SECURITIES AND EXCHANGE COMMISSION

Accumulated

Common Stock

Comprehensive

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Annual Report to security holders for the fiscal year ended December 31, 2010, included as Exhibit 13 hereto, are incorporated by reference into Parts I and II of this Form 10-K.

(Cover page 2 of 2 pages)

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PART I

Item 1.

BUSINESS:

The Company, Page 1 and Business, Pages 4-11, of the Company’s Annual Report to security holders for the fiscal year ended December 31, 2010 (the “Annual Report”) are incorporated herein by reference.

Item 1A.

RISK FACTORS:

A potential investor should carefully consider the risks described below, as well as the other risks and information disclosed from time to time by 1^st Franklin, before deciding whether to invest in the Company. Additional risks and uncertainties not described below, not presently known to us or that we currently do not consider to be material could also adversely affect us. If any of the situations described in the following risk factors actually occur, our business, financial condition or results of operations could be materially adversely affected. In any of these events, an investor may lose part or all of his or her investment.

Because we require a substantial amount of cash to service our debt, we may not be able to pay all of the obligations under our indebtedness.

To service our indebtedness, including paying interest on the sale of outstanding debt securities and amounts due under our credit agreement, we require a significant amount of cash. Our ability to generate cash depends on many factors, including our successful financial and operating performance. We cannot assure you that our business strategy will continue to be successful, or that we will achieve our anticipated or required financial results.

If we do not achieve our anticipated or required results, we may not be able to generate sufficient cash flow from operations or to obtain sufficient funding to satisfy all of our obligations. The failure to do this would result in a material adverse effect on our business.

Because we depend on liquidity to operate our business, a decrease in the sale of our debt securities, an increase in requests for their redemption or the unavailability of borrowings under our credit facility may make it more difficult for us to operate our business and pay our obligations in a timely manner.

Our liquidity depends on, and we fund our operations through, the sale of our debt securities, the collection of our receivables and the continued availability of borrowings under our credit agreement. Numerous available investment alternatives have resulted in investors evaluating more critically their investment opportunities. We cannot assure you that our debt securities will offer interest rates and redemption terms which will generate sufficient sales to meet our liquidity requirements.

As described more fully elsewhere in this Annual Report, our senior demand notes can be redeemed at any time without penalty. Our variable rate subordinated debentures are subject to optional redemption by investors at various times prior to their maturity and holders may request that we redeem debentures during an interest adjustment period, although we are not obligated to accept such requests, and such requests are subject to interest penalties. It is possible that a significant number of redemption requests could adversely affect our liquidity.

Borrowings under our credit facility are subject to, among other things, a borrowing base. In the event we are not able to borrow amounts under our credit facility, whether as a result of having reached our maximum borrowing availability there under or otherwise, we may not be able to fund loans to customers, redeem securities when required or invest in our operations as needed.

Our failure to be able to obtain or maintain sufficient liquidity could have a material adverse effect on our business, financial condition and results of operations.

Because most of our loans are made to salaried people and other wage earners who generally depend upon their earnings to meet their repayment obligations, continued

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high or further increased unemployment could adversely impact our liquidity, financial condition and results of operations.

Our business consists mainly of making loans to salaried people or other wage earners who generally depend on their earnings to meet their repayment obligations. As a result, the loss of employment by such borrowers is likely to make it more difficult for them to timely repay their obligations to the Company. Additionally, adverse general economic conditions, including high unemployment rates as currently exist, often result in additional challenges for both the Company and potential customers, resulting in an increased number of bankruptcy filings and a lower number of qualified borrowers. Continued high unemployment, or protracted adverse economic conditions, could result in the Company’s liquidity, financial condition and results of operations being materially adversely impacted.

In either event, any reduced liquidity could negatively impact our ability to be able to fund loans, or to pay the principal and interest on any of our outstanding debt securities at any time, including when due.

All of our offers and sales of securities must comply with applicable securities laws, or we could be liable for damages, which could impact our ability to make payments on our outstanding debt securities.

Offers and sales of all of our securities must comply with all applicable federal and state securities laws, including Section 5 of the Securities Act of 1933. If any of our offers, including those made pursuant to newspaper or radio advertisements, or sales are found not to be in compliance with any of these laws, we could be liable to certain purchasers of the security, could be required to offer to repurchase the security, or could be liable for damages or other penalties. If we are required to repurchase any of our securities other than in the ordinary course of our business as a result of any such violation, or otherwise are found to be liable for any damages or penalties as a result of any such violation, our financial condition could be materially adversely affected. Any such adverse effect on our financial condition could materially impair our ability to fund loans in the ordinary course of business or pay principal and interest on our outstanding debt securities.

Uncertain economic conditions could negatively affect our results and profitability.

Continued higher than historically normal unemployment levels and other factors typical of recessionary economic cycles could affect our investors’, customers’, and potential investors’ and customers’ disposable income, confidence, and spending patterns and preferences, which in turn could negatively impact the making of loans, our sales of investment securities and our customers’ ability to repay their obligations to us. We establish an allowance for loan losses at a level considered adequate by management to absorb potential loan losses inherent in the loan portfolio as of the balance sheet date. The amount of future loan losses is susceptible to changes in economic, operating and other conditions within our market, which may be beyond our control, and such losses may exceed current estimates. Although Management believes that the Company’s allowance for loan losses is adequate to absorb losses on any existing loans that may become uncollectible, we cannot estimate loan losses with certainty, and we cannot provide any assurances that our allowance for loan losses will prove sufficient to cover actual loan losses in the future. Loan losses in excess of our reserves may adversely affect our financial condition and results of operations.

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

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. The loans we make in the ordinary course of our business are subject to 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 our loans are made at fixed interest rates and are made using the proceeds from the sale of our fixed and variable rate securities, we may

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experience a decrease in our net interest margin because increased interest costs cannot be passed on to all of our loan customers. A reduction in our net interest margin could adversely affect our ability to make payments on our outstanding debt securities.

Neither the Company nor any of its debt securities are or will be rated by any nationally recognized statistical rating agency, and this may increase the risk of your investment.

Neither 1^st Franklin nor any of its debt securities are, or are expected to be, rated by any nationally recognized statistical rating organization. Typically, credit ratings assigned by such organizations are based upon an assessment of a company’s creditworthiness and are a measure used in establishing the interest rate that a company offers on debt securities it issues. Without any such rating, it is possible that fluctuations in general economic, or industry specific, business conditions, changes in results of operations, or other factors that affect the creditworthiness of a debt issuer may not be fully reflected in the interest rate on any outstanding indebtedness of that issuer. Investors in the Company’s securities must depend solely on the creditworthiness of 1^st Franklin for the payment of principal and interest on those securities. In the absence of any third party credit rating, it is possible that the interest rates offered by the Company on its debt securities may not represent the credit risk that an investor assumes in purchasing any of these securities.

Consumer finance companies such as the Company are subject to an increasing number of laws and government regulations, and if we fail to comply with these laws or regulations, our business may suffer and our ability to pay our obligations may be impaired.

Our operations are subject to increasing focus by federal, state and local government authorities and state attorneys general and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions on certain lending practices by companies in the consumer finance industry, sometimes referred to as "predatory lending" practices. These requirements and restrictions, among other things:

•

require that we obtain and maintain certain licenses and qualifications;

•

limit the interest rates, fees and other charges that we are allowed to charge;

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require specified disclosures to borrowers;

•

limit or prescribe other terms of our loans;

•

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.

In addition, other state and local laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the loans we make. 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 any of those laws, or in their interpretation, 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. The burdens of complying with these laws and regulations, and the possible sanctions if we do not so comply, are significant, and may result in a downturn in our business or our inability to carry on our business in a manner similar to how we currently operate.

If we experience unfavorable litigation results, our ability to timely meet our obligations may be impaired.

As a consumer finance company, in addition to being subject to stringent regulatory requirements discussed above, we may, from time to time, be subject to various consumer

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claims and litigation seeking damages and statutory penalties. The damages and penalties claimed by consumers and others can often be substantial. The relief requested varies but generally includes requests for compensatory, statutory and punitive damages. Unfavorable outcomes in any litigation or statutory proceedings could materially and adversely affect our results of operations, financial condition and cash flows and our ability to make payments on our outstanding obligations.

While we would expect to vigorously defend ourselves against any of these proceedings, there is a chance that our results of operations, financial condition and cash flows could be materially and adversely affected by unfavorable outcomes which, in turn, could affect our ability to fund loans or make payments on, or repay, our outstanding obligations, any of which could materially adversely effect our business, results of operations and financial condition.

We operate in a highly competitive environment.

The financing industry is highly competitive. We compete with, among others, large national and regional finance companies. Increased competition could adversely affect our ability to attract and retain business and reduce the profits that would otherwise arise from operations.

We are exposed to the risk of technology failures.

Our daily operations depend heavily on our computer systems, data system networks and service providers to consistently provide efficient and reliable service. The Company may be subject to disruptions in its operating systems arising from events that are wholly or partially beyond its control, which in turn may give rise to disruption of service to our customers. If our systems were to become unreliable, fail, or experience a breach of security, our ability to maintain accurate financial records may be impaired, which could materially impact our business operations and financial condition.

Our business could be adversely affected by the loss of one or more key employees.

We are heavily dependent upon our senior management and the loss of services of any of our senior executives could adversely affect our business. Our success has been, and will continue to be, dependent on our ability to retain the services of existing key employees. The loss of the services of key employees or senior management could adversely affect the quality and profitability of our business operations.

Item 1B.

UNRESOLVED STAFF COMMENTS:

Not Applicable.

Item 2.

PROPERTIES:

Paragraph 1 of The Company, Page 1; paragraph 1 (and the accompanying table) of Footnote 8 (Commitments and Contingencies) of the Notes to Consolidated Financial Statements, Page 37; and map of branch offices, page 46 of the Company’s Annual Report for the year ended December 31, 2010, included herewith as Exhibit 13 (the “Annual Report”), are incorporated herein by reference.

Item 3.

LEGAL PROCEEDINGS:

From time to time, the Company is involved in various claims and lawsuits incidental to its business. In the opinion of Management based on currently available facts, the ultimate resolution of any such known claims and lawsuits is not expected to have a material effect on the Company’s financial position, liquidity, or results of operations.

Item 4.

RESERVED.

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PART II

Item 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES:

Sources of Funds, Page 11 of the Annual Report is incorporated herein by reference.

Item 6.

SELECTED FINANCIAL DATA:

Selected Consolidated Financial Information, Page 3 of the Annual Report is incorporated herein by reference.

Item 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS:

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Pages 12-20 of the Annual Report is incorporated herein by reference.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk sub-heading, Page 16 of the Annual Report is incorporated herein by reference.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

Report of Independent Registered Public Accounting Firm and the Company’s Consolidated Financial Statements and Notes thereto, Pages 21-42 of the Annual Report are incorporated herein by reference.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE:

Not applicable.

Item 9A.

CONTROLS AND PROCEDURES:

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chairman and Chief Executive Officer (“CEO”) and Executive Vice

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President and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures as of December 31, 2010. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures under Rule 13a-14(c) and Rule 15d-14(c) of the Securities Exchange Act of 1934 were effective at December 31, 2010.

There have been no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING:

The Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. An internal control system over financial reporting has been designed to provide reasonable assurance regarding the reliability and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management recognizes that there are inherent limitations in the effectiveness of any internal control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 based upon the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this evaluation, Management believes that internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), was effective as of December 31, 2010.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding the effectiveness of internal controls over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to certain rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this Annual Report.

Item 9B.

OTHER INFORMATION:

Not Applicable

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Forward Looking Statements:

Certain statements contained or incorporated by reference herein under the captions “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and elsewhere in this Annual Report may constitute “forward-looking statements” within the meaning of the federal securities laws. 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, among other things, those set out under the caption “Risk Factors”, the ability to manage cash flow and working capital, the accuracy of Management’s estimates and judgments, adverse economic conditions including the interest rate environment, unfavorable outcomes of litigation, federal and state regulatory changes and other factors referenced elsewhere herein or incorporated herein by reference.

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PART III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS


			Position(s)
Name of Director	Age	Director Since	with Company

Ben F. Cheek, III (3)(5)	74	1967	Chairman of Board / Chief Executive Officer

Ben F. Cheek, IV (3)(4)(5)	49	2001	Vice Chairman

A. Roger Guimond (3)(5)	56	2004	Executive Vice President / Chief Financial Officer

John G. Sample, Jr. (1)(2)(5)	54	2004	None

C. Dean Scarborough (1)(2)(5)	56	2004	None

Robert E. Thompson (1)(2)(5)	78	1970	None

Keith D. Watson (1)(2)(5)	53	2004	None

(1)

Member of Audit Committee.

(2)

Mr. Sample has been the Senior Vice President and Chief Financial Officer of Atlantic American Corporation, an insurance holding company, since 2002. Prior thereto, he was a partner with Arthur Andersen LLP since 1990. For more than five years prior to 2006, Mr. Scarborough was co-owner of Scarborough’s Men’s Store. He sold his interest in this business in 2006 and now is involved in real estate sales. Dr. Thompson is a retired physician. Mr. Watson is Vice President and Corporate Secretary of Bowen & Watson, Inc., a general contracting company. Mr. Watson has been in his position of employment, and Dr. Thompson has been retired, for more than five years.

(3)

Reference is made to “Executive Officers” for a discussion of business experience.

(4)

Son of Ben F. Cheek, III.

(5)

The term of each director will expire when a successor to such director is elected and qualified.

There was no, nor is there presently any, arrangement or understanding between any director and any other person (except directors and officers of the registrant acting solely in their capacities as such) pursuant to which the director was selected.

Ben F. Cheek, III, majority shareholder of the Company, and whose family directly or indirectly owns all of the shares of the Company’s stock, currently serves as both Chief Executive Officer and Chairman of the Board. Shares of the Company’s stock are not currently traded on any national securities exchange or listed for trading or quoted by any national securities association. The Company’s Board of Directors believes that, due to the fact that the Company’s shares are privately held and Mr. Cheek, III has significant knowledge of all aspects of its business and operations, the combination of these two positions fosters more consistent communication, accountability and alignment on corporate strategy. Given the

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relatively low historical turnover of members of the Board of Directors and the strong working relationship between such members, the Board has not appointed a lead independent director.

The day-to-day management of the Company, including identifying and evaluating current and potential risks within financial operations, compensation related and other processes and development is primarily the responsibility of the Company’s Executive Management Team (the “EMT”). The executive officers comprising the EMT are: Messrs. Cheek, III, Cheek, IV, Guimond, Haynie, Culpepper and Vercelli, and Ms. Herring and Ms. Lovern. The Board of Directors maintains the ultimate responsibility for oversight of the Company’s risks. In fulfilling its duties, the Board allocates a portion of its direct oversight responsibilities to various committees. The Audit Committee has specific responsibility for oversight of risks associated with financial accounting and audits, as well as internal control over financial reporting. The Board receives, evaluates and discusses presentations, at least quarterly, on the financial condition and operating results of the Company. Management discusses matters of particular importance or concern as they may be materially impacted by risk on an ongoing basis, and members of the EMT remain available to members of the Board for discussion and review both during meetings of the Board of Directors and at other times.

Notwithstanding the fact that the Company’s equity securities are not currently traded on any national securities exchange or with any national securities association, the Board of Directors has determined that Messrs. Sample, Scarborough, and Watson, and Dr. Thompson, are “independent” (as such term is defined in the rules of the Securities and Exchange Commission (the “SEC”) and the NASDAQ Marketplace Rules). In making this determination, the Board concluded that none of such persons have a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

The Audit Committee is composed of Messrs. Sample, Scarborough, and Watson, and Dr. Thompson. Notwithstanding the fact that the Company’s equity securities are not currently traded on any national securities exchange or with any national securities association, in accordance with the provisions of the charter of the Audit Committee, the Board of Directors has determined that the members thereof are “independent” and that Mr. Sample is an “audit committee financial expert” as defined by the SEC in Rule 407(d)(5) of Regulation S-K. In making such determination, the Board of Directors took into consideration, among other things, the express provision in Item 407(d)(5) of Regulation S-K that the designation of a person as an audit committee financial expert shall not impose any greater responsibility or liability on that person than the responsibility and liability imposed on that person as a member of the Audit Committee, nor shall it affect the duties or obligations of other Audit Committee members of the Board of Directors. A copy of the Company’s Audit Committee charter is publicly available on the Company’s website at: http//www.1ffc.com.

The Company is a family owned business in which Ben F. Cheek, III is the majority shareholder. Because of the closely held nature of ownership, the Company does not have an official compensation committee (or other official committee of the Board of Directors performing equivalent functions) or a charter outlining the responsibilities thereof. The EMT establishes the basis for all executive compensation, which compensation is approved by Mr. Cheek, III. Additional information concerning the processes and procedures for the consideration and determination of executive officer and director compensation is contained under the heading “Compensation Discussion and Analysis” below.

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Director Qualifications:

The members of the Board of Directors each have the qualifications we believe necessary and desirable to appropriately perform their duties. Each member has an exemplary record of professional integrity, a dedication to their respective professions and a strong work ethic.


Director	Summary of Qualifications

Ben F. Cheek, III	Executive officer of the Company and majority stockholder of the Company. Extensive knowledge in the banking and consumer finance industry. Previously served as director of a Habersham Bancorp. Has legal background as an attorney. Has 49 years experience with the Company. Has previously served as board member on various consumer industry associations.

Ben F. Cheek, IV	Executive officer of the Company and stockholder in the Company. Knowledgeable in the banking and consumer finance industry. Has been with the Company for 25 years. Currently serves on two of the industry’s state association boards and serves as a board member on our industry’s national association.

A. Roger Guimond	Executive officer of the Company. Knowledgeable in the banking and consumer finance industry. Has been with the Company for 34 years and is responsible for the accounting, audit and compliance, technology infrastructure and investment center operations of the Company. Significant experience in finance and related areas.

John G. Sample, Jr.	Independent director. Extensive knowledge in accounting and reporting standards. Prior experience as an audit partner in an international independent registered public accounting firm. Experience and knowledge of the insurance industry through oversight of operating companies. Knowledgeable of the Company’s operations. Has served as director of the Company for 6 years and is the Company’s audit committee chairman.

C. Dean Scarborough	Independent director. Previously served on board of a community bank. Knowledgeable about the Company’s operations. Currently involved in real estate sales and serves as a county commissioner for Stephens County, Georgia, where the Company maintains its headquarters. Has served as director of the Company for 6 years.

Robert E. Thompson	Independent director. Retired physician. Knowledgeable about the Company’s operations. Has served as director of Company for 40 years.

Keith D. Watson	Independent director. Previously served on board of a community bank. Knowledgeable about the Company’s operations. Has served as director of Company for 6 years. Maintains executive position in self-owned corporation.

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EXECUTIVE OFFICERS


Name, Age, Position(s)
and Family Relationship	Business Experience

Ben F. Cheek, III, 74 Chairman of Board and Chief Executive Officer	Joined the Company in 1961 as attorney and became Vice President in 1962, President in 1972 and Chairman of Board in 1989.

Ben F. Cheek, IV, 49 Vice Chairman Son of Ben F. Cheek, III	Joined the Company in 1988 working in Statistics and Planning. Became Vice Chairman in 2001.

Virginia C. Herring, 47 President Daughter of Ben F. Cheek, III	Joined the Company on a full time basis in April 1988 as Developmental Officer. Since then, she has worked throughout the Company in different departments on special assignments and consultant projects. Became President in 2001.

A. Roger Guimond, 56 Executive Vice President, Chief Financial Officer and Director No Family Relationship	Joined the Company in 1976 as an accountant and became Chief Accounting Officer in 1978, Chief Financial Officer in 1991 and Vice President in 1992. Was appointed Secretary in 1990 and Treasurer in 1992. Became Executive Vice President in 2001. Elected a Director in 2004.

J. Michael Culpepper, 56 Executive Vice President, Chief Operating Officer No Family Relationship	Joined the Company in 1979, became Supervisor in 1984, Area Vice President in 1996, Vice President in 2001 and Executive Vice President and Chief Operating Officer in 2006.

C. Michael Haynie, 56 Executive Vice President - Human Resources No Family Relationship	Joined the Company in 2005 as Vice President - Human Resources. Became Executive Vice President - Human Resources on January 1, 2006.

Karen S. Lovern, 52 Executive Vice President – Strategic and Organization Development No Family Relationship	Joined the Company in 2000 as Director of Training and Development. Became Executive Vice President – Strategic and Organization Development on January 1, 2006.

Charles E. Vercelli, Jr., 50 Executive Vice President – General Counsel No Family Relationship	Joined the Company in 2008 as Executive Vice President – General Counsel. Prior thereto, he provided legal services under his privately held law firm.

Lynn E. Cox, 53 Vice President - Secretary / Treasurer No Family Relationship	Joined the Company in 1983 and became Secretary in 1990. Appointed Treasurer in 2002. Became Area Vice President and Secretary in 2001. Promoted to Vice President in 2005.

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The term of office of each Executive Officer expires when a successor is elected and qualified. There was no, nor is there presently any, arrangement or understanding between any officer and any other person (except directors or officers acting solely in their capacities as such) pursuant to which the officer was selected.

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and controller, or any persons performing similar functions, as well as to its Directors and other employees. A copy of this code of ethics is publicly available on the Company’s website at: http//www.1ffc.com. The Company will provide a copy of this code of ethics, free of charge, upon any written request. Requests should be directed to Lynn Cox, Secretary and Treasurer, 1^st Franklin Financial Corporation, P.O. Box 880, Toccoa, Georgia 30577. If we make any amendment to this code of ethics, other than a technical, administrative, or non-substantive amendment, or we grant any waiver from a provision of the code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or any persons performing similar functions, we will disclose the nature of the amendment or waiver on our website. Also, we may elect to disclose the amendments or waiver in a report on Form 8-K filed with the SEC.

The Company has established an “Ethics Hotline” which enables employees to report any questionable ethics actions including, but not limited to, fraud or deliberate error in recording and/or maintaining accurate records, deficiencies or noncompliance with the Company’s policies. The reporting is strictly confidential and is reviewed by our Vice President of Human Resources and the Chairman of the Audit Committee. Ethics violations that are reported are promptly investigated and appropriate corrective action is taken as warranted by the results of the investigation.

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Item 11.

EXECUTIVE COMPENSATION:

Compensation Discussion and Analysis

Overall Philosophy:

The overall objective of the Company is to achieve specific annual and long-term strategic goals set by the Executive Management Team (the “EMT”) from time to time, while maintaining a healthy and stable financial position. It is part of the overall responsibility of our executive officers to successfully manage the Company to reach this objective. Our compensation philosophy revolves around the motivation to achieve, and achievement of, these goals and is designed to attract and retain top executives, and to incentivize and to reward the executive officers for their efforts and successes, while properly balancing the encouragement of risk-taking behavior.

Role of Executive Officers in Compensation Decisions:

The Company is a family-owned business whose stock is not publicly traded. Ben F. Cheek, III, the Chairman and Chief Executive Officer, is the majority shareholder of the Company. Because of the closely-held nature of ownership, the Company does not have an official compensation committee (or other official committee of the Board of Directors performing equivalent functions). The EMT, consisting of executive officers of the Company, establishes the basis for all executive officer compensation, which compensation is subject to approval by Mr. Cheek, III. The EMT consists of Messrs. Cheek, III, Cheek IV, Guimond, Haynie, Culpepper and Vercelli, and Ms. Herring and Ms. Lovern. The Company has not historically engaged any consultant to advise on compensation related matters.

Components of Compensation:

The principal components of the Company’s executive compensation program include base salary, discretionary bonus awards and non-equity incentive plan compensation. The Company also expects that earnings on non-qualified deferred compensation amounts and other compensation, including certain perquisites as detailed below, will add to each executive officer’s overall total compensation each year. Given the closely-held nature of the Company, the Company does not have available for grant, and does not deem it appropriate to pay, any equity based compensation. The EMT takes into account this fact annually when determining other components and amounts of compensation.

Base Salary:

The Company provides executive officers, and other employees, with a base salary to compensate them for services rendered throughout the year. Salaries for all executive officers are established annually by Messrs. Cheek III and Cheek, IV and Ms. Herring, based on the level of each executive officer’s responsibility, tenure with the Company and certain publicly available market data with respect to salaries paid for like positions in comparable companies. In addition, base salary levels are set at a level designed to take into account the fact that the Company does not provide equity-based compensation, as described elsewhere. Each executive officer has goals set annually which are reviewed with the officer by the President, Vice Chairman and Chief Executive Officer throughout the year. These goals typically vary depending on the nature of the Executive’s responsibilities. A formal individual performance and development review is also held each year with each executive officer and Ms. Herring and Mr. Cheek, III, in which the level of achievement with respect to such goals is discussed. Merit based adjustments to salaries are based on the assessment of each executive’s performance review and overall Company performance.

Bonus Awards:

Bonus amounts paid to the executive officers include discretionary bonuses and may include certain cash bonuses from time to time for special recognition, each determined at the discretion of the EMT and approved by the Chief Executive Officer. The EMT considers, among other factors, the Company’s inability to grant equity-based awards to its officers and employees, as described below, when determining whether and to what extent to make awards. In 2010, it was determined appropriate to award the executive officers a bonus of 4% of their respective base salaries, which was awarded and paid in

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November as a “holiday” bonus. In addition to this 4% bonus, Mr. Cheek, III retains the discretion to award certain additional amounts. In 2010, Mr. Guimond was awarded an additional discretionary bonus in recognition of his continued significant contributions and service to the Company and its subsidiaries (for which he received no separate compensation during such period).

Non-Equity Incentive Compensation:

As described elsewhere herein, the Company’s stock is not traded or quoted on any national securities exchange or association, but is closely held by Mr. Cheek, III, and his family. As a result, the Company does not grant stock or other equity based awards. In consideration of this and other factors, and in order to provide certain known targets, the achievement of which would trigger the payment of additional compensation, the EMT has, historically, adopted annual incentive compensation plans. For example, at the beginning of 2010 the EMT approved the Company’s 2010 Bonus Plan (the “2010 Bonus Plan”).

The 2010 Bonus Plan was a cash-based incentive plan designed to promote high performance and the achievement of various short-term corporate goals. Under the 2010 Bonus Plan, at inception, a minimum pre-tax income threshold of $9.3 million was established as a baseline goal to be achieved in order for any payouts to be made under such Plan. The EMT determined that pre-tax income was an appropriate measure upon which to provide a threshold evaluation of our annual performance because the EMT believes pre-tax income represents an appropriate measure of profitability of the Company to be achieved for the year in order to award non-equity incentive awards.

If that threshold was met, payouts under the 2010 Bonus Plan were based on the number of strategic goals met, as established by the EMT. For 2010, the EMT identified five strategic goals in addition to the minimum pre-tax income threshold goal. Each goal was chosen as a critical metric for the continued growth and financial soundness of the Company based on the impact the achievement of each such goal has on the Company’s results of operations and financial condition. The quantifiable amounts in each of the goals (including the threshold minimum pre-tax income) were determined by the EMT after review and consideration of various internal budgets and forecasts. The goals were:

(i)

Minimum 4.00% corporate net receivables growth;

(ii)

Delinquency control – Percent of accounts with balances 30 days or more

past due, not to exceed 11.50% of outstanding receivables;

(iii) $12.0 million minimum pre-tax income (separate from minimum threshold goal);

(iv) Maximum corporate expense / revenue ratio of 92.50% or less; and

(v) Minimum 2.55% return on assets.

Bonus payouts under the 2010 Plan depended on the number of goals met as follows:

No. of Strategic Goals Met

Bonus Payout (% of Salary)

5% - 25%

5% - 35%

5% - 45%

5% - 55%

5% - 65%

In 2010, the Company exceeded the $9.3 million pre-tax threshold goal. In addition, the Company met all five strategic goals as set out in the 2010 Bonus Plan.

In accordance with discretion afforded the EMT under the 2010 Bonus Plan, amounts paid to each executive officer varied within the payout range depending on personal performance milestones as determined by the EMT. The actual amounts paid to each executive officer are set out in the Summary Compensation Table which follows, under the heading “Non-Equity Incentive Plan Compensation”.

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Deferred Compensation:

The Company offers all eligible employees the opportunity to participate in a Company-sponsored deferred compensation plan in accordance with Section 401(k) of the Internal Revenue Code of 1986 as amended (the “Code”). The Company “matches” employee contributions of up to 6% of their salary, using the following formula: 100% of first 1% and 70% of next 5% of salary deferred.

As a result of certain federal limitations on the ability of management or highly compensated employees (within the respective meanings of Section 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of the Employee Retirement Income Security Act of 1974) to participate in such plans, Management determined to establish the Company’s Executive Nonqualified Deferred Compensation Plan), (the “Deferred Compensation Plan”). Pursuant to the plan, the Company annually credits the account of each participant who received more than the Section 401(a)(17) salary limit (as described in the Code) with a discretionary amount that is usually, but not always, equal to the amount the participant would have received as a 401(k) Company matching contribution on the amount of their salary above the 401(a)(17) limit had they been allowed to defer 6% of that amount into the qualified plan. The EMT determined that it was appropriate to offer the Deferred Compensation Plan, and the matching contribution consistent with the level provided by employees generally, to such persons as if they were eligible to participate in Company sponsored plans open to other employees.

Perquisites and Other Compensation:

The Company believes that providing its executive officers with certain reasonable perquisites and other compensation is consistent with the Company’s overall compensation philosophy designed to attract and retain top executives. The EMT periodically reviews the types and amounts of perquisites and other compensation provided to the Company’s executive officers. In conducting this review, the EMT considers, among other things, the types and ranges of compensation provided at various similar sized or situated companies.

The Company’s executive officers are provided the use of Company-owned automobiles and granted a travel allowance to cover certain costs of business-related travel when an overnight stay is not required and the Company’s travel expense policy is not otherwise involved. These amounts are included in the taxable income of the executive officers. In addition, the Company generally provides certain insurance benefits to its employees and executive officers. This includes long-term disability and travel accident insurance (which pays a benefit upon the occurrence of certain specific events), as well as basic life and accidental death insurance coverage, which coverage is provided on a graduated scale based on seniority. In addition, in recognition of the commitment to the Company by those individuals with twenty or more years of service to the Company, the Company pays the premiums for their personal medical benefits. In 2010 Messrs. Cheek, III, Cheek, IV, Guimond and Culpepper received this benefit. In addition, during 2010, Messrs. Cheek, III and Cheek, IV, and Ms. Herring, based on positions as shareholders and executive officers, were determined eligible to participate in the Company’s medical expenses reimbursement program (“MERP”), which provides reimbursement for amounts not otherwise covered under policies for which these officers are eligible to participate in.

These amounts are reflected in the Summary Compensation Table and related notes below.

Employment Agreements and Change in Control Arrangements:

The Company does not enter into employment agreements with its executive officers. Given the nature and location of its business, and the fact that the Company is a family owned business whose stock is not publicly traded, the Company has not had significant turnover among its senior management, and has determined that it is not necessary to enter into such agreements with its executives.

For similar reasons, due to the nature of compensation and the fact that a change in control of the Company is unlikely without significant input and approval from the EMT and the Company’s closely-held ownership, the EMT has determined that it is not necessary to condition any payments upon, or make any amounts contractually payable upon, any change in control of the Company.

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Compensation Committee Report:

In the absence of a standing compensation committee, the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with Management and, based on such review and discussions, determined that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

The Board of Directors:

Ben F. Cheek, III

C. Dean Scarborough

Ben F. Cheek, IV

Robert E. Thompson

A. Roger Guimond

Keith D. Watson

John G. Sample, Jr.


		Amount and Nature of	Percent of
Name	Title of Class	Beneficial Ownership	Class

Ben F. Cheek, III	Voting Common Stock	1,160 Shares - Direct	68.24%
	Non-Voting Common Stock	574 Shares – Direct	.34%

Ben F. Cheek, IV	Voting Common Stock	180 Shares - Direct	10.59%
	Non-Voting Common Stock	18,011 Shares - Direct	10.70%
	Non-Voting Common Stock	75,794 Shares – Indirect (1)	45.04%

Virginia C. Herring	Voting Common Stock	180 Shares - Direct	10.59%
	Non-Voting Common Stock	18,012 Shares - Direct	10.70%
	Non-Voting Common Stock	75,794 Shares – Indirect (1)	45.04%

A. Roger Guimond	Voting Common Stock	None	None
	Non-Voting Common Stock	None	None

J. Michael Culpepper	Voting Common Stock	None	None
	Non-Voting Common Stock	None	None

John G. Sample, Jr.	Voting Common Stock	None	None
	Non-Voting Common Stock	None	None

C. Dean Scarborough	Voting Common Stock	None	None
	Non-Voting Common Stock	None	None


		Amount and Nature of	Percent of
Name	Title of Class	Beneficial Ownership	Class

Robert E. Thompson	Voting Common Stock	None	None
	Non-Voting Common Stock	None	None

Keith D. Watson	Voting Common Stock	None	None
	Non-Voting Common Stock	None	None

All Directors and
Executive Officers	Voting Common Stock	1,520 Shares - Direct	89.41%
as a Group	Non-Voting Common Stock	574 Shares - Direct	.34%
(12 persons)	Non-Voting Common Stock	151,589 - Indirect (1)	90.07%

(1)

Ben F. Cheek, III and Elizabeth Cheek were the grantors of six irrevocable trusts. Two trusts were established for the benefit of each of Ben F. Cheek, IV, Virginia C. Herring and David W. Cheek. The trustees of each of the trusts, who by virtue of dispositive power over the assets thereof are deemed to be the beneficial owners of shares of the Company’s non-voting common stock contained therein, are the two persons named above who are not the named beneficiaries of each of the respective trusts.

(c)

The Company knows of no contractual arrangements which may at a subsequent date result in a change in control of the Company.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE:

In accordance with the provisions of the written charter of the Audit Committee of the Board of Directors, the Audit Committee is to approve all related party transactions that are required to be disclosed pursuant to the rules and regulations of the SEC.

The Company leases its home office building and print shop for a total of $151,200 per year from Franklin Enterprises, Inc. under leases which expire December 31, 2015. Certain shareholders of Franklin Enterprises, Inc. are also shareholders of the Company. Messrs. Cheek, III and Cheek, IV, both Directors and Executive Officers of the Company, own 66.67% and 11.11% of the shares of Franklin Enterprises, Inc., respectively. Ms. Herring, an Executive Officer, owns 11.11% of the shares of Franklin Enterprises, Inc. In Management's opinion, these leases are at rates and on terms which approximate those obtainable from independent third parties. The aggregate dollar amount of all remaining periodic payments due during the lease term is $756.000.

The Company leases its Clarkesville, Georgia branch office for a total of $5,100 per year (increasing to $5,400 per year beginning 2012) from Cheek Investments, Inc. under a lease which expires June 30, 2015. Certain shareholders of Cheek Investments, Inc. are also shareholders of the Company. Messrs. Cheek, III and Cheek, IV, both Directors and Executive Officers of the Company, own .50% and 33.17% of the shares of Cheek Investments, Inc., respectively. Ms. Herring, an Executive Officer, owns 33.17% of the shares of Cheek Investments, Inc. In Management’s opinion, the lease is at a rate and on terms which approximate those obtainable from independent third parties. The aggregate dollar amount of all remaining periodic payments due during the lease term is $24,300.

During 1999, a loan was extended to a real estate development partnership of which one of the Company’s beneficial owners (David W. Cheek) is a partner. David Cheek (the adult son of Ben F. Cheek, III) owns 10.59% of the Company’s voting stock. The loan was renewed on March 9, 2010. The balance on this commercial loan (including principal and accrued interest) was

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$1,083,595 at December 31, 2010. The maximum amount outstanding during the year was $1,083,595. No principal or interest payments were applied against this loan during 2010. The loan is a variable-rate loan with the interest based on the prime rate plus 1%. Interest is currently computed at an annual rate of 4.25%. The interest rate adjusts whenever the prime rate changes.

Effective September 23, 1995, the Company and Deborah A. Guimond, Trustee of the Guimond Trust (an irrevocable life insurance trust, the “Trust”) entered into a Split-Dollar Life Insurance Agreement. The life insurance policy insures A. Roger Guimond, Executive Vice President and Chief Financial Officer of the Company. As a result of certain changes in tax regulations relating to split-dollar life insurance policies, the agreement was amended effectively making the premium payments a loan to the Trust. The interest on the loan is a variable rate adjusting monthly based on the federal mid-term Applicable Federal Rate. A payment of $5,722 for interest accrued during 2010 was applied to the loan on December 31, 2010. No principal payments on this loan were made in 2010. The balance on this loan at December 31, 2010 was $265,190. This was the maximum amount outstanding during the year.

Notwithstanding the fact that the Company’s equity securities are not currently traded on any national securities exchange or with any national securities association, the Board of Directors has determined that Messrs. Sample, Scarborough and Watson, and Dr. Thompson, are “independent” (as such term is defined in the rules of the SEC and the NASDAQ Marketplace Rules). In making this determination, the Board concluded that none of such persons have a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

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Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES:

The Company was billed for professional services provided during fiscal years 2010 and 2009 by Deloitte & Touche LLP in the amounts set out in the following table, all of which were pre-approved by the Audit Committee. Other than as set out below, the Company was not billed for any services provided by Deloitte & Touche LLP.

The Audit Committee of the Board of Directors has considered the services rendered by Deloitte & Touche LLP for services other than the audit of the Company’s financial statements and has determined that the provision of these services is compatible with maintaining the independence of Deloitte & Touche LLP.


		Fee	Fee
		Amount	Amount
		2010	2009
Services Provided:
Audit Fees (1)		$ 303,198	$ 313,725
Tax Fees (2)		67,550	68,400
Total		$ 370,748	$ 382,125

(1)	Fees in connection with the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2010 and 2009, and reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q during the 2010 and 2009 fiscal years. Included in these amounts are fees of $5,000 per year for each of 2010 and 2009 related to the review of certain registration statements.

(2)	Fees billed by Deloitte & Touche LLP for professional services rendered for tax compliance, tax advice and tax planning. The services included the preparation of the Company’s and its subsidiaries’ tax returns.

All audit and non-audit services to be performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. Pursuant to the Audit Committee Pre-Approval Policy (the “Policy”), and as permitted by SEC rules, the Audit Committee may delegate pre-approval authority to any of its members, provided that any service approved in this manner is reported to the full Audit Committee at its next meeting. The Policy provides for a general pre-approval of certain specifically enumerated services that are to be provided within specified fee levels. With respect to requests to provide services not specifically pre-approved pursuant to the general grant, such requests must be submitted to the Audit Committee by the Company’s independent registered public accounting firm and its Chief Financial Officer and must include a joint statement as to whether, in their view, the request is consistent with SEC rules on auditor independence.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

(a)

(1)

Financial Statements:

Report of Independent Registered Public Accounting Firm.

Consolidated Statements of Financial Position at December 31, 2010 and 2009

Consolidated Statements of Income for the three years ended December 31, 2010

Consolidated Statements of Stockholders’ Equity for the three years ended

December 31, 2010

Consolidated Statements of Cash Flows for the three years ended December 31, 2010

Notes to Consolidated Financial Statements.

(2)

Financial Statement Schedule:

Report of Independent Registered Public Accounting Firm.

Condensed Statements of Financial Position at December 31, 2010 and 2009.

Condensed Statements of Income for the three years ended December 31, 2010.

Condensed Statements of Cash Flows for the three years ended December 31, 2010.

(3)

Exhibits:

(a)

Restated Articles of Incorporation as amended January 26, 1996 (incorporated herein by reference to Exhibit 3(a) to Form 10-K for the fiscal year ended December 31, 1995).

(b)

Bylaws (incorporated herein by reference to Exhibit 3(b) to Form 10-K for the fiscal year ended December 31, 1995).

(a)

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

(b)

Form of Series 1 Variable Rate Subordinated Debenture (incorporated by reference to Exhibit 4(b) to Amendment No. 3 to the Registration Statement on Form S-2 dated November 14, 2005, File No. 333-126589).

(c)

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

(d)

Modification of Indenture, dated March 30, 1995, by and among Columbus Bank and Trust Company, Synovus Trust Company and the Company (incorporated by

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reference to Exhibit 4(b) to the Company’s Form 10-K for the year ended December 31, 1994).

(e)

Second Modification of Indenture dated December 2, 2004 by and among Synovus Trust Company and the Company (incorporated by reference to Exhibit 4(e) to the Registration Statement on Form S-2 dated July 14, 2005, File No. 333-126589).

(f)

Form of Indenture by and between the Company and U.S. Bank National Association (incorporated by reference to Exhibit 4(a) to the Company’s Registration Statement on Form S-1 dated December 27, 2007, File No. 333-148331).

(g)

Form of Senior Demand Note (incorporated by reference to Exhibit 4(b) to the Company’s Registration Statement on Form S-1 dated December 27, 2007, File No. 333-148331).

(h)

Third Modification of Indenture dated March 26, 2010 by and between U.S. Bank National Association and the Company (incorporated by reference to Exhibit 4(h) to the Company’s Form 10-K for the year ended December 31, 2009).

(i)

Tri-party Agreement by and among the Company, Synovus Trust Company and U.S. Bank National Association (incorporated by reference to Exhibit 4(i) to the Company’s Form 10-K for the year ended December 31, 2009).

(j)

Fourth Modification of Indenture dated March 26, 2010 by and between U.S. Bank National Association and the Company (incorporated by reference to Exhibit 4(j) to the Company’s Form 10-K for the year ended December 31, 2009).

10.

(a)

Credit Agreement, dated as of December 15, 2006, by and among the Company, Wachovia Bank, National Association, as administrative agent and as a lender, and BMO Capital Markets Financing, Inc., as lender (incorporated herein by reference to Exhibit 10.1 to Form 8-K dated December 21, 2006).

(b)

Loan and Security Agreement, dated September 11, 2009, by and among the Company and Wells Fargo Preferred Capital, Inc., as agent for Lenders (“Agent”) and a lender, and the other financial institutions from time to time party thereto (collectively, the “Lenders” and each individually is referred to as a “Lender”) (incorporated herein by reference to Exhibit 10.1 to Form 8-K dated September 17, 2009).

(c)

First Amendment (the “First Amendment”), dated November 3, 2009, to that certain Loan and Security Agreement dated as of September 11, 2009, by and among the Company, Wells Fargo Preferred Capital, Inc., as agent for lenders, and the other financial institutions from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to Form 8-K dated November 5, 2009).

(d)

Second Amendment (the “Second Amendment”), dated August 11, 2010, to that certain Loan and Security Agreement dated as of September 11, 2009, by and among the Company, Wells Fargo Preferred Capital, Inc., as agent for lenders, and the financial institutions a party thereto as lenders (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended June 30, 2010).

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(e)

Director Compensation Summary Term Sheet ((incorporated by reference to Exhibit 10(d) to the Company’s Form 10-K for the year ended December 31, 2009).

(f)

Form of the Company’s 2011 Executive Bonus Plan. *

11.

Computation of Earnings per Share is self-evident from the Consolidated Statement of Income and Retained Earnings in the Annual Report, incorporated by reference herein.

12.

Ratio of Earnings to Fixed Charges.

13.

Annual Report.

15.

Financial Statement Schedules.

21.

Subsidiaries of the Company.

23.

Consent of Independent Registered Public Accounting Firm.

31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934.

31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934.

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Management contract or compensatory plan or arrangement filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

(b)

See “Index to Exhibits”.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:


	1st FRANKLIN FINANCIAL CORPORATION

March 29, 2011	By: /s/ Ben F. Cheek, III
Date	Ben F. Cheek, III
	Chairman of Board


Georgia	58-0521233
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

135 East Tugalo Street
Post Office Box 880
Toccoa, Georgia	30577
(Address of principal executive offices)	(Zip Code)


Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

Class	Outstanding at February 28, 2011
Common Stock, $100 Par Value	1,700 Shares
Non-Voting Common Stock, No Par Value	168,300 Shares


		Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)
Name	Grant Date	Threshold $	Target $	Maximum $

Ben F. Cheek, III	3/28/2010	$ -	$ -	$ -
Ben F. Cheek, IV	3/28/2010	$ 11,179	$ 78,254	$ 145,329
Virginia C. Herring	3/28/2010	$ 11,179	$ 78,254	$ 145,329
A. Roger Guimond	3/28/2010	$ 15,488	$ 108,415	$ 201,341
J. Michael Culpepper	3/28/2010	$ 12,730	$ 89,110	$ 165,490


Director Compensation

Name	Fees Earned Or Paid In Cash	All Other Compensation	Total
Ben F. Cheek, III	$ --	$ --	$ --
Ben F. Cheek, IV	$20,000	$ --	$20,000
A. Roger Guimond	$20,000	$ --	$20,000
John G. Sample, Jr.	$20,000	$ 500	$20,500
C. Dean Scarborough	$20,000	$ --	$20,000
Robert E. Thompson	$20,000	$ --	$20,000
Keith D. Watson	$20,000	$ --	$20,000


Signatures	Title	Date


/s/ Ben F. Cheek, III		March 29, 2010
(Ben F. Cheek, III)	Chairman of Board;
	Chief Executive Officer

/s/ Ben F. Cheek, IV
(Ben F. Cheek, IV)	Vice Chairman	March 29, 2011


/s/ Virginia C. Herring
(Virginia C. Herring)	President	March 29, 2011


/s/ A. Roger Guimond
(A. Roger Guimond)	Executive Vice President;	March 29, 2011
	Principal Financial Officer
	Principal Accounting Officer; Director

/s/ John G. Sample, Jr.
(John G. Sample, Jr.)	Director	March 29, 2011

/s/ C. Dean Scarborough
(C. Dean Scarborough)	Director	March 29, 2011

/s/ Robert E. Thompson
(Robert E. Thompson)	Director	March 29, 2011

/S/ Keith D. Watson
(Keith D. Watson)	Director	March 29, 2011


Name and Address of		Amount and Nature of	Percent of
Beneficial Owner	Title of Class	Beneficial Ownership	Class

Ben F. Cheek, III	Voting Common Stock	1,160 Shares - Direct	68.24%
1855 Orchard Drive
Clarkesville, Georgia 30523

Ben F. Cheek, IV	Voting Common Stock	180 Shares - Direct	10.59%
837 Beaver Dam Rd.
Toccoa, Georgia 30577

Virginia C. Herring	Voting Common Stock	180 Shares - Direct	10.59%
1135 Summit Ridge Dr.
Toccoa, Georgia 30577

David W. Cheek	Voting Common Stock	180 Shares - Direct	10.59%
4500 Barony Dr.
Suwanee, Georgia 30024


Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.

(a)	Except to the extent that the materials enumerated in (1) and/or (2) below are specifically incorporated into this Form by reference (in which case see Rule 12b-23b), every registrant which files an annual report on this Form pursuant to Section 15(d) of the Act shall furnish to the Commission for its information, at the time of filing its report on this Form, four copies of the following:

	(1)	Any annual report to security holders covering the registrant's last fiscal year; and

	(2)	Every proxy statement, form of proxy or other proxy soliciting material sent to more than ten of the registrant's security holders with respect to any annual or other meeting of security holders.

(b)	The foregoing material shall not be deemed to be "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Act, except to the extent that the registrant specifically incorporates it in its annual report on this Form by reference.

(c)	This Annual Report on Form 10-K incorporates by reference portions of the Registrant's Annual Report to security holders for the fiscal year ended December 31, 2010, which is filed as Exhibit 13 hereto. Registrant is a privately held corporation and therefore does not distribute proxy statements or information statements to its shareholders.


Schedule I



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To: The Board of Directors and Shareholders 1^st Franklin Financial Corporation

We have audited the consolidated financial statements of 1^st Franklin Financial Corporation and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, and have issued our report thereon dated March 29, 2011; such consolidated financial statements and report are included in your 2009 Annual Report to Investors and are incorporated herein by reference. Our audits also included the financial statement schedule of the Company listed in Item 15. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ DELOITTE & TOUCHE LLP Atlanta, Georgia March 29, 2011


SCHEDULE I


CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1^st FRANKLIN FINANCIAL CORPORATION
(Parent Company Only)

DECEMBER 31, 2010 AND 2009

ASSETS
				2010		2009
	CASH AND CASH EQUIVALENTS		$ 3,579,814		$ 3,510,146

	SHORT-TERM INVESTMENTS		1,547		--

	RESTRICTED CASH		81,661		--

	LOANS:
	Direct Cash Loans		347,445,192		327,424,876
	Real Estate Loans		22,967,279		24,336,405
	Sales Finance Contracts		21,694,633		23,071,118
			392,107,104		374,832,399

	Less:	Unearned Finance Charges	45,811,133		43,331,239
		Unearned Insurance Commissions	12,951,586		12,376,214
		Allowance for Loan Losses	24,110,085		26,610,085
			309,234,300		292,514,861

	INVESTMENTS IN SUBSIDIARIES		93,547,530		84,850,301

	MARKETABLE DEBT SECURITIES:
	Available for Sale, at fair market value		377,067		402,526

	OTHER ASSETS:
	Land, Buildings, Equipment and Leasehold Improvements,
	less accumulated depreciation and amortization
	of $17,364,987 and $15,724,169 in 2010 and 2009, respectively		6,687,456		7,626,510
	Miscellaneous		3,749,978		2,782,863
			10,437,434		10,409,373

	TOTAL ASSETS		$ 417,259,353		$ 391,687,207


SENIOR DEBT:
Notes Payable to Banks	$ 900,000	$ 16,204,309
Senior Demand Notes, including accrued interest	40,392,404	41,209,099
Commercial Paper	167,199,875	129,435,443
	208,492,279	186,848,851



ACCOUNTS PAYABLE AND ACCRUED EXPENSES	17,580,525	14,264,100


SUBORDINATED DEBT	59,779,620	74,883,979


Total Liabilities	285,852,424	275,996,930



STOCKHOLDERS' EQUITY:
Preferred Stock; $100 par value
6,000 shares authorized; no shares issued or outstanding	--	--
Common Stock:
Voting Shares; $100 par value;
2,000 shares authorized; 1,700 shares issued and outstanding as of December 31, 2010 and 2009	170,000	170,000
Non-Voting Shares; no par value;
198,000 shares authorized; 168,300 shares issued and
outstanding as of December 31, 2010 and 2009	--	--
Accumulated Other Comprehensive Income	246,750	272,210
Retained Earnings	130,990,179	115,248,067
Total Stockholders' Equity	131,406,929	115,690,277

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 417,259,353	$ 391,687,207


Net Income	$ 20,683,437	$ 8,373,007	$ 10,664,776
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses	20,907,373	29,302,142	25,725,394
Depreciation and Amortization	2,465,829	2,577,539	2,447,007
Equity in undistributed earnings of subsidiaries	(8,697,229)	(8,834,493)	19,343,979
Gain on sale of marketable securities and
equipment and premium amortization on securities	(46,431)	(18,572)	(10,185)
(Increase) Decrease in Miscellaneous Assets	(967,115)	415,355	(409,987)
Increase (Decrease) in Other Liabilities	3,316,425	283,152	(1,418,796)
Net Cash Provided	37,662,289	32,098,130	56,342,188

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased	(241,803,898)	(214,933,802)	(236,634,867)
Loan payments	204,177,086	190,367,098	201,549,309
Purchase of joint venture interest	--	(171,471)	--
Increase in restricted cash	81,661	--	--
Capital expenditures	(1,610,695)	(997,083)	(2,777,574)
Proceeds from sale of equipment	130,350	53,331	25,234
Net Cash Used	(39,188,818)	(25,681,927)	(37,837,898)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Senior Demand Notes	(816,695)	(132,740)	(7,268,898)
Advances on credit line	11,240,082	90,246,309	103,563,000
Payments on credit line	(26,544,391)	(96,309,681)	(97,980,000)
Commercial Paper issued	53,169,908	396,342,906	35,766,727
Commercial Paper redeemed	(15,405,476)	(372,970,262)	(46,781,459)
Subordinated Debt issued	18,218,840	11,623,006	21,619,938
Subordinated Debt redeemed	(33,323,199)	(23,344,036)	(26,980,643)
Dividends / Distributions Paid	(4,941,325)	(8,758,311)	(3,731,328)
Net Cash Provided (Used)	1,597,744	(3,302,809)	(21,792,663)

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS	71,215	3,113,394	(3,288,373)

CASH AND CASH EQUIVALENTS, beginning	3,510,146	396,752	3,685,125

CASH AND CASH EQUIVALENTS, ending	$ 3,581,361	$ 3,510,146	$ 396,752



1^st FRANKLIN FINANCIAL CORPORATION INDEX TO EXHIBITS


Exhibit No.	Description	Page No.

10(f)	Form of the Company’s 2011 Executive Bonus Plan	35
12	Ratio of Earnings to Fixed Charges	37
13	Annual Report	38
21	Subsidiaries of Registrant	86
23	Consent of Independent Registered Public Accounting Firm	87
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934	88
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934	89
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	90
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	91


STRATEGIC GOALS:

	1.	Corporate Net Receivables Growth – a target of 5.0% annual growth;
	2.	Corporate Delinquency Control – 30 days or more delinquency (including bankrupt accounts) not to exceed 10.5% of receivables;
	3.	Corporate Expenses to Revenue – less than or equal to 90.0%;
	4.	Corporate Return on Assets (ROA) – greater than or equal to 3.25%;
	5.	Corporate Pre-tax Income (separate from the threshold goal) - $19.0 million.


No. of Strategic Goals Met	% Bonus Paid Based on Annual Salary
	(in increments of 5 percentage points)
1	Up to 25% (0% - 25%)
2	Up to 35% (0% - 35%)
3	Up to 45% (0% - 45%)
4	Up to 55% (0% - 55%)
5	Up to 65% (0% - 65%)


AREA	RECOMMENDATION	COMMITTEE MEMBERS
Home Office Supervisors, Home Office Vice Presidents	Direct Report	Ginger Herring, Buddy Cheek, Roger Guimond, Mike Culpepper Mike Haynie, Kay Lovern
Executive Vice Presidents, General Counsel	Ginger Herring	Ginger Herring, Buddy Cheek, Ben Cheek


SCHEDULE I


CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1^st FRANKLIN FINANCIAL CORPORATION
(Parent Company Only)

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

	2010	2009	2008
INTEREST INCOME:
Finance Charges	$ 100,475,533	$ 96,494,760	$ 94,434,623
Investment Income	29,917	15,089	26,302
	100,505,450	96,509,849	94,460,925

INTEREST EXPENSE:
Senior Debt	8,583,664	8,745,154	8,333,678
Subordinated Debt	3,855,020	4,936,793	6,393,999
	12,438,684	13,681,947	14,727,677

NET INTEREST INCOME	88,066,766	82,827,902	79,733,248

PROVISION FOR LOAN LOSSES	20,907,373	29,302,142	25,725,394

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	67,159,393	53,525,760	54,007,854

NET INSURANCE INCOME	17,610,978	16,773,235	16,823,210

OTHER REVENUE	5,897,444	5,223,733	5,301,054

OPERATING EXPENSES:
Personnel Expense	51,566,673	48,366,010	46,830,271
Occupancy Expense	10,752,842	11,186,780	10,653,752
Other Expense	16,641,626	16,455,343	17,545,462
	78,961,141	76,008,133	75,029,485

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES	11,706,674	(485,405)	1,102,633


	2010	2009	2008	2007	2006
	(In thousands, except ratio data)
Income before income taxes	$ 23,423	$ 11,050	$ 13,891	$ 15,754	$ 11,023

Interest on indebtedness	12,439	13,682	14,728	15,746	11,994

Portion of rents representative
of the interest factor	1,589	1,576	1,498	1,396	1,249

Earnings as adjusted	$ 37,451	$ 26,308	$ 30,117	$ 32,896	$ 24,266


Fixed charges:

Interest on indebtedness	$ 12,439	$ 13,681	$ 14,728	$ 15,746	$ 11,994

Portion of rents representative
of the interest factor	1,589	1,576	1,498	1,396	1,249

Fixed charges	$14,028	$15,257	$16,226	$17,142	$13,243


Ratio of earnings
to fixed charges	2.67	1.72	1.86	1.92	1.83



	TABLE OF CONTENTS


	The Company		1

	Chairman's Letter		2

	Selected Consolidated Financial Information		3

	Business		4

	Management's Discussion and Analysis of Financial Condition and Results of Operations		12

	Report of Independent Registered Public Accounting Firm		21

	Consolidated Financial Statements		22

	Directors and Executive Officers		43

	Corporate Information		43

	Ben F. Cheek, Jr. Office of the Year		45


	Year Ended December 31
	2010	2009	2008	2007	2006
Selected Income Statement Data:	(In 000's, except ratio data)

Revenues	$ 145,461	$ 139,846	$ 138,610	$ 130,297	$ 115,042
Net Interest Income	90,711	85,655	83,484	75,669	69,632
Interest Expense	12,439	13,682	14,728	15,746	11,994
Provision for Loan Losses	20,907	29,302	25,725	21,434	19,109
Income Before Income Taxes	23,423	11,050	13,761	15,754	11,023
Net Income	20,683	8,373	10,665	12,205	7,672
Ratio of Earnings to Fixed Charges	2.67	1.72	1.86	1.92	1.83


	As of December 31
	2010	2009	2008	2007	2006
Selected Balance Sheet Data:	(In 000's, except ratio data)

Net Loans	$ 294,974	$ 279,093	$ 285,580	$ 276,655	$ 249,862
Total Assets	422,064	396,425	389,422	402,454	362,567
Senior Debt	208,492	186,849	169,672	182,373	181,474
Subordinated Debt	59,780	74,884	86,605	91,966	67,190
Stockholders’ Equity	132,710	117,115	116,236	109,841	98,365
Ratio of Total Liabilities to Stockholders’ Equity	2.18	2.38	2.35	2.66	2.69


	LOANS ACQUIRED

Direct Cash Loans	$ 483,989	$ 437,323	$ 453,968	$ 441,462	$ 391,388
Real Estate Loans	8,429	8,703	14,448	14,924	12,568
Sales Finance Contracts	24,555	21,372	30,232	38,997	41,661
Net Bulk Purchases	3,326	2,669	677	1,057	3,576

Total Loans Acquired	$ 520,299	$ 470,067	$ 499,325	$ 496,440	$ 449,193


	LOANS LIQUIDATED

Direct Cash Loans	$ 465,584	$ 435,146	$ 432,651	$ 405,782	$ 366,275
Real Estate Loans	9,798	8,543	15,324	13,436	12,579
Sales Finance Contracts	27,642	28,304	35,070	42,031	40,093

Total Loans Liquidated	$ 503,024	$ 471,993	$ 483,045	$ 461,249	$ 418,947


	LOANS OUTSTANDING

Direct Cash Loans	$347,445	$327,425	$ 324,996	$ 303,679	$ 267,999
Real Estate Loans	22,967	24,336	24,176	25,052	23,564
Sales Finance Contracts	21,695	23,071	27,586	31,747	33,724

Total Loans Outstanding	$392,107	$374,832	$ 376,758	$ 360,478	$ 325,287


	UNEARNED FINANCE CHARGES

Direct Cash Loans	$ 42,724	$ 40,002	$ 39,933	$ 35,850	$ 31,374
Real Estate Loans	284	208	41	118	229
Sales Finance Contracts	2,803	3,121	4,058	4,753	5,013

Total Unearned Finance Charges	$ 45,811	$ 43,331	$ 44,032	$ 40,721	$ 36,616


DIRECT CASH LOANS:
	60-89 Days Past Due	$ 5,766	$ 6,382	$ 7,247	$ 6,589	$ 5,598
	Percentage of Principal Outstanding	1.67%	1.97%	2.25%	2.19%	2.11%
	90 Days or More Past Due	$ 12,596	$ 15,158	$ 16,407	$ 13,100	$ 11,866
	Percentage of Principal Outstanding	3.66%	4.67%	5.10%	4.36%	4.47%


REAL ESTATE LOANS:
	60-89 Days Past Due	$ 271	$ 278	$ 282	$ 179	$ 176
	Percentage of Principal Outstanding	1.20%	1.16%	1.19%	.73%	.76%
	90 Days or More Past Due	$ 561	$ 585	$ 480	$ 452	$ 522
	Percentage of Principal Outstanding	2.48%	2.44%	2.02%	1.84%	2.26%


SALES FINANCE CONTRACTS:
	60-89 Days Past Due	$ 266	$ 346	$ 518	$ 468	$ 581
	Percentage of Principal Outstanding	1.22%	1.50%	1.90%	1.48%	1.73%
	90 Days or More Past Due	$ 644	$ 739	$ 1,080	$ 1,089	$ 1,049
	Percentage of Principal Outstanding	2.97%	3.21%	3.96%	3.45%	3.13%


	DIRECT CASH LOANS

Average Net Loans	$ 282,750	$ 274,275	$ 266,753	$ 242,576	$ 217,919
Liquidations	$465,584	$435,146	$432,651	$405,782	$366,275
Net Losses	$ 22,479	$ 24,415	$ 21,325	$ 17,812	$ 16,363
Net Losses as % of Average Net Loans	7.95%	8.90%	7.99%	7.34%	7.51%
Net Losses as % of Liquidations	4.83%	5.61%	4.93%	4.39%	4.47%


	REAL ESTATE LOANS

Average Net Loans	$ 23,351	$ 24,042	$ 25,451	$ 25,015	$ 23,557
Liquidations	$ 9,798	$ 8,543	$ 15,324	$ 13,436	$ 12,579
Net Losses (Recoveries)	$ 117	$ 84	$ (23)	$ 114	$ 65
Net Losses (Recoveries) as a % of Average Net Loans	.50%	.35%	(.09%)	.46%	.28%
Net Losses (Recoveries) as a % of Liquidations	1.19%	.98%	(.15%)	.85%	.52%


	SALES FINANCE CONTRACTS

Average Net Loans	$ 19,369	$ 21,334	$ 25,486	$ 28,721	$ 27,950
Liquidations	$ 27,642	$ 28,304	$ 35,070	$ 42,031	$ 40,093
Net Losses	$ 811	$ 1,203	$ 1,448	$ 1,557	$ 1,481
Net Losses as % of Average Net Loans	4.19%	5.64%	5.68%	5.42%	5.30%
Net Losses as % of Liquidations	2.93%	4.25%	4.13%	3.70%	3.69%


Bank Borrowings	--%	4%	6%	4%	7%
Senior Debt	49	43	38	41	43
Subordinated Debt	14	19	22	23	19
Other Liabilities	5	4	4	5	4
Stockholders’ Equity	32	30	30	27	27
Total	100%	100%	100%	100%	100%

Number of Investors	5,418	5,406	5,508	5,820	5,868


Senior Borrowings	4.52%	4.93%	4.78%	5.81%	4.95%
Subordinated Borrowings	5.33	5.89	6.27	6.34	5.18
All Borrowings	4.74	5.24	5.33	5.98	5.04


Total Liabilities to
Stockholders’ Equity	2.18	2.38	2.66	2.66	2.69

Unsubordinated Debt to
Subordinated Debt plus
Stockholders’ Equity	1.19	1.06	.99	.99	1.19


Description	Goal	2010 Results

Net Receivable Growth	Minimum 4.00%	4.46%
Delinquency	Accounts 30 days and more past due less than or equal to 11.50%	8.14%
Return on Assets	Greater than or equal to 3.25%	5.84%
Pre-tax Profits	Minimum $12,000,000	$23,422,881
Ratio of Expenses to Revenue	Less than or equal to 92.50%	83.90%


	Expected Year of Maturity
											2016 &		Fair
	2011		2012	2013			2014		2015		Beyond	Total	Value
Assets:	(in millions)
Marketable Debt Securities	$ 13	$12			$ 14	$ 12		$ 9		$ 18		$ 78	$ 78
Average Interest Rate	3.7%	3.7%			3.7%	2.7%		3.3%		3.6%		3.4%
Liabilities:
Senior Debt:
Senior Demand Notes	$40	—			—	—		—		—		$ 40	$ 40
Average Interest Rate	2.1%	—			—	—		—		—		2.1%
Commercial Paper	$167	—			—	—		—		—		$167	$167
Average Interest Rate	4.5%	—			—	—		—		—		4.5%
Notes Payable to Banks	$ —	—			$ 1	—		—		—		$ 1	$ 1
Average Interest Rate	—	—			3.8%	—		—		—		3.8%
Subordinated Debentures	$ 19	$ 11			$ 13	$ 17		—		—		$ 60	$ 60
Average Interest Rate	5.2%	3.8%			4.3%	3.6%		—		—		4.7%


	Payment due by period
Contractual Obligations	Total	Less Than 1 Year	1 to 2 Years	3 to 5 Years	More than 5 Years
	(in millions)
Credit Line *	$ 1.0	$ -	$ 1.0	$ -	$ -
Bank Commitment Fee **	1.4	.5	.9	-	-
Senior Demand Notes *	41.2	41.2	-	-	-
Commercial Paper *	169.4	169.4	-	-	-
Subordinated Debt *	70.3	23.2	28.0	19.1	-
Human resource insurance and support contracts **	.5	.5	-	-	-
Operating leases (offices)	12.7	4.4	6.0	2.2	.1
Communication lines contract **	3.4	3.0	.4	-	-
Software service contract **	23.3	2.6	5.2	5.2	10.3
Total	$323.2	$244.8	$41.5	$26.5	$10.4

* Includes estimated interest at current rates.
** Based on current usage.


CASH AND CASH EQUIVALENTS (Note 5):
Cash and Due From Banks		$ 3,635,920	$ 3,725,236
Short-term Investments		27,065,494	22,562,454
		30,701,414	26,287,690

RESTRICTED CASH (Note 1)		3,778,734	3,067,695

LOANS (Note 2):
Direct Cash Loans		347,445,192	327,424,876
Real Estate Loans		22,967,279	24,336,405
Sales Finance Contracts		21,694,633	23,071,118
		392,107,104	374,832,399

Less:	Unearned Finance Charges	45,811,133	43,331,239
	Unearned Insurance Premiums	27,211,693	25,797,624
	Allowance for Loan Losses	24,110,085	26,610,085
		294,974,193	279,093,451

MARKETABLE DEBT SECURITIES (Note 3):
Available for Sale, at fair market value		66,310,922	63,126,997
Held to Maturity, at amortized cost		11,890,954	10,330,725
		78,201,876	73,457,722

OTHER ASSETS:
Land, Buildings, Equipment and Leasehold Improvements,
less accumulated depreciation and amortization
of $17,364,987 and $15,724,169 in 2010 and 2009, respectively		6,687,456	7,807,112
Deferred Acquisition Costs		1,563,629	1,459,782
Due from Non-affiliated Insurance Company		1,903,137	2,000,256
Miscellaneous		4,253,457	3,251,472
		14,407,679	14,518,622

TOTAL ASSETS		$ 422,063,896	$ 396,425,180




See Notes to Consolidated Financial Statements


SENIOR DEBT (Note 6):
Notes Payable to Banks	$ 900,000	$ 16,204,309
Senior Demand Notes, including accrued interest	40,392,404	41,209,099
Commercial Paper	167,199,875	129,435,443
	208,492,279	186,848,851



ACCOUNTS PAYABLE AND ACCRUED EXPENSES	21,081,545	17,577,438


SUBORDINATED DEBT (Note 7)	59,779,620	74,883,979


Total Liabilities	289,353,444	279,310,268


COMMITMENTS AND CONTINGENCIES (Note 8)


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 as of December 31, 2010 and 2009	170,000	170,000
Non-Voting Shares; no par value;
198,000 shares authorized; 168,300 shares
outstanding as of December 31, 2010 and 2009	--	--
Accumulated Other Comprehensive Income	1,550,273	1,696,845
Retained Earnings	130,990,179	115,248,067
Total Stockholders' Equity	132,710,452	117,114,912

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 422,063,896	$ 396,425,180




See Notes to Consolidated Financial Statements


1^st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008


	2010	2009	2008
INTEREST INCOME: Finance Charges Investment Income	$ 100,475,533 2,674,611 103,150,144	$ 96,494,760 2,842,125 99,336,885	$ 94,434,623 3,777,325 98,211,948
INTEREST EXPENSE: Senior Debt Subordinated Debt	8,583,664 3,855,020 12,438,684	8,745,154 4,936,793 13,681,947	8,333,678 6,393,999 14,727,677

NET INTEREST INCOME	90,711,460	85,654,938	83,484,271

PROVISION FOR LOAN LOSSES (Note 2)	20,907,373	29,302,142	25,725,394

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	69,804,087	56,352,796	57,758,877

NET INSURANCE INCOME: Premiums Insurance Claims and Expense	36,521,076 (8,466,903) 28,054,173	35,375,453 (8,565,929) 26,809,524	35,190,622 (7,940,655) 27,249,967

OTHER REVENUE	5,789,444	5,133,530	5,207,553

OPERATING EXPENSES: Personnel Expense Occupancy Expense Other Expense	51,566,673 10,752,842 17,905,308 80,224,823	48,366,010 11,187,160 17,692,331 77,245,501	46,830,271 10,653,752 18,971,151 76,455,174

INCOME BEFORE INCOME TAXES	23,422,881	11,050,349	13,761,223

PROVISION FOR INCOME TAXES (Note 11)	2,739,444	2,677,342	3,096,447

NET INCOME	$ 20,683,437	$ 8,373,007	$ 10,664,776

BASIC EARNINGS PER SHARE: 170,000 Shares Outstanding for All Periods (1,700 voting, 168,300 non-voting)	$121.67	$49.25	$62.73


See Notes to Consolidated Financial Statements


Balance at December 31, 2007	170,000	$170,000	$108,699,923	$ 970,603	$109,840,526

Comprehensive Income:
Net Income for 2008	—	—	10,664,776	—
Net Change in Unrealized Gain On Available-For-Sale Securities	—	—	—	(537,502)
Total Comprehensive Income	—	—	—	—	10,127,274
Cash Distributions Paid	—	—	(3,731,328)	—	(3,731,328)

Balance at December 31, 2008	170,000	170,000	115,633,371	433,101	116,236,472

Comprehensive Income:
Net Income for 2009	—	—	8,373,007	—
Net Change in Unrealized Gain On Available-For-Sale Securities	—	—	—	1,263,744
Total Comprehensive Income	—	—	—	—	9,636,751
Cash Distributions Paid	—	—	(8,758,311)	—	(8,758,311)

Balance at December 31, 2009	170,000	170,000	115,248,067	1,696,845	117,114,912

Comprehensive Income:
Net Income for 2010	—	—	20,683,437	—
Net Change in Unrealized Gain On Available-For-Sale Securities	—	—	—	(146,572)
Total Comprehensive Income	—	—	—	—	20,536,865
Cash Distributions Paid	—	—	(4,941,325)	—	(4,941,325)

Balance at December 31, 2010	170,000	$170,000	$130,990,179	$1,550,273	$132,710,452


Disclosure of reclassification amount:			2010	2009	2008

Unrealized holding (losses) gains arising during period, net of applicable income tax benefits (provision) of $55,313, $(368,964) and $10,512 for 2010, 2009 and 2008, respectively
			$ (142,840)	$ 1,267,302	$ (525,701)

Less: Reclassification adjustment for net gains included in income, net of applicable income taxes of $1,381, $1,201 and $3,095 for 2010, 2009 and 2008, respectively			3,732	3,558	11,801

Net unrealized (losses) gains on securities, net of applicable income tax benefits (provision) of $56,694, $(367,763) and $13,607 for 2010, 2009 and 2008, respectively			$ (146,572)	$ 1,263,744	$ (537,502)


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Interest	$ 12,519,354	$ 13,607,180	$ 14,830,353
	Income Taxes	2,488,000	2,663,225	2,972,200
	Assets Assumed (Note 12)	--	289,746	--

See Notes to Consolidated Financial Statements


	Direct		Real	Sales
Due In	Cash		Estate	Finance
Calendar Year	Loans		Loans	Contracts
2011	66.06%	19.75%		65.59%
2012	27.90	18.57		26.11
2013	4.95	15.68		6.86
2014	.76	12.27		1.23
2015	.15	8.97		.13
2016 & beyond	.18	24.76		.08
	100.00%	100.00%		100.00%


Loan Category	December 31, 2010	December 31, 2009

Consumer Loans	$ 27,643,405	$ 30,548,714
Real Estate Loans	1,274,025	1,146,344
Sales Finance Contracts	1,331,137	1,746,477
Total	$ 30,248,567	$ 33,441,535


An age analysis of principal balances on past due loans, segregated by loan class, as of December 31, 2010 is as follows:
	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Current	Total Loans

Consumer Loans	$ 10,507,984	$ 5,765,462	$ 12,596,092	$ 315,791,942	$ 344,661,480
Real Estate Loans	563,681	267,090	561,326	21,228,604	22,620,701
Sales Finance Contracts	507,723	265,857	644,219	20,289,244	21,707,043
Total	$ 11,579,388	$ 6,298,409	$ 13,801,637	$ 357,309,790	$ 389,989,224