##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended June 30, 2010
 or
 o
    
    Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition Period from  to
 Commission File Number: 0-16362
 FIRST FRANKLIN CORPORATION
  Delaware
    
    31-1221029(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 4750 Ashwood Drive, Cincinnati, Ohio 45241
   (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non accelerated filer o
    
    Smaller reporting company þ
 o þ
 Applicable Only to Corporate Issuers




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##### 



FIRST FRANKLIN CORPORATION AND SUBSIDIARIES
 INDEX
 Page No.Part I Financial InformationItem 1. Financial statementsConsolidated Balance Sheets  June 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations and Retained Earnings  Three- and Six-Month Periods ended June 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows  Six Month Periods ended June 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II Other Information
    
    
    27Item 1. Legal Proceeding
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. (Removed and Reserved)
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Signatures
    
    
    28Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



ITEM 1.
    
    FINANCIAL STATEMENTS
 FIRST FRANKLIN CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  June 30, 2010
    
    
    Dec. 31, 2009(Unaudited)ASSETSCash, including certificates of deposit and other interest-earning
deposits of $100 at 06/30/10 and $100 at 12/31/09
    
    $
    5,509
    
    
    $
    6,875Investment securities:Securities available-for-sale, at market value
(amortized cost of $11,581 at 06/30/10 and $21,185 at 12/31/09)
    
    
    11,656
    
    
    
    20,947Mortgage-backed securities:Securities available-for-sale, at market value
(amortized cost of $2,230 at 06/30/10 and $2,731 at 12/31/09)
    
    
    2,316
    
    
    
    2,809Securities held-to-maturity, at amortized cost
(market value of $3,696 at 06/30/10 and $4,155 at 12/31/09)
    
    
    3,430
    
    
    
    3,989Loans held for sale
    
    
    10,383
    
    
    
    7,552Loans receivable, net
    
    
    223,129
    
    
    
    236,085Investment in Federal Home Loan Bank of Cincinnati stock, at cost
    
    
    4,991
    
    
    
    4,991Real estate owned, net
    
    
    3,038
    
    
    
    2,792Accrued interest receivable
    
    
    1,063
    
    
    
    1,135Property and equipment, net
    
    
    3,323
    
    
    
    3,448Bank owned life insurance
    
    
    6,091
    
    
    
    5,983Other assets
    
    
    6,073
    
    
    
    5,114Total assets
    
    $
    281,002
    
    
    $
    301,720LIABILITIESDeposits
    
    $
    226,948
    
    
    $
    244,010Borrowings
    
    
    28,754
    
    
    
    32,419Advances by borrowers for taxes and insurance
    
    
    1,214
    
    
    
    2,160Other liabilities
    
    
    2,121
    
    
    
    786Total liabilities
    
    
    259,037
    
    
    
    279,375Minority interest in consolidated subsidiary
    
    
    141
    
    
    
    140STOCKHOLDERS EQUITYPreferred stock  $.01 par value, 500,000 shares authorized,
none issued and outstanding
    
    
    
    
    
    
    Common stock  $.01 par value, 2,500,000 shares authorized,
2,010,867 shares issued at 06/30/10 and 12/31/09
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    6,237
    
    
    
    6,189Treasury stock, at cost  325,183 shares at 06/30/10 and
330,183 shares at 12/31/09
    
    
    (3,270
    )
    
    
    (3,270
    )Retained earnings, substantially restricted
    
    
    18,738
    
    
    
    19,378Accumulated other comprehensive income:Unrealized gain (loss) on available-for-sale securities, net
of taxes of $55 at 06/30/10 and $(48) at 12/31/09
    
    
    106
    
    
    
    (105
    )Total stockholders equity
    
    
    21,824
    
    
    
    22,205$
    281,002
    
    
    $
    301,720
   3




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##### Table of Contents



FIRST FRANKLIN CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
  For the three months ended
    
    
    For the six months endedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Interest income:Loans receivable
    
    $
    3,081
    
    
    $
    3,581
    
    
    $
    6,293
    
    
    $
    7,297Mortgage-backed securities
    
    
    69
    
    
    
    96
    
    
    
    146
    
    
    
    198Investments
    
    
    184
    
    
    
    198
    
    
    
    416
    
    
    
    4323,334
    
    
    
    3,875
    
    
    
    6,855
    
    
    
    7,927Interest expense:Deposits
    
    
    1,272
    
    
    
    1,886
    
    
    
    2,705
    
    
    
    3,749Borrowings
    
    
    355
    
    
    
    521
    
    
    
    722
    
    
    
    1,1341,627
    
    
    
    2,407
    
    
    
    3,427
    
    
    
    4,883Net interest income
    
    
    1,707
    
    
    
    1,468
    
    
    
    3,428
    
    
    
    3,044Provision for loan losses
    
    
    331
    
    
    
    71
    
    
    
    684
    
    
    
    247Net interest income after provision
for loan losses
    
    
    1,376
    
    
    
    1,397
    
    
    
    2,744
    
    
    
    2,797Noninterest income:Gain on loans sold
    
    
    662
    
    
    
    511
    
    
    
    1,107
    
    
    
    1,125Gain on sale of investments
    
    
    2
    
    
    
    
    
    
    
    23
    
    
    
    1Service fees on checking accounts
    
    
    223
    
    
    
    227
    
    
    
    428
    
    
    
    422Other income
    
    
    374
    
    
    
    437
    
    
    
    665
    
    
    
    6301,261
    
    
    
    1,175
    
    
    
    2,223
    
    
    
    2,178Noninterest expense:Salaries and employee benefits
    
    
    1,366
    
    
    
    1,142
    
    
    
    2,397
    
    
    
    2,085Occupancy
    
    
    260
    
    
    
    270
    
    
    
    546
    
    
    
    543Federal deposit insurance premiums
    
    
    178
    
    
    
    188
    
    
    
    341
    
    
    
    198Advertising
    
    
    47
    
    
    
    35
    
    
    
    92
    
    
    
    57Service bureau
    
    
    129
    
    
    
    142
    
    
    
    260
    
    
    
    303Other
    
    
    1,535
    
    
    
    799
    
    
    
    2,363
    
    
    
    1,4073,515
    
    
    
    2,576
    
    
    
    5,999
    
    
    
    4,593Gain (loss) before federal income taxes
    
    
    (878
    )
    
    
    (4
    )
    
    
    (1,032
    )
    
    
    382Provision (benefit) for federal income taxes
    
    
    (320
    )
    
    
    (11
    )
    
    
    (392
    )
    
    
    115Net Income (loss)
    
    $
    (558
    )
    
    $
    7
    
    
    $
    (640
    )
    
    $
    267Retained Earnings-Beginning of period
    
    $
    19,296
    
    
    $
    21,179
    
    
    $
    19,378
    
    
    $
    20,919Net Income (loss)
    
    
    (558
    )
    
    
    7
    
    
    
    (640
    )
    
    
    267Retained Earnings-end of period
    
    $
    18,738
    
    
    $
    21,186
    
    
    $
    18,738
    
    
    $
    21,186Net income (loss) per common share:Basic
    
    $
    (0.33
    )
    
    $
    0.01
    
    
    $
    (0.38
    )
    
    $
    0.16Diluted
    
    $
    (0.33
    )
    
    $
    0.01
    
    
    $
    (0.38
    )
    
    $
    0.16
   4




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FIRST FRANKLIN CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the six months endedJune 30, 2010
    
    
    June 30, 2009(unaudited)
    
    
    (unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    (640
    )
    
    $
    267Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Provision for loan losses
    
    
    684
    
    
    
    247Gain on sale of investments
    
    
    (23
    )
    
    
    (1
    )Gain on sale of loans
    
    
    (1,107
    )
    
    
    (1,125
    )Loss on sale of real estate owned
    
    
    3
    
    
    
    31Provision for real estate owned
    
    
    382
    
    
    
    Depreciation
    
    
    167
    
    
    
    162Amortization
    
    
    2
    
    
    
    (2
    )Deferred income taxes
    
    
    (392
    )
    
    
    42Deferred loan fees
    
    
    44
    
    
    
    58Proceeds from sale of loans originated for sale
    
    
    65,631
    
    
    
    96,695Disbursements on loans originated for sale
    
    
    (67,800
    )
    
    
    (104,855
    )Net change in operating assets and liabilities:Bank Owned Life Insurance
    
    
    (109
    )
    
    
    (115
    )(Increase) decrease in accrued interest receivable
    
    
    72
    
    
    
    71(Increase) decrease in other assets
    
    
    (677
    )
    
    
    (373
    )Increase (decrease) in other liabilities
    
    
    1,335
    
    
    
    (157
    )Other, net
    
    
    1
    
    
    
    10Net cash used by operating activities
    
    
    (2,427
    )
    
    
    (9,045
    )Cash flows from investing activities:Net change in loans receivable
    
    
    10,072
    
    
    
    13,010Principal reduction on mortgage-backed securities
    
    
    1,060
    
    
    
    853Purchase of available-for-sale investment securities:
    
    
    (2,625
    )
    
    
    (7,752
    )Proceeds from maturities/calls of investment securities:Available-for-sale
    
    
    12,250
    
    
    
    10,000Net real estate owned activity
    
    
    1,971
    
    
    
    165Capital expenditures
    
    
    (42
    )
    
    
    (95
    )Net cash provided by investing activities
    
    
    22,686
    
    
    
    16,181Cash flows from financing activities:Net change in deposits
    
    
    (17,062
    )
    
    
    19,364Net change in borrowed money
    
    
    (3,665
    )
    
    
    (26,513
    )Decrease in advances by borrowers for taxes and insurance
    
    
    (946
    )
    
    
    (1,099
    )Stock option expense, net
    
    
    48
    
    
    
    Net cash used by financing activities
    
    
    (21,625
    )
    
    
    (8,248
    )Net decrease in cash
    
    
    (1,366
    )
    
    
    (1,112
    )Cash at beginning of year
    
    
    6,875
    
    
    
    7,438Cash at end of year
    
    $
    5,509
    
    
    $
    6,326Supplemental disclosure of cash flow information:Cash paid during the year for:Interest, including interest credited to savings accounts
    
    
    2,712
    
    
    
    3,733Income taxes
    
    
    
    
    
    
    75Supplemental disclosure of noncash activities:Real estate acquired in settlement of loans
    
    
    2,602
    
    
    
    793Change in unrealized gain (loss) on available-for sale securities, net of taxes
    
    
    211
    
    
    
    (118
    )
   5




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##### Table of Contents



BASIS OF PRESENTATION
  Organization
       CRITICAL ACCOUNTING POLICIES
   6




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7




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INVESTMENT AND MORTGAGE-BACKED SECURITIES
  June 30, 2010(Dollars in thousands)Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale:U.S. Treasury securities and obligations of U.S.
Government corporations and agencies
    
    $
    8,991
    
    
    
    42
    
    
    
    
    
    
    
    9,033Obligations of states and municipalities
    
    
    1,590
    
    
    
    36
    
    
    
    12
    
    
    
    1,614Community Reinvestment Act fund
    
    
    1,000
    
    
    
    9
    
    
    
    
    
    
    
    1,009$
    11,581
    
    
    
    87
    
    
    
    12
    
    
    
    11,656
 December 31, 2009(Dollars in thousands)Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale:U.S. Treasury securities and obligations of U.S.
Government corporations and agencies
    
    $
    18,720
    
    
    
    16
    
    
    
    273
    
    
    
    18,463Obligations of states and municipalities
    
    
    1,465
    
    
    
    31
    
    
    
    10
    
    
    
    1,486Community Reinvestment Act fund
    
    
    1,000
    
    
    
    
    
    
    
    2
    
    
    
    998$
    21,185
    
    
    
    47
    
    
    
    285
    
    
    
    20,947
  EstimatedAmortized
    
    
    marketcost
    
    
    value(Dollars in thousands)Available-for-sale:Due in one year or less
    
    $
    
    
    
    
    Due after one year through five years
    
    
    2,098
    
    
    
    2,106Due after five years through ten years
    
    
    
    
    
    
    Due after ten years
    
    
    8,483
    
    
    
    8,54110,581
    
    
    
    10,647Community Reinvestment Act Fund
    
    
    1,000
    
    
    
    1,009$
    11,581
    
    
    
    11,656
   8




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June 30, 2010(Dollars in thousands)Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale:FHLMC certificates
    
    $
    582
    
    
    
    43
    
    
    
    
    
    
    
    625FNMA certificates
    
    
    321
    
    
    
    7
    
    
    
    
    
    
    
    328GNMA certificates
    
    
    1,116
    
    
    
    32
    
    
    
    
    
    
    
    1,148Collateralized mortgage obligations
    
    
    211
    
    
    
    4
    
    
    
    
    
    
    
    215$
    2,230
    
    
    
    86
    
    
    
    
    
    
    
    2,316Held-to-maturity:FHLMC certificates
    
    $
    107
    
    
    
    12
    
    
    
    
    
    
    
    119FNMA certificates
    
    
    3,254
    
    
    
    246
    
    
    
    
    
    
    
    3,500GNMA certificates
    
    
    69
    
    
    
    8
    
    
    
    
    
    
    
    77$
    3,430
    
    
    
    266
    
    
    
    
    
    
    
    3,696
 December 31, 2009(Dollars in thousands)Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale:FHLMC certificates
    
    $
    956
    
    
    
    53
    
    
    
    
    
    
    
    1,009FNMA certificates
    
    
    338
    
    
    
    5
    
    
    
    
    
    
    
    343GNMA certificates
    
    
    1,203
    
    
    
    15
    
    
    
    
    
    
    
    1,218Collateralized mortgage obligations
    
    
    234
    
    
    
    5
    
    
    
    
    
    
    
    239$
    2,731
    
    
    
    78
    
    
    
    
    
    
    
    2,809Held-to-maturity:FHLMC certificates
    
    $
    141
    
    
    
    14
    
    
    
    
    
    
    
    155FNMA certificates
    
    
    3,773
    
    
    
    144
    
    
    
    
    
    
    
    3,917GNMA certificates
    
    
    75
    
    
    
    8
    
    
    
    
    
    
    
    83$
    3,989
    
    
    
    166
    
    
    
    
    
    
    
    4,155
  9




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June 30, 2010(Dollars in thousands)Less than 12 Months
    
    
    12 Months or Longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesObligations of state and municipalities
    
    $
    169
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    12Number of Investments
    
    
    2
  STOCK OPTION PLAN
    2010
    
    
    2009Options outstanding at beginning of the year
    
    
    54,259
    
    
    
    71,818Granted
    
    
    
    
    
    
    Canceled/Forfeited
    
    
    
    
    
    
    (17,559
    )Exercised
    
    
    
    
    
    
    Options outstanding at end of the year
    
    
    54,259
    
    
    
    54,259
   10




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##### Table of Contents



2010
    
    
    2009Options outstanding at beginning of the year
    
    
    100,363
    
    
    
    105,238Granted
    
    
    38,000
    
    
    
    Canceled/Forfeited
    
    
    
    
    
    
    (4,875
    )Exercised
    
    
    (5,000
    )
    
    
    Options outstanding at end of the year
    
    
    133,363
    
    
    
    100,363
   Options Outstanding
    
    
    Exercisable OptionsWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Price
    
    Shares
    
    
    Life (Years)
    
    
    Price
    
    
    Shares
    
    
    Price0.01 to 7.74
    
    
    33,000
    
    
    
    2.0
    
    
    $
    0.01
    
    
    
    
    
    
    $
    7.75 to 10.00
    
    
    16,236
    
    
    
    0.7
    
    
    
    7.75
    
    
    
    16,236
    
    
    
    7.7510.01 to 15.00
    
    
    89,513
    
    
    
    1.5
    
    
    
    10.97
    
    
    
    89,513
    
    
    
    10.9715.01 to 20.00
    
    
    16,800
    
    
    
    3.7
    
    
    
    17.67
    
    
    
    16,800
    
    
    
    17.6720.01 to 25.00
    
    
    32,073
    
    
    
    3.9
    
    
    
    20.69
    
    
    
    32,073
    
    
    
    20.69187,622
    
    
    
    2.4
    
    
    $
    11.42
    
    
    
    154,622
    
    
    $
    11.42
      11




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##### Table of Contents



Level 1
    
    Quoted prices in active markets for identical assets or liabilities
 Level 2
    
    Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities
 Level 3
    
    Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
   Fair Value Measurements atJune 30, 2010(Dollars in thousands)Quotedprices inactive
    
    
    Significant
    
    
    Significantmarkets for
    
    
    other
    
    
    otheridentical
    
    
    observable
    
    
    unobservableassets
    
    
    inputs
    
    
    inputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Treasury securities and Obligations of U.S. Government
Corporations and agencies
    
    $
    9,033
    
    
    
    
    
    
    
    9,033
    
    
    
    Obligations of states and municipalities
    
    
    1,614
    
    
    
    
    
    
    
    1,614
    
    
    
    FHLMC certificates
    
    
    625
    
    
    
    
    
    
    
    625
    
    
    
    FNMA certificates
    
    
    328
    
    
    
    
    
    
    
    328
    
    
    
    GNMA certificates
    
    
    1,148
    
    
    
    
    
    
    
    1,148
    
    
    
    Collateralized mortgage obligations
    
    
    215
    
    
    
    
    
    
    
    215
    
    
    
    Community Reinvestment Act fund
    
    
    1,009
    
    
    
    
    
    
    
    1,009
    
    
    
    
  12




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##### Table of Contents



Fair Value Measurements atDecember 31, 2009(Dollars in thousands)Quotedprices inactive
    
    
    Significant
    
    
    Significantmarkets for
    
    
    other
    
    
    otheridentical
    
    
    observable
    
    
    unobservableassets
    
    
    inputs
    
    
    inputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Treasury securities and Obligations of U.S. Government
Corporations and agencies
    
    $
    18,463
    
    
    
    
    
    
    
    18,463
    
    
    
    Obligations of states and municipalities
    
    
    1,486
    
    
    
    
    
    
    
    1,486
    
    
    
    FHLMC certificates
    
    
    1,009
    
    
    
    
    
    
    
    1,009
    
    
    
    FNMA certificates
    
    
    343
    
    
    
    
    
    
    
    343
    
    
    
    GNMA certificates
    
    
    1,219
    
    
    
    
    
    
    
    1,219
    
    
    
    Collateralized mortgage obligations
    
    
    239
    
    
    
    
    
    
    
    239
    
    
    
    Community Reinvestment Act fund
    
    
    998
    
    
    
    
    
    
    
    998
    
    
    
    
    Cash and Cash Equivalents and Investment in FHLB Stock
  Investment and Mortgage-Backed Securities
  Loans Receivable
    13




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##### Table of Contents



Deposits
  Borrowed Money
  Reclassifications
  Commitments to Extend Credit
   June 30, 2010(Dollars in thousands)Carrying
    
    
    Fairamount
    
    
    ValueFinancial Assets:Cash and cash equivalents
    
    $
    5,509
    
    
    
    5,509Investment securities
    
    
    11,656
    
    
    
    11,656Mortgage-backed securities
    
    
    5,746
    
    
    
    6,012Loans receivable
    
    
    233,512
    
    
    
    235,663Investments in FHLB Stock
    
    
    4,991
    
    
    
    4,991Financial liabilities:Deposits
    
    $
    226,948
    
    
    
    235,245Borrowed money
    
    
    28,754
    
    
    
    30,512
 June 30, 2010(Dollars in thousands)Contractual
    
    
    Fairamount
    
    
    ValueUnrecognized financial instruments:Commitments to extend credit
    
    $
    1,736
    
    
    
    1,736Unfunded construction loans
    
    
    902
    
    
    
    902Undisbursed lines of credit
    
    
    19,217
    
    
    
    19,217
  14




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##### Table of Contents



2010
    
    $
    12,9642011
    
    
    23,8602012
    
    
    30,0302013
    
    
    35,7812014
    
    
    43,259Thereafter
    
    
    1,082,360$
    1,228,254
      15




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16




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##### Table of Contents



17




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 GENERAL
   The Franklin Savings and Loan Company
      Forward-Looking Statements
   18




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##### Table of Contents



RECENT DEVELOPMENTS
  
    
    Centralize responsibility for consumer financial protection by creating a new agency
responsible for implementing, examining and enforcing compliance with federal consumer
financial laws.
 
    
    Apply the same leverage and risk-based capital requirements that apply to insured
depository institutions to bank holding companies.
 
    
    Require the FDIC to seek to make its capital requirements for banks countercyclical
so that the amount of capital required to be maintained increases in times of economic
expansion and decreases in times of economic contraction.
 
    
    Change the assessment base for federal deposit insurance from the amount of insured
deposits to consolidated assets less tangible capital.
 
    
    Implement corporate governance revisions, including with regard to executive
compensation and proxy access by shareholders, that apply to all public companies, not
just financial institutions.
 
    
    Make permanent the $250 thousand limit for federal deposit insurance and increase the
cash limit of Securities Investor Protection Corporation protection from $100 thousand
to $250 thousand, and provide unlimited federal deposit insurance until January 1, 2013,
for non-interest bearing demand transaction accounts at all insured depository
institutions.
 
    
    Repeal the federal prohibitions on the payment of interest on demand deposits,
thereby permitting depository institutions to pay interest on business transaction and
other accounts.
 
    
    Increase the authority of the Federal Reserve to examine the Company and its non-bank
subsidiaries.
 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 Assets
  
    
    Cash and investments decreased by $11.71 million. This decrease reflected $23.97
million of loan and mortgage-backed securities repayments and $64.97 million of loan
sales, less $77.95 million in loan disbursements, $17.06 million of deposit outflows and
$3.67 million of debt repayments.
 
    
    Loans receivable declined by $12.96 million. This reflects the Companys
strategic decision to sell mortgages originated by Franklin and transfer servicing to the
purchaser and the refinancing of loans in the current low rate environment.
  19




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##### Table of Contents



Cash and investments
   Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Available-for-sale:Investment securities
    
    $
    11,581
    
    
    
    87
    
    
    
    12
    
    
    
    11,656Mortgage-backed securities
    
    
    2,230
    
    
    
    86
    
    
    
    
    
    
    
    2,316Held-to-maturityMortgage-backed securities
    
    
    3,430
    
    
    
    266
    
    
    
    
    
    
    
    3,696$
    17,241
    
    
    
    439
    
    
    
    12
    
    
    
    17,668
  Loans receivable
     Asset Quality
    20




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##### Table of Contents



(Dollars in thousands)Balance at beginning of period
    
    $
    4,915Charge offs
    
    
    (705
    )Additions charged to operations
    
    
    684Recoveries
    
    
    223Balance at end of period
    
    $
    5,117
   Liabilities
  
    
    Deposits decreased by $17.06 million. At June 30, 2010, deposits were $226.95
million compared with $244.01 million at December 31, 2009. During the first six months
of 2010, core deposits decreased $2.74 million, while higher earning certificates
decreased $14.32 million. Interest of $2.42 million during the six months ended June 30,
2010 was credited to accounts. After eliminating the effect of interest credited,
deposits decreased $19.48 million from year-end 2009.
 
    
    Borrowings decreased by $3.67 million. At June 30, 2010, Franklin had outstanding
FHLB advances of $28.75 million at an average cost of 3.76%. During the next twelve
months, required principal reduction on these borrowings will be $9.33 million.
Management believes that the
Company has sufficient cash flow to meet these commitments and maintain desired liquidity
levels.
  21




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##### Table of Contents




    
    Franklin previously has launched a program to diversify its deposit base by
attracting more locally generated low-cost core (checking, savings and money market)
deposits. During the second quarter of 2010, these more stable and lower cost funds
increased as a percent of total deposits, from 32.2% at December 31, 2009 to 33.4%.
Further, because Franklins funding needs continue to decline because of sales of loans
in the secondary market, it has been able to begin lowering the interest rates offered
for certificates of deposit. As a result, certificates of deposit declined by 9% in the
first six months of 2010, which helped reduce net interest expense.
 Capital Position
   Capital Standard
    
    Actual
    
    
    Required
    
    
    Excess
    
    
    Actual
    
    
    Required
    
    
    Excess(Dollars in thousands)As of June 30, 2010Core
    
    $
    21,192
    
    
    $
    11,208
    
    
    $
    9,984
    
    
    
    7.56
    %
    
    
    4.00
    %
    
    
    3.56
    %Risk-based
    
    
    23,791
    
    
    
    16,611
    
    
    $
    7,180
    
    
    
    11.46
    %
    
    
    8.00
    %
    
    
    3.46
    %As of December 31, 2009Core
    
    $
    21,548
    
    
    $
    12,050
    
    
    $
    9,498
    
    
    
    7.15
    %
    
    
    4.00
    %
    
    
    3.15
    %Risk-based
    
    
    24,107
    
    
    
    17,107
    
    
    
    7,000
    
    
    
    11.27
    %
    
    
    8.00
    %
    
    
    3.27
    %As of June 30, 2009Core
    
    $
    23,285
    
    
    $
    12,392
    
    
    $
    10,893
    
    
    
    7.51
    %
    
    
    4.00
    %
    
    
    3.51
    %Risk-based
    
    
    24,805
    
    
    
    17,532
    
    
    
    7,273
    
    
    
    11.32
    %
    
    
    8.00
    %
    
    
    3.52
    %
  22




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##### Table of Contents



RESULTS OF OPERATIONS
  
    
    The provision for loan loss increased $260,000 for the current quarter and $437,000
for the six months ended June 30, 2010. Franklins loan portfolio continues to be
impacted by the economic downturn of the past two years, which has resulted in declining
property values and related borrower defaults. As discussed above, the higher provision
for loan losses in the first six months of 2010 reflected managements intent to continue
building loan loss reserves for specific loans and the general reserve based on
historical losses and economic factors.
 
    
    Federal deposit insurance premiums increased $143,000 for the six months ended June
30, 2010. The higher FDIC premiums reflect a substantial increase in the assessment rate.
 
    
    The Company incurred approximately $175,000 of costs associated with the proxy
contest regarding the 2010 annual meeting of stockholders.
 
    
    Franklin sustained a loss of $297,000 from a widespread external wire transfer
fraud scheme which has affected numerous financial institutions in Franklins market
area. The fraud is currently being investigated by authorities.
 Net Interest Income
  
    
    Average balances of deposits and borrowings decreased as Franklins funding needs have
been reduced due to increased gains from loan sales.
 
    
    Interest expense on deposits and borrowings declined due to lower interest rates,
in part due to managements continued effort to add lower-cost checking deposits.
   23




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##### Table of Contents



For the six month periods ended June 30,2010 vs 2009TotalIncrease (decrease) due to
    
    
    increaseVolume
    
    
    Rate
    
    
    (decrease)(Dollars in thousands)Interest income attributable to:Loans receivable (1)
    
    $
    (860
    )
    
    $
    (144
    )
    
    $
    (1,004
    )Mortgage-backed securities
    
    
    (43
    )
    
    
    (9
    )
    
    
    (52
    )Investment securities
    
    
    52
    
    
    
    (68
    )
    
    
    (16
    )FHLB stock
    
    
    0
    
    
    
    0
    
    
    
    0Total interest-earning assets
    
    $
    (851
    )
    
    $
    (221
    )
    
    $
    (1,072
    )Interest expense attributable to:Demand deposits
    
    $
    17
    
    
    $
    (2
    )
    
    $
    15Savings accounts
    
    
    49
    
    
    
    (85
    )
    
    
    (36
    )Certificates
    
    
    (445
    )
    
    
    (578
    )
    
    
    (1,023
    )FHLB advances and other borrowings
    
    
    (404
    )
    
    
    (8
    )
    
    
    (412
    )Total interest-bearing liabilities
    
    $
    (783
    )
    
    $
    (673
    )
    
    $
    (1,456
    )Increase (decrease) in net interest income
    
    $
    (68
    )
    
    $
    452
    
    
    $
    384
 (1)
    
    Includes non-accruing loans.  24




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##### Table of Contents



For the six months ended June 30, 2010Averageoutstanding
    
    
    Yield/cost(Dollars in thousands)Average interest-earning assetsLoans
    
    $
    236,324
    
    
    
    5.32
    %Mortgage-backed securities
    
    
    6,075
    
    
    
    4.81
    %Investment securities
    
    
    16,759
    
    
    
    3.63
    %FHLB stock
    
    
    4,991
    
    
    
    4.49
    %Total
    
    $
    264,149
    
    
    
    5.19
    %Average interest-bearing liabilitiesDemand deposits
    
    $
    40,923
    
    
    
    0.40
    %Savings accounts
    
    
    37,252
    
    
    
    0.43
    %Certificates
    
    
    152,314
    
    
    
    3.34
    %FHLB advances
    
    
    33,362
    
    
    
    4.33
    %Total
    
    $
    263,851
    
    
    
    2.60
    %Net interest-earning assets/interest rate spread
    
    $
    298
    
    
    
    2.59
    %
 For the six months ended June 30, 2009Averageoutstanding
    
    
    Yield/cost(Dollars in thousands)Average interest-earning assetsLoans
    
    $
    268,652
    
    
    
    5.43
    %Mortgage-backed securities
    
    
    7,842
    
    
    
    5.05
    %Investment securities
    
    
    15,091
    
    
    
    4.24
    %FHLB stock
    
    
    4,991
    
    
    
    4.49
    %Total
    
    $
    296,576
    
    
    
    5.35
    %Average interest-bearing liabilitiesDemand deposits
    
    $
    32,408
    
    
    
    0.41
    %Savings accounts
    
    
    29,505
    
    
    
    0.79
    %Certificates
    
    
    176,080
    
    
    
    4.05
    %FHLB advances
    
    
    52,029
    
    
    
    4.36
    %Total
    
    $
    290,022
    
    
    
    3.37
    %Net interest-earning assets/interest rate spread
    
    $
    6,554
    
    
    
    1.98
    %
  25




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##### Table of Contents



Noninterest Income and Expense
    COMPREHENSIVE INCOME
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4.
    
    Controls and Procedures
    26




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##### Table of Contents



Item 1.
    
    LEGAL PROCEEDINGS
  
 Item 1A.
    
    RISK FACTORS
  
 Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
 Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
   
 Item 4.
    
    (REMOVED AND RESERVED)
 
 Item 5.
    
    OTHER INFORMATION
  
 Item 6.
    
    EXHIBITS
 31.1
    
    
    CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    CFO certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    
    CEO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  27




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##### Table of Contents



FIRST FRANKLIN CORPORATION/s/ John J. KuntzJohn J. KuntzChairman, President and
Chief Executive Officer/s/ Daniel T. VoelpelDaniel T. VoelpelVice President and Chief Financial Officer
(Principal Financial Officer)   28