,000,000) or the amount outstanding on
said date of all Loans made by Bank to Company pursuant to Section
2.01 of the Agreement hereinafter referred to, as conclusively
evidenced by written endorsement with respect thereto by an officer of
Bank upon the Schedule hereto annexed, whichever is less, in
accordance with the terms and conditions of the Agreement.

Company shall also pay to Bank interest (computed on the basis
of the actual number of days elapsed in a year of 360 days) on the
unpaid principal amount hereof in like money, on the last business day
each of June, September, December and March, in each year, commencing
on the first such dates after the date, hereof, and at maturity until
payment in full at a rate per annum determined daily, equal to one
quarter of one percentage point above the rate of interest for loans
established and publicly announced in Philadelphia, Pennsylvania from
time to time by Agent as its Prime Rate ("Prime Rate"). Interest
shall be payable on any overdue amount of principal at a rate of
interest hereon due to a change in the Prime Rate, but in no event
shall interest be payable at a rate higher than that permitted by
applicable law. Company also agrees to pay the Facility Service Fee
and Agent's fee described in the Agreement hereinafter referred to.

This Note amends and restates but does not extinguish Company's
liabilities and outstanding obligations under Company's Second Amended
and Restated Revolving Credit Note dated June 20, 1996 to the order of
Bank in the original principal amount of $5,000,000.

This Note and all rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.

1st FRANKLIN FINANCIAL CORPORATION

By: /s/ A. R. Guimond
--------------------
Name: A. Roger Guimond
Title: Vice President / CFO

AMENDED AND RESTATED REVOLVING CREDIT NOTE
$7,000,000 Dated as of June 30, 1999

FOR VALUE RECEIVED, 1ST FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation ("Company"), promises to pay to the order of SOUTHTRUST
BANK OF GEORGIA, N.A.("Bank"), at the office of First Union National
Bank, successor by merger to CoreStates Bank, N.A. ("Agent"), at
1345 Chestnut Street, Philadelphia, Pennsylvania 19107 in lawful money
of the United States of America, in immediately available funds, the
sum of Seven Million Dollars ($7,000,000) or the amount outstanding on
said date of all Loans made by Bank to Company pursuant to Section
2.01 of the Agreement hereinafter referred to, as conclusively
evidenced by written endorsement with respect thereto by an officer of
Bank upon the Schedule hereto annexed, whichever is less, in
accordance with the terms and conditions of the Agreement.

Company shall also pay to Bank interest (computed on the basis
of the actual number of days elapsed in a year of 360 days) on the
unpaid principal amount hereof in like money, on the last business day
each of June, September, December and March, in each year, commencing
on the first such dates after the date, hereof, and at maturity until
payment in full at a rate per annum determined daily, equal to one
quarter of one percentage point above the rate of interest for loans
established and publicly announced in Philadelphia, Pennsylvania from
time to time by Agent as its Prime Rate ("Prime Rate"). Interest
shall be payable on any overdue amount of principal at a rate of
interest hereon due to a change in the Prime Rate, but in no event
shall interest be payable at a rate higher than that permitted by
applicable law. Company also agrees to pay the Facility Service Fee
and Agent's fee described in the Agreement hereinafter referred to.

This Note and all rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.

1st FRANKLIN FINANCIAL CORPORATION

By: /s/ A. R. Guimond
--------------------
Name: A. Roger Guimond
Title: Vice President / CFO

Exhibit 12

RATIO OF EARNINGS TO FIXED CHARGES

Year Ended December 31
-----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----

(In thousands, except ratio data)

Income Before Income Taxes . . . $ 9,663 $ 8,859 $ 6,744 $ 8,418 $ 8,969

Interest on Indebtedness . . . . 8,920 8,723 8,801 8,312 8,048

Portion of rents representative
of the interest factor . . . . 746 665 603 518 449
------- ------- ------- ------- -------

Earnings as adjusted. . . . $19,329 $18,247 $16,148 $17,248 $17,466
======= ======= ======= ======= =======

Fixed Charges:

Interest on Indebtedness . . . . $ 8,920 $ 8,723 $ 8,801 $ 8,312 $ 8,048

Portion of rents representative
of the interest factor . . . . 746 665 603 518 449
------- ------- ------- ------- -------

Fixed Charges. . . . . . . $ 9,666 $ 9,388 $ 9,404 $ 8,830 $ 8,497
======= ======= ======= ======= =======

Ratio of Earnings
to Fixed Charges. . . . . . 2.00 1.94 1.72 1.95 2.06
==== ==== ==== ==== ====

Exhibit 13

1st FRANKLIN FINANCIAL CORPORATION

ANNUAL REPORT

DECEMBER 31, 1999

FRONT and BACK COVER
(Collage of Photos from Annual Managers' Meeting)

INSIDE FRONT COVER PAGE OF ANNUAL REPORT

(Graphic showing state maps of Alabama, Georgia, Louisiana, Mississippi, North
Carolina and South Carolina which is regional operating territory of Company
and listing of branch offices)
<TABLE>
<CAPTION>
1st FRANKLIN FINANCIAL CORPORATION BRANCH OFFICES

ALABAMA
-------
<S> <C> <C> <C> <C> <C>
Alexander City Clanton Florence Jasper Ozark Selma
Andalusia Cullman Gadsden Madison Pelham Sylacauga
Arab Decatur Geneva Moulton Prattville Troy
Athens Dothan Hamilton Muscle Shoals Russellville(2) Tuscaloosa
Bessemer Enterprise Huntsville Opp Scottsboro Wetumpka
Birmingham Fayette
<CAPTION>
GEORGIA
-------
<S> <C> <C> <C> <C> <C>
Adel Calhoun Cumming Griffin McRae Statesboro
Albany Canton Dallas Hartwell Milledgeville Swainsboro
Alma Carrollton Dalton Hawkinsville Monroe Sylvania
Americus Cartersville Dawson Hazlehurst Montezuma Sylvester
Arlington Cedartown Douglas Hinesville Monticello Thomaston
Athens (2) Chatsworth Douglasville(2) Hogansville Moultrie Thomson
Bainbridge Clarkesville East Ellijay Jackson Nashville Tifton
Barnesville Claxton Eastman Jasper Newnan Toccoa
Baxley Clayton Elberton Jefferson Perry Valdosta (2)
Blakely Cleveland Forsyth Jesup Pooler ** Vidalia
Blue Ridge Cochran Fort Valley LaGrange Richmond Hill Warner Robins
Bremen Commerce Gainesville Lavonia Rome Washington
Brunswick Conyers Garden City Lawrenceville Royston Waycross
Buford Cordele Georgetown Madison Sandersville Waynesboro
Butler Cornelia Glennville Manchester Savannah Winder
Cairo Covington Greensboro McDonough
<CAPTION>
LOUISIANA
---------
<S> <C> <C> <C> <C> <C>
Alexandria DeRidder Jena Leesville Natchitoches Pineville
Crowley Franklin Lafayette Marksville New Iberia
<CAPTION>
MISSISSIPPI
-----------
<S> <C> <C> <C> <C> <C>
Bay St. Louis Grenada Hattiesburg Jackson Magee Pearl
Carthage Gulfport Hazlehurst Kosciusko McComb Picayune
Columbia
<CAPTION>
NORTH CAROLINA
--------------
<S> <C>
Monroe Pineville
<CAPTION>
SOUTH CAROLINA
--------------
<S> <C> <C> <C> <C> <C>
Aiken Columbia Gaffney Lancaster Orangeburg Union
Anderson Conway Greenville Laurens Rock Hill York
Cayce Easley Greenwood Marion Seneca
Clemson Florence Greer Newberry Spartanburg
</TABLE>

- ----------------------------
** Opened first quarter 2000

TABLE OF CONTENTS

The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Ben F. Cheek, Jr. Office of the Year . . . . . . . . . . . . . 2

Chairman's Letter . . . . . . . . . . . . . . . . . . . . . . . 3

Selected Consolidated Financial Information . . . . . . . . . . 4

Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Management's Discussion of Operations . . . . . . . . . . . . . 13

Management's Report . . . . . . . . . . . . . . . . . . . . . . 18

Report of Independent Public Accountants. . . . . . . . . . . . 19

Financial Statements. . . . . . . . . . . . . . . . . . . . . . 20

Directors and Executive Officers. . . . . . . . . . . . . . . . 36

Corporate Information . . . . . . . . . . . . . . . . . . . . . 36

THE COMPANY

1st Franklin Financial Corporation has been engaged in the consumer finance
business since 1941, particularly in direct cash loans and real estate loans.
The business is operated through 97 branch offices in Georgia, 33 in Alabama,
22 in South Carolina, 13 in Mississippi, 11 in Louisiana and 2 in North
Carolina. At December 31, 1999, the Company had 682 employees.

As of December 31, 1999, the resources of the Company were invested
principally in loans which comprised 69% of the Company's assets. The
majority of the Company's revenues are derived from finance charges earned on
loans and other outstanding receivables. Remaining revenues are derived from
earnings on investment securities, insurance income and other miscellaneous
income.

-1-

CHATSWORTH, GEORGIA

1999 BEN F. CHEEK, JR. "OFFICE OF THE YEAR"

*********************
** PICTURE OF EMPLOYEES **
*********************

This award is presented annually in recognition of the office that represents
the highest overall performance within the Company. Congratulations to the
entire Chatsworth Staff for this significant achievement. The Friendly
Franklin Folks salute you!

-2-

TO OUR INVESTORS, EMPLOYEES AND FRIENDS:

I am very pleased to report to you that 1st Franklin Financial
Corporation closed out the 1900's in excellent condition. We are now looking
forward to the many opportunities that a new century will offer us. Before
leaving the 1900's completely however, I want to acknowledge and recognize
the hard work and preparation by our Y2K committee and data processing staff.
Their efforts paid off handsomely when all of our systems operated properly
on January 1. We had every confidence that the results would be just that
and I am very grateful to them for their planning and execution during the
many months of work that preceded Y2K.

Now may I call your attention to a few of the highlights of our 1999
year which you will find in this Annual Report. Naturally, as you have time,
I hope you will read the entire report in order to get a full and complete
picture of the year's results.

One of our goals for 1999 was to increase our gross receivables by
approximately 15% in order to top $200,000,000. You might recall that we had
a long-standing goal of reaching $200,000,000 in assets by the year 2000.
We reached that goal in 1997, three years ahead of schedule, so having
completed the initial goal, we felt that achieving $200,000,000 in gross loan
receivables by the end of 1999 would be a challenging and worthy goal. You
will note from our balance sheet on page 20 that we made it - - $200,468,312.

With growth in receivables you always look for a nice growth in net
income. Fortunately, that is exactly what occurred when our net income
increased by 6.6% over 1998 reaching an all-time high of $7.7 million. This
occurred even with the additional expense associated with new branch office
openings. During the year, eleven new branches were opened - - 2 in Alabama,
3 in Georgia, 4 in Louisiana and 2 in Mississippi. These new offices brought
the total number of branches to 177 in six southeastern states and our plan
is to continue this growth as we enter 2000.

The 1st Franklin Investment Center continues to grow and support the
growth of our branch system. With the total of our investments approaching
$150 million and the number of our investors standing at 6,133 one can
readily see the vital part that each of our investors plays in the everyday
success of our company. Hopefully, they and others will join with us now and
in the years ahead as we continue to strive to carry out our mission of being
a major provider of credit to individuals and families in the Southeastern
United States.

In an effort to support one of our company's Core Values which is Open,
Honest Communication, we had a company-wide employee survey in early 1999.
The response to the survey was excellent - 72% of our employees completed and
returned the survey and from the results of the survey came some important
changes which we hope will translate into happy and highly motivated
co-workers. We intend to keep the communication lines open.

1st Franklin Financial had a good 1999 and we are excited about the
prospects for a repeat in 2000. Many people were responsible for another
successful year for our company. Certain groups standout, such as my
co-workers, our investors, our bankers and our customers. These people
deserve a special salute and thank you for their year-long encouragement and
support. Hopefully, we will continue to earn your confidence and support in
2000 and for many years to come.

Very sincerely yours,

s/ Ben F. Cheek, III
Chairman of the Board and CEO

-3-

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Set forth below is selected consolidated financial data of the Company.
This information should be read in conjunction with "Management's Discussion
of Operations" and the more detailed financial statements and notes thereto
included herein.

Year Ended December 31
1999 1998 1997 1996 1995

(In 000's, except ratio data)

Selected Income Statement Data:

Revenues . . . . . . . . . . $ 72,641 $ 65,683 $ 61,498 $ 58,415 $ 55,157
Net Interest Income. . . . . 41,731 37,289 34,470 32,534 30,147
Interest Expense . . . . . . 8,920 8,723 8,801 8,312 8,048
Provision for
Loan Losses. . . . . . . . 8,523 7,031 6,916 6,266 4,631
Income Before
Income Taxes . . . . . . . 9,663 8,859 6,744 8,418 8,969
Net Income . . . . . . . . . 7,748 7,268 1,816 6,238 6,507
Ratio of Earnings to
Fixed Charges. . . . . . . 2.00 1.94 1.72 1.95 2.06

Selected Balance Sheet Data:

Loans, Net . . . . . . . . . $156,124 $138,548 $132,701 $129,684 $120,763
Total Assets . . . . . . . . 227,138 216,675 201,166 191,904 182,084
Senior Debt. . . . . . . . . 113,890 104,446 98,930 94,740 95,541
Subordinated Debt. . . . . . 35,247 38,961 37,247 34,942 30,617
Stockholders' Equity . . . . 64,540 61,364 54,734 53,414 47,747
Ratio of Total Liabilities
to Stockholders' Equity. . 2.52 2.53 2.68 2.59 2.81

-4-

<PAGE>
BUSINESS

References in this Annual Report to "1st Franklin", "we", "our" and "us"
refers to 1st Franklin Financial Corporation.

1st Franklin is engaged in the consumer finance business, particularly in
making consumer loans to individuals in relatively small amounts for
relatively short periods of time, and in making first and second mortgage
loans on real estate in larger amounts and for longer periods of time. We
also purchase sales finance contracts from various retail dealers. At
December 31, 1999, direct cash loans comprised 76% of our outstanding loans,
real estate loans comprised 17% and sales finance contracts comprised 7%.

In connection with this business, we write credit insurance as an agent
for a nonaffiliated company specializing in such insurance. Two of our wholly
owned subsidiaries, Frandisco Life Insurance Company and Frandisco Property
and Casualty Insurance Company, reinsure the life, the accident and health and
the property insurance so written.

The following table shows the sources of our earned finance charges over
each of the past five periods:

Year Ended December 31
-------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
Direct Cash Loans . . . . $37,813 $33,579 $30,566 $28,440 $25,898
Real Estate Loans . . . . 7,181 7,112 7,196 7,238 7,058
Sales Finance Contracts . 2,222 1,998 2,268 2,417 2,757
------- ------- ------- ------- -------
Total Finance Charges . $47,216 $42,689 $40,030 $38,095 $35,713
======= ======= ======= ======= =======

We make direct cash loans primarily to people who need money for some
unusual or unforeseen expense or for the purpose of paying off an accumulation
of small debts or for the purchase of furniture and appliances. These loans
are repayable in 6 to 48 monthly installments and generally do not exceed
$10,000 in principal amount. The loans are generally secured by personal
property, motor vehicles and/or real estate. We believe that the interest and
fees we charge on these loans are in compliance with applicable federal and
state laws.

First and second mortgage loans on real estate are made to homeowners who
wish to improve their property or who wish to restructure their financial
obligations. We generally make the loans in amounts from $3,000 to $50,000 on
maturities of 35 to 180 months. We believe that the interest and fees we
charge on these loans are in compliance with applicable federal and state
laws.

Sales finance contracts are purchased from retail dealers. These
contracts have maturities that range from 3 to 48 months and generally do not
individually exceed $7,500 in principal amount. We believe that the interest
rates we charge on these contracts are in compliance with applicable federal
and state laws.

Prior to the making of a loan, we complete a credit investigation to
determine the income, existing indebtedness, length and stability of
employment, and other relevant information concerning the customer. In
granting the loan, we receive a security interest in the real or personal
property of the borrower. In making direct cash loans, we focus on the
customer's ability to repay his or her loan to us rather than on the potential
resale value of the underlying security. In making real estate and sales
finance loans, however, we focus instead on the marketability and value of the
underlying collateral.

-5-

1st Franklin competes with several national and regional finance
companies, as well as a variety of local finance companies in the communities
which we serve. We believe that our emphasis on customer service helps us
compete effectively in the markets we serve.

Our business consists mainly of the making of loans to salaried people
and wage earners who depend on their earnings to make their repayments. Our
ability to continue the profitable operation of our business will therefore
depend to a large extent on the continued employment of these people and their
ability to meet their obligations as they become due. Therefore, a sustained
recession or a significant downturn in business with consequent unemployment
or continued increases in the number of personal bankruptcies among our
typical customer base may have a material adverse effect on our collection
ratios and profitability.

The average annual yield on loans we make (the % of finance charges
earned to average net outstanding balance) has been as follows:

Year Ended December 31
--------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Direct Cash Loans. . . . . . . . 31.92% 31.53% 30.25% 30.75% 31.26%
Real Estate Loans. . . . . . . . 21.55 21.82 21.76 21.53 22.73
Sales Finance Contracts. . . . . 20.94 21.00 20.97 20.77 22.28

The following tabel contains information about our operations:

As of December 31
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Number of Branch Offices . . . . 177 166 157 144 128
Number of Employees. . . . . . . 682 628 596 575 527
Average Total Loans
Outstanding Per
Branch ( in 000's) . . . . . . $1,133 $1,060 $1,064 $1,138 $1,208
Average Number of Loans
Outstanding Per Branch . . . . 639 624 644 701 765

-6-

DESCRIPTION OF LOANS
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1999 1998 1997 1996 1995
DIRECT CASH LOANS: ---- ---- ---- ---- ----
- -----------------
<S> <C> <C> <C> <C> <C>
Number of Loans Made
to New Borrowers. . . . . 34,595 30,282 28,656 27,636 25,840
Number of Loans Made
to Former Borrowers . . . 17,498 16,083 14,626 14,410 14,740
Number of Loans Made
to Present Borrowers. . . 80,695 69,712 65,096 63,329 61,304
Total Number of Loans
Made. . . . . . . . . . . 132,788 116,077 108,378 105,375 101,884
Total Volume of Loans
Made (in 000's). . . . . . $234,172 $196,401 $180,541 $173,196 $164,034
Average Size of
Loans Made. . . . . . . . $ 1,764 $ 1,692 $ 1,666 $ 1,644 $ 1,610
Number of Loans
Outstanding . . . . . . . 95,509 86,819 83,264 80,733 76,549
Total of Loans
Outstanding (in 000's). . $153,170 $131,636 $123,039 $117,141 $107,960
Percent of Total Loans. . . 76% 75% 74% 72% 70%
Average Balance on
Outstanding Loans . . . . $ 1,604 $ 1,516 $ 1,478 $ 1,451 $ 1,410
<CAPTION>
REAL ESTATE LOANS:
- -----------------
<S> <C> <C> <C> <C> <C>
Total Number of Loans
Made. . . . . . . . . . . 2,045 2,226 2,155 2,240 2,674
Total Volume of Loans
Made (in 000's) . . . . . $ 19,439 $ 20,669 $ 22,921 $ 22,398 $ 22,379
Average Size of
Loans Made. . . . . . . . $ 9,105 $ 9,285 $ 10,636 $ 9,999 $ 8,369
Number of Loans
Outstanding . . . . . . . 4,054 4,105 4,101 4,214 4,188
Total of Loans
Outstanding (in 000's). . $ 33,946 $ 33,465 $ 32,630 $ 33,507 $ 32,653
Percent of Total Loans. . . 17% 19% 19% 20% 21%
Average Balance on
Outstanding Loans . . . . $ 8,374 $ 8,152 $ 7,957 $ 7,951 $ 7,797
<CAPTION>
SALES FINANCE CONTRACTS:
- -----------------------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Purchased . . . . . . . . 15,601 13,490 14,662 17,499 19,195
Total Volume of Contracts
Purchased (in 000's). . . $ 19,019 $ 14,612 $ 15,034 $ 17,150 $ 18,885
Average Size of Contracts
Purchased . . . . . . . . $ 1,219 $ 1,083 $ 1,025 $ 980 $ 984
Number of Contracts
Outstanding . . . . . . . 13,531 12,710 13,801 15,941 17,151
Total of Contracts
Outstanding (in 000's). . $ 13,352 $ 10,882 $ 11,334 $ 13,201 $ 13,955
Percent of Total Loans. . . 7% 6% 7% 8% 9%
Average Balance on
Outstanding Contracts . . $ 987 $ 856 $ 821 $ 828 $ 814
</TABLE>
-7-

LOANS ACQUIRED, LIQUIDATED AND OUTSTANDING

Year Ended December 31
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)

LOANS ACQUIRED
--------------
DIRECT CASH LOANS. . . . . . $233,445 $195,634 $177,844 $169,825 $164,034
REAL ESTATE LOANS. . . . . . 18,654 20,317 21,532 20,971 22,000
SALES FINANCE CONTRACTS. . . 16,910 14,360 13,943 16,131 17,676
NET BULK PURCHASES . . . . . 3,622 1,371 5,177 5,818 1,588
-------- -------- -------- -------- --------
TOTAL LOANS ACQUIRED . . . $272,631 $231,682 $218,496 $212,745 $205,298
======== ======== ======== ======== ========

LOANS LIQUIDATED
----------------
DIRECT CASH LOANS. . . . . . $212,638 $187,804 $174,643 $164,016 $152,694
REAL ESTATE LOANS. . . . . . 18,959 19,833 23,798 21,544 18,876
SALES FINANCE CONTRACTS. . . 16,549 15,065 16,901 17,904 19,736
-------- -------- -------- -------- --------
TOTAL LOANS LIQUIDATED . . $248,146 $222,702 $215,342 $203,464 $191,306
======== ======== ======== ======== ========

LOANS OUTSTANDING
-----------------
DIRECT CASH LOANS. . . . . . $153,170 $131,636 $123,039 $117,141 $107,960
REAL ESTATE LOANS. . . . . . 33,946 33,465 32,630 33,507 32,653
SALES FINANCE CONTRACTS. . . 13,352 10,882 11,334 13,201 13,955
-------- -------- -------- -------- --------
TOTAL LOANS OUTSTANDING. . $200,468 $175,983 $167,003 $163,849 $154,568
======== ======== ======== ======== ========

UNEARNED FINANCE CHARGES
------------------------
DIRECT CASH LOANS. . . . . . $ 20,281 $ 17,573 $ 16,062 $ 16,270 $ 17,030
REAL ESTATE LOANS. . . . . . 604 345 84 -- 12
SALES FINANCE CONTRACTS. . . 1,816 1,416 1,504 1,829 2,007
-------- -------- -------- -------- --------
TOTAL UNEARNED
FINANCE CHARGES. . . . . $ 22,701 $ 19,334 $ 17,650 $ 18,099 $ 19,049
======== ======== ======== ======== ========

-8-

DELINQUENCIES

We classify delinquent accounts at the end of each month according to the
number of installments past due at that time, based on the original or
extended terms of the contract. When 80% of an installment has been paid, we
do not consider the account delinquent for the purpose of this classification.
When three installments are past due, we classify the account as being 60-89
days past due; when four or more installments are past due we classify the
account as being 90 days or more past due.

The following table shows the amount of certain classifications of
delinquencies and the ratio such delinquencies bear to related outstanding
loans:

Year Ended December 31
--------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except % data)

DIRECT CASH LOANS:
60-89 Days Past Due. . . . . $3,161 $2,631 $2,593 $2,404 $1,914
Percentage of Outstanding. . 2.06% 2.00% 2.11% 2.05% 1.77%
90 Days or More Past Due . . $7,358 $6,358 $5,137 $5,419 $3,286
Percentage of Outstanding. . 4.80% 4.83% 4.18% 4.63% 3.04%

REAL ESTATE LOANS:
60-89 Days Past Due. . . . . $ 437 $ 335 $ 432 $ 426 $ 254
Percentage of Outstanding. . 1.29% 1.00% 1.33% 1.27% .78%
90 Days or More Past Due . . $1,343 $ 879 $ 932 $1,334 $1,196
Percentage of Outstanding. . 3.96% 2.63% 2.86% 3.98% 3.66%

SALES FINANCE CONTRACTS:
60-89 Days Past Due. . . . . $ 318 $ 187 $ 285 $ 339 $ 295
Percentage of Outstanding. . 2.38% 1.72% 2.52% 2.57% 2.11%
90 Days or More Past Due . . $ 554 $ 413 $ 439 $ 602 $ 463
Percentage of Outstanding. . 4.15% 3.80% 3.87% 4.56% 3.32%

-9-

<PAGE>
LOSS EXPERIENCE

Net losses (charge-offs less recoveries) and their percentage to the
average net loans (loans less unearned finance charges) and to the
liquidations (payments, refunds, renewals and charge-offs of customer's loans)
are shown in the following table:

Year Ended December 31
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except % data)

DIRECT CASH LOANS
-----------------
Average Net Loans. . . . $118,444 $106,502 $101,051 $ 92,489 $ 82,847
Liquidations . . . . . . $212,638 $187,804 $174,643 $164,016 $152,694
Net Losses . . . . . . . $ 6,800 $ 5,879 $ 5,992 $ 4,617 $ 3,753
Net Losses as % of
Average Net Loans. . . 5.74% 5.52% 5.93% 4.99% 4.53%
Net Losses as % of
Liquidations . . . . . 3.20% 3.13% 3.43% 2.81% 2.46%

REAL ESTATE LOANS
-----------------
Average Net Loans. . . . $ 33,315 $ 32,587 $ 33,066 $ 33,614 $ 31,050
Liquidations . . . . . . $ 18,959 $ 19,833 $ 23,798 $ 21,544 $ 18,876
Net Losses . . . . . . . $ 150 $ 94 $ 141 $ 49 $ 22
Net Losses as % of
Average Net Loans. . . .45% .29% .43% .15% .07%
Net Losses as % of
Liquidations . . . . . .79% .47% .59% .23% .12%

SALES FINANCE CONTRACTS
-----------------------
Average Net Loans. . . . $ 10,612 $ 9,514 $ 10,817 $ 11,640 $ 12,377
Liquidations . . . . . . $ 16,549 $ 15,065 $ 16,901 $ 17,904 $ 19,736
Net Losses . . . . . . . $ 347 $ 398 $ 714 $ 478 $ 434
Net Losses as % of
Average Net Loans. . . 3.27% 4.18% 6.60% 4.11% 3.51%
Net Losses as % of
Liquidations . . . . . 2.10% 2.64% 4.22% 2.67% 2.20%

ALLOWANCE FOR LOAN LOSSES

We determine the allowance for loan losses by reviewing our previous loss
experience, reviewing of specifically identified loans where collection is
doubtful and evaluating the inherent risks and change in the composition of
our loan portfolio. Such allowance is, in our opinion, sufficient to provide
adequate protection against probable loan losses on the current loan
portfolio. The allowance is maintained out of income, except in the case of
bulk purchases when it is provided in the allocation of the purchase price.

-10-

CREDIT INSURANCE
- ----------------
When a borrower authorizes us to so, we write various credit insurance
products in connection with the borrower's loan. We write such insurance as
an agent for a non-affiliated insurance company.

Frandisco Life Insurance Company and Frandisco Property and Casualty
Insurance Company, which are wholly owned subsidiaries of 1st Franklin,
reinsure the insurance written from the non-affiliated insurance company.

REGULATION AND SUPERVISION
- --------------------------
State laws require that each office in which a small loan business is
conducted be licensed by the state and that the business be conducted
according to the applicable statutes and regulations. The granting of a
license depends on the financial responsibility, character and fitness of the
applicant, and, where applicable, the applicant must show finding of a need
through convenience and advantage documentation. As a condition to obtaining
such license, the applicant must consent to state regulation and examination
and to the making of periodic reports to the appropriate governing agencies.
Licenses are revocable for cause, and their continuance depends upon
applicant's compliance with the laws and regulations that are applicable to
the applicant in connection with its receipt of a license. The Company has
never had any of its licenses revoked.

We conduct all of our lending operations under the provisions of the
Federal Consumer Credit Protection Act ("Truth-in-Lending Act"), the Fair
Credit Reporting Act and the Federal Real Estate Settlement Procedures Act.
The Truth-in-Lending Act requires us to disclose to our customers the finance
charge, the annual percentage rate, the total of payments and other
information on all loans.

A Federal Trade Commission ruling prevents us and other consumer lenders
from using certain household goods as collateral on direct cash loans. We
collateralize such loans with non-household goods such as automobiles, boats
and other exempt items.

We are also subject to state regulations governing insurance agents in
the states in which we sell credit insurance. State insurance regulations
require that insurance agents be licensed and limit the premium amount
insurance agents can charge.

-11-

SOURCE OF FUNDS
- ---------------
Our sources of funds stated as a % of total liabilities and stockholder's
equity and the number of persons investing in the Company's debt securities is
as follows:

Year Ended December 31
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Bank Borrowings. . . . . . . . . -% -% -% -% -%
Public Senior Debt . . . . . . . 50 48 49 49 52
Public Subordinated Debt . . . . 16 18 19 18 17
Other Liabilities. . . . . . . . 6 6 5 5 5
Stockholders' Equity . . . . . . 28 28 27 28 26
--- --- --- --- ---
Total. . . . . . . . . . . . . 100% 100% 100% 100% 100%
=== === === === ===

Number of Investors. . . . . . . 6,133 6,116 5,983 5,668 5,575

All of our common stock is held by five related individuals and is not
traded in an established public trading market.

The average interest rate we charge on borrowings, computed by dividing
the interest paid by the average indebtedness outstanding, has been as
follows:

Year Ended December 31
---------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Senior Borrowings. . . . . . . . 5.62% 6.09% 6.12% 6.29% 6.97%
Subordinated Borrowings. . . . . 6.25 6.23 6.58 6.86 6.92
All Borrowings . . . . . . . . . 5.79 6.13 6.25 6.67 6.96

Our financial ratios relating to debt are as follows:

At December 31
---------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total Liabilities to
Stockholders' Equity . . . . 2.52 2.53 2.68 2.59 2.81

Unsubordinated Debt to
Subordinated Debt plus
Stockholders' Equity . . . . 1.28 1.16 1.19 1.17 1.32

-12-

MANAGEMENT'S DISCUSSION OF OPERATIONS

Financial Condition:
- -------------------
The Company ended the 20th century with a record year! At the close of
1999, total assets of the Company were $227.1 million as compared to $216.7
million at the beginning of the year. Gross revenues reached $72.6 million
and net income from these revenues amounted to $7.7 million for the year.
Expansion of branch operations continued with the opening of eleven new
locations during the year, bringing the total to 177 offices.

Being a financial institution, the primary earning assets of the Company
are its loan receivables. Substantial growth occurred in the Company's loan
portfolio during the year just ended due to strong consumer demand. Net
receivables (gross receivables less unearned finance charges) increased $21.1
million during 1999, which was the primary factor driving the increase in
overall assets. Total number of loans being serviced at December 31, 1999
was 113,094 as compared to 103,634 at December 31, 1998, the majority of
which are small consumer loans with an average balance of $1,604. The
Company's goal is to be a major provider of credit to individuals and
families in the Southeastern United States. Management believes this is the
niche market for the services provided by the Company. No commercial loans
are extended in the normal course of business.

Also contributing to the increase in overall assets was a $6.7 million
(14%) growth in the Company's investment portfolio. Cash flows generated by
operations and from sales of Company debt securities outpaced funds required
for daily operations during 1999, thereby creating a surplus of cash. In
an attempt to maximize yield, Management invested the cash surplus in its
investment portfolio. Management maintains a conservative approach when
formulating its investment strategy. The Company does not participate in
hedging programs, interest rate swaps or other activities involving the use
of off-balance sheet derivative financial instruments. The investment
portfolio consists mainly of U.S. Treasury bonds, Government Agency bonds and
various municipal bonds. A significant portion of these investment securities
have been designated as "available for sale" with any unrealized gain or loss
accounted for in the Company's equity section, net of deferred income taxes
for those investments held by the insurance subsidiaries. The remainder of
the investment portfolio represents securities carried at amortized cost and
designated "held to maturity", as Management has both the ability and intent
to hold these securities to maturity. Management had previously reported a
higher increase in investment securities in its report for the nine months
ended September 30, 1999. However, volatility in the bond market during the
current year negatively impacted the investment portfolio as bond market
values declined $1.3 million, net of deferred taxes for those investments
held by the Company's insurance subsidiaries. Also, the Company liquidated
certain investments during the fourth quarter just ended to supplement
financing of the increase in the loan portfolio.

Cash and cash equivalents declined $14.2 million (71%) during 1999
mainly due to funds required to finance the aforementioned increase in the
loan portfolio. At year end, the Company also used an alternative source of
working capital by drawing on its credit line to help finance the loan
activity.

Results of Operations:
- ---------------------
As previously mentioned, gross revenues and net income reached record
levels during the year just ended. The higher lending activity during 1999
resulted in average net receivables increasing $13.8 million (9%) to $162.4
million during 1999 as compared to $148.6 million during 1998. Average net
receivables increased $3.7 million (3%) during 1998 as compared to 1997.
Revenues rose in each of the comparable periods as a direct result of the
higher levels of average net loans outstanding.

The rise in revenues and an improvement in the Company's cost efficiency
ratio were responsible for the increase in profits during the last two years.
During 1999, the cost efficiency ratio declined to 69.4% as compared to 70.0%
-13-

during 1998 and 71.9% during 1997. Low inflation and the low interest rate
environment during the last two years enabled Management to reduce the ratio.
The cost efficiency ratio measures operating expenses against total revenues
net of interest and insurance expenses.

Net Interest Income

Net interest income is the principal component in the composition of the
Company's net income. It represents the margin by which interest income on
earning assets (loans and investment securities) exceeds interest expense on
its interest-bearing debt. The margin increased $4.4 million (12%) during
1999 as compared to 1998 and $2.8 million (8%) during 1998 as compared to
1997. These increases in margin spreads were primarily due to the interest
income earned on the aforementioned higher levels of net receivables
outstanding and due to higher investment income.

Variations in interest expense were insignificant during the three-year
period ended December 31, 1999. Lower market rates of interest enabled the
Company to reduce average borrowing costs during the comparable periods even
though average senior and subordinated debt outstanding increased $11.4
million (8%) during 1999 as compared to 1998 and $3.3 million (2%) during
1998 as compared to 1997. Average interest rates on borrowings were 5.79%,
6.13% and 6.25% during the years ended December 31, 1999, 1998 and 1997,
respectively.

Net Insurance Income

The Company's insurance business plays an integral roll in the overall
income producing operations of the Company, second only to finance charges
earned. Changes in net insurance income generally correspond to changes in
the level of average net outstanding receivables. As average net receivables
increase, the Company typically sees an increase in the number of loan
customers requesting credit insurance, thereby leading to higher levels of
insurance in force. Higher levels of insurance in force generally results in
higher insurance income. Net insurance income rose $2.0 million (13%) during
1999 as compared to 1998 and $1.4 million (10%) during 1998 as compared to
1997. Claims and insurance commissions were slightly higher in 1999 as
compared to 1998 and 1997.

Provision for Loan Losses

The provision for loan losses increased $1.5 million (21%) to $8.5
million for the year just ended as compared to $7.0 million during 1998 and
$6.9 million in 1997. At December 31, 1999, the allowance for loan losses
was 4.50% of net receivables, up from 4.25% and 4.00% at December 31, 1998
and 1997, respectively. Management carefully monitors the credit worthiness
of its loan portfolio considering factors such as previous loss experience,
delinquency status, bankruptcy trends, the ability of the borrower to repay,
underlying collateral and changes in the size of the loan portfolio.
Additions are made to the loss allowance when Management deems it is
appropriate to protect against probable losses in the current portfolio.
During 1999, the increase in the provision and resulting increase in the
allowance for loan losses was attributable to a 15% increase in net charge-
offs, the substandial growth in the loan portfolio and an increase in loans
in non-accrual status. Loans in non-accrual status represent loans 60 days
or more deliquent and on which earnings no longer are accrued. At
December 31, 1999, there were $13.2 million of loans in non-accrual status
compared to $10.8 million and $9.8 million at December 31, 1998 and 1997,
respectively.

Higher recovery rates on loans previously charged off resulted in a
decline in net charge-offs during 1998 as compared to 1997. Although net
losses were lower, rising bankruptcies and problem delinquencies induced
Management to raise the loss allowance to provide for likely losses, which
resulted in a slight increase in the provision for loan losses when compared
to 1997.

Currently, Management believes the allowance for loan losses is
adequate to absorb losses. However, if conditions were to change, future
additions to the allowance may be necessary in order to provide adequate
protection against probable losses in the current portfolio.

Other Operating Expenses

The largest expense category the Company has is personnel expense,
which represented 46% of all expenses during 1999 and 44% in 1998. Increases
in the employee base required to staff the new locations and merit salary
-14-

increases caused personel expense to increase $3.2 million (15%) during the
year just ended as compared to 1998. During 1998 the same expense increased
$1.6 million (8%) as compared to 1997. Higher profits during each of the
last two years resulted in higher accruals for incentive bonuses and profit
sharing expenses, which also contributed to the overall increase in personnel
expense. Medical claims incurred by Company's employees health insurance
plan was another factor contributing to the increase in personnel expense in
1999 as compared to 1998. Medical claims increased 65% to $1.6 million
during the year just ended. Claims declined during the same period a year
ago compared to 1997.

Occupancy expenses increased approximately $.4 million or 7% in both
1999 and 1998 mainly due to start-up costs and additional overhead associated
with the expansion of branch operations. Increased rent expense on leases
renewed in existing offices was an additional contributing factor.

During 1999, other operating expenses rose $.7 million (7%) as compared
to 1998 mainly due to increases in advertising, collection expense, insurance
premiums, computer expenses, supplies, training and development and taxes and
licenses. These same categories (with the exception of training and
development) were also primarily responsible for the $.1 million (1%)
increase in other operating expenses during 1998 as compared to 1997. The
increase was much lower during 1998 due to a decline in legal expenses.
Legal expenses incurred in connection with the Alabama lawsuits added to the
increase in other operating expenses during 1997. Settlement agreements were
reached with certain borrowers who had previously asserted claims or had
stated their intention to file claims against the Company. Although the
Company and its employees deny any wrongdoing or any breach of a legal
obligation or duty to the claimants, Management, in recognition of the
expense and uncertainty of litigation, felt it was in the best interest of
the Company to dispose of those cases.

Income Taxes

Effective income tax rates for the years ended December 31, 1999, 1998
and 1997 were 19.8%, 18.0% and 73.1%, respectively. Rates rose slightly
during 1999 as a result of higher earnings by the insurance subsidiaries.
The rate was higher during 1997 as a result of the Company electing S
Corporation status for income tax reporting purposes effective January 1,
1997. The taxable income or loss of an S Corporation is includable in the
individual tax returns of the stockholders of the Company. Over the years
the Company had prepaid federal and state income taxes due to certain
temporary differences between reported income and expenses for financial
statement purposes and for income tax purposes. Election of S Corporation
status required elimination of all accumulated prepaid/deferred tax
assets and liabilities. Accordingly, deferred income tax assets and
liabilities were eliminated and no provisions for current and deferred income
taxes were made by the Company other than amounts related to prior years when
the Company was a taxable entity. Deferred income tax assets and liabilities
continue to be recognized and provisions for current and deferred income
taxes continue to be made by the Company's subsidiaries. The Company took a
one-time charge of approximately $3.6 million during the first quarter of
1997 to expense the previously deferred income tax asset which it was not
permitted to expense prior to election of becoming an S Corporation.

Certain tax benefits provided by law to life insurance companies
substantially reduce the effective tax rate of the Company's life insurance
subsidiary and thus decreases the Company's overall tax rate below statutory
rates. Investments in tax-exempt securities also allowed the Company's
property and casualty insurance subsidiary to reduce its effective tax rate
below statutory rates.

Liquidity:
- ---------
Liquidity is the ability of the Company to meet short-term financial
obligations, either through the collection of receivables or by generating
additional funds through liability management. Continued liquidity of the
Company is therefore dependent on the collection of its receivables, the sale
of debt securities that meet the investment requirements of the public and
the continued availability of unused bank credit from the Company's lenders.
The previously discussed increases in net cash flows during the year just
ended provided a positive effect on the Company's liquidity.

Most of the Company's loan portfolio is financed through public debt
securities which, because of redemption features, have a shorter average
maturity than the loan portfolio as a whole. The difference in maturities
may adversely affect liquidity if the Company does not continue to sell debt
securities at interest rates and terms that are responsive to the demands of
the marketplace or maintain sufficient unused bank borrowings.
-15-

In addition to the debt securities program, the Company has two external
sources of funds through its credit agreements. One agreement provides for
available borrowings of $21.0 million. At the end of 1999, the Company used
a portion of the credit line leaving approximately $20.0 million available as
compared to $21.0 million available at the end of 1998. The Company has an
additional $2.0 million credit agreement (all of which was available at
December 31, 1999 and 1998).

Liquidity was not adversely affected during the year just ended by the
aforementioned increase in accounts classified as 60 days or more delinquent.
The increase in the loan loss allowance also did not affect liquidity as the
allowance is maintained out of income; however, an increase in the loss rate
may have a material adverse effect on the Company's earnings.

Market Risk:
- -----------
Volatility of market rates of interest can impact the Company's
investment portfolio and the interest rates paid on its debt securities.
These exposures are monitored and managed by the Company as an integral part
of its overall cash management program. It is Management's goal to mitigate
any adverse effect movements in interest rates may have on the financial
condition and operations of the Company. The information in the table below
sumarizes the Company's risk associated with marketable debt securities and
debt obligations as of December 31, 1999. Rates associated with the
marketable debt securities represent weighted averages based on the coupon
rate of each individual security. No adjustment has been made to yield, even
though many of the investments are tax-exempt. For debt obligations, the
table presents principal cash flows and related weighted average interest
rates by contractual maturity dates. The structure of subordinated debenture
debt incorporates various interest adjustment periods which allows the holder
to redeem prior to the contractual maturity without penalty. It is expected
that actual maturities on certain debentures will be prior to the contractual
maturity. Management estimates the carrying value of senior and subordinated
debt approximates their fair values when compared to instruments of similar
type, terms and maturity.

Loans are excluded from the information below since interest rates
charged on loans are based on rates allowable under federal and state
guidelines. Management does not believe that changes in market interest
rates will significantly impact rates charged on loans. The Company has no
exposure to foreign currency risk.

Expected Fiscal Year of Maturity
-----------------------------------------------
2005 & Fair
2000 2001 2002 2003 2004 More Total Value
---- ---- ---- ---- ---- ---- ---- -----
(In millions)
Assets:
Marketable debt securities. . $ 4 $ 8 $ 8 $ 9 $ 7 $19 $55 $54
Average Interest Rate . . . . 5.3% 5.4% 5.2% 5.5% 5.7% 5.3% 5.4%
Liabilities:
Senior Debt:
Senior Notes . . . . . . . $65 - - - - - $65 $65
Average Interest Rate. . . 5.6% - - - - - 5.6%
Commercial Paper . . . . . $48 - - - - - $48 $48
Average Interest Rate. . . 6.3% - - - - - 6.3%
Notes Payable to Banks . . $ 1 - - - - - $ 1 $ 1
Average Interest Rate. . . 8.8% - - - - - 8.8%

Subordinated Debentures. . . $ 6 $ 8 $ 9 $12 - - $35 $35
Average Interest Rate. . 6.1% 5.9% 6.1% 6.0% - - 6.0%

Legal Proceedings:
- -----------------
There is a legal proceeding pending against the Company in Alabama
alleging that the Company's practice of inserting dispute resolution
provisions into its consumer lending documents and requiring consumers to
-16-

abide by such provisions violates the Equal Credit Opportunity Act.
Plaintiffs are seeking declaratory relief that they cannot be compelled to
forfeit their statutorily granted rights under the Truth-in-Lending Act and
other consumer protection laws. Management believes that the Company's
operations are in compliance with applicable laws and regulations and that
the action is without merit. The Company is diligently contesting and
defending against this proceeding. Based on current information available,
Management is unable to predict the potential outcome of this matter or its
impact on the Company's financial condition or business operations.

Year 2000 Issues:
- ----------------
In the Company's 1998 Annual Report and subsequent 1999 quarterly
reports to investors, Management discussed preparations being undertaken to
insure the Company was Year 2000 compliant. Management closely adhered to
the Interagency Guidelines Establishing Year 2000 Standards for Safety and
Soundness which set forth safety and soundness standards pursuant to the
Federal Financial Institutions Examination Council ("FFIEC"). All
information technology ("IT") systems and non-IT systems were tested prior
to the end of 1999. In addition, contingency plans were formulated as a
safeguard in the event of system failures.

The Company did not experience any significant malfunctions or errors in
its operations or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact on its on-going business as a result of the "Year 2000
issue". However, it is possible that the full impact of the date change,
which was of concern due to computer programs that use two digits instead of
four digits to define years, has not been fully recognized. For example, it
is possible that Year 2000 or similiar issues such as leap year related
problems may occur with billing, payroll or financial closings at month,
quarterly or year end. The Company believes that any such problems are
likely to be minor and correctible. In addition, the Company could still be
negatively impacted if its third party suppliers are adversely affected by
the Year 2000 or similar problems that have arisen for its third party
suppliers. The Company will continue to monitor Mission Critical
applications of the Company and third party suppliers throughout the current
year.

The Company expended $28,214 on Year 2000 readiness efforts in 1999.
Management projects expenditures of an additional $10,000 for such efforts
during 2000.

New Accounting Standards:
- ------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income", effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The Company adopted SFAS 130 during 1998.

Also in June 1997, the FASB issued SFAS No. 131 "Disclosure about
Segments of an Enterprise and Related Information," effective for financial
statements beginning after December 15, 1997. This statement requires
companies to determine segments based on how management makes decisions about
allocating resources to segments and measuring their performance.
Disclosures for each segment are similar to those required under current
standards, with the addition of certain quarterly disclosure requirements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company adopted this
accounting standard in 1998 and disclosure is provided in Note 10 of Notes
to Consolidated Financial Statements.

During the first quarter of 1998, the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") No. 98-1, "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use." SOP
No. 98-1 requires capitalization of computer software costs that meet certain
criteria. The statement is effective for fiscal years beginning after
December 15, 1998. The Company adopted SOP No. 98-1 effective January 1,
1999. SOP No. 98-1 did not have a material impact on the Company's financial
position or results of operations.

on the balance sheet as assets and liabilities at fair value. The Statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137 whereby the adoption of SFAS No. 133
was deferred to fiscal years beginning after June 15, 2000. The Company is
evaluating the impact of FASB No. 133 on the Company's future earnings and
financial position but does not expect it to be material.

Forward Looking Statements:
- --------------------------
Certain information in the previous discussion and other statements
contained in this annual report which are not historical facts may be
forward-looking statements that involve risks and uncertainties. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements
contained herein. Possible factors which could cause future results to
differ from expectations are, but are not limited to, adverse economic
conditions including the interest rate environment, federal and state
regulatory changes, unfavorable outcome of litigation, Year 2000 issues
and other factors referenced elsewhere.

MANAGEMENT'S REPORT

The accompanying financial statements were prepared in accordance with
generally accepted accounting principles by the management of the Company who
assumes responsibility for their integrity and reliability.

The Company maintains a system of internal accounting controls which is
supported by a program of internal audits with appropriate management follow-
up action. The integrity of the financial accounting system is based on
careful selection and training of qualified personnel, on organizational
arrangements which provide for appropriate division of responsibilities and
on the communication of established written policies and procedures.

The financial statements of the Company have been audited by Arthur
Andersen LLP, independent public accountants. Their report expresses their
opinion as to the fair presentation of the financial statements and is based
upon their independent audit conducted in accordance with generally accepted
auditing standards.

The Company's Audit Committee, comprised solely of outside directors,
meets periodically with the independent public accountants, the internal
auditors and representatives of management to discuss auditing and financial
reporting matters. The independent public accountants have free access to
meet with the Audit Committee without management representatives present to
discuss the scope and results of their audit and their opinions on the
quality of financial reporting.

-18-

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO 1st FRANKLIN FINANCIAL CORPORATION:

We have audited the accompanying consolidated statements of financial
position of 1ST FRANKLIN FINANCIAL CORPORATION (a Georgia corporation) AND
SUBSIDIARIES as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of 1st Franklin
Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

s/ ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 29, 2000

-19-

1st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 1999 AND 1998

ASSETS

1999 1998
---- ----
CASH AND CASH EQUIVALENTS:
Cash and Due From Banks. . . . . . . . . . $ 2,176,494 $ 2,408,142
Short-term Investments,
$300,000 in trust in 1999
and 1998 (Note 4). . . . . . . . . . . . 3,738,041 17,703,536
------------ ------------
5,914,535 20,111,678
------------ ------------
LOANS (Note 2):
Direct Cash Loans. . . . . . . . . . . . . 153,169,782 131,635,924
First Mortgage Real Estate Loans . . . . . 28,453,054 27,852,628
Second Mortgage Real Estate Loans. . . . . 5,493,409 5,612,540
Sales Finance Contracts. . . . . . . . . . 13,352,067 10,881,849
------------ ------------
200,468,312 175,982,941

Less: Unearned Finance Charges . . . . . . 22,701,162 19,334,116
Unearned Insurance Premiums
and Commissions. . . . . . . . . . 13,648,715 11,446,901
Allowance for Loan Losses. . . . . . 7,994,102 6,653,763
------------ ------------
Net Loans. . . . . . . . . . . . 156,124,333 138,548,161
------------ ------------

MARKETABLE DEBT SECURITIES (Note 3):
Available for Sale, at fair market value . 47,127,780 39,938,412
Held to Maturity, at amortized cost. . . . 6,734,286 7,205,113
------------ ------------
53,862,066 47,143,525
------------ ------------
OTHER ASSETS:
Land, Buildings, Equipment and Leasehold
Improvements, less accumulated
depreciation and amortization of
$9,155,863 and $8,382,863 in 1999 and
1998, respectively . . . . . . . . . . . 4,556,988 4,687,343
Due from Nonaffiliated Insurance Company . 1,205,895 1,038,554
Miscellaneous. . . . . . . . . . . . . . . 5,474,243 5,145,649
------------ ------------
11,237,126 10,871,546
------------ ------------

TOTAL ASSETS . . . . . . . $227,138,060 $216,674,910
============ ============

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-20-

1st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 1999 AND 1998

LIABILITIES AND STOCKHOLDERS' EQUITY

1999 1998
---- ----
SENIOR DEBT (Note 5):
Senior Demand Notes, including
accrued interest . . . . . . . . . . . . $ 64,930,179 $ 54,819,670
Commercial Paper . . . . . . . . . . . . . 47,994,462 49,626,360
Notes Payable to Banks . . . . . . . . . . 965,000 --
------------- ------------
113,889,641 104,446,030
------------- ------------

ACCOUNTS PAYABLE AND ACCRUED EXPENSES. . . . 13,461,731 11,904,342
------------- ------------

SUBORDINATED DEBT (Note 6) . . . . . . . . . 35,246,639 38,960,747
------------- ------------

Total Liabilities . . . . . . . 162,598,011 155,311,119
------------- -----------

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY:
Preferred Stock; $100 par value
6,000 shares authorized; no shares
outstanding. . . . . . . . . . . . . . -- --
Common Stock:
Voting Shares; $100 par value;
2,000 shares authorized; 1,700
shares outstanding . . . . . . . . . . 170,000 170,000
Non-Voting Shares; no par value;
198,000 shares authorized;
168,300 shares outstanding as
of December 31, 1999 and 1998. . . . . -- --
Accumulated Other
Comprehensive (Loss) Income . . . . . . (780,772) 556,423
Retained Earnings . . . . . . . . . . . . 65,150,821 60,637,368
------------ ------------
Total Stockholders' Equity. . . 64,540,049 61,363,791
------------ ------------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. . . $227,138,060 $216,674,910
============ ============

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-21-

1st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1999 1998 1997
---- ---- ----
INTEREST INCOME:
Finance Charges . . . . . . . . $47,215,543 $42,688,691 $40,030,163
Investment Income . . . . . . . 3,436,214 3,323,660 3,241,054
----------- ----------- -----------
50,651,757 46,012,351 43,271,217
INTEREST EXPENSE: ----------- ----------- -----------
Senior Debt . . . . . . . . . . 6,353,046 5,966,615 6,128,495
Subordinated Debt . . . . . . . 2,567,428 2,756,586 2,672,987
----------- ----------- -----------
8,920,474 8,723,201 8,801,482
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . 41,731,283 37,289,150 34,469,735

PROVISION FOR
LOAN LOSSES (Note 2). . . . . . 8,523,311 7,031,251 6,915,794
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . 33,207,972 30,257,899 27,553,941
----------- ----------- -----------
NET INSURANCE INCOME:
Premiums and Commissions. . . . 21,323,182 19,080,146 17,655,350
Insurance Claims and Expenses . (4,305,860) (4,079,280) (4,077,775)
----------- ----------- -----------
17,017,322 15,000,866 13,577,575
----------- ----------- -----------
OTHER REVENUE (Note 8). . . . . . 666,289 590,924 571,837
----------- ----------- -----------
OPERATING EXPENSES (Note 8):
Personnel Expense . . . . . . . 25,091,643 21,884,828 20,330,220
Occupancy Expense . . . . . . . 5,787,269 5,424,248 5,084,344
Other Expense . . . . . . . . . 10,349,695 9,682,014 9,544,449
----------- ----------- -----------
41,228,607 36,991,090 34,959,013
----------- ----------- -----------
INCOME BEFORE INCOME TAXES. . . . 9,662,959 8,858,599 6,744,340

PROVISION FOR
INCOME TAXES (Note 9) . . . . . 1,915,456 1,590,814 4,928,030
----------- ----------- -----------
NET INCOME. . . . . . . . . . . . $ 7,747,503 $ 7,267,785 $ 1,816,310
=========== =========== ===========

EARNINGS PER SHARE
Voting Common Stock; 1,700
Shares Outstanding
all periods . . . . . . . . . $45.57 $42.75 $10.68
Non-Voting Common Stock; ====== ====== ======
168,300 Shares Outstanding
all periods . . . . . . . . . $45.57 $42.75 $10.68
====== ====== ======

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-22-

1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
----------------- Retained Comprehensive
Shares Amount Earnings Income Total
------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996. . . . . . 170,000 $170,000 $53,200,768 $ 43,288 $53,414,056

Comprehensive Income:
Net Income for 1997 . . . . . . . . -- -- 1,816,310 --
Net change in unrealized gain on
available-for-sale securities . . -- -- -- 299,522
Total Comprehensive Income. . . . . . -- -- -- -- 2,115,832
Cash distributions paid . . . . . . . -- -- (795,739) -- (795,739)
------- -------- ----------- ---------- -----------
Balance at December 31, 1997. . . . . . 170,000 170,000 54,221,339 342,810 54,734,149

Comprehensive Income:
Net Income for 1998 . . . . . . . . . -- -- 7,267,785 --
Net change in unrealized gain on
available-for-sale securities . . . -- -- -- 213,613
Total Comprehensive Income. . . . . . -- -- -- -- 7,481,398
Cash distributions paid . . . . . . . -- -- (851,756) -- (851,756)
------- -------- ----------- ---------- -----------
Balance at December 31, 1998. . . . . . 170,000 170,000 60,637,368 556,423 61,363,791

Comprehensive Income:
Net Income for 1999 . . . . . . . . . -- -- 7,747,503 --
Net change in unrealized gain on
available-for-sale securities . . . -- -- -- (1,337,195)
Total Comprehensive Income. . . . . . -- -- -- -- 6,410,308
Cash distributions paid . . . . . . . -- -- (3,234,050) -- (3,234,050)
------- -------- ----------- --------- -----------
Balance at December 31, 1999. . . . . . 170,000 $170,000 $65,150,821 $(780,772) $64,540,049
======= ======== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Disclosure of reclassification amount:
- -------------------------------------
Unrealized holding gains (losses) arising during period,
net of applicable income taxes. . . . . . . . . . . . . $(1,337,804) $ 224,200 $ 299,636

Less: Reclassification adjustment for (gains)
losses included in income, net of applicable
income taxes. . . . . . . . . . . . . . . . . . . . (609) (10,587) (114)
----------- --------- -----------
Net unrealized gains (losses) on securities,
net of applicable income taxes. . . . . . . . . . . . . $(1,337,195) $ 213,613 $ 299,522
=========== ========= ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

-23-

<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C> <C>
Net Income. . . . . . . . . . . . . . . . . . . $ 7,747,503 $ 7,267,785 $ 1,816,310
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses . . . . . . . . . 8,523,311 7,031,251 6,915,794
Depreciation and Amortization . . . . . . . 1,231,641 1,253,361 1,202,836
Provision for Deferred Taxes. . . . . . . . 267,506 115,929 3,661,156
Gain (Loss) on sale of marketable
securities and equipment and premium
amortization on securities. . . . . . . . 177,891 41,872 (12,492)
Increase in Miscellaneous Assets. . . . . . (495,935) (672,382) (285,244)
Increase in Other Liabilities . . . . . . . 1,577,374 1,484,998 67,560
------------ ------------ ------------
Net Cash Provided . . . . . . . . . . . 19,029,291 16,522,814 13,365,920
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased . . . . . . . . . (137,821,710) (118,900,788) (114,175,268)
Loan payments . . . . . . . . . . . . . . . . . 111,722,227 106,022,624 104,242,345
Purchases of marketable securities. . . . . . . (21,998,803) (32,709,322) (28,845,752)
Sales of marketable securities. . . . . . . . . 7,047,365 66,658 --
Redemptions of marketable securities. . . . . . 5,790,000 18,235,000 19,645,000
Principal payments on marketable securities . . 630,367 411,562 365,678
Capital expenditures. . . . . . . . . . . . . . (1,137,906) (1,063,006) (2,677,986)
Proceeds from sale of equipment . . . . . . . . 46,573 25,146 71,370
------------ ------------ ------------
Net Cash Used . . . . . . . . . . . . . (35,721,887) (27,912,126) (21,374,613)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Notes Payable to
Banks and Senior Demand Notes . . . . . . . . 11,075,509 3,750,528 5,291,424
Commercial Paper issued . . . . . . . . . . . . 26,284,371 25,385,223 29,816,406
Commercial Paper redeemed . . . . . . . . . . . (27,916,269) (23,619,308) (30,918,084)
Subordinated Debt issued. . . . . . . . . . . . 5,215,536 6,841,431 6,877,593
Subordinated Debt redeemed. . . . . . . . . . . (8,929,644) (5,127,205) (4,573,535)
Dividends / Distributions Paid. . . . . . . . . (3,234,050) (851,756) (795,739)
------------ ------------ ------------
Net Cash Provided . . . . . . . . . . . 2,495,453 6,378,913 5,698,065
------------ ------------ ------------
NET DECREASE IN
CASH AND CASH EQUIVALENTS . . . . . . . . . . . (14,197,143) (5,010,399) (2,310,628)

CASH AND CASH EQUIVALENTS, beginning. . . . . . . 20,111,678 25,122,077 27,432,705
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ending . . . . . . . . $ 5,914,535 $ 20,111,678 $ 25,122,077
============ ============ ============

Cash paid during the year for: Interest . . . . . $ 8,894,887 $ 8,837,764 $ 8,670,194
Income Taxes . . . $ 1,650,743 $ 1,391,790 $ 1,550,958
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-24-

1st FRANKLIN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business:
1st Franklin Financial Corporation (the "Company") is a consumer finance
company which acquires and services direct cash loans, real estate loans and
sales finance contracts through 177 branch offices. (See inside front cover
for branch office locations.)

Basis of Consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

Fair Values of Financial Instruments:

The following methods and assumptions are used by the Company in
estimating fair values for financial instruments:

Cash and Cash Equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the relatively short period
of time between the origination of the instruments and their expected
realization.

Loans. The fair value of the Company's direct cash loans and sales
finance contracts approximate the carrying value since the estimated
life, assuming prepayments, is short-term in nature. The fair value
of the Company's real estate loans approximate the carrying value
since the rate charged by the Company approximates market.

Marketable Debt Securities. The fair values for marketable debt
securities are based on quoted market prices. If a quoted market
price is not available, fair value is estimated using market prices
for similar securities. See Note 3 for the fair value of marketable
debt securities.

Senior Debt. The carrying value of the Company's senior debt
approximates fair value due to the relatively short period of time
between the origination of the instruments and their expected payment.

Subordinated Debt. The carrying value of the Company's subordinated
debt approximates fair value due to the repricing frequency of the debt.

Other significant assets and liabilities, which are not considered financial
instruments and for which fair values have not been estimated, include
premises and equipment and deferred taxes.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 1999. The Statement requires companies to record derivatives
on the balance sheet as assets and liabilities at fair value. The Statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137 whereby the adoption of SFAS No. 133
was deferred to fiscal years beginning after June 15, 2000. The Company is
evaluating the impact of FASB No. 133 on the Company's future earnings and
financial position but does not expect it to be material.

Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
-25-

the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates, however, in the opinion of Management, such variances would not
be material.

Income Recognition:
Although generally accepted accounting principles require other methods
to be used for income recognition, the Company uses the Rule of 78's method
to recognize interest and insurance income on loans which have precomputed
charges. Since the majority of these loans are paid off or renewed in less
than one year and because the interest and insurance charges are contractually
rebated using the Rule of 78's method, the results obtained by using the Rule
of 78's closely approximate those that would be obtained if other generally
accepted methods were used.

Finance charges are precomputed and included in the gross amount of
certain direct cash loans, sales finance contracts and certain real estate
loans. These precomputed charges are deferred and recognized as income on
an accrual basis using the Rule of 78's (which approximates the interest
method). Finance charges on the other direct cash loans and real estate
loans are recognized as income on a simple interest accrual basis. Income
is not accrued on a loan that is more than 60 days past due.

When material, the Company defers loan fees and recognizes them as an
adjustment to yield over the contractual life of the related loan. The
Company's method of accounting for such fees does not materially differ from
generally accepted accounting principles for such fees.

The property and casualty credit insurance policies written by the
Company are reinsured by the property and casualty insurance subsidiary.
The premiums are deferred and earned on a Rule of 78's basis (which
approximates the pro-rata method).

The credit life and accident and health policies written by the Company
are reinsured by the life insurance subsidiary. The premiums are deferred
and earned using the pro-rata method for level-term life policies, the Rule
of 78's (which approximates the pro-rata method) for decreasing-term life
policies and an average of the pro-rata method and Rule of 78's for accident
and health policies.

Claims of the insurance subsidiaries are expensed as incurred and
reserves are established for incurred but not reported (IBNR) claims.

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

Depreciation and Amortization:
Office machines, equipment and company automobiles are recorded at cost
and depreciated on a straight-line basis over a period of three to ten years.
Leasehold improvements are amortized over seven years using the double
declining method for book and tax.

Income Taxes:
No provision for income taxes has been made for the Company since it
elected S Corporation status in 1997. The Company's insurance subsidiaries
remain taxable and income taxes are provided where applicable (Note 9).

Collateral Held for Resale:
When the Company takes possession of the collateral which secures a loan,
the collateral is recorded at the lower of its estimated resale value or the
loan balance. Any losses incurred at that time are charged against the
Allowance for Loan Losses.

Bulk Purchases:
A bulk purchase is a group of loans purchased by the Company from another
lender. Bulk purchases are recorded at the outstanding loan balance and an
allowance for losses is established in accordance with management's
evaluation of the specific loans purchased and their comparability to similar
type loans in the Company's existing portfolio.
-26-

For loans with precomputed charges, unearned finance charges are also
recorded based on the Rule of 78's (which approximates the interest method).
Any difference between the purchase price of the loans and their net balance
(outstanding balance less allowance for losses and unearned finance charges)
is amortized or accreted to income over the estimated average life of the
loans purchased.

Marketable Debt Securities:
Management has designated a significant portion of the marketable debt
securities held in the Company's investment portfolio at December 31, 1999
and 1998 as being available-for-sale. This portion of the investment
portfolio is reported at fair market value with unrealized gains and losses
excluded from earnings and reported, net of taxes, in accumulated other
comprehensive income which is a separate component of stockholders' equity.
The remainder of the investment portfolio is carried at amortized cost and
designated as held-to-maturity as Management has both the ability and intent
to hold these securities to maturity.

Stock Dividend:
On January 26, 1996, the Company paid a stock dividend of 99 shares of
Non-Voting Common Stock for each outstanding share of Voting Common Stock.
The Non-Voting Common Stock has terms similar to the Company's Voting Common
Stock, other than its non-voting status. The consolidated financial
statements for prior periods have been adjusted to reflect the effect of
this dividend. All references to common shares and per share information
have been restated to reflect the stock dividend.

Earnings per Share Information:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share",
that specifies the computation, presentation and disclosure requirements for
earnings per share. The Company adopted the new Standard in the quarter
ended December 31, 1997. The Company has no contingently issuable common
shares, thus basic and diluted share amounts are the same.

2. LOANS

The Company held $13,169,809 and $10,804,227 of loans in a non-accrual
status at December 31, 1999 and 1998, respectively.

Contractual Maturities of Loans:
An estimate of contractual maturities stated as a percentage of the loan
balances based upon an analysis of the Company's portfolio as of December 31,
1999 is as follows:

Direct 1st Mortgage 2nd Mortgage Sales
Due In Cash Real Estate Real Estate Finance
Calendar Year Loans Loans Loans Contracts
------------- ----- ----- ----- ---------
2000. . . . . . 72.11% 19.25% 19.87% 72.87%
2001. . . . . . 24.84 18.75 20.35 22.29
2002. . . . . . 2.23 16.54 18.31 4.36
2003. . . . . . .46 12.71 14.89 .40
2004. . . . . . .13 9.50 10.46 .06
2005 & later. . .23 23.25 16.12 .02
------ ------ ------ -------
100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======

Experience of the Company has shown that a majority of its loans will be
renewed many months prior to their final contractual maturity dates.
Accordingly, the above contractual maturities should not be
regarded as a forecast of future cash collections.

Cash Collections on Principal:
During the years ended December 31, 1999 and 1998, cash collections
applied to principal of loans totaled $111,722,227 and $106,022,624,
respectively, and the ratios of these cash collections to average net
receivables were 68.81% and 71.35%, respectively.
-27-

Allowance for Loan Losses:
The Allowance for Loan Losses is based on the Company's previous loss
experience, a review of specifically identified loans where collection is
doubtful and Management's evaluation of the inherent risks and changes in
the composition of the Company's loan portfolio. Such allowance is, in the
opinion of Management, sufficient to provide adequate protection against
probable losses in the current loan portfolio. Specific provision for loan
losses is made for impaired loans based on a comparison of the recorded
carrying value in the loan to either the present value of the loan's
expected cash flow, the loan's estimated market price or the estimated fair
value of the underlying collateral.

When a loan becomes five installments past due, it is charged off unless
management directs that it be retained as an active loan. In making this
charge off evaluation, no installment is counted as being past due if at
least 80% of the contractual payment has been paid. The amount charged off
is the unpaid balance less the unearned finance charges and the unearned
insurance premiums.

An analysis of the allowance for the years ended December 31, 1999, 1998
and 1997 is shown in the following table:

1999 1998 1997
---- ---- ----
Beginning Balance . . . . . . . $6,653,763 $5,968,818 $5,753,221
Provision for Loan Losses . . 8,523,311 7,031,251 6,915,794
Bulk Purchase Accounts. . . . 114,326 24,663 146,606
Charge-Offs . . . . . . . . . (9,699,044) (8,503,698) (8,257,856)
Recoveries. . . . . . . . . . 2,401,746 2,132,729 1,411,053
---------- ---------- ----------
Ending Balance. . . . . . . . . $7,994,102 $6,653,763 $5,968,818
========== ========== ==========

3. MARKETABLE DEBT SECURITIES

Debt securities available for sale are carried at estimated fair market
value. The amortized cost and estimated fair market values of these debt
securities are as follows:

Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
December 31, 1999: ---- ----- ------ -----
U.S. Treasury Securities
and obligations of
U.S. government
corporations and agencies . $15,171,646 $ 8,237 $ (315,592) $14,864,291
Obligations of states and
political subdivisions. . . 30,818,183 125,416 (612,731) 30,330,868
Corporate Securities. . . . . 2,035,316 -- (102,695) 1,932,621
----------- -------- ----------- -----------
$48,025,145 $133,653 $(1,031,018) $47,127,780
=========== ======== =========== ===========
December 31, 1998:
U.S. Treasury Securities
and obligations of
U.S. government
corporations and agencies . $ 9,423,166 $106,662 $ (6,110) $ 9,523,718
Obligations of states and
political subdivisions. . . 28,321,157 641,761 (35,788) 28,927,130
Corporate Securities. . . . . 1,466,768 21,421 (625) 1,487,564
----------- -------- ----------- -----------
$39,211,091 $769,844 $ (42,523) $39,938,412
=========== ======== =========== ===========
-28-

Debt securities designated as "Held to Maturity" are carried at amortized
cost based on Management's intent to hold such securities to maturity. The
amortized cost and estimated fair market values of these debt securities
are as follows:

December 31, 1998:
U.S. Treasury Securities
and obligations of
U.S. government
corporations and agencies . $ 2,756,782 $ 33,843 $ -- $ 2,790,625
Obligations of states and
political subdivisions. . . 3,663,617 52,835 -- 3,716,452
Corporate Securities. . . . . 784,714 25,470 (2,430) 807,754
----------- -------- ---------- -----------
$ 7,205,113 $112,148 $ (2,430) $ 7,314,831
=========== ======== ========== ===========

The amortized cost and estimated fair market values of marketable debt
securities at December 31, 1999, by contractual maturity, are shown below:

Available for Sale Held to Maturity
------------------------ ----------------------
Estimated Estimated
Amortized Fair Market Amortized Fair Market
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less . . $ 4,788,827 $ 4,767,860 $1,631,148 $1,621,874
Due after one year
through five years. . . . 30,906,278 30,349,864 1,645,142 1,606,509
Due after five years
through ten years . . . . 11,543,415 11,227,190 2,860,706 2,753,477
Due after ten years . . . . 786,625 782,866 597,290 554,256
----------- ----------- ---------- ----------
$48,025,145 $47,127,780 $6,734,286 $6,536,116
=========== =========== ========== ==========

Sales of investments in debt securities available-for-sale during 1999
generated proceeds of $7,047,366. Gross gains of $7,882 and gross losses of
$(7,946) were realized on these sales. Proceeds from redemptions of
investment securities due to call provisions and redemptions due to regular
scheduled maturities during 1999 were $6,420,368. Gross gains of $904 were
realized on these redemptions. There were no proceeds generated due to
sales of investment securities.

Sales of investments in debt securities available-for-sale during 1998
generated proceeds of $66,658 and a gain of $977. Proceeds from redemptions
of investment securities due to call provisions and redemptions due to
regular scheduled maturities during 1998 were $18,235,000. Gross gains of
$13,278 and gross losses of $(2,258) were realized on these redemptions.
There were no proceeds generated due to sales of investment securities.

Proceeds from sales of investments in debt securities available for sale
during 1997 were $19,645,000. Gross gains of $2,837 and gross losses of
$(3,782) were realized on these sales.
-29-

4. PLEDGED ASSETS

At December 31, 1999, certain short-term investments of the insurance
subsidiaries were on deposit with the Georgia Insurance Commissioner to meet
the deposit requirements of Georgia insurance laws.

5. SENIOR DEBT

The Company has a Credit Agreement with three major banks which provides
for maximum borrowings of $21,000,000. All borrowings are on an unsecured
basis at 1/4% above the prime rate of interest. An annual facility fee is
paid quarterly based on 5/8% of the available line less the average borrowings
during the quarter. In addition, an agent fee equal to 1/8% per annum of the
total loan commitment is paid quarterly. Borrowings against the credit line
were $965,000 at December 31, 1999.

The Credit Agreement has a commitment termination date of June 30 in any
year in which written notice of termination is given by the banks. If
written notice is given in accordance with the agreement, the outstanding
balance of the loans shall be paid in full on the date which is three and
one half years after the commitment termination date. The banks also may
terminate the agreement upon the violation of any of the financial ratio
requirements or covenants contained in the agreement or in June of any
calendar year if the financial condition of the Company becomes
unsatisfactory to the banks. Such financial ratio requirements include a
minimum equity requirement, an interest expense coverage ratio and a minimum
debt to equity ratio.

The Company has an additional Credit Agreement for $2,000,000 which is
used for general operating purposes. This agreement provides for borrowings
on an unsecured basis at 1/8% above the prime rate of interest and has a
termination date of July 1, 2000.

The Senior Demand Notes are unsecured obligations which are payable on
demand. The interest rate payable on any Senior Demand Note is a variable
rate, compounded daily, established from time to time by the Company.

Commercial Paper is issued by the Company in amounts in excess of
$50,000, with maturities of less than 270 days and at negotiable interest
rates.

Additional data related to the Company's senior debt is as follows:

Weighted
Average Maximum Average Weighted
Interest Amount Amount Average
Year Ended Rate at end Outstanding Outstanding Interest Rate
December 31 of Year During Year During Year During Year
- ----------- ------- ----------- ----------- -----------
(In thousands, except % data)
1999:
Bank . . . . . . . . . 8.75% $ 1,350 $ 25 8.75%
Senior Notes . . . . . 5.59 64,930 58,366 5.21
Commercial Paper . . . 6.32 56,997 53,615 6.10
All Categories . . . 5.92 116,603 112,055 5.64

1998:
Bank . . . . . . . . . .--% $ 192 $ 156 5.95%
Senior Notes . . . . . 5.13 54,820 52,801 5.61
Commercial Paper . . . 6.18 49,626 46,725 6.37
All Categories . . . 5.63 104,446 99,682 5.97

1997:
Bank . . . . . . . . . 5.95% $ 241 $ 217 5.95%
Senior Notes . . . . . 5.92 52,383 47,814 5.92
Commercial Paper . . . 6.52 53,372 50,164 6.52
All Categories . . . 6.21 101,302 98,195 6.23
-30-

6. SUBORDINATED DEBT

The payment of the principal and interest on the subordinated debt is
subordinate and junior in right of payment to all unsubordinated indebtedness
of the Company.

Subordinated debt consists of Variable Rate Subordinated Debentures
which mature four years after date of issue. The maturity date is
automatically extended for an additional four years unless the holder or the
Company redeems the debenture on its original maturity date. The debentures
have various minimum purchase amounts with varying interest rates and
interest adjustment periods for each respective minimum purchase amount.
Interest rates on the debentures are adjusted at the end of each adjustment
period. The debentures may be redeemed by the holder at the applicable
interest adjustment date without penalty. Redemptions at any other time are
subject to an interest penalty. The Company may redeem the debentures for a
price equal to 100% of the principal.

Interest rate information on the Subordinated Debt at December 31 is as
follows:

Weighted Average Rate at Weighted Average Rate
End of Year During Year
------------------------ ---------------------
1999 1998 1997 1998 1998 1997

6.01% 6.39% 6.61% 6.10% 6.52% 6.68%

Maturity information on the Company's Subordinated Debt at December 31,
1999 is as follows:
Amount Maturing
---------------------------------------
Based on Maturity Based on Interest
Date Adjustment Period
----------------- -----------------
2000. . . . . . . $ 6,059,083 $25,291,269
2001. . . . . . . 7,597,108 8,444,898
2002. . . . . . . 9,107,490 559,516
2003. . . . . . . 12,482,958 950,956
----------- -----------
$35,246,639 $35,246,639
=========== ===========

7. COMMITMENTS AND CONTINGENCIES

The Company's operations are carried on in locations which are occupied
under lease agreements. The lease agreements usually provide for a lease
term of five years with a renewal option for an additional five years. Rent
expense was $2,236,708, $1,996,393 and $1,807,899 for the years ended
December 31, 1999, 1998 and 1997, respectively. Under the existing
noncancelable leases, the Company's minimum aggregate rental commitment at
December 31, 1999, amounts to $2,233,302 for 2000, $1,783,112 for 2001,
$1,253,371 for 2002, $806,746 for 2003, $647,778 for 2004 and $49,290 for
the year 2005 and beyond. The total commitment is $6,773,599.

There is a legal proceeding pending against the Company in Alabama
alleging that the Company's practice of inserting dispute resolution
provisions into its consumer lending documents and requiring consumers to
abide by such provisions violates the Equal Credit Opportunity Act.
Plaintiffs re seeking declaratory relief that they cannot be compelled to
forfeit their statutorily granted rights under the Truth-in-Lending Act and
other consumer protection laws. Management believes that the Company's
operations are in compliance with applicable laws and regulations and that
the action is without merit. The Company is diligently contesting and
defending against this proceeding. Management is unable to predict the
potential outcome of this matter or its impact on the Company's financial
condition or business operations.
-31-

8. RELATED PARTY TRANSACTIONS

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 in 1999, 1998 and 1997 related to these agreements was $67,800,
$63,800 and $63,800, respectively, 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
$5,000 per month, which in Management's opinion is at a rate which
approximates that obtainable from independent third parties.

At December 31, 1999, the Company maintained $1,000,000 of certificates
of deposit with Liberty at market rates and terms. The Company also had
$1,851,894 in demand deposits with Liberty at December 31, 1999.

The Company leases a portion of its properties (see Note 7) for an
aggregate of $13,250 per month from certain officers or stockholders. In
Management's opinion, these leases are at rates which approximate those
obtainable from independent third parties.

During 1999, a loan was extended to a real estate development partnership
of which one of the Company's stockholders is a partner. The balance on this
commercial loan (including accrued interest) was $1,672,179 at December 31,
1999.

9. INCOME TAXES

Effective January 1, 1997, the Company elected S Corporation status for
income tax reporting purposes for the parent company (the "Parent"). The
taxable income or loss of an S Corporation is includable in the individual
tax returns of the stockholders of the Company. Accordingly, deferred income
tax assets and liabilities were eliminated and no provisions for current and
deferred income taxes were made by the Parent other than amounts related to
prior years when the Parent was a taxable entity and for amounts attributable
to state income taxes for the state of Louisiana, which does not recognize S
Corporation status for income tax reporting purposes. Deferred income tax
assets and liabilities will continue to be recognized and provisions for
current and deferred income taxes will be made by the Company's subsidiaries.
The Company took a one-time charge of $3.6 million during 1997 in order to
recognize the effect of the S Corporation election.

The Provision for Income Taxes for the years ended December 31, 1999,
1998 and 1997 is made up of the following components:

1999 1998 1997
---------- ---------- ----------
Current - Federal . . . . . . . . $1,619,207 $1,453,990 $1,251,503
Current - State . . . . . . . . . 28,743 21,040 15,371
---------- ---------- ----------
Total Current . . . . . . . . . 1,647,950 1,475,030 1,266,874
---------- ---------- ----------
Prepaid - Federal . . . . . . . . 267,506 115,929 3,343,020
Prepaid - State . . . . . . . . . -- -- 318,136
---------- ---------- ----------
Total Prepaid . . . . . . . . . 267,506 115,929 3,661,156
---------- ---------- ----------

Total Provision. . . . . . $1,915,456 $1,590,814 $4,928,030
========== ========== ==========

-32-

Temporary differences create deferred federal tax assets and liabilities
which are detailed below for December 31, 1999 and 1998:

Deferred Tax
Assets (Liabilities)
---------------------------
1999 1998
---- ----
Insurance Commissions . . . . . . $(2,468,129) $(2,111,122)
Unearned Premium Reserves. . . . . 704,844 573,841
Unrealized Loss (Gain) on
Marketable Debt Securities . . . 116,592 (170,898)
Other. . . . . . . . . . . . . . . (76,381) (34,880)
----------- -----------
$(1,723,074) $(1,743,059)
=========== ===========

The Company's effective tax rate for the years ended December 31, 1998,
1997 and 1996 is analyzed as follows:

1999 1998 1997
---- ---- ----
Statutory Federal income tax rate. . . 34.0% 34.0% 34.0%
State income tax, net of Federal
tax effect . . . . . . . . . . . . . .2 .2 3.3
Net tax effect of IRS regulations
on life insurance subsidiary . . . . (5.9) (6.8) (8.9)
Tax effect of S Corporation status . . (6.3) (6.9) 53.7
Other items. . . . . . . . . . . . . . (2.2) (2.5) (9.0)
---- ---- ----
Effective Tax Rate . . . . . . . . 19.8% 18.0% 73.1%
==== ==== ====

10. SEGMENT FINANCIAL INFORMATION:

In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information," which the Company adopted in 1998.
SFAS No. 131 requires companies to determine segments based on how management
makes decisions about allocating resources to segments and measuring their
performance.

The Company has three reportable segments: Division I, Division II and
Division III. Each segment is comprised of a number of branch offices that
are aggregated based on vice president responsibility and geographical
location. Division I is comprised of offices located in Northeast Georgia,
South Carolina and North Carolina. Offices in Central and South Georgia
comprise Divison II. Divison III is comprised of branch offices in Alabama,
Louisiana, Mississippi and West Georgia.

Accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Performance is measured
based on objectives set at the beginning of each year and include various
factors such as segment profit, growth in earning assets and delinquency and
loan loss management. All segment revenues result from transactions with
third parties. The Company does not allocate income taxes or corporate
headquarter expenses to the segments.
-33-

Below is a performance recap of each of the Company's reportable
segments for the three years ended December 31, 1999 followed by a
reconcilement to consolidated Company data:
<TABLE>
<CAPTION>
Division I Division II Division III Total Segments
Year 1999: ---------- ----------- ------------ --------------
- ---------
<S>
Revenues:
Finance Charges Earned . . $15,309,451 $14,907,510 $16,908,738 $ 47,125,699
Insurance Income . . . . . 4,880,948 6,848,336 6,279,717 18,009,001
Other. . . . . . . . . . . 107,558 132,796 176,254 416,608
----------- ----------- ----------- -------------
20,297,957 21,888,642 23,364,709 65,551.308
Expenses:
Interest Cost. . . . . . . 2,204,738 2,461,241 2,504,427 7,170,406
Provision for Loan Losses. 1,917,042 2,470,140 2,910,116 7,297,298
Depreciation . . . . . . . 254,577 169,085 377,009 800,671
Other. . . . . . . . . . . 9,006,569 8,439,147 11,031,780 28,477,496
----------- ----------- ----------- ------------
13,382,926 13,539,613 16,823,332 43,745,871
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 6,915,031 $ 8,349,029 $ 6,541,377 $ 21,805,437
=========== =========== =========== ============

Segment Assets:
Net Receivables. . . . . . $50,671,432 $55,941,619 $60,053,102 $166,666,153
Cash . . . . . . . . . . 55,609 58,222 70,139 183,970
Net Fixed Assets . . . . . 518,232 297,094 863,735 1,679,061
Other Assets . . . . . . . 377,459 331,798 703,297 1,412,554
----------- ----------- ----------- ------------
Total Segment Assets . . $51,622,732 $56,628,733 $61,690,273 $169,941,738
=========== =========== =========== ============
<CAPTION>
Division I Division II Division III Total Segments
Year 1998: ---------- ----------- ------------ --------------
- ---------
<S> <C> <C> <C> <C>
Revenues:
Finance Charges Earned . . $13,668,361 $14,101,316 $14,861,961 $ 42,631,638
Insurance Income . . . . . 4,327,262 5,911,613 5,468,594 15,707,469
Other. . . . . . . . . . . 92,156 116,311 154,960 363,427
----------- ----------- ----------- ------------
18,087,779 20,129,240 20,485,515 58,702,533
----------- ------------ ----------- ------------
Expenses:
Interest Cost. . . . . . . 2,082,298 2,439,714 2,336,803 6,858,815
Provision for Loan Losses. 2,008,540 2,140,347 2,222,083 6,370,970
Depreciation . . . . . . . 246,633 187,281 376,404 810,318
Other. . . . . . . . . . . 8,242,026 7,778,589 9,787,743 25,808,358
----------- ----------- ----------- ------------
12,579,497 12,545,931 14,723,033 39,848,461
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 5,508,282 $ 7,583,309 $ 5,762,481 $ 18,854,072
=========== =========== =========== ============
Segment Assets:
Net Receivables. . . . . . $44,690,958 $50,874,052 $51,447,448 $147,012,458
Cash . . . . . . . . . . 53,502 49,830 63,497 166,829
Net Fixed Assets . . . . . 568,992 326,368 787,921 1,683,281
Other Assets . . . . . . . 318,517 417,648 631,598 1,367,763
----------- ----------- ----------- ------------
Total Segment Assets . . $45,631,969 $51,667,898 $52,930,464 $150,230,331
=========== =========== =========== ============
</TABLE>
-34-

<TABLE>
<CAPTION>
Division I Division II Division III Total Segments
Year 1997: ---------- ----------- ------------ --------------
- ---------
<S> <C> <C> <C> <C>
Revenue:
Finance Charges Earned . . $13,254,994 $13,780,391 $13,027,893 $ 40,063,278
Insurance Income . . . . . 4,434,218 5,378,050 4,699,936 14,512,204
Other. . . . . . . . . . . 95,694 111,584 153,259 360,537
----------- ----------- ----------- ------------
17,784,906 19,270,025 17,881,088 54,936,019
=========== =========== =========== ============
Expenses:
Interest Cost. . . . . . . 2,146,429 2,450,451 2,251,674 6,848,554
Provision for Loan Losses. 1,997,027 2,186,624 2,663,151 6,846,802
Depreciation . . . . . . . 258,989 213,026 410,537 882,552
Other. . . . . . . . . . . 7,602,911 7,452,571 8,774,662 23,830,144
----------- ----------- ----------- ------------
12,005,356 12,302,672 14,100,024 38,408,052
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 5,779,550 $ 6,967,353 $ 3,781,064 $ 16,527,967
=========== =========== =========== ============

Segment Assets:
Net Receivables. . . . . . $42,960,935 $49,709,002 $48,867,850 $141,537,787
Cash . . . . . . . . . . . 52,601 46,532 62,168 161,301
Net Fixed Assets . . . . . 527,464 408,556 899,458 1,835,478
Other Assets . . . . . . . 459,098 418,820 679,250 1,557,168
----------- ----------- ----------- ------------
Total Segment Assets . . $44,000,098 $50,582,910 $50,508,726 $145,091,734
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>

RECONCILEMENT: 1999 1998 1997
<S> ---- ---- ----
Revenues: <C> <C> <C>
Total revenues from reportable segments . . . $ 65,551,308 $ 58,364,645 $ 54,936,019
Corporate finance charges earned
not allocated to segments . . . . . . . . . 89,844 57,053 (33,114)
Reclass of investment income net
against interest cost . . . . . . . . . . . 1,654,922 1,791,207 1,895,684
Reclass of insurance expense
against insurance income. . . . . . . . . . 4,846,498 4,694,936 4,563,973
Timing difference of insurance
income allocation to segments . . . . . . . 248,958 548,083 (75,457)
Other revenues not allocated to segments. . . 249,681 227 497 211,299
------------ ------------ ------------
Consolidated Revenues . . . . . . . . . . $ 72,641,211 $ 65,683,421 $ 61,498,404
============ ============ ============
Profit or Loss:
Total profit or loss for reportable segments. $ 21,805,437 $ 18,854,072 $ 16,527,967
Corporate earnings not allocated. . . . . . . 4,058,739 832,632 102,728
Corporate expenses not allocated. . . . . . . (14,926,521) (10,828,106) (9,886,355)
Income taxes not allocated. . . . . . . . . . (1,274,696) (1,590,814) (4,928,030)
------------ ------------ ------------
Consolidated Profit . . . . . . . . . . . $ 9,662,959 $ 7,267,784 $ 1,816,310
============ ============ ============
Assets:
Total assets for reportable segments. . . . . $169,941,738 $150,230,331 $145,091,734
Reclass accrued interest
receivable on loans . . . . . . . . . . . . 1,181,899 912,684 915,538
Loans held at corporate home office level . . 2,123,633 2,293,491 947,367
Unearn insurance at corporate level . . . . . (5,823,249) (5,016,709) (4,730,626)
Allowance for loan losses at corporate level. (7,994,102) (6,653,763) (5,968,818)
Cash and cash equivalents
held at corporate level . . . . . . . . . . 5,730,565 19,944,849 24,960,776
Investment securities at corporate level. . . 53,862,066 47,143,525 32,941,755
Fixed assets at corporate level . . . . . . . 2,877,927 3,004,062 3,053,193
Other assets at corporate level . . . . . . . 5,267,583 4,816,440 3,954,653
------------ ------------ ------------
Consolidated Assets . . . . . . . . . . . $227,138,060 $216,674,910 $201,165,572
============ ============ ============
</TABLE>
-35-

DIRECTORS AND EXECUTIVE OFFICERS

Directors
- --------
Principal Occupation, Has Served as a
Name Title and Company Director Since
---- ----------------- --------------
Ben F. Cheek, III Chairman of Board, 1967
1st Franklin Financial Corporation

Lorene M. Cheek Housewife 1946

Jack D. Stovall President, 1983
Stovall Building Supplies, Inc.

Robert E. Thompson Physician, Toccoa Clinic 1970

Executive Officers
- ------------------
Served in this
Name Position with Company Position Since
---- --------------------- --------------
Ben F. Cheek, III Chairman of Board and CEO 1989

T. Bruce Childs President 1989

Lynn E. Cox Secretary 1989

A. Roger Guimond Vice President
and Chief Financial Officer 1991

Linda L. Sessa Treasurer 1989

CORPORATE INFORMATION

Corporate Offices General Counsel Independent Accountants
- ----------------- --------------- -----------------------
P.O. Box 880 Jones, Day, Reavis & Pogue Arthur Andersen LLP
213 East Tugalo Street Atlanta, Georgia Atlanta, Georgia
Toccoa, Georgia 30577
(706) 886-7571

Information
- -----------
Informational inquiries, including requests for a Prospectus describing
the Company's current securities offering or the Form 10-K annual report
filed with the Securities and Exchange Commission should be addressed to the
Company's Secretary.

-36-

INSIDE BACK COVER PAGE OF ANNUAL REPORT

BRANCH OPERATIONS

Division I Division III

Northeast Georgia & South Carolina: Alabama, Louisiana, Mississippi and
- ---------------------------------- Northeast Georgia:
Isabel Vickery Youngblood, Senior -----------------------------------
Vice President Jack R. Coker, Vice President
Ronald F. Morrow, Area Vice President Robert J. Canfield, Area Vice
Regina K. Bond, Supervisor President
K. Donald Floyd, Supervisor J. Michael Culpepper, Area Vice
Michael D. Lyles, Supervisor President
Brian L. McSwain, Supervisor Ronald E. Byerly, Supervisor
Harriet H. Moss, Supervisor Bryan W. Cook, Supervisor
Melvin L. Osley, Supervisor Anne Renee Hebert, Supervisor
Virginia K. Palmer, Supervisor Jack L. Hobgood, Supervisor
Timothy M. Schmotz, Supervisor Bruce S. Hooper, Supervisor
Timothy M. Schmotz, Supervisor Janice B. Hyde, Supervisor
Tami D. Settlemyer, Supervisor H. Timothy Love, Supervisor
Johnny M. Olive, Supervisor
R. Darryl Parker, Supervisor
Henrietta R. Reathford, Supervisor
R. Gaines Snow, Supervisor

Division II ADMINISTRATION
- ----------- --------------
Central & South Georgia: Ben F. Cheek, IV, Statistics &
A. Jarrell Coffee, Vice President Planning
Donald C. Carter, Supervisor Lynn E. Cox, Investment Center
Judy A. Landon, Supervisor Samuel P. Greer, Internal Audit
Jeffrey C. Lee, Supervisor Phoebe P. Martin, Human Resources &
Thomas C. Lennon, Supervisor Marketing
Dianne H. Moore, Supervisor Pamela S. Rickman, Operations
Marcus C. Thomas, Supervisor Coordinator
Angela C. Brock, System Support
Manager
Linda L. Sessa, Data Processing

Exhibit 23(a)

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 29,
2000 included in the Company's Form 10-K and Annual Report for the year
ended December 31, 1999 and to all references to our Firm included in this
Registration Statement.

/s/ Arthur Andersen LLP

Atlanta, Georgia
April 10, 2000

Exhibit 25

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
----------------------------------

FORM T - 1

STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

Check if an application to determine eligibility
of a Trustee pursuant to Section 305(b)(2)

----------------------------------

SYNOVUS TRUST COMPANY
(Exact Name of Trustee as Specified in its Charter)

Georgia 58-2146977
(Jurisdiction of Incorporation or (I.R.S. Employer
Organization if not a National Bank) Indentification No.)
P.O. Box 120, Columbus, Georgia 31902-0120
(Address of Principal Executive Office) (Zip Code)

Ms. Frazer K. Loomis
Assistant Vice President
Synovus Trust Company
Post Office Box 120
Columbus, Georgia 31902-0120
(706) 644-8951
(Name, Address and Telephone No. of Agent for Service)

----------------------------------

1st FRANKLIN FINANCIAL CORPORATION
(Exact Name of Obligor as Specified in its Charter)

Georgia 58-0521233
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

213 East Tugalo Street
Toccoa, Georgia 30577
(Address of Principal Executive Offices) (Zip Code)

----------------------------------

Variable Rate Subordinated Debentures
Due Four Years From Date of Issuance

(Title of the Indenture Securities)

Item 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority
to which it is subject.

Georgia Department of Banking and Finance
2990 Brandywine Road
Suite 200
Atlanta, Georgia 30041

Federal Deposit Insurance Corporation
Marquis Tower One
Suite 1700
Atlanta, Georgia 30303

(b) Whether it is authorized to exercise corporate trust powers.

The Trustee is authorized to exercise corporate trust
powers.

Item 2. Affiliations with the Obligor.

If the obligor is an affiliate of the trustee, describe such
affiliation.

None

Item 3. Voting Securities of the Trustee. *

Item 4. Trusteeships under Other Indentures. *

Item 5. Interlocking Directorates and Similar Relationships with the Obligor
or Underwriters. *

Item 6. Voting Securities of the Trustee Owned by the Obligor or its
Officials. *

Item 7. Voting Securities of the Trustee Owned by Underwriters or their
Officials. *

Item 8. Securities of the Obligor Owned or Held by the Trustee. *

Item 9. Securities of Underwriters Owned or Held by the Trustee. *

Item 10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor. *

Item 11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or more of the Voting Securities of the Obligor. *

_______________

* Not Applicable pursuant to General Instruction B.

Item 12. Indebtedness of the Obligor to the Trustee. *

Item 13. Defaults by the Obligor.

There has been no default with respect to the securities under the
Indenture, or any other indenture or series under which (i) the
Trustee is a trustee, and (ii) any other securities, or certificates
of interest or participation in any other securities, of 1st
Franklin Financial Corporation are outstanding.

Item 14. Affiliations with the Underwriters. *

Item 15. Foreign Trustee. *

Item 16. List of Exhibits.

(1) A copy of the Charter and/or Articles of Incorporation of the
Columbus Bank and Trust Company. (Incorporated herein by
reference to Exhibit 25.1 of the registrant's Form SE dated
June 8, 1993, filed pursuant to continuing hardship
exemption.)

(1-1) A copy of the Charter and/or Articles of Incorporation of the
Trustee. (Incorporated by reference to Exhibit 25.1-1 of the
registrant's Registration Statement on form S-2, Registration
No. 333-1007 dated February 29, 1996.)

(2) Not applicable.

(3) Not applicable.

(4) Copy of the Bylaws of the Columbus Bank and Trust Company,
as now in effect. (Incorporated herein by reference to
Exhibit 25.4 of the Registrant's Form SE dated June 8, 1993,
filed pursuant to continuing hardship exemption.)

(4-1) Copy of the Bylaws of the Synovus Trust Company.
(Incorporated by reference to Exhibit 25.4-1 of the
registrant's Registration Statement on form S-2, Registration
No. 333-1007 dated February 29, 1996.)

(5) Not Applicable.

(6) The consent of the Trustee required by Section 321(b) of the
Act, filed as Exhibit 25.6.

(7) Copy of the latest Report of Condition of Columbus Bank and
Trust Company published pursuant to law or the requirements
of its supervising or examining authority, filed as Exhibit
25.7.

___________________

* Not Applicable pursuant to General Instruction B.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Synovus Trust Company, a trust company organized and existing under the laws
of Georgia, has duly caused this statement of eligibility and qualification
to be signed on its behalf by the undersigned, thereunto duly authorized,
all in the City of Columbus, and the State of Georgia, on the
7th day of April, 2000.

SYNOVUS TRUST COMPANY
/s/ Frazer K. Loomis
------------------------
By: Frazer K. Loomis
Title: Assistant Vice President

EXHIBIT 25.6

FORM T-1

CONSENT OF TRUSTEE

Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 in connection with the proposed issuance of $20,000,000 Variable Rate
Subordinated Debentures of 1st Franklin Financial Corporation, Synovus Trust
Company hereby consents that reports of examinations by Federal, State,
Territorial or District Authorities may be furnished by such authority to the
Securities and Exchange Commission upon request therefor. It is understood
that the foregoing consent is subject to the non-disclosure provisions of
said Section 321(b).

SYNOVUS TRUST COMPANY
/s/ Frazer K. Loomis
------------------------
By: Frazer K. Loomis
Title: Assistant Vice President

Dated: April 7, 2000
-------------

EXHIBIT 25.7

Legal Title of Bank: Columbus Bank and Trust Company Call Date: 12/31/1999
Address: PO Box 120 Page RC-1
City, State, Zip: Columbus, GA 31902
FDIC Certificate No: 00873

Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for December 31, 1999

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.

Schedule RC -- Balance Sheet
Dollar Amounts
in Thousands

ASSETS
1 Cash and balances due from depository institutions
(from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1). . . 83,251
b. Interest-bearing balances(2) . . . . . . . . . . . . . . . 2,243
2. Securities:
a. Held-to-maturity securities. . . . . . . . . . . . . . . . 35,790
b. Available-for-sale securities. . . . . . . . . . . . . . . 274,001
3. Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . 545,364
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income . . . . 1,576,841
b. LESS: Allowance for loan and lease losses. . . . 20,405
c. LESS: Allocated transfer risk reserve. . . . . . 0
d. Loans and leases, net of unearned income,
allowance, and reserve . . . . . . . . . . . . . . . . . . . 1,556,436
5. Trading assets. . . .. . . . . . . . . . . . . . . . . . . . . 0
6. Premises and fixed assets (including capitalized leases) . . . 139,513
7. Other real estate owned. . . . . . . . . . . . . . . . . . . . 479
8. Investments in unconsolidated
subsidiaries and associated companies. . . . . . . . . . . . . 39,951
9. Customers' liability to this bank on acceptances outstanding . 0
10. Intangible assets. . . . . . . . . . . . . . . . . . . . . . . 4,349
11. Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 362,291
12. Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,039,668

- -----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.

Legal Title of Bank: Columbus Bank and Trust Company Call Date: 12/31/1999
Address: PO Box 120 Page RC-2
City, State, Zip: Columbus, GA 31902
FDIC Certificate No: 00873

Schedule RC -- Continued
Dollar Amounts
in Thousands

LIABILITIES
13. Deposits:
a. In domestic offices. . . . . . . . . . . . . . . . . . . 1,354,036
(1) Noninterest-bearing(1) . . . . . . . . . . 220,039
(2) Interest-bearing . . . . . . . . . . . . . 1,133,997
b. In foreign offices, Edge and Agreement subsidiaries and IBF's
(1) Noninterest-bearing. . . . . . . . . . . . . . . . . /////////
(2) Interest-bearing . . . . . . . . . . . . . . . . . . /////////
14. Federal Funds purchased and
securities sold under agreements to repurchase . . . . . . 496,997
15. a. Demand notes issued to the U.S. Treasury . . . . . . . 5,570
b. Trading liabilities. . . . . . . . . . . . . . . . . . . 0
16. Other borrowed money:
a. With original maturity of one year or less . . . . . . . 493,594
b. With a remaining maturity of
more than one year through three years . . . . . . . . . 45,000
c. With original maturity of more than three years . . . . 204
17. Not applicable . . . . . . . . . . . . . . . . . . . . . . /////////
18. Bank's liability on acceptances executed and outstanding . 0
19. Subordinated notes and debentures. . . . . . . . . . . . . 0
20. Other liabilities. . . . . . . . . . . . . . . . . . . . . 208,707
21. Total liabilities (sum of items 13 through 20) . . . . . . 2,604,108
22. Not applicable . . . . . . . . . . . . . . . . . . . . . . /////////
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus. . . . . . . 0
24. Common Stock . . . . . . . . . . . . . . . . . . . . . . . 3,154
25. Surplus (exclude all surplus related to preferred stock) . 98,831
26. a. Undivided profits and capital reserves . . . . . . . . 341,854
b. Net unrealized holding gains (losses)
on available-for-sale securities. . . . . . . . . . . . (4,279)
c. Accumulated net gains (losses) on cash flow hedges. . . 0
27. Cumulative foreign currency translation adjustments. . . . /////////
28. Total equity capital (sum of items 23 through 27). . . . . 435,560
29. Total liabilities, limited-life
preferred stock, and equity capital. . . . . . . . . . . . 3,039,668

- ----------
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement
below that best describes the most comprehensive level of
auditing work performed for the bank by independent external
auditors as of any date during 1998 . . . . . . . . . . . . N/A

1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm
which submits a report on the bank.

2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)

3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)

4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)

5 = Review of the bank's financial statements by external auditors

6 = Compilation of the bank's financial statements by external auditors

7 = Other audit procedures (excluding tax preparation work)

8 = No external audit work

____________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits
(2) Includes limited-life preferred stock and related surplus.