Exhibit 19

1^st

FRANKLIN

FINANCIAL

CORPORATION

QUARTERLY

REPORT TO INVESTORS

AS OF AND FOR THE

SIX MONTHS ENDED

JUNE 30, 2007

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview:

The following narrative is Management’s discussion and analysis of the foremost factors that influenced our operating results and financial condition as of and for the three- and six-month periods ended June 30, 2007 and 2006. This analysis and the accompanying interim financial information should be read in conjunction with the audited consolidated financial statements included in the Company’s December 31, 2006 Annual Report.

The Company:

1^ST Franklin Financial Corporation and its consolidated subsidiaries (the “Company” or “we”) are engaged in the consumer finance business, primarily in making consumer loans to individuals in relatively small amounts for short periods of time. Other lending-related activities include the purchase of sales finance contracts from various dealers and the making of first and second mortgage loans on real estate to homeowners. As of June 30, 2007, the business was operated through a network of 229 branch offices located in Alabama, Georgia, Louisiana, Mississippi and South Carolina. Two additional branches were opened during July 2007, one in the state of Alabama and one in the state of Mississippi.

We also offer optional credit insurance coverage to our customers when making a loan. Such coverage may include credit life insurance, credit accident and health insurance, and/or credit property insurance. Customers may request credit life insurance coverage to help assure any outstanding loan balance is repaid if the customer dies before the loan is repaid or they may request accident and health insurance coverage to help continue loan payments if the customer becomes sick or disabled for an extended period of time. Customers may also choose property insurance coverage to protect the value of loan collateral against damage, theft or destruction. We write these various insurance products as an agent for a non-affiliated insurance company. Under various agreements, our wholly-owned insurance subsidiaries, Frandisco Life Insurance Company and Frandisco Property and Casualty Insurance Company, reinsure the insurance coverage on our customers written on behalf of this non-affiliated insurance company.

The Company's operations are subject to various state and federal laws and regulations. We believe our operations are in compliance with applicable state and federal laws and regulations.

Financial Condition:

Total assets increased by $9.7 million, or 3%, from $362.6 million at December 31, 2006, to $372.3 million at June 30, 2007. The Company’s primary earning assets are its loan portfolio and its short-term and long-term investment portfolios. Successful management of these portfolios is an important component of Company’s financial condition and can significantly impact the operating results of the Company.

Growth in our net loan portfolio was the major reason for the increase in total assets for the six-month period just ended. Our net loan portfolio grew $6.6 million (3%) to $256.5 million at June 30, 2007 compared to $249.9 million at December 31, 2006. The Company originates and services all its performing consumer loans. No performing loans are packaged and brokered for sale to third parties. Net loans as of June 30, 2007 represented 69% of total assets. Based on historical trends, we expect continued growth in our loan portfolio through the remainder of the year.

Increases in our investment securities also contributed to the aforementioned increase in total assets. Investment securities increased $3.4 million (5%) at June 30, 2007 as compared to the prior year-end. Surplus funds generated by our insurance subsidiaries accounted for the

majority of the increase. The Company's 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” (73% as of June 30, 2007 and 71% as of December 31, 2006) with any unrealized gain or loss, net of deferred income taxes, accounted for as accumulated other comprehensive income in the equity section of the Company’s balance sheet. The remainder of the Company’s investment portfolio represents securities carried at amortized cost and designated as “held to maturity,” as Management has both the ability and intent to hold these securities to maturity.

The Company held cash in restricted accounts of approximately $2.0 million and $1.9 million at June 30, 2007 and December 31, 2006, respectively. These restricted accounts are held by the Company’s insurance subsidiaries in order to meet certain deposit requirements applicable to insurance companies in the State of Georgia and to meet the reserve requirements contained in the Company’s reinsurance agreements.

Cash and cash equivalents were $.8 million (3%) lower at June 30, 2007 as compared to the prior year-end. These funds were used primarily to reduce our credit line borrowings and to fund loan originations.

Other assets have increased $.4 million (3%) during the current year mainly due to an increase in prepaid income taxes.

The Company’s outstanding senior debt liability declined $6.8 million (4%) at June 30, 2007 compared to December 31, 2006. Senior debt includes borrowings against our bank credit line and senior demand notes and commercial paper sold to our investors. A $13.9 million reduction in outstanding borrowings under the Company’s bank credit line during the six-month period just ended was the main reason for the decline in senior debt outstanding. Increased sales of our senior demand notes and commercial paper partially offset some of the decline from the reduced bank borrowings.

Other liabilities decreased $1.2 million (8%) during the six-month period just ended as compared to the prior year-end. The decrease was mainly due to disbursements of the Company’s incentive bonus and profit sharing contribution, both of which were accrued at the prior year-end.

Subordinated debt was $78.6 million at June 30, 2007 as compared to $67.2 million at December 31, 2006. Subordinated debt consists of the Company’s variable rate subordinated debentures, which are sold to investors at various interest rates determined from time to time by the Company. The Company uses the proceeds from the sale of its subordinated debentures to fund its operations. In order to ensure the continued sale of subordinated debentures, the Company must offer competitive interest rates to investors. As interest rates paid on the subordinated debentures increased during the period, these higher yields have resulted in increased sales of the subordinated debentures.

Results of Operations:

Our operating results during the first half of 2007 outpaced the same period a year ago. The Company generated $31.6 million and $62.7 million in revenues during the three- and six-month periods ended June 30, 2007, respectively, compared to $27.5 million and $54.4 million during the same respective three- and six-month periods in 2006. Net income grew $1.4 million (59%) during the three-month period just ended as compared to the same period a year ago. Our net income for the six-month comparable period has increased $2.9 million or 63%. The Company earns income from net interest income, net insurance income and miscellaneous non-interest revenue, less overall operating costs.

Net Interest Margin

The primary source of income for the Company is our net interest margin. Our net interest margin (the difference between earnings on loans and investments and interest paid on the Company’s senior and subordinated debt) grew $1.3 million (8%) and $2.8 million (8%) during

the three- and six-month periods just ended, respectively, as compared to the same respective periods a year ago. The growth during the comparable periods was mainly due to an increase in interest and fee income earned loans and investments. Interest and fee income increased $2.4 million (12%) during the three-month comparable periods and $5.2 million (13%) during the six-month comparable periods. During first half of 2007, average earning assets were approximately 10% higher than the same period a year ago.

Although interest and fee revenue grew, some of the increase was offset by the impact of higher funding costs. Average borrowing costs increased to 5.85% during the six months just ended as compared to 4.48% during the same period a year ago. In addition, average borrowings outstanding increased 11% during the same period. These increases caused interest expense to increase $1.1 million (40%) and $2.3 million (44%) during the three- and six-month periods ended June 30, 2007, respectively, as compared to the same comparable periods a year ago.

Management projects that average net receivables will continue to grow through the remainder of the year, and earnings are expected to increase accordingly. However, we also project additional increases in borrowing costs which could negatively impact our margins. There can be no assurance that any increases in net receivables would not be more than offset by further increases in borrowing costs.

Insurance Income

Revenue generated from our insurance operations represented approximately 26% of overall revenues earned during the first half of 2007. Growth in our loan portfolio led to increases in insurance in-force as many of our loan customers elected to purchase optional credit insurance coverage offered by the Company as described above. Our net insurance income, which is equal to premiums less claims and expenses, increased $.5 million (8%) and $1.2 million (10%) during the three- and six-month periods ended June 30, 2007 compared to the same comparable periods in 2006.

Provision for Loan Losses

Credit risk is inherent in the business of lending money. The Company continually reviews its loan portfolio and maintains an allowance for loan losses that in Management’s opinion is appropriate to cover probable losses in the portfolio. The provision for loan losses reflects the expense to the Company to maintain an appropriate allowance.

Higher credit losses have resulted in the Company increasing its provision for loan losses during the current year. The provision for loan losses increased $.2 million (4%) and $.5 million (6%) during the three- and six-month periods ended June 30, 2007 as compared to the same periods in 2006.

During June 2007, Management completed the sale of various charged off receivables which had not had any collections in recent years. The sale allowed us to recover of a small portion of the amount originally charged off and offset some of the increase in the provision for loan losses in the quarter just ended.

Recently, the lending industry has been exposed to an increasing number of delinquencies and foreclosures, much of which has been described in various media. Many of the challenges facing various lenders are concentrated within the sub-prime real estate marketplace. Many of these lending institutions extended adjustable rate loans to borrowers in past years when interest rates were at historical low levels. Many of the adjustable rate loans are now re-pricing at higher interest rates and a number of borrowers are not able to afford the new payment levels and/or terms. The Company does not believe it has any material exposure to these risks as we do not operate in this type of lending market and do not offer these types of real estate loans. All real estate loans currently extended by the Company are at fixed interest rates and with fixed payments.

Other Revenue

Other revenue increased $1.0 million (611%) and $1.8 million (536%) during the three-and six-month periods just ended June 30, 2007 as compared to the same periods a year ago. The primary reason for the increases was due to commissions earned from the sale of auto club memberships. Effective October 2006, the Company began selling auto club memberships as an agent for a third party provider. Approximately $1.8 million in commissions were generated on sales of these memberships in the first six months of 2007.

Other Operating Expenses

An increase in salaries, bonus plan accruals, profit sharing 401(k) plan expenses and employee medical claims caused personnel expenses to increase $1.0 million (9%) and $1.7 million (8%) for the three- and six-month periods just ended, respectively, as compared to the same comparable periods in 2006. Merit salary increases awarded in February 2007 and an expansion of the Company’s employee base caused the increases in salaries. Due to the aforementioned increase in revenues and profit this year, bonus accruals have increased which has also contributed to the increase in personnel expense. Effective June 2007, the Company converted its profit sharing 401(k) plan to a new provider and began matching a portion of employee’s 401(k) plan contributions. The cost involved in converting to the new provider also contributed to the increase in personnel expense during the current year.

Occupancy expenses increased $.2 million (8%) during the three-month period ended June 30, 2007 as compared to the three-month period ended June 30, 2006. During the six-month comparable periods, occupancy expenses increased $.3 million (7%). Increases in telephone costs, depreciation expense on equipment and increased rent expense were the primary factors causing the higher occupancy expense during the current year periods. An increase in maintenance of equipment was also was a factor in the increase during the six-month comparable periods.

An increase in advertising expenditures, business promotion expenses, collection expenses and mileage reimbursements were the primary factors causing miscellaneous other operating expenses to increase $.1 million (2%) and $.4 million (5%) during the three- and six-month periods ended June 30, 2007, respectively, as compared to the same comparable periods ended June 30, 2006. Offsetting a portion of the increases in other operating expenses were declines in legal and audit fees during the comparable periods.

Income Taxes:

The Company has elected to be treated as an S Corporation for income tax reporting purposes. Taxable income or loss of an S Corporation is included in the individual tax returns of the shareholders of the Company, rather then being taxed at the corporate level. Notwithstanding this election, however, income taxes continue to be reported for, and paid by, the Company's insurance subsidiaries as they are not allowed to be treated as an S Corporation, and for the Company’s state taxes in Louisiana, which does not recognize S Corporation status. Deferred income tax assets and liabilities are recognized and provisions for current and deferred income taxes continue to be recorded by the Company’s subsidiaries. The deferred income tax assets and liabilities are due to certain temporary differences between reported income and expenses for financial statement and income tax purposes.

Effective income tax rates were 16% and 23% during the six-month periods ended June 30, 2007 and 2006, respectively, and 16% and 22% during the three-month periods then ended. The higher rates experienced during the prior year periods were due to higher losses at the S Corporation level which were passed to the shareholders of the Company for tax reporting, whereas income earned at the insurance subsidiary level was taxed at the corporate level. The S Corporation reported income during the current year periods just ended as compared to losses during the same comparable periods a year ago.

Quantitative and Qualitative Disclosures About Market Risk:

As previously discussed, higher interest rates have continued to impact the Company’s interest costs through June 30, 2007. If rates continue to increase, the Company’s net interest margin could be materially impacted. Please refer to the market risk analysis discussion contained in our annual report on Form 10-K as of and for the year ended December 31, 2006 for a more detailed analysis of our market risk exposure.

Liquidity and Capital Resources:

As of June 30, 2007 and December 31, 2006, the Company had $23.2 million and $24.0 million, respectively, invested in cash and short-term investments readily convertible into cash with original maturities of three months or less.

The Company’s investments in marketable securities can be converted into cash, if necessary. As of June 30, 2007 and December 31, 2006, 97% and 96%, respectively, of the Company’s cash and cash equivalents and investment securities were maintained in its insurance subsidiaries. State insurance regulations limit the use an insurance company can make of its assets. Dividend payments to the Company by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to the greater of 10% of policyholders’ surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At December 31, 2006, Frandisco Property and Casualty Insurance Company and Frandisco Life Insurance Company had policyholders’ surplus of $34.3 million and $36.0 million, respectively. The maximum aggregate amount of dividends these subsidiaries can pay to the Company in 2007 without prior approval of the Georgia Insurance Commissioner is approximately $8.3 million.

Liquidity requirements of the Company are financed through the collection of receivables and through the sale of short- and long-term debt securities. The Company’s continued liquidity is therefore dependent on the collection of its receivables and the sale of debt securities that meet the investment requirements of the public. In addition to its securities sales, the Company has an external source of funds available under a credit agreement with Wachovia Bank, N.A. and BMO Capital Markets Financing, Inc. The credit agreement provides for unsecured borrowings of up to $50.0 million, subject to certain limitations, and is scheduled to expire on December 15, 2009. Any amounts then outstanding will be due and payable on such date. The credit agreement contains covenants customary for financing transactions of this type. At June 30, 2007, the Company was in compliance with all covenants. Available borrowings under the agreement were $39.1 million and $25.1 million at June 30, 2007 and December 31, 2006, respectively, at interest rates of 7.75% and 7.25%, respectively.


The Company was subject to the following contractual obligations and commitments at June 30, 2007:
	07/01/07 thru 12/31/07	2008	2009	2010	2011	2012 & Beyond	Total
	(in Millions)
Credit Line *	$ .4	$ .9	$ 11.8	$ -	$ -	$ -	$ 13.1
Bank Commitment Fee *	.2	.2	.2	-	-	-	.6
Senior Notes *	50.1	-	-	-	-	-	50.1
Commercial Paper *	108.7	7.9	-	-	-	-	116.6
Subordinated Debt *	4.0	9.8	12.0	42.9	31.4	-	100.1
Operating Leases	1.1	4.1	2.3	1.6	.9	.2	10.2
Capitalized Leases (Equipment)	.1	.3	-	-	-	-	.4

07/01/07

thru

12/31/07

2008

2009

2010

2011

2012 & Beyond

Total

(in Millions)

Software Service

Contract **

1.2

2.4

7.1

17.9

Data Communication

Lines Contract **

1.3

1.8

3.1

Total

167.1

27.4

$28.7

46.9

$34.7

7.3

312.1

* Note:

Includes estimated interest at current rates

** Note:

Based on current usage

Critical Accounting Policies:

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the financial services industry. The Company’s more critical accounting and reporting policies include the allowance for loan losses, revenue recognition and insurance claims reserve.

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. 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.

Revenue Recognition:

Accounting principles generally accepted in the United States require that an interest yield method be used to calculate the income recognized on accounts which have precomputed charges. An interest yield method is used by the Company on each individual precomputed account to calculate income for on-going precomputed accounts; however, state regulations often allow interest refunds to be made according to the Rule of 78’s method for payoffs and renewals. Since the majority of the Company's precomputed accounts are paid off or renewed prior to maturity, the result is that most of the precomputed accounts effectively yield on a Rule of 78's basis.

Precomputed finance charges are 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 effective interest method. Some other cash loans and real estate loans, which are not precomputed, have income recognized on a simple interest accrual basis. Income is not accrued on a loan that is more than 60 days past due.

Loan fees and origination costs are deferred and recognized as an adjustment to the loan yield over the contractual life of the related loan.

The property and casualty credit insurance policies written by the Company, as agent for a non-affiliated insurance company, are reinsured by the Company’s property and casualty insurance subsidiary. The premiums on these policies are deferred and earned over the period of insurance coverage using the pro-rata method or the effective yield method, depending on whether the amount of insurance coverage generally remains level or declines.

The credit life and accident and health insurance policies written by the Company, as agent for a non-affiliated insurance company, are reinsured by the Company’s life insurance subsidiary. The premiums are deferred and earned using the pro-rata method for level-term life insurance policies and the effective yield method for decreasing-term life policies. Premiums on accident and health insurance policies are earned based on an average of the pro-rata method and the effective yield method.

Insurance Claims Reserves:

Included in unearned insurance premiums and commissions on the consolidated

statements of financial position are reserves for incurred but unpaid credit insurance claims for policies written by the Company and reinsured by the Company’s wholly-owned insurance subsidiaries. These reserves are established based on generally accepted actuarial methods. In the event that the Company’s actual reported losses for any given period are materially in excess of the previous estimated amounts, such losses could have a material adverse effect on the Company’s results of operations.

Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position or consolidated results of operations.

Recent Accounting Pronouncements:

In June 2006, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB No. 109, “Accounting for Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements by prescribing how companies should recognize, measure, present and disclose uncertain tax positions that have been taken on a tax return. The Company adopted FIN 48 effective January 1, 2007 and there was no impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements disclosures about fair measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that SFAS No. 157 may have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115,” (“SFAS No. 159”), which permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 109 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect that SFAS No. 159 may have on its consolidated financial statements.

Forward Looking Statements:

Certain information in this discussion and other statements contained in this Quarterly Report, which are not historical facts, may be forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements involve known and unknown risks and uncertainties. The Company's 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 include, but are not limited to, adverse general economic conditions including the changes in interest rate environment, unexpected reductions in the size or collectibility of amounts in our loan portfolio, reduced sales of our securities, federal and state regulatory changes affecting consumer finance companies, unfavorable outcomes in legal proceedings and other factors referenced elsewhere in our filings with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to update any forward-looking statements.


1^st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	June 30,	December 31,
	2007	2006
	(Unaudited)
ASSETS

CASH AND CASH EQUIVALENTS	$ 23,243,417	$ 24,028,767

RESTRICTED CASH	1,965,277	1,869,583

LOANS: Direct Cash Loans Real Estate Loans Sales Finance Contracts Less: Unearned Finance Charges Unearned Insurance Premiums and Commissions Allowance for Loan Losses Net Loans	270,122,554 24,850,555 35,459,029 330,432,138 35,510,125 20,057,025 18,385,085 256,479,903	267,999,176 23,563,575 33,724,033 325,286,784 36,615,665 20,723,607 18,085,085 249,862,427

INVESTMENT SECURITIES: Available for Sale, at fair market Held to Maturity, at amortized cost	55,671,689 20,788,135 76,459,824	52,032,039 21,034,074 73,066,113

OTHER ASSETS	14,129,682	13,740,379

TOTAL ASSETS	$ 372,278,103	$ 362,567,269

LIABILITIES AND STOCKHOLDERS' EQUITY

SENIOR DEBT	$ 174,701,412	$ 181,474,304
OTHER LIABILITIES	14,352,983	15,538,750
SUBORDINATED DEBT	78,627,622	67,189,657
Total Liabilities	267,682,017	264,202,711

STOCKHOLDERS' EQUITY:
Preferred Stock; $100 par value	--	--
Common Stock Voting Shares; $100 par value; 2,000 shares authorized; 1,700 shares outstanding Non-Voting Shares; no par value; 198,000 shares authorized; 168,300 shares outstanding	170,000 --	170,000 --
Accumulated Other Comprehensive Income	(6,833)	243,805
Retained Earnings	104,432,919	97,950,753
Total Stockholders' Equity	104,596,086	98,364,558

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 372,278,103	$ 362,567,269

See Notes to Consolidated Financial Statements


1^st FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	(Unaudited)		(Unaudited)
	2007	2006	2007	2006

INTEREST INCOME	$ 22,233,042	$ 19,795,213	$ 44,261,350	$39,111,414
INTEREST EXPENSE	3,863,170	2,769,076	7,510,233	5,202,827
NET INTEREST INCOME	18,369,872	17,026,137	36,751,117	33,908,587

Provision for Loan Losses	4,411,644	4,249,343	8,218,269	7,752,813

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	13,958,228	12,776,794	28,532,848	26,155,774

NET INSURANCE INCOME Premiums and Commissions Insurance Claims and Expenses	8,193,216 1,659,145 6,534,071	7,571,141 1,513,307 6,057,834	16,361,423 3,197,009 13,164,414	14,984,006 2,965,706 12,018,300

OTHER REVENUE	1,145,245	161,010	2,121,210	333,553

OTHER OPERATING EXPENSES: Personnel Expense Occupancy Expense Other Total	10,506,547 2,439,798 4,203,149 17,149,494	9,604,663 2,254,338 4,101,856 15,960,857	21,287,152 4,756,386 8,957,969 35,001,507	19,631,889 4,443,361 8,562,083 32,637,333

INCOME BEFORE INCOME TAXES	4,488,050	3,034,781	8,816,965	5,870,294

Provision for Income Taxes	710,981	660,187	1,426,997	1,326,373

NET INCOME	3,777,069	2,374,594	7,389,968	4,543,921

RETAINED EARNINGS, Beginning of Period	101,557,798	92,915,819	97,950,753	90,746,492

Distributions on Common Stock	901,948	--	907,802	--

RETAINED EARNINGS, End of Period	$104,432,919	$95,290,413	$ 104,432,919	$ 95,290,413

BASIC EARNINGS PER SHARE: 170,000 Shares outstanding for all periods (1,700 voting, 168,300 non-voting)	$22.22	$13.97	$43.47	$26.73


See Notes to Consolidated Financial Statements


1^ST FRANKLIN FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,
	_(Unaudited)
	2007	2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$ 7,389,968	$ 4,543,921
Adjustments to reconcile net income to net cash provided by operating activities: Provision for Loan Losses Depreciation and Amortization Prepaid Income Taxes Other, net Decrease in Miscellaneous Assets Decrease in Other Liabilities Net Cash Provided	8,218,269 987,417 28,219 70,772 (297,995) (1,179,254) 15,217,396	7,752,813 931,294 86,788 (46,803) (331,901) (1,277,101) 11,659,011

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased Loan payments Increase in restricted cash Purchases of marketable debt securities Redemptions of marketable debt securities Fixed asset additions, net Net Cash Used	(118,474,987) 103,639,242 (95,694) (9,323,819) 5,592,000 (1,096,759) (19,760,017)	(111,095,681) 94,636,492 (142,368) (7,559,666) 3,163,000 (679,099) (21,677,322)

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in senior debt Subordinated debt issued Subordinated debt redeemed Dividends / Distributions Net Cash Provided (Used)	(6,772,892) 18,010,730 (6,572,765) (907,802) 3,757,271	(2,977,743) 21,201,396 (6,905,181) -- (11,318,472)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(785,350)	1,300,161

CASH AND CASH EQUIVALENTS, beginning	24,028,767	13,988,091

CASH AND CASH EQUIVALENTS, ending	$ 23,243,417	$ 15,288,252


Cash paid during the period for: Interest Income Taxes	$ 7,494,231 1,831,208	$ 5,068,456 1,603,891

See Notes to Consolidated Financial Statements


-NOTES TO UNAUDITED FINANCIAL STATEMENTS-

Note 1 – Basis of Presentation

	The accompanying interim financial information of 1^st Franklin Financial Corporation and subsidiaries (the "Company") should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto as of December 31, 2006 and for the year then ended included in the Company's December 31, 2006 Annual Report.

	In the opinion of Management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of June 30, 2007 and December 31, 2006 and the results of its operations and cash flows for the three and six months ended June 30, 2007 and 2006. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Company believes that the disclosures herein are adequate to make the information presented not misleading.

	The results of operations for the six months ended June 30, 2007 are not necessarily indicative of the results to be expected for the full fiscal year.

	The computation of earnings per share is self-evident from the Consolidated Statements of Income and Retained Earnings.

	Recent Accounting Pronouncements: In June 2006, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB No. 109, “Accounting for Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements by prescribing how companies should recognize, measure, present and disclose uncertain tax positions that have been taken on a tax return. The Company adopted FIN 48 effective January 1, 2007 and there was no impact on its consolidated financial statements. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements disclosures about fair measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that SFAS No. 157 may have on its consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115,” (“SFAS No. 159”), which permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 109 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect that SFAS No. 159 may have on its consolidated financial statements.


Note 2 – Allowance for Loan Losses

	An analysis of the allowance for loan losses for the six-month periods ended June 30, 2007 and 2006 is shown in the following table:
		Six Months Ended June 30, 2007	Six Months Ended June 30, 2006
	Beginning Balance Provision for Loan Losses Charge-offs Recoveries Ending Balance	$ 18,085,085 8,218,269 (10,835,078) 2,916,809 $ 18,385,085	$ 16,885,085 7,752,813 (9,933,929) 2,781,116 $ 17,485,085


Note 3 – Investment Securities

	Debt securities available for sale are carried at estimated fair market value. Debt securities designated as "Held to Maturity" are carried at amortized cost based on Management's intent and ability to hold such securities to maturity. The amortized cost and estimated fair market values of these debt securities were as follows:
		As of June 30, 2007		As of December 31, 2006
		Amortized Cost	Estimated Fair Market Value	Amortized Cost	Estimated Fair Market Value
	Available for Sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies Obligations of states and political subdivisions Corporate securities	$ 10,258,615 45,454,432 130,316 $ 55,843,363	$ 10,094,220 44,758,370 819,099 $ 55,671,689	$ 12,512,644 39,275,384 130,316 $ 51,918,344	$ 12,348,660 38,941,756 741,623 $ 52,032,039



		As of June 30, 2007		As of December 31, 2006
		Amortized Cost	Estimated Fair Market Value	Amortized Cost	Estimated Fair Market Value
	Held to Maturity: U.S. Treasury securities and obligations of U.S. government corporations and agencies Obligations of states and political subdivisions	$ 5,466,505 15,321,629 $ 20,788,134	$ 5,340,188 15,235,308 $ 20,575,496	$ 5,467,437 15,566,637 $ 21,034,074	$ 5,340,055 15,593,207 $ 20,933,262


Gross unrealized losses totaled $1,186,830 and $866,394 at June 30, 2007 and December 31, 2006, respectively. The following table provides an analysis of investment securities in an unrealized loss position for which other-than-temporary impairments have not been recognized as of June 30, 2007:

	Less than 12 Months		12 Months or Longer		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$ 823,798	$ 3,144	$ 7,920,769	$ 164,172	$ 8,744,567	$ 167,316
Obligations of states and political subdivisions	19,183,254	204,900	19,919,485	554,446	39,102,739	759,346
Total	20,007,052	208,044	27,840,254	718,618	47,847,306	926,662


		Less than 12 Months		12 Months or Longer		Total
		Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
	Held to Maturity:
	U.S. Treasury securities and obligations of U.S. government corporations and agencies	--	--	4,635,594	126,355	4,635,594	126,355
	Obligations of states and political subdivisions	5,293,810	39,449	3,953,343	94,364	9,247,153	133,813
	Total	5,293,810	39,449	8,588,937	220,719	13,882,747	260,168

	Overall Total	$ 25,300,862	$ 247,493	$ 36,429,191	$ 939,337	$ 61,730,053	$ 1,186,830

The table above represents 182 investments held by the Company, the majority of which are rated AAA by Standard & Poor’s, which is the highest rating given by this service. The unrealized losses on the Company’s investments listed in the above table were primarily the result of interest rate increases. The total impairment was less than 2% of the fair value of the affected investments. Based on the ratings of these investments, the Company’s ability and intent to hold these investments until a recovery of fair value and after considering the severity and duration of the impairments, the Company does not consider the impairment of these investments to be other-than-temporary at June 30, 2007.


Note 4 – Commitments and contingencies

	The Company is involved in various legal proceedings incidental to its business from time to time. In the opinion of Management, the ultimate resolution of any such known claims or lawsuits is not expected to have a material effect on the Company's financial position, liquidity or results of operations.


Note 5 – Income Taxes

	Effective income tax rates were 16% and 23% during the six-month periods ended June 30, 2007 and 2006, respectively, and 16% and 36% during the three-month periods then ended. The Company has elected to be treated as an S Corporation for income tax reporting purposes. Taxable income or loss of an S Corporation is included in the individual tax returns of the stockholders of the Company, rather than being taxed at the corporate level. Notwithstanding this election, income taxes are reported for the Company's insurance subsidiaries, as they are not allowed by law to be treated as S Corporation, as well as for the Company in Louisiana, which does not recognize S Corporation status. The tax rates of the Company’s insurance subsidiaries are below statutory rates due to (i) certain benefits provided by law to life insurance companies, which reduce the effective tax rates and (ii) investments in tax exempt bonds held by the Company’s property insurance subsidiary.


Note 6 – Other Comprehensive Income

	Comprehensive income was $4.1 million and $7.1 million for the three- and six month periods ended June 30, 2007, respectively, as compared to $2.1 million and $3.9 million for the same periods in 2006. Accumulated other comprehensive income consisted solely of unrealized gains and losses on investment securities available for sale, net of applicable deferred taxes. The Company recorded $.2 million and $.3 million in other comprehensive losses during the three-and six month periods ended June 30, 2007. During the same prior year periods, the Company recorded $.3 million and $.7 million, respectively, in accumulated other comprehensive losses.


Note 7 – Line of Credit

	The Company has an external source of funds through available borrowings under a credit agreement. The credit agreement provides for maximum borrowings of $50.0 million or 80% of the Company’s net finance receivables (as defined in the credit agreement), whichever is less. The Company’s credit agreement has a commitment termination date of December 15, 2009 and contains covenants customary for financing transactions of this type. Available borrowings under the agreement were $39.1 million and $25.2 million at June 30, 2007 and December 31, 2006, respectively.


Note 8 – Related Party Transactions

	The Company engages from time to time in other transactions with related parties. Please refer to the disclosure contained under the heading “Certain Relationships and Related Transactions” contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2006 for additional information on related party transactions.

Note 9 - Segment Financial Information

The Company has six reportable segments. Division I through Division V and Division VII. Each segment is comprised of a number of branch offices that are aggregated based on vice president responsibility and geographic location. Division I is comprised of offices located in South Carolina. Offices in North Georgia comprise Division II, Division III is comprised of offices in South Georgia, and Division VII is comprised of offices in West Georgia. Division IV represents our Alabama offices and our offices in Louisiana and Mississippi encompass Division V. Division VI is reserved for future use.

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.

The following table summarizes assets, revenues and profit by business segment. A reconciliation to consolidated net income is also provided.


	Division	Division	Division	Division	Division	Division
	I	II	III	IV	V	VII	Total
	_{(in Thousands)}
Segment Revenues:
3 Months ended 6/30/07	$ 3,678	$ 4,347	$ 6,433	$ 5,201	$ 4,760	$ 4,897	$ 29,316
3 Months ended 6/30/06	3,483	3,577	5,619	4,498	4,003	4,334	25,514
6 Months ended 6/30/07	7,433	8,494	12,967	10,421	9,522	9,905	58,742
6 Months ended 6/30/06	7,104	7,135	11,210	8,924	7,552	8,760	50,685
Segment Profit:
3 Months ended 6/30/07	$ 508	$ 1,573	$ 2,232	$ 1,897	$ 1,351	$ 1,743	$ 9,304
3 Months ended 6/30/06	525	1,071	1,498	1,641	1,170	1,455	7,360
6 Months ended 6/30/07	1,160	3,025	4,888	3,880	2,886	3,723	19,562
6 Months ended 6/30/06	1,152	2,253	3,721	3,414	2,051	3,255	15,846
Segment Assets:
6/30/07	$ 36,964	$ 42,858	$ 62,803	$ 56,271	$ 42,090	$ 49,563	$ 290,549
6/30/06	35,002	36,878	58,700	51,632	38,282	45,322	265,816

			3 Months Ended 6/30/07 ^{(in 000's)}	3 Months Ended 6/30/06 ^{(in 000's)}	6 Months Ended 6/30/07 ^{(in 000's)}	6 Months Ended 6/30/06 ^{(in 000's)}
Reconciliation of Profit:
Profit per segments			$ 9,305	$ 7,360	$ 19,563	$ 15,846
Corporate earnings (losses) not allocated			2,255	2,014	4,002	3,744
Corporate expenses not allocated			(7,072)	(6,339)	(14,748)	(13,720)
Income taxes not allocated			(711)	(660)	(1,427)	(1,326)
Net income			$ 3,777	$ 2,375	$ 7,390	$ 4,544


BRANCH OPERATIONS
Ronald E. Byerly	Vice President
Dianne H. Moore	Vice President
Ronald F. Morrow	Vice President
J. Patrick Smith, III	Vice President
Virginia K. Palmer	Vice President
Michael J. Whitaker	Vice President


REGIONAL OPERATIONS DIRECTORS
Sonya Acosta	Glenn Drawdy	Sharon Langford	Larry Nixon
Bert Brown	Patricia Dunaway	Jeff Lee	Mike Olive
Keith Chavis	Shelia Garrett	Mike Lee	Hilda Phillips
Janice Childers	Brian Gray	Tommy Lennon	Henrietta Reathford
Rick Childress	Harriet Healey	Jimmy Mahaffey	Michelle Rentz
Bryan Cook	Jack Hobgood	Judy Mayben	Gaines Snow
Jeremy Cranfield	Bruce Hooper	Brian McSwain	Marc Thomas
Joe Daniel	Jerry Hughes	Roy Metzger	Lynn Vaughan
Loy Davis	Judy Landon	Marty Miskelly


BRANCH OPERATIONS

ALABAMA
Albertville	Center Point	Fayette	Moody	Ozark	Selma
Alexander City	Clanton	Florence	Moulton	Pelham	Sylacauga
Andalusia	Cullman	Gadsden	Muscle Shoals	Prattville	Troy
Arab	Decatur	Hamilton	Opelika	Russellville (2)	Tuscaloosa
Athens	Dothan (2)	Huntsville (2)	Opp	Scottsboro	Wetumpka
Bessemer	Enterprise	Jasper	Oxford

GEORGIA
Adel	Canton	Dahlonega	Glennville	Madison	Statesboro
Albany	Carrollton	Dallas	Gray	Manchester	Stockbridge
Alma	Cartersville	Dalton	Greensboro	McDonough	Swainsboro
Americus	Cedartown	Dawson	Griffin (2)	Milledgeville	Sylvania
Athens (2)	Chatsworth	Douglas (2)	Hartwell	Monroe	Sylvester
Bainbridge	Clarkesville	Douglasville	Hawkinsville	Montezuma	Thomaston
Barnesville	Claxton	East Ellijay	Hazlehurst	Monticello	Thomson
Baxley	Clayton	Eastman	Helena	Moultrie	Tifton
Blairsville	Cleveland	Eatonton	Hinesville (2)	Nashville	Toccoa
Blakely	Cochran	Elberton	Hogansville	Newnan	Valdosta (2)
Blue Ridge	Colquitt	Fitzgerald	Jackson	Perry	Vidalia
Bremen	Commerce	Flowery Branch	Jasper	Pooler	Villa Rica
Brunswick	Conyers	Forsyth	Jefferson	Richmond Hill	Warner Robins
Buford	Cordele	Fort Valley	Jesup	Rome	Washington
Butler	Cornelia	Gainesville	LaGrange	Royston	Waycross
Cairo	Covington	Garden City	Lavonia	Sandersville	Waynesboro
Calhoun	Cumming	Georgetown	Lawrenceville	Savannah	Winder

LOUISIANA
Alexandria	Eunice	Houma	Leesville	Natchitoches	Pineville
Crowley	Franklin	Jena	Marksville	New Iberia	Prairieville
Denham Springs	Hammond	Lafayette	Morgan City	Opelousas	Slidell
DeRidder



BRANCH OPERATIONS
(Continued)

MISSISSIPPI
Batesville	Columbus	Hattiesburg	Jackson	New Albany	Ripley
Bay St. Louis	Corinth	Hazlehurst	Kosciusko	Newton	Senatobia
Brookhaven	Forest	Hernando	Magee	Oxford	Starkville
Booneville	Grenada	Houston	McComb	Pearl	Tupelo
Carthage	Gulfport	Iuka	Meridian	Picayune	Winona
Columbia

SOUTH CAROLINA
Aiken	Charleston	Easley	Lancaster	North Augusta	Simpsonville
Anderson	Chester	Florence	Laurens	North Charleston	Spartanburg
Barnwell	Clemson	Gaffney	Lexington	North Greenville	Summerville
Batesburg- Leesvile	Columbia	Greenville	Lugoff	Orangeburg	Sumter
Boiling Springs	Conway	Greenwood	Marion	Rock Hill	Union
Cayce	Dillon	Greer	Newberry	Seneca	York


DIRECTORS

Ben F. Cheek, III Chairman and Chief Executive Officer 1^st Franklin Financial Corporation	C. Dean Scarborough Realtor

Ben F. Cheek, IV Vice Chairman 1^st Franklin Financial Corporation	Jack D. Stovall President, Stovall Building Supplies, Inc.

A. Roger Guimond Executive Vice President and Chief Financial Officer 1^st Franklin Financial Corporation	Dr. Robert E. Thompson Retired Physician

John G. Sample, Jr. Senior Vice President and Chief Financial Officer Atlantic American Corporation	Keith D. Watson Vice President and Corporate Secretary Bowen & Watson, Inc.