10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C  20549

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FORM 10-Q

(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2014

OR

(  )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

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Commission File Number 2-27985

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1^st Franklin Financial Corporation

A Georgia Corporation

I.R.S. Employer Identification No. 58-0521233

135 East Tugalo Street

Post Office Box 880

Toccoa, Georgia 30577

(706) 886-7571

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Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),  and  (2) has been subject to such filing requirements for the past 90 days.  Yes  _X   No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes _X_  No__

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)  Large Accelerated Filer ___  Accelerated Filer ___  Non-Accelerated Filer   X_  Smaller Reporting Company   __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes __   No  X

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

Class

Outstanding at August 12, 2014

Voting Common Stock, par value $100 per share

1,700 Shares

Non-Voting Common Stock, no par value

168,300 Shares

PART I.  FINANCIAL INFORMATION
ITEM 1.		Financial Statements:
		The information contained under the following captions in the Company's Quarterly Report to Investors as of and for the six months ended June 30, 2014 is incorporated by reference herein.  See Exhibit 19.
			Condensed Consolidated Statements of Financial Position (Unaudited):
				June 30, 2014 and December 31, 2013
			Condensed Consolidated Statements of Income and Retained Earnings (Unaudited):
				Three and Six Months Ended June 30, 2014 and June 30, 2013
			Condensed Consolidated Statements of Comprehensive Income (Unaudited):
				Three and Six Months Ended June 30, 2014 and June 30, 2013
			Condensed Consolidated Statements of Cash Flows (Unaudited):
				Six Months Ended June 30, 2014 and June 30, 2013
			Notes to Unaudited Condensed Consolidated Financial Statements
ITEM 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations:
		The information contained under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company's Quarterly Report to Investors as of and for the six months ended June 30, 2014 is incorporated by reference herein.  See Exhibit 19.
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk:
		The information contained under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quantitative and Qualitative Disclosures About Market Risk" in the Company's Quarterly Report to Investors as of and for the six months ended June 30, 2014 is incorporated by reference herein.  See Exhibit 19.
ITEM 4.	Controls and Procedures:

	We maintain a set of disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), designed to ensure that information required to be disclosed by the Company in reports that it files or submits under 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.  An evaluation was carried out as of the end of the period covered by this report, under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures.  Based on that evaluation, the CEO and CFO have concluded that, as of June 30, 2014, the Company’s disclosure controls and procedures were effective.  No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. <PAGE> 1
	There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II.  OTHER INFORMATION
ITEM 1.		Legal Proceedings:
		The Company is, and expects to be, 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 proceedings is not expected to have a material effect on the Company’s financial position, liquidity or results of operations.
ITEM 6.		Exhibits:
		(a)	Exhibits:

19 31.1 31.2 32.1 32.2 101

Quarterly Report to Investors as of and for the Six Months Ended June 30, 2014. Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934. Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934. 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. 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. The following materials from 1st Franklin Financial Corporation’s Quarterly Report to Investors as of and for the six months ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Financial Position at June 30, 2014 and December 31, 2013, (ii) Unaudited Condensed Consolidated Statements of Income and Retained Earnings for the three and six months ended June 30, 2014 and 2013, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES
Pursuant to the requirements 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
	Registrant
	__/s/  Ben F. Cheek, III____________
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
	__/s/  A. Roger Guimond__________
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)
Date: August  12, 2014
<PAGE> 3

1st FRANKLIN FINANCIAL CORPORATION
INDEX TO EXHIBITS
Exhibit No.	Description	Page No.
19 31.1 31.2 32.1 32.2	Quarterly Report to Investors as of and for the Six Months      Ended June 30, 2014 Certification of Principal Executive Officer Pursuant to      Rule 13a-14(a) / 15d-14(a) of the Securities Exchange      Act of 1934 Certification of Principal Financial Officer Pursuant to      Rule 13a-14(a) / 15d-14(a) of the Securities Exchange      Act of 1934 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 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	5 29 30 31 32
101	The following materials from 1st Franklin Financial Corporation’s Quarterly Report to Investors as of and for the six months ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Financial Position at June 30, 2014 and December 31, 2013, (ii) Unaudited Condensed Consolidated Statements of Income and Retained Earnings for the three and six months ended June 30, 2014 and 2013, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

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EX-19

Exhibit 19

1^st

FRANKLIN

FINANCIAL

CORPORATION

QUARTERLY

REPORT TO INVESTORS

AS OF AND FOR THE

SIX MONTHS ENDED

JUNE 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following narrative is Management’s discussion and analysis of the foremost factors that influenced 1^st Franklin Financial Corporation’s and its consolidated subsidiaries’ (the “Company”, “our” or “we”) financial condition and operating results as of and for the three- and six-month periods ended June 30, 2014 and 2013.  This analysis and the accompanying unaudited condensed consolidated financial information should be read in conjunction with the Company's audited consolidated financial statements and related notes included in the Company’s 2013 Annual Report.  Results achieved in any interim period are not necessarily reflective of the results to be expected for any other interim or full year period.

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 actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein.  Possible factors which could cause actual future results to differ from expectations include, but are not limited to, adverse general economic conditions, including changes in the interest rate environment, unexpected reductions in the size of or collectability of our loan portfolio, reduced sales or increased redemptions of our securities, unavailability of borrowings under our credit facility, federal and state regulatory changes affecting consumer finance companies, unfavorable outcomes in legal proceedings and adverse or unforeseen developments in any of the matters described under “Risk Factors” in our 2013 Annual Report, as well as 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, except as required by law.

The Company:

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 real estate loans on real estate.  As of June 30, 2014, the Company’s business was operated through a network of 278 branch offices located in Alabama, Georgia, Louisiana, Mississippi, South Carolina and Tennessee.

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 that 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 policies 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 of the Company at June 30, 2014 amounted to $582.3 million, an increase of $20.5 million, or 4%, from December 31, 2013.  Growth in the Company's cash and investment portfolios were the primary areas contributing to the increase in assets.

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Cash and cash equivalents increased $10.0 million (38%) and investment securities increased $11.9 million (9%) at June 30, 2014 compared to December 31, 2013.  Investment of surplus funds generated by the operations of our insurance subsidiaries, and the related investment returns, resulted in the increase in the value of our investment portfolio.  The Company's investment portfolio consists mainly of U.S. Treasury bonds, government agency bonds and various municipal bonds.  A portion of these investment securities have been designated as “available for sale” (83% as of June 30, 2014 and 78% as of December 31, 2013) with any unrealized gain or loss, net of deferred income taxes, accounted for as other comprehensive income in the Company’s Condensed Consolidated Statements of Comprehensive Income.  The remainder of the Company’s investment portfolio represents securities carried at amortized cost and designated as “held to maturity,” as Management does not intend to sell, and does not believe that it is more likely than not that it would be required to sell, such securities before recovery of the amortized cost basis.  The Company has also placed  surplus funds in an equity fund investment in efforts to increase yield returns on surplus cash.  On November 1, 2013, the Company made an initial investment of $10.0 million in an equity fund investment.  Effective April 1, 2014, an additional $15.0 million was invested.  The balance in the fund at June 30, 2014 was $26.0 million compared to $10.2 million at December 31, 2013.  The Company has no additional investment commitments to the Fund.  Management believes the Company has adequate funding available to meet liquidity needs for the foreseeable future.

Restricted cash consists of funds maintained in restricted accounts at the Company's  insurance subsidiaries in order to comply with certain requirements imposed on insurance companies by the State of Georgia and to meet the reserve requirements of its reinsurance agreements.  Restricted cash also includes escrow deposits held by the Company on behalf of certain mortgage real estate customers.  At June 30, 2014, restricted cash decreased $.2 million (20%) compared to December 31, 2013.  The decline in restricted cash was due to a transition to the use of investment securities held in trust accounts to cover reserves required to be held by our insurance subsidiaries.  

Loan originations increased during the second quarter of 2014, offsetting a portion of the $23.4 million decline in the net loan portfolio reported in our Quarterly Report to Investors for the Three Months Ended March 31, 2014.  At June 30, 2014 our net loan portfolio was $352.6 million compared to $369.4 million at December 31, 2013.  We project growth in our net loan portfolio as the year progresses.  Included in our net loan portfolio is our allowance for loan losses which reflects Management’s estimate of the level of allowance adequate to cover probable losses inherent in the loan portfolio as of the date of the statement of financial position.  To evaluate the overall adequacy of our allowance for loan losses, we consider the level of loan receivables, historical loss trends, loan delinquency trends, bankruptcy trends and overall economic conditions.  Based on current trends, Managment increased the allowance for loan losses $1.2 million at June 30, 2014.  See Note 2, “Allowance for Loan Losses,” in the accompanying “Notes to Unaudited Condensed Consolidated Financial Statements” for further discussion of the Company’s allowance for loan losses.  Management believes the allowance for loan losses is adequate to cover probable losses inherent in the portfolio at June 30, 2014; however, unexpected changes in trends or deterioration in economic conditions could result in additional  changs in the allowance.  Any additional increase could have a material adverse impact on our results of operations or financial condition in the future.

The aggregate amount of senior and subordinated debt outstanding at June 30, 2014 was $361.0 million compared to $348.4 million at December 31, 2013, representing a 4% increase.  Higher sales of the Company's senior debt securities was responsible for the increase.

Accrued expenses and other liabilities declined $3.3 million (16%) at June 30, 2014 compared to December 31, 2013 mainly due to disbursement of the 2013 incentive bonus in February 2014.  Also contributing to the decrease was lower accrued salary expenses at June 30, 2014.

Results of Operations:

During the three- and six-month periods ended June 30, 2014, total revenues were $48.7 million and $98.1 million, respectively, compared to $44.7 million and $90.1 million during the same periods a year ago.  Higher interest and finance charge income earned on our loan and

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investment portfolios was the primary factor responsible for the increase in revenues.  An increase in insurance commissions earned also contributed to the higher revenues.  Net income increased $1.3 million (16%) and $3.0 million (17%) during the three- and six-month periods ended June 30, 2014, respectively, compared to the same periods during 2013.

Net Interest Income

Net interest income represents the difference between income on earning assets (loans and investments) and the cost of funds on interest bearing liabilities.  Our net interest income is affected by the size and mix of our loan and investment portfolios as well as the spread between interest and finance charges earned on the respective assets and interest incurred on our debt.  Our net interest income increased $3.0 million (10%) and $6.0 million (10%) during the three- and six-month periods ended June 30, 2014, respectively, compared to the same periods in 2013.  Average net receivables increased $27.1 million (7%) during the six months just ended compared to the same period a year ago.  The higher level of average net receivables led to an increase in interest and finance charges earned of $3.1 million (10%) and $6.2 million (10%) during the three- and six-month periods ended June 30, 2014, respectively, compared to the same periods in 2013.

Although average borrowings increased $30.0 million during the six-month period ended June 30, 2014 compared to the same period in 2013, the lower interest rate environment has enabled management to minimize increases in borrowing costs.  The Company's average borrowing rate decreased to 3.25% during the six-month period just ended compared to 3.47% during the same period a year ago.  Interest expense increased approximately $.1 million during same comparable period.

Management projects that, based on historical results, average net receivables will continue to grow during the second half of 2014, and earnings are expected to increase accordingly.  However, a decrease in net receivables or an increase in interest rates on outstanding borrowings, could negatively impact our net interest margin.  

Insurance Income

Net insurance income increased $.3 million (4%) and $1.2 million (7%) during the three- and six-month periods ended June 30, 2014 compared to the comparable periods a year ago.  The aforementioned increase in average net loans outstanding is directly attributable to the increase.  As average net receivables increase, the Company typically sees an increase in levels of insurance in-force as more loan customers opt for insurance coverage with their loan.  The increase in net insurance income during the current year was partially offset by higher claims expense during the same period.

Provision for Loan Losses

The Company’s provision for loan losses is a charge against earnings to maintain the allowance for loan losses at a level that Management estimates is adequate to cover probable losses inherent as of the date of the statement of financial position.  

During the three- and six-month periods ended June 30, 2014, the Company’s loan loss provision increased $1.5 million (25%) and $1.8 million (16%) compared to the same periods in 2013, respectively.  Higher net charge offs were the primary reason for the increase in our provision.  Net charge offs increased $1.1 million during the three-month comparable period and $1.4 million during the six-month comparable period.  Also contributing to the increase in the provision was Management's decision to increase the allowance for loan losses $1.2 million during the current year compared to $.8 million during the six month period ending June 30, 2013.

Determining a proper allowance for loan losses is a critical accounting estimate which involves Management’s judgment with respect to certain relevant factors, such as historical and expected loss trends, unemployment rates in various locales, current and expected net charge offs, delinquency levels, bankruptcy trends and overall general and industry specific economic conditions.

Management continues to monitor unemployment rates, which have decreased slightly in recent periods, but remain higher than historical averages in the states in which we operate.  

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Volatility in gasoline prices is also being monitored.  These factors tend to adversely impact our customers which, in turn, could have an adverse impact on our allowance for loan losses. Based on present and expected overall economic conditions, however, Management believes the allowance for loan losses is adequate to absorb losses inherent in the loan portfolio as of June 30, 2014.  However, continued high levels of unemployment and/or volatile market conditions could cause actual losses to vary materially from our estimated amounts.  Management may determine it is appropriate to increase the allowance for loan losses in future periods, or actual losses could exceed allowances in any period, either of which events could have a material negative impact on our results of operations in the future.

Other Operating Expenses

Other operating expenses increased $.7 million (3%) and $2.7 million (5%) during the three- and six-month periods ended June 30, 2014, respectively, compared to the same periods a year ago.  Other operating expenses encompasses personnel expense, occupancy expense and miscellaneous other expenses.  

Personnel expense increased $.4 million (1%) during the six-month period just ended compared to the same period in 2013.  The increase during the six-month period was primarily due to annual merit salary increases, increases in the Company's incentive bonus accrual, increases in employee benefit expense, increases in contributions to the Company's 401(k) plan, increased fees on the Company's self-insured medical program and increased payroll taxes.  There was a $.2 million (1%) decrease in overall personnel expense during the three-month period just ended compared to the same period a year ago as a result of lower accrued salary and payroll tax expense, an decrease in claims associated with the Company's self-insured medical program and an increase in employee withholding for insurance.   

Higher maintenance expense, utilities expense, depreciation expense and increased rent expense caused occupancy expense to increase $.2 million (6%) and $.4 million (7%) during the three- and six-month periods ended June 30, 2014 compared to the same periods a year ago.

During the three- and six-month periods ended June 30, 2014, miscellaneous other operating expenses increased $.8 million (14%) and $1.8 million (16%), respectively, compared to the same periods in 2013.  Costs were higher primarily due to increases in advertising expenses, charitable contributions and postage.  Other factors contributing to the higher miscellaenous other operating expenses were increases in: (i) credit bureau reporting expenses, (ii) security sales expense, (iii) computer expenses, (iv) travel expenses and (v) taxes and licenses.  Higher casualty losses and legal and audit expenses also contributed to the increase in miscellaneous other operating expenses during the six-month period just ended.

Income Taxes

The Company has elected to be, and is, treated as an S corporation for income tax reporting purposes.  Taxable income or loss of an S corporation is passed through to, and 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 S corporations, 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 Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences.  

Effective income tax rates were 9% and 10% during the three- and six-month periods ended June 30, 2014 and 2013, respectively.  The Company’s effective tax rates during the reporting periods were lower than statutory rates due to income at the S corporation level being passed to the shareholders of the Company for tax reporting purposes, whereas income earned at the insurance subsidiary level was taxed at the corporate level.  The tax rates of the Company’s insurance subsidiaries are below statutory rates primarily due to investments in tax exempt bonds held by the Company’s property insurance subsidiary.  

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Quantitative and Qualitative Disclosures About Market Risk:

Interest rates continued to be near historical low levels during the reporting period.  We currently expect only minimal fluctuations in market interest rates during the remainder of the year, thereby minimizing the expected impact on our net interest margin; however, no assurances can be given in this regard.  Please refer to the market risk analysis discussion contained in our 2013 Annual Report on Form 10-K as of and for the year ended December 31, 2013 for a more detailed analysis of our market risk exposure.  There were no material changes in our risk exposures in the six months ended June 30, 2014 as compared to those at December 31, 2013.

Liquidity and Capital Resources:

As of June 30, 2014 and December 31, 2013, the Company had $36.4 million and $26.4 million, respectively, invested in cash and cash equivalents, the majority of which was held by the parent company.  

The Company’s investments in marketable securities can be readily converted into cash, if necessary.  State insurance regulations limit the use an insurance company can make of its assets.  Dividend payments to a parent 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 subsidiary.  At December 31, 2013, Frandisco Property and Casualty Insurance Company (“Frandisco P&C”) and Frandisco Life Insurance Company (“Frandisco Life”), the Company’s wholly-owned insurance subsidiaries, had policyholders’ surpluses of $56.4 million and $56.7 million, respectively.  The maximum aggregate amount of dividends these subsidiaries can pay to the Company in 2014, without prior approval of the Georgia Insurance Commissioner, is approximately $11.3 million.  No dividends were paid during the six-month period ended June 30, 2014.

The majority of the Company’s liquidity requirements 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 receivables and securities sales, the Company has an external source of funds available under a credit facility with Wells Fargo Preferred Capital, Inc. (the “credit agreement”).  The credit agreement, as amended, provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the Credit Agreement), whichever is less and has a maturity date of September 11, 2016.  Available borrowings under the credit agreement were $100.0 million at June 30, 2014 and December 31, 2013, at an interest rate of 3.75%.  The credit agreement contains covenants customary for financing transactions of this type.  At June 30, 2014, the Company was in compliance with all covenants.  Management believes this credit facility, when considered with the Company’s other expected sources of funds, should provide sufficient liquidity for the continued growth of the Company for the foreseeable future.

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 critical accounting and reporting policies include the allowance for loan losses, revenue recognition and insurance claims reserves.  During the six months ended June 30, 2014, there were no material changes to the critical accounting policies or related estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Allowance for Loan Losses

Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at a level considered adequate to cover probable credit losses inherent in our loan portfolio.  

The allowance for loan losses is established based on the determination of the amount of probable losses inherent in the loan portfolio as of the reporting date.  We review, among other

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things, historical charge off experience factors, delinquency reports, historical collection rates, economic trends such as unemployment rates, gasoline prices and bankruptcy filings and other information in order to make what we believe are the necessary judgments as to probable losses.  Assumptions regarding probable losses are reviewed periodically and may be impacted by our actual loss experience and changes in any of the factors discussed above.

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 account with precomputed charges to calculate income for those active 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 accounts with precomputed charges are paid off or renewed prior to maturity, the result is that most of those 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 do not have precomputed charges, have income recognized on a simple interest accrual basis.  Income is not accrued on any loan that is more than 60 days past due.

Loan fees and origination costs are deferred and recognized as adjustments 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 Unaudited Condensed 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 previously estimated amounts, such losses could have a material adverse effect on the Company’s results of operations.

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

Recent Accounting Pronouncements:

See “Recent Accounting Pronouncements” in Note 1 to the accompanying “Notes to Unaudited Condensed Consolidated Financial Statements” for a discussion of any applicable recently adopted accounting standards and the expected impact of accounting standards recently issued but not yet required to be adopted.  For pronouncements already adopted, any material impacts on the Company’s consolidated financial statements are discussed in the applicable section(s) of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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1st FRANKLIN FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
	June 30,	December 31,
	2014	2013
ASSETS
CASH AND CASH EQUIVALENTS	$ 36,426,693	$ 26,399,839
RESTRICTED CASH	784,273	974,452
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	424,032,229  19,903,238  23,201,927  467,137,394  55,785,869  32,865,278  25,876,800  352,609,447	445,754,712 20,329,655 22,269,833 488,354,200 59,649,718 34,596,733 24,680,789 369,426,960
INVESTMENT SECURITIES: Available for Sale, at fair value Held to Maturity, at amortized cost	122,200,636  25,550,882  147,751,518	106,061,584 29,777,456 135,839,040
EQUITY METHOD INVESTMENT	25,974,854	10,211,635
OTHER ASSETS	18,743,791	18,909,135
TOTAL ASSETS	$ 582,290,576	$ 561,761,061
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DEBT	$ 321,827,389	$ 308,015,152
ACCRUED EXPENSES AND OTHER LIABILITIES	17,699,163	21,014,769
SUBORDINATED DEBT	39,209,106	40,378,507
Total Liabilities	378,735,658	369,408,428
COMMITMENTS AND CONTINGENCIES (Note 6) 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 Non-Voting Shares; no par value; 198,000 shares authorized; 168,300 shares outstanding	170,000  --	170,000 --
Accumulated Other Comprehensive (Loss) Income	1,678,490	(2,472,734)
Retained Earnings	201,706,428	194,655,367
Total Stockholders' Equity	203,554,918	192,352,633
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 582,290,576	$ 561,761,061
See Notes to Unaudited Condensed Consolidated Financial Statements

7

1st FRANKLIN FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF  INCOME AND RETAINED EARNINGS (Unaudited)
	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013
INTEREST INCOME	$ 34,842,436	$ 31,766,021	$ 70,771,620	$ 64,619,394
INTEREST EXPENSE	2,941,522	2,856,764	5,830,774	5,698,023
NET INTEREST INCOME	31,900,914	28,909,257	64,940,846	58,921,371
Provision for Loan Losses	7,171,635	5,718,712	13,065,867	11,224,533
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	24,729,279	23,190,545	51,874,979	47,696,838
INSURANCE INCOME Premiums and Commissions Insurance Claims and Expenses Total Net Insurance Income	11,636,742 2,743,118 8,893,624	11,008,766 2,422,674 8,586,092	23,499,941 4,892,145 18,607,796	22,150,709 4,694,059 17,456,650
OTHER REVENUE	2,224,806	1,950,289	3,818,097	3,297,884
OTHER OPERATING EXPENSES: Personnel Expense Occupancy Expense Other Total	15,477,019 3,247,451 6,354,682 25,079,152	15,711,779 3,064,962 5,557,292 24,334,033	32,096,473 6,492,388 13,018,371 51,607,232	31,653,518 6,085,418 11,200,086 48,939,022
INCOME BEFORE INCOME TAXES	10,768,557	9,392,893	22,693,640	19,512,350
Provision for Income Taxes	992,108	965,644	2,132,579	1,991,236
NET INCOME	9,776,449	8,427,249	20,561,061	17,521,114
RETAINED EARNINGS, Beginning       of Period	200,819,979	181,595,632	194,655,367	174,265,215
Distributions on Common Stock	8,890,000	8,715,460	13,510,000	10,478,908
RETAINED EARNINGS, End of Period	$201,706,428	$181,307,421	$ 201,706,428	$ 181,307,421
BASIC EARNINGS PER SHARE: 170,000 Shares Outstanding for All Periods (1,700 voting, 168,300 non-voting)	$57.51	$49.57	$120.95	$103.07
See Notes to Unaudited Condensed Consolidated Financial Statements

8

1st FRANKLIN FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended		Six Months Ended
	June 30,	June 30,	June 30,	June 30,
	2014	2013	2014	2013
Net Income	$ 9,776,449	$ 8,427,249	$ 20,561,061	$ 17,521,114
Other Comprehensive Income (Loss):
Net changes related to available-for-sale
Securities:
Unrealized gains (losses)	2,409,342	(4,649,168)	5,643,784	(5,321,714)
Income tax benefit (expense)	(617,401)	1,191,834	(1,492,553)	1,452,079
Net unrealized (losses) gains	1,791,941	(3,457,334)	4,151,231	(3,869,635)
Less reclassification of gain to
net income (1)	-	614	7	49,541
Total Other Comprehensive
Income (Loss)	1,791,941	(3,457,948)	4,151,224	(3,919,176)
Total Comprehensive Income	$ 11,568,390	$ 4,969,301	$ 24,712,285	$ 13,601,938

(1)

Reclassified $9 to other operating expenses and $2 to provision for income taxes on the Condensed Consolidated Statements of Income and Retained Earnings (Unaudited) during the six months ended June 30, 2014.

Reclassified $0 to other operating expenses and $614 to provision for income taxes on the Condensed Consolidated Statements of Income and Retained Earnings (Unaudited) during the three months ended June 30, 2013.

Reclassified $68,608 to other operating expenses and $19,067 to provision for income taxes on the Condensed Consolidated Statements of Income and Retained Earnings (Unaudited) during the six months ended June 30, 2013.  

See Notes to Unaudited Condensed Consolidated Financial Statements

9

1ST FRANKLIN FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended
	June 30,
	2014	2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$ 20,561,061	$ 17,521,114
Adjustments to reconcile net income to net cash Provided by operating activities:
Provision for loan losses	13,065,867	11,224,533
Depreciation and amortization	1,513,815	1,429,834
Provision for deferred income taxes	(50,310)	(61,572)
Earnings in equity method investment	(763,219)	-
Other	634,236	498,001
Decrease (Increase) in miscellaneous other assets	477,439	(660,995)
Decrease in other liabilities	(4,757,847)	(4,485,515)
Net Cash Provided	30,681,042	25,465,400
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased	(150,799,237)	(148,118,081)
Loan payments	154,550,883	145,836,526
Decrease in restricted cash	190,179	1,063,862
Purchases of marketable debt securities	(16,385,099)	(15,886,955)
Purchase of equity fund investment	(15,000,000)	-
Sales of marketable debt securities	-	916,406
Redemptions of marketable debt securities	9,465,000	6,949,909
Fixed asset additions, net	(1,808,750)	(1,362,890)
Net Cash Used	(19,787,024)	(10,601,223)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in senior demand notes	4,352,009	3,676,308
Advances on credit line	264,801	264,790
Payments on credit line	(264,801)	(264,790)
Commercial paper issued	37,356,301	26,688,967
Commercial paper redeemed	(27,896,073)	(14,726,608)
Subordinated debt securities issued	2,095,220	4,886,662
Subordinated debt securities redeemed	(3,264,621)	(5,589,885)
Dividends / Distributions	(13,510,000)	(10,478,908)
Net Cash (Used) Provided	(867,164)	4,456,536
NET INCREASE CASH AND CASH EQUIVALENTS	10,026,854	19,320,713
CASH AND CASH EQUIVALENTS, beginning	26,399,839	28,186,035
CASH AND CASH EQUIVALENTS, ending	$ 36,426,693	$ 47,506,748
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest	$ 5,802,344	$ 5,726,812
Income Taxes	2,237,000	2,179,000
Non-cash Exchange of Investment Securities	-	819,908
See Notes to Unaudited Condensed Consolidated Financial Statements

10

-NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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, 2013 and for the year then ended included in the Company's 2013 Annual Report filed with the Securities and Exchange Commission.

In the opinion of Management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of June 30, 2014 and December 31, 2013, and its consolidated results of operations and comprehensive income for the three and six-month periods ended June 30, 2014 and 2013 and its consolidated cash flows for the six months ended June 30, 2014 and 2013. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Company believes that the disclosures herein are adequate to make the information presented not misleading.

The Company’s financial condition and results of operations as of and for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.  The preparation of financial statements in accordance with GAAP requires Management to make estimates and assumptions that affect the reported amount of assets and liabilities at and as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates.

The computation of earnings per share is self-evident from the accompanying Condensed Consolidated Statements of Income and Retained Earnings (Unaudited).  The Company has no dilutive securities outstanding.

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09 “Revenue from Contracts with Customers.” ASU 2014-09 applies to most contracts with customers. Finance receivable and insurance contracts are excluded from the scope of this pronouncement. ASU 2014-09 prescribes a five step framework in accounting for revenues from contracts within its scope, including (a) identification of the contract, (b) identification of the performance obligations under the contract, (c) determination of the transaction price, (d) allocation of the transaction price to the identified performance obligations and (e) recognition of revenues as the identified performance obligations are satisfied. ASU 2014-09 also prescribes additional disclosures and financial statement presentations. ASU 2014-09 is effective for public entities in annual reporting periods beginning after December 15, 2016. Early application is not permitted. ASU 2014-09 may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. Management is currently evaluating the effect the adoption of this standard will have on our consolidated financial statements.

Note 2 – Allowance for Loan Losses

The allowance for loan losses is based on Management's evaluation of the inherent risks and changes in the composition of the Company's loan portfolio.  Management’s approach to estimating and evaluating the allowance for loan losses is on a total portfolio level based on historical loss trends, bankruptcy trends, the level of receivables at the balance sheet date, payment patterns and economic conditions primarily including, but not limited to, unemployment

11

levels and gasoline prices.  Historical loss trends are tracked on an on-going basis.  The trend analysis includes statistical analysis of the correlation between loan date and charge off date, charge off statistics by the total loan portfolio, and charge off statistics by branch, division and state.  Delinquency and bankruptcy filing trends are also tracked.  If trends indicate an adjustment to the allowance for loan losses is warranted, Management will make what it considers to be appropriate adjustments.  The level of receivables at the balance sheet date is reviewed and adjustments to the allowance for loan losses are made if Management determines increases or decreases in the level of receivables warrants an adjustment.  The Company uses monthly unemployment statistics, and various other monthly or periodic economic statistics, published by departments of the U.S. government and other economic statistics providers to determine the economic component of the allowance for loan losses.  Such allowance is, in the opinion of Management, sufficiently adequate for probable losses in the current loan portfolio.  As the estimates used in determining the loan loss reserve are influenced by outside factors, such as consumer payment patterns and general economic conditions, there is uncertainty inherent in these estimates.  Actual results could vary based on future changes in significant assumptions.

Management does not disaggregate the Company’s loan portfolio by loan class when evaluating loan performance.  The total portfolio is evaluated for credit losses based on contractual delinquency and other economic conditions. The Company classifies delinquent accounts at the end of each month according to the number of installments past due at that time, based on the then-existing terms of the contract.  Accounts are classified in delinquency categories based on the number of days past due.  When three installments are past due, Management classifies the account as being 60-89 days past due; when four or more installments are past due, Management classifies the account as being 90 days or more past due.  When a loan becomes five installments past due, it is charged off unless Management directs that it be retained as an active loan. In making this charge off evaluation, Management considers factors such as pending insurance, bankruptcy status and other indicators of collectability. In addition, no installment is counted as being past due if at least 80% of the contractual payment has been paid. In connection with any bankruptcy court-initiated repayment plan and as allowed by state regulatory authorities, the Company effectively resets the delinquency rating of each account to coincide with the court initiated repayment plan. The amount charged off is the unpaid balance less the unearned finance charges and the unearned insurance premiums, if applicable.

When a loan becomes 60 days or more past due based on its original terms, it is placed in nonaccrual status.  At such time, the accrual of any additional finance charges is discontinued.  Finance charges are then only recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status.  Nonaccrual loans return to accrual status when the loan becomes less than 60 days past due.  There were no loans 60 days or more past due and still accruing interest at June 30, 2014 or December 31, 2013.  The Company’s principal balances on non-accrual loans by loan class as of June 30, 2014 and December 31, 2013 are as follows:

Loan Class	June 30,  2014	December 31, 2013
Consumer Loans	$ 22,084,706	$ 33,680,602
Real Estate Loans	886,627	969,149
Sales Finance Contracts	718,080	816,196
Total	$ 23,689,413	$ 35,465,947

An age analysis of principal balances on past due loans, segregated by loan class, as of June 30, 2014 and December 31, 2013 follows:

June 30, 2014	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 13,296,849	$ 6,946,863	$ 13,220,622	$ 33,464,334
Real Estate Loans	462,772	150,128	530,762	1,143,662
Sales Finance Contracts	363,755	248,369	411,510	1,023,634
Total	$ 14,123,376	$ 7,345,360	$ 14,162,894	$ 35,631,630

12

December 31, 2013	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 11,939,226	$ 6,542,571	$ 13,438,184	$ 31,919,981
Real Estate Loans	299,094	173,842	547,012	1,019,948
Sales Finance Contracts	391,658	203,821	448,991	1,044,470
Total	$ 12,629,978	$ 6,920,234	$ 14,434,187	$ 33,984,399

In addition to the delinquency rating analysis, the ratio of bankrupt accounts to the total loan portfolio is also used as a credit quality indicator.  The ratio of bankrupt accounts outstanding to total principal loan balances outstanding at June 30, 2014 and December 31, 2013 was 2.82% and 2.54%, respectively.

Nearly our entire loan portfolio consists of small homogeneous consumer loans (of the product types set forth in the table below).  

June 30, 2014	Principal Balance	% Portfolio	6 Months Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 421,921,432	90.8%	$ 11,532,011	97.2
Real Estate Loans	19,546,601	4.2	4,820	-
Sales Finance Contracts	23,000,434	5.0	333,025	2.8
Total	$ 464,468,467	100.0%	$ 11,869,856	100.0%

June 30, 2013	Principal Balance	% Portfolio	6 Months Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 393,797,177	90.5%	$ 10,231,467	98.2%
Real Estate Loans	20,004,441	4.6	(4,606)	(.1)
Sales Finance Contracts	21,178,763	4.9	197,672	1.9
Total	$ 434,980,381	100.0%	$ 10,424,533	100.0%

Sales finance contracts are similar to consumer loans in nature of loan product, terms, customer base to whom these products are marketed, factors contributing to risk of loss and historical payment performance, and together with consumer loans, represented approximately 96% and 95% of the Company’s loan portfolio at June 30, 2014 and 2013, respectively.  As a result of these similarities, which have resulted in similar historical performance, consumer loans and sales finance contracts represent substantially all loan losses.  Real estate loans and related losses have historically been insignificant, and, as a result, we do not stratify the loan portfolio for purposes of determining and evaluating our loan loss allowance.  Due to the composition of the loan portfolio, the Company determines and monitors the allowance for loan losses on a collectively evaluated, single portfolio segment basis.  Therefore, a roll forward of the allowance for loan loss activity at the portfolio segment level is the same as at the total portfolio level.  We have not acquired any impaired loans with deteriorating quality during any period reported.  The following table provides additional information on our allowance for loan losses based on a collective evaluation:

	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Allowance for Credit Losses:
Beginning Balance	$ 24,680,789	$ 22,010,085	$ 24,680,789	$ 22,010,085
Provision for Loan Losses	7,171,635	5,718,712	13,065,867	11,224,533
Charge-offs	(8,300,168)	(7,115,137)	(16,743,300)	(15,193,489)
Recoveries	2,324,544	2,196,425	4,873,444	4,768,956
Ending Balance	$ 25,876,800	$ 22,810,085	$ 25,876,800	$ 22,810,085
Ending balance; collectively evaluated for impairment	$ 25,876,800	$ 22,810,085	$ 25,876,800	$ 22,810,085

13

	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Finance receivables:
Ending balance	$ 464,468,467	$ 434,980,381	$ 464,468,467	$ 434,980,381
Ending balance; collectively evaluated for impairment	$ 464,468,467	$ 434,980,381	$ 464,468,467	$ 434,980,381

Troubled Debt Restructings ("TDR's") represent loans on which the original terms of the loans have been modified as a result of the following conditions: (i) the restructuring constitutes a concession and (ii) the borrower is experiencing financial difficulties. Loan modifications by the Company involve payment alterations, interest rate concessions and/ or reductions in the amount owed by the borrower.  The following table presents a summary of loans that were restructured during the three months ended June 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	972	$ 3,149,774	$ 2,895,294
Real Estate Loans	25	209,797	209,742
Sales Finance Contracts	39	106,204	101,096
Total	1,036	$ 3,465,775	$ 3,206,132

The following table presents a summary of loans that were restructured during the three months ended June 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	983	$ 3,058,427	$ 2,827,409
Real Estate Loans	20	148,861	146,559
Sales Finance Contracts	49	95,620	87,831
Total	1,052	$ 3,302,908	$ 3,061,799

The following table presents a summary of loans that were restructured during the six months ended June 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	1,770	$ 5,645,802	$ 5,207,480
Real Estate Loans	38	299,528	299,472
Sales Finance Contracts	78	203,935	195,202
Total	1,886	$ 6,149,265	$ 5,702,154

The following table presents a summary of loans that were restructured during the six months ended June 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	1,738	$ 5,450,143	$ 5,030,488
Real Estate Loans	32	242,804	238,501
Sales Finance Contracts	86	170,361	158,863
Total	1,856	$ 5,863,308	$ 5,427,852

14

TDRs that occurred during the previous twelve months and subsequently defaulted during the three months ended June 30, 2014 are listed below.  

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	215	$ 387,551
Real Estate Loans	1	3,526
Sales Finance Contracts	7	6,947
Total	223	$ 398,024

TDRs that occurred during the twelve months ended June 30, 2013 and subsequently defaulted during the three months ended June 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	208	$ 363,313
Real Estate Loans	3	8,206
Sales Finance Contracts	5	4,560
Total	216	$ 376,079

TDRs that occurred during the previous twelve months and subsequently defaulted during the six months ended June 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	368	$ 675,801
Real Estate Loans	1	3,526
Sales Finance Contracts	13	13,232
Total	382	$ 692,559

TDRs that occurred during the twelve months ended June 30, 2013 and subsequently defaulted during the six months ended June 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	335	$ 607,329
Real Estate Loans	3	8,206
Sales Finance Contracts	12	13,502
Total	350	$ 629,037

The level of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance of loan losses.

15

Note 3 – Investment Securities

Debt securities available-for-sale are carried at estimated fair 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 values of these debt securities were as follows:

	As of June 30, 2014		As of December 31, 2013
	Amortized Cost	Estimated Fair Value	Amortized Cost	Estimated Fair Value
Available-for-Sale: Obligations of states and political subdivisions Corporate securities	$ 119,907,901 130,316 $ 120,038,217	$ 121,764,530 436,106 $ 122,200,636	$ 109,412,622 130,316 $ 109,542,938	$ 105,628,550 433,034 $ 106,061,584
Held to Maturity: Obligations of states and political subdivisions	$ 25,550,882	$ 26,095,622	$ 29,777,456	$ 30,169,874

Gross unrealized losses on investment securities totaled $1,377,238 and $5,195,856 at June 30, 2014 and December 31, 2013, 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, 2014 and December 31, 2013:

	Less than 12 Months			12 Months or Longer		Total
June 30, 2014	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
Obligations of states and political subdivisions		$ 8,930,006	$ 76,679	$ 30,758,193	$ 1,182,967	$ 39,688,199	$ 1,259,646
Held to Maturity:
Obligations of states and political subdivisions		2,017,774	10,049	2,530,765	107,543	4,548,539	117,592
Overall Total		$ 10,947,780	$ 86,728	$ 33,288,958	$ 1,290,510	$44,236,738	$ 1,377,238

	Less than 12 Months		12 Months or Longer		Total
December 31, 2013	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
Obligations of states and political subdivisions	$ 51,088,253	$ 3,354,098	$ 9,763,723	$ 1,671,183	$  60,851,976	$ 5,025,281
Held to Maturity:
Obligations of states and political subdivisions	2,229,451	38,968	3,168,698	131,607	5,398,149	170,575
Overall Total	$ 53,317,704	$ 3,393,066	$ 12,932,421	$ 1,802,790	$ 66,250,125	$ 5,195,856

The previous two tables represent 71 and 112 investments held by the Company at June 30, 2014 and December 31, 2013, respectively, the majority of which are rated “A” or higher by Standard & Poor’s.  The unrealized losses on the Company’s investments listed in the above table were primarily the result of interest rate and market fluctuations.  Based on the credit ratings of these investments, along with the consideration of whether the Company has the intent to sell or will be more likely than not required to sell the applicable investment before recovery of amortized cost basis, the Company does not consider the impairment of any of these investments to be other-than-temporary at June 30, 2014 and December 31, 2013.

The Company’s insurance subsidiaries internally designate certain investments as restricted to cover their policy reserves and loss reserves.  Funds are held in separate trusts for the benefit of each insurance subsidiary at U.S. Bank National Association ("US Bank").  US Bank serves as trustee under a trust agreement with the Company's property and casualty insurance company subsidiary ("Frandisco P&C"), as grantor, and American Bankers Insurance Company of Florida, as beneficiary.  At June 30, 2014, this trust held $22.4 million in available-for-sale

16

investment securities at market value and $8.8 million in held-to-maturity investment securities at amortized cost.  US Bank also serves as trustee under a trust agreement with the Company's life insurance subsidiary (“Frandisco Life”), as grantor, and American Bankers Life Assurance Company, as beneficiary.  At June 30, 2014, the trust for Frandisco Life held $3.0 million in available-for-sale investment securities at market value and $1.0 million in held-to-maturity investment securities at amortized cost.  The amounts required to be in each Trust change as required reserves change.  All earnings on assets in the trusts are remitted to Frandisco P&C and Frandisco Life, respectively.  Any charges associated with the trust are paid by the beneficiaries of each trust.

Note 4 – Fair Value

Under Accounting Standards Codification No. 820 ("ASC No. 820"), fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The following fair value hierarchy is used in selecting inputs used to determine the fair value of an asset or liability, with the highest priority given to Level 1, as these are the most transparent or reliable.  A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements.

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3 - Valuations derived from valuation techniques in which one or more significant

inputs are unobservable.

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

Cash and Cash Equivalents:  Cash includes cash on hand and with banks.  Cash equivalents are short-term highly liquid investments with original maturities of three months or less.   The carrying value of cash and cash equivalents approximates fair value due to the relatively short period of time between origination of the instruments and their expected realization.  The estimate of the fair value of cash and cash equivalents is classified as  Level 1 in the fair value hierarchy.

Loans:  The carrying value of the Company’s direct cash loans and sales finance contracts approximates the fair value since the estimated life, assuming prepayments, is short-term in nature.  The fair value of the Company’s real estate loans approximate the carrying value since the interest rate charged by the Company approximates market rate.  The estimate of fair value of loans is classified as Level 3 in the fair value hierarchy.

Marketable Debt Securities:  The fair value of marketable debt securities is based on quoted market prices, when available.  If a quoted market price is not available, fair value is estimated using market prices for similar securities.  The estimate of fair value of held-to-maturity marketable debt securities is classified as Level 2 in the fair value hierarchy.  See additional information, including the table below, regarding fair value under ASC No. 820, and the  fair value measurement of available-for-sale marketable debt securities.

Equity Method Investment:  The fair value of equity method investments is estimated based on the Company's allocable share of the investee net asset value as of the rerporting date.  Equity method investment is a Level 2 financial asset.

Senior Debt Securities:  The carrying value of the Company’s senior debt securities approximates fair value due to the relatively short period of time between the origination

17

of the instruments and their expected repayment.  The estimate of fair value of senior debt securities is classified as Level 2 in the fair value hierarchy.

Subordinated Debt Securities:  The carrying value of the Company’s variable rate subordinated debt securities approximates fair value due to the re-pricing frequency of the securities.  The estimate of fair value of subordinated debt securities is classified as Level 2 in the fair value hierarchy.

The Company is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value.  The Company performs due diligence to understand the inputs and how the data was calculated or derived.  The Company employs a market approach in the valuation of its obligations of states, political subdivisions and municipal revenue bonds that are available-for-sale.  These investments are valued on the basis of current market quotations provided by independent pricing services selected by Management based on the advice of an investment manager.  To determine the value of a particular investment, these independent pricing services may use certain information with respect to market transactions in such investment or comparable investments, various relationships observed in the market between investments, quotations from dealers, and pricing metrics and calculated yield measures based on valuation methodologies commonly employed in the market for such investments. Quoted prices are subject to our internal price verification procedures.  We validate prices received using a variety of methods including, but not limited, to comparison to other pricing services or corroboration of pricing by reference to independent market data such as a secondary broker.  There was no change in this methodology during any period reported.

Assets measured at fair value as of June 30, 2014 and December 31, 2013 were available-for-sale investment securities which are summarized below:

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
	June 30,	Assets	Inputs	Inputs
Description	2014	(Level 1)	(Level 2)	(Level 3)
Corporate securities Obligations of states and      political subdivisions              Total	$ 436,106 121,764,530 $ 122,200,636	$ 436,106 -- $ 436,106	$ -- 121,764,530 $ 121,764,530	$ -- -- $ --

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
	December 31,	Assets	Inputs	Inputs
Description	2013	(Level 1)	(Level 2)	(Level 3)
Corporate securities Obligations of states and      political subdivisions              Total	$ 433,034 105,628,550 $ 106,061,584	$ 433,034 -- $ 433,034	$ -- 105,628,550 $ 105,628,550	$ -- -- $ --

Note 5 – Equity Method Investment

The Company has one investment accounted for using the equity method of accounting.  On November 1, 2013, the Company invested $10.0 million in Meritage Capital, Centennial Absolute Return Fund, L.P. (the "Fund").  An additional $15.0 million was invested on April 1, 2014.  The Company has no investment commitments to the Fund.  The carrying value of this investment was $26.0 million and $10.2 million as of June 30, 2014 and December 31, 2013, respectively.  Withdrawal of funds may be done at the end of any calendar quarter with a 60 day notice.  The

18

Company's ownership interest in the Fund was 25.79% and 12.14%  at June 30, 2014 and December 31, 2013, respectively.  

Condensed financial statement information of the equity method investment is as follows:

	June 30, 2014	December 31,2013
Company's equity method investment	$ 25,974,854	$ 10,211,635
Partnership assets	$ 105,224,889	$ 88,602,340
Partnership liabilities	$ 3,178,348	$ 2,873,918
Partnership net income	$ 4,544,309	$ 7,983,103

Note 6 – Commitments and Contingencies

The Company is, and expects in the future to be, involved in various legal proceedings incidental to its business from time to time.  Management makes provisions in its financial statements for legal, regulatory, and other contingencies when, in the opinion of Management, a loss is probable and reasonably estimable.  At June 30, 2014, no such known proceedings or amounts, individually or in the aggregate, were expected to have a material impact on the Company or its financial condition or results of operations.

Note 7 – Income Taxes

Effective income tax rates were 9% and 10% during the three- and six-month periods ended June 30, 2014 and 2013, respectively.  The Company has elected to be, and is, treated as an S corporation for income tax reporting purposes.  Taxable income or loss of an S corporation is passed through to, and included in the individual tax returns, of the shareholders of the Company, rather than being taxed at the corporate level.  Notwithstanding this election, income taxes are reported for, and paid by, the Company's insurance subsidiaries, as they are not allowed by law to be treated as S corporations, 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 investments in tax exempt bonds held by the Company’s property insurance subsidiary.  

 Note 8 – Credit Agreement

Effective September 11, 2009, the Company entered into a credit facility with Wells Fargo Preferred Capital, Inc.  The credit agreement provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the Credit Agreement), whichever is less and has a maturity date of September 11, 2016.  Available borrowings under the credit agreement were $100.0 million at June 30, 2014 and December 31, 2013, at an interest rate of 3.75%.  The credit agreement contains covenants customary for financing transactions of this type.  At June 30, 2014, the Company was in compliance with all covenants.  

Note 9 – Related Party Transactions

The Company engages from time to time in transactions with related parties.  Please refer to the disclosure contained in Note 10 “Related Party Transactions” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2013 for additional information on such transactions.

Note 10 – Segment Financial Information

The Company has five reportable segments:  Division I through Division V.  Each segment consists of a number of branch offices that are aggregated based on vice president responsibility and geographic location.  Division I consists of offices located in South Carolina.  Offices in North Georgia comprise Division II, Division III consists of offices in South Georgia.  Division IV represents our Alabama and Tennessee offices, and our offices in Louisiana and Mississippi encompass Division V.  

Accounting policies of each of the segments are the same as those for the Company as a whole.  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

19

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.

In accordance with the requirements of ASC No. 280, “Segment Reporting,” the following table summarizes revenues, profit and assets by business segment.  Also in accordance therewith, a reconciliation to consolidated net income is provided.  

	Division	Division	Division	Division	Division
	I	II	III	IV	V	Total
	(in thousands)
Segment Revenues:
3 Months ended 6/30/2014	$ 6,205	$ 10,875	$ 10,313	$ 9,298	$ 8,199	$ 44,890
3 Months ended 6/30/2013	5,602	10,147	9,743	8,501	7,611	41,604
6 Months ended 6/30/2014	$ 12,745	$ 22,281	$ 21,206	$ 18,688	$ 16,729	$ 91,649
6 Months ended 6/30/2013	11,413	20,591	19,791	17,177	15,491	84,463
Segment Profit:
3 Months ended 6/30/2014	$ 2,439	$ 5,209	$ 4,861	$ 3,920	$ 3,313	$ 19,742
3 Months ended 6/30/2013	2,069	5,225	4,688	3,523	2,989	18,494
6 Months ended 6/30/2014	$ 5,042	$ 11,106	$ 10,281	$ 7,857	$ 6,769	$ 41,055
6 Months ended 6/30/2013	4,079	10,477	9,484	6,963	6,264	37,267

Segment Assets:
6/30/2014	$ 50,542	$ 96,483	$ 93,804	$ 94,591	$ 68,065	$ 403,485
12/31/2013	53,529	100,646	97,290	96,440	70,898	418,803
			3 Months Ended 6/30/2014 (in Thousands)	3 Months Ended 6/30/2013 (in Thousands)	6 Months Ended 6/30/2014 (in Thousands)	6 Months Ended 6/30/2013 (in Thousands)
Reconciliation of Profit:
Profit per segment			$19,742	$ 18,495	$ 41,055	$ 37,267
Corporate earnings not allocated			3,814	3,121	6,441	5,605
Corporate expenses not allocated			(12,787)	(12,223)	(24,802)	(23,360)
Income taxes not allocated			(993)	(966)	(2,133)	(1,991)
Net income			$ 9,776	$ 8,427	$ 20,561	$ 17,521

20

BRANCH OPERATIONS
Ronald F. Morrow	Vice President
Virginia K. Palmer	Vice President
J. Patrick Smith, III	Vice President
Marcus C. Thomas	Vice President
Michael J. Whitaker	Vice President
Joseph R. Cherry	Area Vice President
John B. Gray	Area Vice President

REGIONAL OPERATIONS DIRECTORS
Sonya Acosta	Joe Daniel	Steve Knotts	Marty Miskelly
Michelle Rentz Benton	Loy Davis	Judy Landon	Larry Mixson
Bert Brown	Carla Eldridge	Sharon Langford	William Murillo
Ron Byerly	Jimmy Fairbanks	Jeff Lee	Mike Olive
Keith Chavis	Chad Frederick	Tommy Lennon	Hilda Phillips
Janice Childers	Shelia Garrett	Lynn Lewis	Jennifer Purser
Rick Childress	Brian Hill	Jimmy Mahaffey	Summer Rhodes
Bryan Cook	David Hoard	John Massey	Mike Shankles
Richard Corirossi Jeremy Cranfield	Gail Huff Jerry Hughes	Vicky McCleod Brian McSwain	Harriet Welch

BRANCH OPERATIONS
ALABAMA
Adamsville	Bessemer	Enterprise	Huntsville (2)	Opp	Scottsboro
Albertville	Center Point	Fayette	Jasper	Oxford	Selma
Alexander City	Clanton	Florence	Moody	Ozark	Sylacauga
Andalusia	Cullman	Fort Payne	Moulton	Pelham	Troy
Arab	Decatur	Gadsden	Muscle Shoals	Prattville	Tuscaloosa
Athens	Dothan (2)	Hamilton	Opelika	Russellville (2)	Wetumpka
GEORGIA
Adel	Carrollton	Dalton	Gray	Macon	Statesboro
Albany	Cartersville	Dawson	Greensboro	Madison	Stockbridge
Alma	Cedartown	Douglas (2)	Griffin	Manchester	Swainsboro
Americus	Chatsworth	Douglasville	Hartwell	McDonough	Sylvania
Athens (2)	Clarkesville	Dublin	Hawkinsville	Milledgeville	Sylvester
Bainbridge	Claxton	East Ellijay	Hazlehurst	Monroe	Thomaston
Barnesville	Clayton	Eastman	Helena	Montezuma	Thomson
Baxley	Cleveland	Eatonton	Hinesville (2)	Monticello	Tifton
Blairsville	Cochran	Elberton	Hiram	Moultrie	Toccoa
Blakely	Colquitt	Fayetteville	Hogansville	Nashville	Valdosta
Blue Ridge	Columbus	Fitzgerald	Jackson	Newnan	Vidalia
Bremen	Commerce	Flowery Branch	Jasper	Perry	Villa Rica
Brunswick	Conyers	Forsyth	Jefferson	Pooler	Warner Robins
Buford	Cordele	Fort Valley	Jesup	Richmond Hill	Washington
Butler	Cornelia	Ft. Oglethorpe	Kennesaw	Rome	Waycross
Cairo	Covington	Gainesville	LaGrange	Royston	Waynesboro
Calhoun	Cumming	Garden City	Lavonia	Sandersville	Winder
Canton	Dahlonega	Georgetown	Lawrenceville	Savannah

21

BRANCH OPERATIONS
(Continued)
LOUISIANA
Abbeville	Denham Springs	Houma	Marksville	New Iberia	Slidell
Alexandria	DeRidder	Jena	Minden	Opelousas	Springhill
Bastrop	Eunice	Lafayette	Monroe	Pineville	Sulphur
Bossier City	Franklin	LaPlace	Morgan City	Prairieville	Thibodaux
Crowley Covington	Hammond	Leesville	Natchitoches	Ruston	Winnsboro
MISSISSIPPI
Batesville	Columbus	Hazlehurst	Magee	Oxford	Ripley
Bay St. Louis	Corinth	Hernando	McComb	Pearl	Senatobia
Booneville	Forest	Houston	Meridian	Philadelphia	Starkville
Brookhaven	Grenada	Iuka	New Albany	Picayune	Tupelo
Carthage	Gulfport	Jackson	Newton	Pontotoc	Winona
Columbia	Hattiesburg	Kosciusko	Olive Branch
SOUTH CAROLINA
Aiken	Chester	Greenville	Lexington	North Charleston	Spartanburg
Anderson	Columbia	Greenwood	Manning	North Greenville	Summerville
Batesburg-    Leesvile	Conway	Greer	Marion	North Myrtle    Beach	Sumter
Beaufort	Dillon	Hartsville	Moncks Corner	Orangeburg	Union
Camden	Easley	Irmo	Myrtle Beach	Rock Hill	Walterboro
Cayce	Florence	Lake City *	Newberry	Seneca	Winnsboro
Charleston	Gaffney	Lancaster	North Augusta	Simpsonville	York
Cheraw	Georgetown	Laurens
TENNESSEE
Alcoa	Crossville	Greenville	Kingsport	Lenior City	Sevierville
Athens	Dayton	Hixson	Knoxville	Madisonville	Sparta
Bristol	Elizabethton	Johnson City	LaFollette	Newport	Winchester
Cleveland
____________________ *  Opened July 2014

22

DIRECTORS
Ben F. Cheek, III Chairman and Chief Executive Officer 1st Franklin Financial Corporation	John G. Sample, Jr. Senior Vice President and Chief Financial Officer Atlantic American Corporation
Ben F. Cheek, IV Vice Chairman 1st Franklin Financial Corporation	C. Dean Scarborough Realtor
A. Roger Guimond Executive Vice President and Chief Financial Officer 1st Franklin Financial Corporation	Keith D. Watson Vice President and Corporate Secretary Bowen & Watson, Inc.
Jim H. Harris, III Founder / Co-owner Unichem Technologies Founder / Owner / President Moonrise Distillery

EXECUTIVE OFFICERS

Ben F. Cheek, III

Chairman and Chief Executive Officer

Ben F. Cheek, IV

Vice Chairman

Virginia C. Herring

President

A. Roger Guimond

Executive Vice President and Chief Financial Officer

J. Michael Culpepper

Executive Vice President and Chief Operating Officer

C. Michael Haynie

Executive Vice President - Human Resources

Kay S. Lovern

Executive Vice President – Strategic and Organization Development

Chip Vercelli

Executive Vice President – General Counsel

Lynn E. Cox

Vice President / Corporate Secretary and Treasurer

LEGAL COUNSEL

Jones Day

1420 Peachtree Street, N.E.

Suite 800

Atlanta, Georgia  30309-3053

AUDITORS

Deloitte & Touche LLP

191 Peachtree Street, N.E.

Atlanta, Georgia  30303

23

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a)

CERTIFICATIONS

I,  Ben F. Cheek, III, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of 1^st Franklin Financial Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

August 12, 2014

 /s/ Ben F. Cheek, III

Ben F. Cheek, III, Chairman and

Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a)

CERTIFICATIONS

I,  A. Roger Guimond, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of 1^st Franklin Financial Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

August 12, 2014

/s/ A. Roger Guimond   

A. Roger Guimond,  Executive Vice   

President and Chief Financial Officer

EX-32.1

Exhibit 32.1

1^st FRANKLIN FINANCIAL CORPORATION

135 EAST TUGALO STREET

P.O. BOX 880

TOCCOA, GEORGIA  30577

TELEPHONE:  (706) 886-7571

August 12, 2014

Re:

Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002

Ladies and Gentlemen:

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the quarterly report of 1^st Franklin Financial Corporation (the "Company") for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission on Form 10-Q on the date hereof (the "Report"), the undersigned officer of the Company certifies, that, to such officer’s knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d)

of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ Ben F. Cheek, III

Name:  Ben F. Cheek, III

Title:  Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

1^st FRANKLIN FINANCIAL CORPORATION

135 EAST TUGALO STREET

P.O. BOX 880

TOCCOA, GEORGIA  30577

TELEPHONE:  (706) 886-7571

August 12, 2014

Re:

Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002

Ladies and Gentlemen:

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the quarterly report of 1^st Franklin Financial Corporation (the "Company") for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on Form 10-Q on the date hereof (the "Report"), the undersigned officer of the Company certifies, that, to such officer’s knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d)

of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ A. Roger Guimond

Name:  A. Roger Guimond

Title:  Executive Vice President and

           Chief Financial Officer

XML

Note 4 - Fair Value: Fair Value Measurements, by Fair Value hierarchy (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Investments, Fair Value Disclosure	$ 122,200,636	$ 106,061,584
Corporate Debt Securities
Investments, Fair Value Disclosure	436,106	433,034
US States and Political Subdivisions Debt Securities
Investments, Fair Value Disclosure	121,764,530	105,628,550
Fair Value, Inputs, Level 1
Investments, Fair Value Disclosure	436,106	433,034
Fair Value, Inputs, Level 1 | Corporate Debt Securities
Investments, Fair Value Disclosure	436,106	433,034
Fair Value, Inputs, Level 2
Investments, Fair Value Disclosure	121,764,530	105,628,550
Fair Value, Inputs, Level 2 | US States and Political Subdivisions Debt Securities
Investments, Fair Value Disclosure	$ 121,764,530	$ 105,628,550

XML

Note 2 - Allowance For Loan Losses: Schedule of Loans and Financing Receivable (Details) (USD $)	Jun. 30, 2014	Jun. 30, 2013
Financing Receivable, Gross	$ 464,468,467	$ 434,980,381
Financing Receivable, percent of portfolio	100.00%	100.00%
Financing Receivable, 3-months net charge-offs	11,869,856	10,424,533
Financing Receivable, percent net charge-offs	100.00%	100.00%
Cosumer Loans
Financing Receivable, Gross	421,921,432	393,797,177
Financing Receivable, percent of portfolio	90.80%	90.50%
Financing Receivable, 3-months net charge-offs	11,532,011	10,231,467
Financing Receivable, percent net charge-offs	97.20%	98.20%
Real Estate Loans
Financing Receivable, Gross	19,546,601	20,004,441
Financing Receivable, percent of portfolio	4.20%	4.60%
Financing Receivable, 3-months net charge-offs	4,820	(4,606)
Financing Receivable, percent net charge-offs		(0.10%)
Sales Finance Contracts
Financing Receivable, Gross	23,000,434	21,178,763
Financing Receivable, percent of portfolio	5.00%	4.90%
Financing Receivable, 3-months net charge-offs	$ 333,025	$ 197,672
Financing Receivable, percent net charge-offs	2.80%	1.90%

XML

Note 3 - Investment Securities: Schedule of Investment Securities, Fair Value and Unrealized Losses (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule of Investment Securities, Fair Value and Unrealized Losses

	Less than 12 Months			12 Months or Longer		Total
June 30, 2014	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
Obligations of states and political subdivisions		$   8,930,006	$    76,679	$ 30,758,193	$ 1,182,967	$ 39,688,199	$ 1,259,646
Held to Maturity:
Obligations of states and political subdivisions		2,017,774	10,049	2,530,765	107,543	4,548,539	117,592
Total		$ 10,947,780	$    86,728	$ 33,288,958	$ 1,290,510	$44,236,738	$ 1,377,238

	Less than 12 Months		12 Months or Longer		Total
December 31, 2013	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
Obligations of states and political subdivisions	$ 51,088,253	$ 3,354,098	$ 9,763,723	$ 1,671,183	$60,851,976	$ 5,025,281
Held to Maturity:
Obligations of states and political subdivisions	2,229,451	38,968	3,168,698	131,607	5,398,149	170,575
Total	$ 53,317,704	$ 3,393,066	$ 12,932,421	$ 1,802,790	$ 66,250,125	$ 5,195,856

XML

Note 8 - Credit Agreement (Details) (Wells Fargo Preferred Capital, Inc., USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Wells Fargo Preferred Capital, Inc.
Line of Credit Facility, Initiation Date	Sep. 11, 2009
Line of Credit Facility, Description	the Company entered into a credit facility with Wells Fargo Preferred Capital, Inc. The credit agreement provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the Credit Agreement), whichever is less
Line of Credit Facility, Borrowing Capacity, Description	The credit agreement provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the Credit Agreement), whichever is less
Line of Credit Facility, Commitment maturity date	Sep. 11, 2016
Line of Credit Facility, Current Borrowing Capacity	$ 100.0

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Note 3 - Investment Securities: Schedule of Investment Securities, Amortized Cost and Estimated Fair Value (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Available-for-sale Securities, Amortized Cost Basis	$ 120,038,217	$ 109,542,938
Available-for-sale Securities, Fair Value Disclosure	122,200,636	106,061,584
Held to Maturity, at amortized cost	25,550,882	29,777,456
US States and Political Subdivisions Debt Securities
Available-for-sale Securities, Amortized Cost Basis	119,907,901	109,412,622
Available-for-sale Securities, Fair Value Disclosure	121,764,530	105,628,550
Held to Maturity, at amortized cost	25,550,882	29,777,456
Held-to-maturity Securities, Fair Value	26,095,622	30,169,874
Corporate Debt Securities
Available-for-sale Securities, Amortized Cost Basis	130,316	130,316
Available-for-sale Securities, Fair Value Disclosure	$ 436,106	$ 433,034

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Note 3 - Investment Securities

6 Months Ended

Jun. 30, 2014

Notes

Note 3 - Investment Securities

Note 3 – Investment Securities

Debt securities available-for-sale are carried at estimated fair 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 values of these debt securities were as follows:

	As of June 30, 2014		As of December 31, 2013
	Amortized Cost	Estimated Fair Value	Amortized Cost	Estimated Fair Value
Available-for-Sale:
Obligations of states and political subdivisions	$ 119,907,901	$ 121,764,530	$ 109,412,622	$  105,628,550
Corporate securities	130,316	436,106	130,316	433,034
	$ 120,038,217	$ 122,200,636	$ 109,542,938	$ 106,061,584
Held to Maturity:
Obligations of states and political subdivisions ................	$  25,550,882	$  26,095,622	$  29,777,456	$  30,169,874

Gross unrealized losses on investment securities totaled $1,377,238 and $5,195,856 at June 30, 2014 and December 31, 2013, 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, 2014 and December 31, 2013:

	Less than 12 Months			12 Months or Longer		Total
June 30, 2014	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
Obligations of states and political subdivisions		$   8,930,006	$    76,679	$ 30,758,193	$ 1,182,967	$ 39,688,199	$ 1,259,646
Held to Maturity:
Obligations of states and political subdivisions		2,017,774	10,049	2,530,765	107,543	4,548,539	117,592
Total		$ 10,947,780	$    86,728	$ 33,288,958	$ 1,290,510	$44,236,738	$ 1,377,238

	Less than 12 Months		12 Months or Longer		Total
December 31, 2013	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available for Sale:
Obligations of states and political subdivisions	$ 51,088,253	$ 3,354,098	$ 9,763,723	$ 1,671,183	$60,851,976	$ 5,025,281
Held to Maturity:
Obligations of states and political subdivisions	2,229,451	38,968	3,168,698	131,607	5,398,149	170,575
Total	$ 53,317,704	$ 3,393,066	$ 12,932,421	$ 1,802,790	$ 66,250,125	$ 5,195,856

The previous two tables represent 71 and 112 investments held by the Company at June 30, 2014 and December 31, 2013, respectively, the majority of which are rated “A” or higher by Standard & Poor’s.  The unrealized losses on the Company’s investments listed in the above table were primarily the result of interest rate and market fluctuations.  Based on the credit ratings of these investments, along with the consideration of whether the Company has the intent to sell or will be more likely than not required to sell the applicable investment before recovery of amortized cost basis, the Company does not consider the impairment of any of these investments to be other-than-temporary at June 30, 2014 and December 31, 2013.

The Company’s insurance subsidiaries internally designate certain investments as restricted to cover their policy reserves and loss reserves.  Funds are held in separate trusts for the benefit of each insurance subsidiary at U.S. Bank National Association ("US Bank").  US Bank serves as trustee under a trust agreement with the Company's property and casualty insurance company subsidiary ("Frandisco P&C"), as grantor, and American Bankers Insurance Company of Florida, as beneficiary.  At June 30, 2014, this trust held $22.4 million in available-for-sale investment securities at market value and $8.8 million in held-to-maturity investment securities at amortized cost.  US Bank also serves as trustee under a trust agreement with the Company's life insurance subsidiary (“Frandisco Life”), as grantor, and American Bankers Life Assurance Company, as beneficiary.  At June 30, 2014, the trust for Frandisco Life held $3.0 million in available-for-sale investment securities at market value and $1.0 million in held-to-maturity investment securities at amortized cost.  The amounts required to be in each Trust change as required reserves change.  All earnings on assets in the trusts are remitted to Frandisco P&C and Frandisco Life, respectively.  Any charges associated with the trust are paid by the beneficiaries of each trust.

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Note 10 - Segment Financial Information (Details)	6 Months Ended
	Jun. 30, 2014
Details
Number of Operating Segments	5
Segment Reporting, Factors Used to Identify Entity's Reportable Segments	Each segment consists of a number of branch offices that are aggregated based on vice president responsibility and geographic location. Division I consists of offices located in South Carolina. Offices in North Georgia comprise Division II, Division III consists of offices in South Georgia. Division IV represents our Alabama and Tennessee offices, and our offices in Louisiana and Mississippi encompass Division V

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Note 10 - Segment Financial Information: Reconciliation of Operating Profit (Loss) from Segments to Consolidated (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Reconciliation of Operating Profit (Loss) from Segments to Consolidated

	3 Months Ended 6/30/2014 (in Thousands)	3 Months Ended 6/30/2013 (in Thousands)	6 Months Ended 6/30/2014 (in Thousands)	6 Months Ended 6/30/2013 (in Thousands)
Reconciliation of Profit:
Profit per segment	$19,742	$ 18,495	$ 41,055	$ 37,267
Corporate earnings not allocated	3,814	3,121	6,441	5,605
Corporate expenses not allocated	(12,787)	(12,223)	(24,802)	(23,360)
Income taxes not allocated	(993)	(966)	(2,133)	(1,991)
Net income	$  9,776	$  8,427	$ 20,561	$ 17,521

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Note 10 - Segment Financial Information: Schedule of Segment Reporting Information, by Segment (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule of Segment Reporting Information, by Segment

	Division	Division	Division	Division	Division
	I	II	III	IV	V	Total
	(in thousands)
Segment Revenues:
3 Months ended 6/30/2014	$  6,205	$ 10,875	$ 10,313	$  9,298	$  8,199	$   44,890
3 Months ended 6/30/2013	5,602	10,147	9,743	8,501	7,611	41,604
6 Months ended 6/30/2014	$ 12,745	$ 22,281	$ 21,206	$ 18,688	$ 16,729	$   91,649
6 Months ended 6/30/2013	11,413	20,591	19,791	17,177	15,491	84,463
Segment Profit:
3 Months ended 6/30/2014	$  2,439	$  5,209	$  4,861	$  3,920	$  3,313	$   19,742
3 Months ended 6/30/2013	2,069	5,225	4,688	3,523	2,989	18,494
6 Months ended 6/30/2014	$  5,042	$ 11,106	$ 10,281	$  7,857	$  6,769	$   41,055
6 Months ended 6/30/2013	4,079	10,477	9,484	6,963	6,264	37,267

Segment Assets:
6/30/2014	$ 50,542	$ 96,483	$ 93,804	$ 94,591	$ 68,065	$ 403,485
12/31/2013	53,529	100,646	97,290	96,440	70,898	418,803

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Note 10 - Segment Financial Information: Schedule of Segment Reporting Information, by Segment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Segment Reporting Information, Revenue for Reportable Segment	$ 44,890	$ 41,604	$ 91,649	$ 84,463
Profit (Loss)	19,742	18,494	41,055	37,267
Segment Reporting Information, Net Assets	403,485		403,485		418,803
Division I
Segment Reporting Information, Revenue for Reportable Segment	6,205	5,602	12,745	11,413
Profit (Loss)	2,439	2,069	5,042	4,079
Segment Reporting Information, Net Assets	50,542		50,542		53,529
Division II
Segment Reporting Information, Revenue for Reportable Segment	10,875	10,147	22,281	20,591
Profit (Loss)	5,209	5,225	11,106	10,477
Segment Reporting Information, Net Assets	96,483		96,483		100,646
Division III
Segment Reporting Information, Revenue for Reportable Segment	10,313	9,743	21,206	19,791
Profit (Loss)	4,861	4,688	10,281	9,484
Segment Reporting Information, Net Assets	93,804		93,804		97,290
Division IV
Segment Reporting Information, Revenue for Reportable Segment	9,298	8,501	18,688	17,177
Profit (Loss)	3,920	3,523	7,857	6,963
Segment Reporting Information, Net Assets	94,591		94,591		96,440
Division V
Segment Reporting Information, Revenue for Reportable Segment	8,199	7,611	16,729	15,491
Profit (Loss)	3,313	2,989	6,769	6,264
Segment Reporting Information, Net Assets	$ 68,065		$ 68,065		$ 70,898

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Note 2 - Allowance For Loan Losses (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Details
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	$ 0	$ 0
Ratio of bankrupt accounts to total principal loan balances	2.82%	2.54%

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Note 2 - Allowance For Loan Losses: Schedule of Allowance for Loan Losses (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 23,689,413	$ 35,465,947
Cosumer Loans
Financing Receivable, Recorded Investment, Nonaccrual Status	22,084,706	33,680,602
Real Estate Loans
Financing Receivable, Recorded Investment, Nonaccrual Status	886,627	969,149
Sales Finance Contracts
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 718,080	$ 816,196

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Note 2 - Allowance For Loan Losses

6 Months Ended

Jun. 30, 2014

Notes

Note 2 - Allowance For Loan Losses

Note 2 – Allowance for Loan Losses

The allowance for loan losses is based on Management's evaluation of the inherent risks and changes in the composition of the Company's loan portfolio.  Management’s approach to estimating and evaluating the allowance for loan losses is on a total portfolio level based on historical loss trends, bankruptcy trends, the level of receivables at the balance sheet date, payment patterns and economic conditions primarily including, but not limited to, unemployment levels and gasoline prices.  Historical loss trends are tracked on an on-going basis.  The trend analysis includes statistical analysis of the correlation between loan date and charge off date, charge off statistics by the total loan portfolio, and charge off statistics by branch, division and state.  Delinquency and bankruptcy filing trends are also tracked.  If trends indicate an adjustment to the allowance for loan losses is warranted, Management will make what it considers to be appropriate adjustments.  The level of receivables at the balance sheet date is reviewed and adjustments to the allowance for loan losses are made if Management determines increases or decreases in the level of receivables warrants an adjustment.  The Company uses monthly unemployment statistics, and various other monthly or periodic economic statistics, published by departments of the U.S. government and other economic statistics providers to determine the economic component of the allowance for loan losses.  Such allowance is, in the opinion of Management, sufficiently adequate for probable losses in the current loan portfolio.  As the estimates used in determining the loan loss reserve are influenced by outside factors, such as consumer payment patterns and general economic conditions, there is uncertainty inherent in these estimates.  Actual results could vary based on future changes in significant assumptions.

Management does not disaggregate the Company’s loan portfolio by loan class when evaluating loan performance.  The total portfolio is evaluated for credit losses based on contractual delinquency and other economic conditions. The Company classifies delinquent accounts at the end of each month according to the number of installments past due at that time, based on the then-existing terms of the contract.  Accounts are classified in delinquency categories based on the number of days past due.  When three installments are past due, Management classifies the account as being 60-89 days past due; when four or more installments are past due, Management classifies the account as being 90 days or more past due.  When a loan becomes five installments past due, it is charged off unless Management directs that it be retained as an active loan. In making this charge off evaluation, Management considers factors such as pending insurance, bankruptcy status and other indicators of collectability. In addition, no installment is counted as being past due if at least 80% of the contractual payment has been paid. In connection with any bankruptcy court-initiated repayment plan and as allowed by state regulatory authorities, the Company effectively resets the delinquency rating of each account to coincide with the court initiated repayment plan. The amount charged off is the unpaid balance less the unearned finance charges and the unearned insurance premiums, if applicable.

When a loan becomes 60 days or more past due based on its original terms, it is placed in nonaccrual status.  At such time, the accrual of any additional finance charges is discontinued.  Finance charges are then only recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status.  Nonaccrual loans return to accrual status when the loan becomes less than 60 days past due.

There were no loans 60 days or more past due and still accruing interest at June 30, 2014 or December 31, 2013.  The Company’s principal balances on non-accrual loans by loan class as of June 30, 2014 and December 31, 2013 are as follows:

Loan Class	June 30, 2014	December 31, 2013
Consumer Loans ......................................	$  22,084,706	$  33,680,602
Real Estate Loans ....................................	886,627	969,149
Sales Finance Contracts ...........................	718,080	816,196
Total .................................................	$  23,689,413	$  35,465,947

An age analysis of principal balances on past due loans, segregated by loan class, as of June 30, 2014 and December 31, 2013 follows:

June 30, 2014	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans ............	$  13,296,849	$  6,946,863	$  13,220,622	$   33,464,334
Real Estate Loans...........	462,772	150,128	530,762	1,143,662
Sales Finance Contracts .	363,755	248,369	411,510	1,023,634
Total .........................	$  14,123,376	$  7,345,360	$  14,162,894	$   35,631,630

December 31, 2013	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans ............	$  11,939,226	$  6,542,571	$  13,438,184	$   31,919,981
Real Estate Loans...........	299,094	173,842	547,012	1,019,948
Sales Finance Contracts .	391,658	203,821	448,991	1,044,470
Total .........................	$  12,629,978	$  6,920,234	$  14,434,187	$   33,984,399

In addition to the delinquency rating analysis, the ratio of bankrupt accounts to the total loan portfolio is also used as a credit quality indicator.  The ratio of bankrupt accounts outstanding to total principal loan balances outstanding at June 30, 2014 and December 31, 2013 was 2.82% and 2.54%, respectively.

Nearly our entire loan portfolio consists of small homogeneous consumer loans (of the product types set forth in the table below). 

June 30, 2014	Principal Balance	% Portfolio	6 Months Net Charge Offs	% Net Charge Offs
Consumer Loans ............	$  421,921,432	90.8%	$  11,532,011	97.2
Real Estate Loans...........	19,546,601	4.2	4,820	-
Sales Finance Contracts..	23,000,434	5.0	333,025	2.8
Total .........................	$  464,468,467	100.0%	$  11,869,856	100.0%

June 30, 2013	Principal Balance	% Portfolio	6 Months Net Charge Offs	% Net Charge Offs
Consumer Loans ............	$  393,797,177	90.5%	$  10,231,467	98.2%
Real Estate Loans...........	20,004,441	4.6	(4,606)	(.1)
Sales Finance Contracts..	21,178,763	4.9	197,672	1.9
Total .........................	$  434,980,381	100.0%	$  10,424,533	100.0%

Sales finance contracts are similar to consumer loans in nature of loan product, terms, customer base to whom these products are marketed, factors contributing to risk of loss and historical payment performance, and together with consumer loans, represented approximately 96% and 95% of the Company’s loan portfolio at June 30, 2014 and 2013, respectively.  As a result of these similarities, which have resulted in similar historical performance, consumer loans and sales finance contracts represent substantially all loan losses.  Real estate loans and related losses have historically been insignificant, and, as a result, we do not stratify the loan portfolio for purposes of determining and evaluating our loan loss allowance.  Due to the composition of the loan portfolio, the Company determines and monitors the allowance for loan losses on a collectively evaluated, single portfolio segment basis.  Therefore, a roll forward of the allowance for loan loss activity at the portfolio segment level is the same as at the total portfolio level.  We have not acquired any impaired loans with deteriorating quality during any period reported.  The following table provides additional information on our allowance for loan losses based on a collective evaluation:

	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Allowance for Credit Losses:
Beginning Balance	$   24,680,789	$   22,010,085	$   24,680,789	$   22,010,085
Provision for Loan Losses	7,171,635	5,718,712	13,065,867	11,224,533
Charge-offs	(8,300,168)	(7,115,137)	(16,743,300)	(15,193,489)
Recoveries	2,324,544	2,196,425	4,873,444	4,768,956
Ending Balance	$   25,876,800	$   22,810,085	$   25,876,800	$   22,810,085
Ending balance; collectively evaluated for impairment	$   25,876,800	$   22,810,085	$   25,876,800	$   22,810,085

	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Finance receivables:
Ending balance	$  464,468,467	$  434,980,381	$ 464,468,467	$ 434,980,381
Ending balance; collectively evaluated for impairment	$  464,468,467	$  434,980,381	$ 464,468,467	$ 434,980,381

Troubled Debt Restructings ("TDR's") represent loans on which the original terms of the loans have been modified as a result of the following conditions: (i) the restructuring constitutes a concession and (ii) the borrower is experiencing financial difficulties. Loan modifications by the Company involve payment alterations, interest rate concessions and/ or reductions in the amount owed by the borrower.

The following table presents a summary of loans that were restructured during the three months ended June 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	972	$ 3,149,774	$  2,895,294
Real Estate Loans..............	25	209,797	209,742
Sales Finance Contracts.....	39	106,204	101,096
Total ..............................	1,036	$ 3,465,775	$  3,206,132

The following table presents a summary of loans that were restructured during the three months ended June 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	983	$ 3,058,427	$  2,827,409
Real Estate Loans..............	20	148,861	146,559
Sales Finance Contracts.....	49	95,620	87,831
Total ..............................	1,052	$ 3,302,908	$  3,061,799

The following table presents a summary of loans that were restructured during the six months ended June 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	1,770	$ 5,645,802	$  5,207,480
Real Estate Loans..............	38	299,528	299,472
Sales Finance Contracts.....	78	203,935	195,202
Total ..............................	1,886	$ 6,149,265	$  5,702,154

The following table presents a summary of loans that were restructured during the six months ended June 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	1,738	$  5,450,143	$  5,030,488
Real Estate Loans..............	32	242,804	238,501
Sales Finance Contracts.....	86	170,361	158,863
Total ..............................	1,856	$  5,863,308	$  5,427,852

TDRs that occurred during the previous twelve months and subsequently defaulted during the three months ended June 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	215	$    387,551
Real Estate Loans..............	1	3,526
Sales Finance Contracts.....	7	6,947
Total ..............................	223	$    398,024

TDRs that occurred during the twelve months ended June 30, 2013 and subsequently defaulted during the three months ended June 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	208	$       363,313
Real Estate Loans..............	3	8,206
Sales Finance Contracts.....	5	4,560
Total ..............................	216	$       376,079

TDRs that occurred during the previous twelve months and subsequently defaulted during the six months ended June 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	368	$    675,801
Real Estate Loans..............	1	3,526
Sales Finance Contracts.....	13	13,232
Total ..............................	382	$    692,559

TDRs that occurred during the twelve months ended June 30, 2013 and subsequently defaulted during the six months ended June 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	335	$    607,329
Real Estate Loans..............	3	8,206
Sales Finance Contracts.....	12	13,502
Total ..............................	350	$    629,037

The level of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance of loan losses.

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Note 2 - Allowance For Loan Losses: Past Due Financing Receivables (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	$ 14,123,376	$ 12,629,978
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	7,345,360	6,920,234
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	14,162,894	14,434,187
Financing Receivable, Recorded Investment, Past Due	35,631,630	33,984,399
Cosumer Loans
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	13,296,849	11,939,226
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	6,946,863	6,542,571
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	13,220,622	13,438,184
Financing Receivable, Recorded Investment, Past Due	33,464,334	31,919,981
Real Estate Loans
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	462,772	299,094
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	150,128	173,842
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	530,762	547,012
Financing Receivable, Recorded Investment, Past Due	1,143,662	1,019,948
Sales Finance Contracts
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	363,755	391,658
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	248,369	203,821
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	411,510	448,991
Financing Receivable, Recorded Investment, Past Due	$ 1,023,634	$ 1,044,470

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Note 5 - Equity Method Investment (Details) (USD $)	0 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Details
EQUITY METHOD INVESTMENTS	$ 25,974,854	$ 10,211,635
Equity Method Investment, Summarized Financial Information, Assets	105,224,889	88,602,340
Equity Method Investment, Summarized Financial Information, Liabilities	3,178,348	2,873,918
Equity Method Investment, Summarized Financial Information, Net Income (Loss)	$ 4,544,309	$ 7,983,103

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) (USD $)	Jun. 30, 2014		Dec. 31, 2013
ASSETS
Cash and Cash Equivalents	$ 36,426,693		$ 26,399,839
Restricted Cash	784,273		974,452
LOANS:
Direct Cash Loans	424,032,229		445,754,712
Real Estate Loans	19,903,238		20,329,655
Sales Finance Contracts	23,201,927		22,269,833
Loans, Total	467,137,394		488,354,200
Unearned Finance Charges	55,785,869		59,649,718
Unearned Insurance Premiums and Commissions	32,865,278		34,596,733
Allowance for Loan Losses	25,876,800		24,680,789
Net Loans	352,609,447		369,426,960
INVESTMENT SECURITIES:
Available for Sale, at fair value	122,200,636		106,061,584
Held to Maturity, at amortized cost	25,550,882		29,777,456
Marketable Debt Securities, Total	147,751,518		135,839,040
EQUITY METHOD INVESTMENTS	25,974,854		10,211,635
OTHER ASSETS
Other Assets	18,743,791		18,909,135
ASSETS, Total	582,290,576		561,761,061
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Debt	321,827,389		308,015,152
Accrued Expenses and Other Liabilities	17,699,163		21,014,769
Subordinated Debt	39,209,106		40,378,507
LIABILITIES, Total	378,735,658		369,408,428
COMMITMENTS AND CONTINGENCIES		[1]		[1]
STOCKHOLDERS' EQUITY:
Common Stock	170,000		170,000
Accumulated Other Comprehensive Income	1,678,490		(2,472,734)
Retained Earnings	201,706,428		194,655,367
Stockholders' Equity, Total	203,554,918		192,352,633
LIABILITIES AND STOCKHOLDERS' EQUITY, TOTAL	$ 582,290,576		$ 561,761,061

[1] See Note 6.

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Note 10 - Segment Financial Information: Reconciliation of Operating Profit (Loss) from Segments to Consolidated (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Details
Profit per segment	$ 19,742	$ 18,495	$ 41,055	$ 37,267
Corporate earnings not allocated	3,814	3,121	6,441	5,605
Corporate expenses not allocated	(12,787)	(12,223)	(24,802)	(23,360)
Income taxes not allocated	(993)	(966)	(2,133)	(1,991)
Net income per segments	$ 9,776	$ 8,427	$ 20,561	$ 17,521

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$ 20,561,061	$ 17,521,114
Adjustments to reconcile Net Income (Loss) to net cash provided by operating activities:
Provision for loan losses	13,065,867	11,224,533
Depreciation and amortization	1,513,815	1,429,834
Provision for deferred income taxes	(50,310)	(61,572)
Earnings in equity method investment	(763,219)
Other	634,236	498,001
Decrease (increase) in miscellaneous assets	477,439	(660,995)
Decrease in other liablities	(4,757,847)	(4,485,515)
Net Cash Provided by (Used in) Operating Activities	30,681,042	25,465,400
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased	(150,799,237)	(148,118,081)
Loan payments	154,550,883	145,836,526
Decrease (increase) in restricted cash	190,179	1,063,862
Purchases of marketable debt securities	(16,385,099)	(15,886,955)
Purchase of equity fund investment	(15,000,000)
Sales of marketable debt securities		916,406
Redemptions of marketable debt securities	9,465,000	6,949,909
Fixed asset additions, net	(1,808,750)	(1,362,890)
Net Cash Provided by (Used in) Investing Activities	(19,787,024)	(10,601,223)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in senior demand notes outstanding	4,352,009	3,676,308
Advances on credit line	264,801	264,790
Payments on credit line	(264,801)	(264,790)
Commercial paper issued	37,356,301	26,688,967
Commercial Paper redeemed	(27,896,073)	(14,726,608)
Subordinated debt issued	2,095,220	4,886,662
Subordinated debt redeemed	(3,264,621)	(5,589,885)
Dividends / Distributions	(13,510,000)	(10,478,908)
Net Cash Provided by (Used in) Financing Activities	(867,164)	4,456,536
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	10,026,854	19,320,713
CASH AND CASH EQUIVALENTS, beginning	26,399,839	28,186,035
CASH AND CASH EQUIVALENTS, ending	36,426,693	47,506,748
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for Interest	5,802,344	5,726,812
Cash paid during the period for Taxes	2,237,000	2,179,000
Non-cash Exchange of Investment Securities		$ 819,908

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Note 2 - Allowance For Loan Losses: Troubled Debt Restructurings on Financing Receivables (Details) (USD $)	Jun. 30, 2014 Three months ended June 30, 2014	Jun. 30, 2014 Three months ended June 30, 2014 Cosumer Loans	Jun. 30, 2014 Three months ended June 30, 2014 Real Estate Loans	Jun. 30, 2014 Three months ended June 30, 2014 Sales Finance Contracts	Jun. 30, 2014 Three months ended June 30, 2013	Jun. 30, 2014 Three months ended June 30, 2013 Cosumer Loans	Jun. 30, 2014 Three months ended June 30, 2013 Real Estate Loans	Jun. 30, 2014 Three months ended June 30, 2013 Sales Finance Contracts	Jun. 30, 2014 Six months ended June 30, 2014	Jun. 30, 2014 Six months ended June 30, 2014 Cosumer Loans	Jun. 30, 2014 Six months ended June 30, 2014 Real Estate Loans	Jun. 30, 2014 Six months ended June 30, 2014 Sales Finance Contracts	Jun. 30, 2014 Six months ended June 30, 2013	Jun. 30, 2014 Six months ended June 30, 2013 Cosumer Loans	Jun. 30, 2014 Six months ended June 30, 2013 Real Estate Loans	Jun. 30, 2014 Six months ended June 30, 2013 Sales Finance Contracts	Jun. 30, 2014 Three months ended June 30, 2014, Previous 12 months	Jun. 30, 2014 Three months ended June 30, 2014, Previous 12 months Cosumer Loans	Jun. 30, 2014 Three months ended June 30, 2014, Previous 12 months Real Estate Loans	Jun. 30, 2014 Three months ended June 30, 2014, Previous 12 months Sales Finance Contracts	Jun. 30, 2013 Three months ended June 30, 2013, Previous 12 months	Jun. 30, 2013 Three months ended June 30, 2013, Previous 12 months Cosumer Loans	Jun. 30, 2013 Three months ended June 30, 2013, Previous 12 months Real Estate Loans	Jun. 30, 2013 Three months ended June 30, 2013, Previous 12 months Sales Finance Contracts	Jun. 30, 2014 Six months ended June 30, 2014, Previous 12 months	Jun. 30, 2014 Six months ended June 30, 2014, Previous 12 months Cosumer Loans	Jun. 30, 2014 Six months ended June 30, 2014, Previous 12 months Real Estate Loans	Jun. 30, 2014 Six months ended June 30, 2014, Previous 12 months Sales Finance Contracts	Jun. 30, 2013 Six months ended June 30, 2013, Previous 12 months	Jun. 30, 2013 Six months ended June 30, 2013, Previous 12 months Cosumer Loans	Jun. 30, 2013 Six months ended June 30, 2013, Previous 12 months Real Estate Loans	Jun. 30, 2013 Six months ended June 30, 2013, Previous 12 months Sales Finance Contracts
Financing Receivable, Modifications, Number of Contracts	1,036	972	25	39	1,052	983	20	49	1,886	1,770	38	78	1,856	1,738	32	86
Financing Receivable, Modifications, Pre-Modification Recorded Investment	$ 3,465,775	$ 3,149,774	$ 209,797	$ 106,204	$ 3,302,908	$ 3,058,427	$ 148,861	$ 95,620	$ 6,149,265	$ 5,645,802	$ 299,528	$ 203,935	$ 5,863,308	$ 5,450,143	$ 242,804	$ 170,361
Financing Receivable, Modifications, Post-Modification Recorded Investment	3,206,132	2,895,294	209,742	101,096	3,061,799	2,827,409	146,559	87,831	5,702,154	5,207,480	299,472	195,202	5,427,852	5,030,488	238,501	158,863
Financing Receivable, Modifications, Subsequent Default, Number of Contracts																	223	215	1	7	216	208	3	5	382	368	1	13	350	335	3	12
Financing Receivable, Modifications, Subsequent Default, Recorded Investment																	$ 398,024	$ 387,551	$ 3,526	$ 6,947	$ 376,079	$ 363,313	$ 8,206	$ 4,560	$ 692,559	$ 675,801	$ 3,526	$ 13,232	$ 629,037	$ 607,329	$ 8,206	$ 13,502

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Note 2 - Allowance For Loan Losses: Allowance for Credit Losses on Financing Receivables (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Allowance for Credit Losses on Financing Receivables

	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Allowance for Credit Losses:
Beginning Balance	$   24,680,789	$   22,010,085	$   24,680,789	$   22,010,085
Provision for Loan Losses	7,171,635	5,718,712	13,065,867	11,224,533
Charge-offs	(8,300,168)	(7,115,137)	(16,743,300)	(15,193,489)
Recoveries	2,324,544	2,196,425	4,873,444	4,768,956
Ending Balance	$   25,876,800	$   22,810,085	$   25,876,800	$   22,810,085
Ending balance; collectively evaluated for impairment	$   25,876,800	$   22,810,085	$   25,876,800	$   22,810,085

	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Finance receivables:
Ending balance	$  464,468,467	$  434,980,381	$ 464,468,467	$ 434,980,381
Ending balance; collectively evaluated for impairment	$  464,468,467	$  434,980,381	$ 464,468,467	$ 434,980,381

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Note 3 - Investment Securities (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Details
Available-for-sale Securities, Basis for Valuation, Other than Equity Securities	Debt securities available-for-sale are carried at estimated fair 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.
Gross unrealized losses on investment securities	$ 1,377,238	$ 5,195,856

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Note 3 - Investment Securities: Schedule of Investment Securities, Amortized Cost and Estimated Fair Value (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule of Investment Securities, Amortized Cost and Estimated Fair Value

	As of June 30, 2014		As of December 31, 2013
	Amortized Cost	Estimated Fair Value	Amortized Cost	Estimated Fair Value
Available-for-Sale:
Obligations of states and political subdivisions	$ 119,907,901	$ 121,764,530	$ 109,412,622	$  105,628,550
Corporate securities	130,316	436,106	130,316	433,034
	$ 120,038,217	$ 122,200,636	$ 109,542,938	$ 106,061,584
Held to Maturity:
Obligations of states and political subdivisions ................	$  25,550,882	$  26,095,622	$  29,777,456	$  30,169,874

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Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2014

Notes

Note 1 - Basis of Presentation

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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, 2013 and for the year then ended included in the Company's 2013 Annual Report filed with the Securities and Exchange Commission.

In the opinion of Management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of June 30, 2014 and December 31, 2013, and its consolidated results of operations and comprehensive income for the three and six-month periods ended June 30, 2014 and 2013 and its consolidated cash flows for the six months ended June 30, 2014 and 2013. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Company believes that the disclosures herein are adequate to make the information presented not misleading.

The Company’s financial condition and results of operations as of and for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.  The preparation of financial statements in accordance with GAAP requires Management to make estimates and assumptions that affect the reported amount of assets and liabilities at and as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates.

The computation of earnings per share is self-evident from the accompanying Condensed Consolidated Statements of Income and Retained Earnings (Unaudited).  The Company has no dilutive securities outstanding.

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09 “Revenue from Contracts with Customers.” ASU 2014-09 applies to most contracts with customers. Finance receivable and insurance contracts are excluded from the scope of this pronouncement. ASU 2014-09 prescribes a five step framework in accounting for revenues from contracts within its scope, including (a) identification of the contract, (b) identification of the performance obligations under the contract, (c) determination of the transaction price, (d) allocation of the transaction price to the identified performance obligations and (e) recognition of revenues as the identified performance obligations are satisfied. ASU 2014-09 also prescribes additional disclosures and financial statement presentations. ASU 2014-09 is effective for public entities in annual reporting periods beginning after December 15, 2016. Early application is not permitted. ASU 2014-09 may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. Management is currently evaluating the effect the adoption of this standard will have on our consolidated financial statements.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - Parenthetical (Unaudited) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Preferred Stock, Par Value	$ 100	$ 100
Preferred Stock, Shares Authorized	6,000	6,000
Preferred Stock, Shares Outstanding	0	0
Voting Common Stock
Common Stock, Par Value	$ 100	$ 100
Common Stock, Shares Authorized	2,000	2,000
Common Stock, Shares Outstanding	1,700	1,700
Nonvoting Common Stock
Common Stock, Par Value	$ 0	$ 0
Common Stock, Shares Authorized	198,000	198,000
Common Stock, Shares Outstanding	168,300	168,300

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Note 1 - Basis of Presentation: Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2014

Policies

Recent Accounting Pronouncements:

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09 “Revenue from Contracts with Customers.” ASU 2014-09 applies to most contracts with customers. Finance receivable and insurance contracts are excluded from the scope of this pronouncement. ASU 2014-09 prescribes a five step framework in accounting for revenues from contracts within its scope, including (a) identification of the contract, (b) identification of the performance obligations under the contract, (c) determination of the transaction price, (d) allocation of the transaction price to the identified performance obligations and (e) recognition of revenues as the identified performance obligations are satisfied. ASU 2014-09 also prescribes additional disclosures and financial statement presentations. ASU 2014-09 is effective for public entities in annual reporting periods beginning after December 15, 2016. Early application is not permitted. ASU 2014-09 may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. Management is currently evaluating the effect the adoption of this standard will have on our consolidated financial statements.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 12, 2014 Nonvoting Common Stock	Aug. 12, 2014 Voting Common Stock
Entity Registrant Name	1st Franklin Financial Corporation
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Entity Central Index Key	0000038723
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		168,300	1,700
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Note 2 - Allowance For Loan Losses: Loans Receivable, Nonaccrual status policy (Policies)

6 Months Ended

Jun. 30, 2014

Policies

Loans Receivable, Nonaccrual status policy

When a loan becomes 60 days or more past due based on its original terms, it is placed in nonaccrual status.  At such time, the accrual of any additional finance charges is discontinued.  Finance charges are then only recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status.  Nonaccrual loans return to accrual status when the loan becomes less than 60 days past due.

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CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
INTEREST INCOME
Interest Income	$ 34,842,436	$ 31,766,021	$ 70,771,620	$ 64,619,394
INTEREST EXPENSE
Interest Expense	2,941,522	2,856,764	5,830,774	5,698,023
NET INTEREST INCOME	31,900,914	28,909,257	64,940,846	58,921,371
Provision for loan losses	7,171,635	5,718,712	13,065,867	11,224,533
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	24,729,279	23,190,545	51,874,979	47,696,838
INSURANCE INCOME
Premiums and Commissions	11,636,742	11,008,766	23,499,941	22,150,709
Insurance Claims and Expenses	2,743,118	2,422,674	4,892,145	4,694,059
Net Insurance Income, Total	8,893,624	8,586,092	18,607,796	17,456,650
OTHER REVENUE	2,224,806	1,950,289	3,818,097	3,297,884
OPERATING EXPENSES:
Personnel Expense	15,477,019	15,711,779	32,096,473	31,653,518
Occupancy Expense	3,247,451	3,064,962	6,492,388	6,085,418
Other Expense	6,354,682	5,557,292	13,018,371	11,200,086
Operating Expenses, Total	25,079,152	24,334,033	51,607,232	48,939,022
INCOME BEFORE INCOME TAXES	10,768,557	9,392,893	22,693,640	19,512,350
Provision for Income Taxes	992,108	965,644	2,132,579	1,991,236
Net Income (Loss)	9,776,449	8,427,249	20,561,061	17,521,114
RETAINED EARNINGS, Beginning of Period	200,819,979	181,595,632	194,655,367	174,265,215
Distributions on Common Stock	8,890,000	8,715,460	13,510,000	10,478,908
RETAINED EARNINGS, End of Period	$ 201,706,428	$ 181,307,421	$ 201,706,428	$ 181,307,421
BASIC EARNINGS PER SHARE	$ 57.51	$ 49.57	$ 120.95	$ 103.07

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Note 6 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Notes

Note 6 - Commitments and Contingencies

Note 6 – Commitments and Contingencies

The Company is, and expects in the future to be, involved in various legal proceedings incidental to its business from time to time.  Management makes provisions in its financial statements for legal, regulatory, and other contingencies when, in the opinion of Management, a loss is probable and reasonably estimable.  At June 30, 2014, no such known proceedings or amounts, individually or in the aggregate, were expected to have a material impact on the Company or its financial condition or results of operations.

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Note 5 - Equity Method Investment

6 Months Ended

Jun. 30, 2014

Notes

Note 5 - Equity Method Investment

Note 5 – Equity Method Investment

	June 30, 2014	December 31,2013
Company's equity method investment	$     25,974,854	$     10,211,635
Partnership assets	$   105,224,889	$     88,602,340
Partnership liabilities	$       3,178,348	$       2,873,918
Partnership net income	$       4,544,309	$       7,983,103

The Company has one investment accounted for using the equity method of accounting.  On November 1, 2013, the Company invested $10.0 million in Meritage Capital, Centennial Absolute Return Fund, L.P. (the "Fund").  An additional $15.0 million was invested on April 1, 2014.  The Company has no investment commitments to the Fund.  The carrying value of this investment was $26.0 million and $10.2 million as of June 30, 2014 and December 31, 2013, respectively.  Withdrawal of funds may be done at the end of any calendar quarter with a 60 day notice.  The Company's ownership interest in the Fund was 25.79% and 12.14%  at June 30, 2014 and December 31, 2013, respectively.

Condensed financial statement information of the equity method investment is as follows:

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Note 2 - Allowance For Loan Losses: Troubled Debt Restructurings on Financing Receivables (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Troubled Debt Restructurings on Financing Receivables

The following table presents a summary of loans that were restructured during the three months ended June 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	972	$ 3,149,774	$  2,895,294
Real Estate Loans..............	25	209,797	209,742
Sales Finance Contracts.....	39	106,204	101,096
Total ..............................	1,036	$ 3,465,775	$  3,206,132

The following table presents a summary of loans that were restructured during the three months ended June 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	983	$ 3,058,427	$  2,827,409
Real Estate Loans..............	20	148,861	146,559
Sales Finance Contracts.....	49	95,620	87,831
Total ..............................	1,052	$ 3,302,908	$  3,061,799

The following table presents a summary of loans that were restructured during the six months ended June 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	1,770	$ 5,645,802	$  5,207,480
Real Estate Loans..............	38	299,528	299,472
Sales Finance Contracts.....	78	203,935	195,202
Total ..............................	1,886	$ 6,149,265	$  5,702,154

The following table presents a summary of loans that were restructured during the six months ended June 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans ...............	1,738	$  5,450,143	$  5,030,488
Real Estate Loans..............	32	242,804	238,501
Sales Finance Contracts.....	86	170,361	158,863
Total ..............................	1,856	$  5,863,308	$  5,427,852

TDRs that occurred during the previous twelve months and subsequently defaulted during the three months ended June 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	215	$    387,551
Real Estate Loans..............	1	3,526
Sales Finance Contracts.....	7	6,947
Total ..............................	223	$    398,024

TDRs that occurred during the twelve months ended June 30, 2013 and subsequently defaulted during the three months ended June 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	208	$       363,313
Real Estate Loans..............	3	8,206
Sales Finance Contracts.....	5	4,560
Total ..............................	216	$       376,079

TDRs that occurred during the previous twelve months and subsequently defaulted during the six months ended June 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	368	$    675,801
Real Estate Loans..............	1	3,526
Sales Finance Contracts.....	13	13,232
Total ..............................	382	$    692,559

TDRs that occurred during the twelve months ended June 30, 2013 and subsequently defaulted during the six months ended June 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans ...............	335	$    607,329
Real Estate Loans..............	3	8,206
Sales Finance Contracts.....	12	13,502
Total ..............................	350	$    629,037

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Note 2 - Allowance For Loan Losses: Schedule of Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule of Allowance for Loan Losses

Loan Class	June 30, 2014	December 31, 2013
Consumer Loans ......................................	$  22,084,706	$  33,680,602
Real Estate Loans ....................................	886,627	969,149
Sales Finance Contracts ...........................	718,080	816,196
Total .................................................	$  23,689,413	$  35,465,947

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Note 9 - Related Party Transactions

6 Months Ended

Jun. 30, 2014

Notes

Note 9 - Related Party Transactions

Note 9 – Related Party Transactions

The Company engages from time to time in transactions with related parties.  Please refer to the disclosure contained in Note 10 “Related Party Transactions” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2013 for additional information on such transactions.

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Note 7 - Income Taxes

6 Months Ended

Jun. 30, 2014

Notes

Note 7 - Income Taxes

Note 7 – Income Taxes

Effective income tax rates were 9% and 10% during the three- and six-month periods ended June 30, 2014 and 2013, respectively.  The Company has elected to be, and is, treated as an S corporation for income tax reporting purposes.  Taxable income or loss of an S corporation is passed through to, and included in the individual tax returns, of the shareholders of the Company, rather than being taxed at the corporate level.  Notwithstanding this election, income taxes are reported for, and paid by, the Company's insurance subsidiaries, as they are not allowed by law to be treated as S corporations, 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 investments in tax exempt bonds held by the Company’s property insurance subsidiary.

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Note 8 - Credit Agreement

6 Months Ended

Jun. 30, 2014

Notes

Note 8 - Credit Agreement

 Note 8 – Credit Agreement

Effective September 11, 2009, the Company entered into a credit facility with Wells Fargo Preferred Capital, Inc.  The credit agreement provides for borrowings of up to $100.0 million or 70% of the Company's net finance receivables (as defined in the Credit Agreement), whichever is less and has a maturity date of September 11, 2016.  Available borrowings under the credit agreement were $100.0 million at June 30, 2014 and December 31, 2013, at an interest rate of 3.75%.  The credit agreement contains covenants customary for financing transactions of this type.  At June 30, 2014, the Company was in compliance with all covenants.

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Note 10 - Segment Financial Information

6 Months Ended

Jun. 30, 2014

Notes

Note 10 - Segment Financial Information

Note 10 – Segment Financial Information

The Company has five reportable segments:  Division I through Division V.  Each segment consists of a number of branch offices that are aggregated based on vice president responsibility and geographic location.  Division I consists of offices located in South Carolina.  Offices in North Georgia comprise Division II, Division III consists of offices in South Georgia.  Division IV represents our Alabama and Tennessee offices, and our offices in Louisiana and Mississippi encompass Division V.

Accounting policies of each of the segments are the same as those for the Company as a whole.  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.

In accordance with the requirements of ASC No. 280, “Segment Reporting,” the following table summarizes revenues, profit and assets by business segment.  Also in accordance therewith, a reconciliation to consolidated net income is provided.

	Division	Division	Division	Division	Division
	I	II	III	IV	V	Total
	(in thousands)
Segment Revenues:
3 Months ended 6/30/2014	$  6,205	$ 10,875	$ 10,313	$  9,298	$  8,199	$   44,890
3 Months ended 6/30/2013	5,602	10,147	9,743	8,501	7,611	41,604
6 Months ended 6/30/2014	$ 12,745	$ 22,281	$ 21,206	$ 18,688	$ 16,729	$   91,649
6 Months ended 6/30/2013	11,413	20,591	19,791	17,177	15,491	84,463
Segment Profit:
3 Months ended 6/30/2014	$  2,439	$  5,209	$  4,861	$  3,920	$  3,313	$   19,742
3 Months ended 6/30/2013	2,069	5,225	4,688	3,523	2,989	18,494
6 Months ended 6/30/2014	$  5,042	$ 11,106	$ 10,281	$  7,857	$  6,769	$   41,055
6 Months ended 6/30/2013	4,079	10,477	9,484	6,963	6,264	37,267

Segment Assets:
6/30/2014	$ 50,542	$ 96,483	$ 93,804	$ 94,591	$ 68,065	$ 403,485
12/31/2013	53,529	100,646	97,290	96,440	70,898	418,803

	3 Months Ended 6/30/2014 (in Thousands)	3 Months Ended 6/30/2013 (in Thousands)	6 Months Ended 6/30/2014 (in Thousands)	6 Months Ended 6/30/2013 (in Thousands)
Reconciliation of Profit:
Profit per segment	$19,742	$ 18,495	$ 41,055	$ 37,267
Corporate earnings not allocated	3,814	3,121	6,441	5,605
Corporate expenses not allocated	(12,787)	(12,223)	(24,802)	(23,360)
Income taxes not allocated	(993)	(966)	(2,133)	(1,991)
Net income	$  9,776	$  8,427	$ 20,561	$ 17,521

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Note 2 - Allowance For Loan Losses: Allowance for Credit Losses on Financing Receivables (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Details
Loans and Leases Receivable, Allowance, Beginning Balance	$ 24,680,789	$ 22,010,085	$ 24,680,789	$ 22,010,085
Allowance for Loan and Lease Losses, Provision for Loss, Gross	7,171,635	5,718,712	13,065,867	11,224,533
Allowance for Doubtful Accounts Receivable, Charge-offs	(8,300,168)	(7,115,137)	(16,743,300)	(15,193,489)
Allowance for Loan and Lease Losses, Recoveries of Bad Debts	2,324,544	2,196,425	4,873,444	4,768,956
Loans and Leases Receivable, Allowance, Ending Balance	25,876,800	22,810,085	25,876,800	22,810,085
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	25,876,800	22,810,085	25,876,800	22,810,085
Financing Receivable	464,468,467	434,980,381	464,468,467	434,980,381
Financing Receivable, Collectively Evaluated for Impairment	$ 464,468,467	$ 434,980,381	$ 464,468,467	$ 434,980,381

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Note 2 - Allowance For Loan Losses: Schedule of Loans and Financing Receivable (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule of Loans and Financing Receivable

June 30, 2014	Principal Balance	% Portfolio	6 Months Net Charge Offs	% Net Charge Offs
Consumer Loans ............	$  421,921,432	90.8%	$  11,532,011	97.2
Real Estate Loans...........	19,546,601	4.2	4,820	-
Sales Finance Contracts..	23,000,434	5.0	333,025	2.8
Total .........................	$  464,468,467	100.0%	$  11,869,856	100.0%

June 30, 2013	Principal Balance	% Portfolio	6 Months Net Charge Offs	% Net Charge Offs
Consumer Loans ............	$  393,797,177	90.5%	$  10,231,467	98.2%
Real Estate Loans...........	20,004,441	4.6	(4,606)	(.1)
Sales Finance Contracts..	21,178,763	4.9	197,672	1.9
Total .........................	$  434,980,381	100.0%	$  10,424,533	100.0%

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Note 4 - Fair Value: Fair Value Measurements, by Fair Value hierarchy (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Fair Value Measurements, by Fair Value hierarchy

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
	June 30,	Assets	Inputs	Inputs
Description	2014	(Level 1)	(Level 2)	(Level 3)
Corporate securities	$       436,106	$     436,106	$                   --	$                  --
Obligations of states and political subdivisions	121,764,530	--	121,764,530	--
Total .....................................	$ 122,200,636	$     436,106	$ 121,764,530	$                  --

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
	December 31,	Assets	Inputs	Inputs
Description	2013	(Level 1)	(Level 2)	(Level 3)
Corporate securities	$       433,034	$     433,034	$                   --	$                  --
Obligations of states and      political subdivisions	105,628,550	--	105,628,550	--
Total .....................................	$ 106,061,584	$     433,034	$ 105,628,550	$                  --

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Note 7 - Income Taxes (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Jun. 30, 2013
Details
Effective Income Tax Rate Reconciliation, Percent	9.00%	9.00%	10.00%

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income (Loss)	$ 9,776,449	$ 8,427,249	$ 20,561,061	$ 17,521,114
Other Comprehensive Income:
Unrealized gains (losses) during period	2,409,342	(4,649,168)	5,643,784	(5,321,714)
Income tax (provision) benefit	(617,401)	1,191,834	(1,492,553)	1,452,079
Net unrealized (losses) gains	1,791,941	(3,457,334)	4,151,231	(3,869,635)
Reclassification of (gains)/losses to Net Income (Loss)		614	7	49,541
Total Other Comprehensive Income (Loss)	1,791,941	(3,457,948)	4,151,224	(3,919,176)
Total Comprehensive Income	$ 11,568,390	$ 4,969,301	$ 24,712,285	$ 13,601,938

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Note 4 - Fair Value

6 Months Ended

Jun. 30, 2014

Notes

Note 4 - Fair Value

Note 4 – Fair Value

Under Accounting Standards Codification No. 820 ("ASC No. 820"), fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The following fair value hierarchy is used in selecting inputs used to determine the fair value of an asset or liability, with the highest priority given to Level 1, as these are the most transparent or reliable.  A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements.

         Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

          Level 3 - Valuations derived from valuation techniques in which one or more significant    inputs are unobservable.

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

Cash and Cash Equivalents:  Cash includes cash on hand and with banks.  Cash equivalents are short-term highly liquid investments with original maturities of three months or less.   The carrying value of cash and cash equivalents approximates fair value due to the relatively short period of time between origination of the instruments and their expected realization.  The estimate of the fair value of cash and cash equivalents is classified as  Level 1 in the fair value hierarchy.

Loans:  The carrying value of the Company’s direct cash loans and sales finance contracts approximates the fair value since the estimated life, assuming prepayments, is short-term in nature.  The fair value of the Company’s real estate loans approximate the carrying value since the interest rate charged by the Company approximates market rate.  The estimate of fair value of loans is classified as Level 3 in the fair value hierarchy.

Marketable Debt Securities:  The fair value of marketable debt securities is based on quoted market prices, when available.  If a quoted market price is not available, fair value is estimated using market prices for similar securities.  The estimate of fair value of held-to-maturity marketable debt securities is classified as Level 2 in the fair value hierarchy.  See additional information, including the table below, regarding fair value under ASC No. 820, and the  fair value measurement of available-for-sale marketable debt securities.

Equity Method Investment:  The fair value of equity method investments is estimated based on the Company's allocable share of the investee net asset value as of the rerporting date.  Equity method investment is a Level 2 financial asset.

Senior Debt Securities:  The carrying value of the Company’s senior debt securities approximates fair value due to the relatively short period of time between the origination of the instruments and their expected repayment.  The estimate of fair value of senior debt securities is classified as Level 2 in the fair value hierarchy.

Subordinated Debt Securities:  The carrying value of the Company’s variable rate subordinated debt securities approximates fair value due to the re-pricing frequency of the securities.  The estimate of fair value of subordinated debt securities is classified as Level 2 in the fair value hierarchy.

The Company is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value.  The Company performs due diligence to understand the inputs and how the data was calculated or derived.  The Company employs a market approach in the valuation of its obligations of states, political subdivisions and municipal revenue bonds that are available-for-sale.  These investments are valued on the basis of current market quotations provided by independent pricing services selected by Management based on the advice of an investment manager.  To determine the value of a particular investment, these independent pricing services may use certain information with respect to market transactions in such investment or comparable investments, various relationships observed in the market between investments, quotations from dealers, and pricing metrics and calculated yield measures based on valuation methodologies commonly employed in the market for such investments. Quoted prices are subject to our internal price verification procedures.  We validate prices received using a variety of methods including, but not limited, to comparison to other pricing services or corroboration of pricing by reference to independent market data such as a secondary broker.  There was no change in this methodology during any period reported.

Assets measured at fair value as of June 30, 2014 and December 31, 2013 were available-for-sale investment securities which are summarized below:

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
	June 30,	Assets	Inputs	Inputs
Description	2014	(Level 1)	(Level 2)	(Level 3)
Corporate securities	$       436,106	$     436,106	$                   --	$                  --
Obligations of states and political subdivisions	121,764,530	--	121,764,530	--
Total .....................................	$ 122,200,636	$     436,106	$ 121,764,530	$                  --

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
	December 31,	Assets	Inputs	Inputs
Description	2013	(Level 1)	(Level 2)	(Level 3)
Corporate securities	$       433,034	$     433,034	$                   --	$                  --
Obligations of states and      political subdivisions	105,628,550	--	105,628,550	--
Total .....................................	$ 106,061,584	$     433,034	$ 105,628,550	$                  --

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Note 5 - Equity Method Investment: Equity Method Investments (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Equity Method Investments

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Note 3 - Investment Securities: Schedule of Investment Securities, Fair Value and Unrealized Losses (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 10,947,780	$ 53,317,704
Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	86,728	3,393,066
Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	33,288,958	12,932,421
Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	1,290,510	1,802,790
Securities, Continuous Unrealized Loss Position, Fair Value	44,236,738	66,250,125
Continuous Unrealized Loss Position, Aggregate Losses	1,377,238	5,195,856
US States and Political Subdivisions Debt Securities
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	8,930,006	51,088,253
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	76,679	3,354,098
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	30,758,193	9,763,723
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	1,182,967	1,671,183
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	39,688,199	60,851,976
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	1,259,646	5,025,281
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	2,017,774	2,229,451
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	10,049	38,968
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	2,530,765	3,168,698
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	107,543	131,607
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value	4,548,539	5,398,149
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses	$ 117,592	$ 170,575

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Note 2 - Allowance For Loan Losses: Past Due Financing Receivables (Tables)

6 Months Ended

Jun. 30, 2014

Tables/Schedules

Past Due Financing Receivables

June 30, 2014	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans ............	$  13,296,849	$  6,946,863	$  13,220,622	$   33,464,334
Real Estate Loans...........	462,772	150,128	530,762	1,143,662
Sales Finance Contracts .	363,755	248,369	411,510	1,023,634
Total .........................	$  14,123,376	$  7,345,360	$  14,162,894	$   35,631,630

December 31, 2013	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans ............	$  11,939,226	$  6,542,571	$  13,438,184	$   31,919,981
Real Estate Loans...........	299,094	173,842	547,012	1,019,948
Sales Finance Contracts .	391,658	203,821	448,991	1,044,470
Total .........................	$  12,629,978	$  6,920,234	$  14,434,187	$   33,984,399