Annual Report (Form 10-K), fiscal year 1994

Item 1. BUSINESS:
The Company, Page 1; Business, Pages 5 - 12; and Financial Statements, Pages 18-30 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994 are incorporated herein by reference.
Item 2.



Item 2. PROPERTIES:
Paragraph 1 of The Company, Page 1; Footnote 7 (Commitments) of Notes to Consolidated Financial Statements, Page 28; and map on back cover of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994 are incorporated herein by reference.
Item 3.

Item 3. LEGAL PROCEEDINGS:
The Company has been named as defendant in the following legal proceedings in the state of Alabama:
Annie E. Erkins, et al. v. 1st Franklin, et al.; Filed in the United States District Court for the Northern District of Alabama, Southern Division; Civil Action No. CV-94-N-2500-S. This was a lawsuit originally filed in the Circuit Court for Jefferson County in May, 1994 as a class action suit seeking recovery for an alleged violation of the Alabama Mini-Code and for fraud arising out of the practice of charging for non- filing insurance premiums, charges for credit property insurance and refinancing practices. This case has been dismissed.
Princess Nobels, et al. v. 1st Franklin, et al.; Filed in the United States District Court for the Middle District of Alabama, Southern Division; Civil Action No. CV-94-T-699-N. This is a class action pending in federal district court in Montgomery. Alabama. The case was filed in July, 1994 alleging that certain lending practices violated the federal Truth-in- Lending Act and the federal Racketeer Influenced and Corrupt Organizations Act. The Plaintiffs are filing an amendment in which they express claims for liability arising out of the non- filing insurance under the following theories: (a) Antitrust violations; (b) Truth-in-Lending Act violations; (c) Fraud; (d) RICO; (e) Breach of Contract; (f) Conversion. Plantiffs are seeking to have this case certified as a nationwide class. At the present, it is too early to reach any type of informed assessment of the liability of the case. The case is being vigorously defended.
Dorothy C. Jackson and Rudolph Jackson v. 1st Franklin Financial Corporation and Voyager Guaranty Insurance Company; Filed in Circuit Court for Barbour County, Alabama, Clayton Division; Civil Action No. CV-94-052 This class action case attacked the practice of charging for credit life insurance premiums based upon the total payments, rather than for the amount financed, and also attacked the practice of 1st Franklin's obtaining a commission on sales of credit life insurance. The claims were based upon fraud, unconsicionability, and breach of contract. Plantifffs sought to have certified a state-wide class action. The case has been dismissed.
Carl J. White v. 1st Franklin Financial, et al.; Filed in Circuit Court of Talladega County, Alabama; Civil Action No. CV-94-374. This case involves an individual claim of fraud against 1st Franklin and Voyager Insurance Company arising out of an allegation of fraud in connection with the sale of a policy. The plaintiff has recently died, and the case has not been revived on behalf of his estate. It is unclear whether or not the case will proceed. It will be vigorously defended.
Mose Burks v. 1st Franklin, et al.; Filed May, 1994, in the Circuit Court of Barbour County, Alabama, Clayton Division; Civil Action No. CV-94-084. This case alleges fraud in connection with the sale of credit insurance and in connection with the refinancing of loans. The case is being vigorously defended.
Karen Hilliary v. 1st Franklin Financial, et al.; Filed September, 1994 in the Circuit Court of Bullock County, Alabama; Civil Action No. CV-94-92. This case alleges fraud in connection with the sale of credit insurance and in connection with the refinancing of loans. The case is being vigorously defended.
Robbie Martin, et al. v. 1st Franklin Financial, et al.; Filed November, 1994 in the United States District Court for the Middle District of Alabama, Southern Division; Civil Action No. 94-T-1431-S. This case alleges fraud and Mini-Code violations arising out of the sale of non-filing insurance and loan refinancing. The case is being vigorously defended.
James Russaw v. 1st Franklin Financial, et al.; Filed February, 1995 in the Circuit Court for Barbour County, Alabama, Clayton Division; Civil Action No. CV-95-023. This case alleges fraud in connection with the sale of credit insurance and in connection with the refinancing of loans. The case is being vigorously defended.
These actions (except the two cases which have been dismissed) are in their early stages and their outcome currently is not determinable.
Other than ordinary routine litigation incidental to the finance business, there are no other material pending legal proceedings.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
PART II
Item 5.

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
Source of Funds, Page 12 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994 is incorporated herein by reference.
Item 6.

Item 6. SELECTED FINANCIAL DATA:
Selected Consolidated Financial Information, Page 4 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994 is incorporated herein by reference.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Management's Discussion of Operations, Pages 13 - 16 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994 is incorporated herein by reference.
Item 8.


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Pages 18 - 30 of Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994 are incorporated herein by reference.
Item 9.

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
Not applicable.
PART III
Item 10.



Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
DIRECTORS ---------
Director Since and Date on Which Position Name of Director Age Term Will Expire With Company ---------------- --- ---------------- ------------ W. Richard Acree (1)(2) 67 Since 1970; None When successor elected and qualified
Ben F. Cheek, III (3)(4)(5) 58 Since 1967; Chairman of When successor Board elected and qualified
Lorene M. Cheek (2)(4)(6) 85 Since 1946; None When successor elected and qualified
Jack D. Stovall (1)(2) 59 Since 1983; None When successor elected and qualified
Robert E. Thompson (1)(2) 63 Since 1970; None When successor elected and qualified
__________________________________________________________________________
(1) Member of Audit Committee.
(2) Mr. Acree is President of Acree Oil Company, a distributor of petroleum products in Northeast Georgia; Mrs. Cheek is an honorary member of the Board of Trustees of Tallulah Falls School; Dr. Thompson is a physician at Toccoa Clinic; and Mr. Stovall is President of Stovall Building Supplies, Inc.
(3) Reference is made to the business experience of executive officers of the Company as detailed below.
(4) Member of Executive Committee.
(5) Son of Lorene M. Cheek.
(6) Mother of Ben F. Cheek, III.
EXECUTIVE OFFICERS ------------------
Name, Age, Position and Family Relationship Business Experience ----------------------- -------------------
Ben F. Cheek, III, 58 Joined the Company in 1961 as attorney and became Chairman of Board Vice President in 1962, President in 1972 and Chair- man of Board in 1989.
T. Bruce Childs, 58 Joined the Company in 1958 and was named Vice President President in charge of Operations in 1973 and No Family Relationship President in 1989.
Lynn E. Cox, 37 Joined the Company in 1983 and became Secretary Secretary in 1989. No Family Relationship
A. Roger Guimond, 40 Joined the Company in 1976 as an accountant and Vice President and became Chief Accounting Officer in 1978, Chief Chief Financial Officer Officer in 1991 and Vice President in 1992. No Family Relationship
Linda L. Sessa, 40 Joined the Company in 1984 and became Treasurer Treasurer in 1989. No Family Relationship
The term of office of each Executive Officer expires when a successor is elected and qualified. There was no, nor is there presently any arrangement or understanding between any officer and any other person (except directors or officers of the registrant acting solely in their capacities as such) pursuant to which the officer was selected.
No event such as bankruptcy, criminal proceedings or securities violation proceeding has occurred within the past 5 years with regard to any Director or Executive Officer of the Company.
Item 11.

Item 11. EXECUTIVE COMPENSATION:
(b) Summary Compensation Table:
Other All Name Annual Other and Compen- Compen- Principal Salary Bonus sation sation Position Year $ $ $ $ * -------- ---- ------- ------- ------- ------- Ben F. Cheek, III 1994 228,000 189,693 2,760 38,594 Chairman and 1993 216,000 154,653 2,867 44,268 CEO 1992 204,000 124,106 2,592 45,594
T. Bruce Childs 1994 210,000 188,973 4,682 31,071 President 1993 194,000 153,773 7,179 38,574 1992 178,000 123,066 4,683 34,878
A. Roger Guimond 1994 108,000 62,174 1,650 20,255 Vice President 1993 96,000 36,790 1,650 15,354 and CFO 1992 84,000 29,145 1,625 11,427
* Represents Company contributions to profit-sharing plan, and reported compensation from premiums on life insurance policies for the benefit of Ben F. Cheek, III in the amount of $3,816 for 1994, $5,984 for 1993 and $7,310 for 1992.
(g) Compensation of Directors:
Directors who are not employees of the Company receive $1,000 per year for attending scheduled board meetings.
(k) Board Compensation Committee Report on Executive Compensation:
The Company has no official executive compensation committee. Ben F. Cheek, III (Chairman of the Company) establishes the bases for all executive compensation. The Company is a family owned business with Ben F. Cheek, III being the majority stockholder.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners:
Name and Address of Amount and Nature of Percent Beneficial Owner Title of Class Beneficial Ownership Of Class ------------------- -------------- --------------------- --------
Ben F. Cheek, III Common 1,160 Shares - Direct 68.24% 225 Valley Drive Toccoa, Georgia 30577
John Russell Cheek Common 441 Shares - Direct 25.94% 181 Garland Road Toccoa, Georgia 30577
(b) Security Ownership of Management:
Ownership listed below represents ownership in 1st Franklin Financial Corporation, of (i) Directors and named Executive Officers of the Company and (ii) all Directors and Executive Officers as a group:
Amount and Nature of Percent Name Title of Class Beneficial Ownership Of Class ---- -------------- --------------------- --------
Ben F. Cheek, III Common Stock 1,160 Shares - Direct 68.24%
T. Bruce Childs Common Stock None None
A. Roger Guimond Common Stock None None __________________________________________
All Directors and Executive Officers as a Group Common Stock 1,160 Shares - Direct 68.24%
(c) The Company knows of no contractual arrangements which may at a subsequent date result in a change in control of the Company.
Item 13.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Company leases its Home Office building and print shop for a total of $12,600 per month from Franklin Enterprises, Inc. under leases which expire December 31, 2004. Franklin Enterprises, Inc. is 66.67% owned by Ben F. Cheek, III, a director and executive officer of the Company. In Management's opinion, these leases are at rates which approximate those obtainable from independent third parties.
Beneficial owners of the Company are also beneficial owners of Liberty Bank & Trust ("Liberty"). The Company and Liberty have management and data processing agreements whereby the Company provides certain administrative and data processing services to Liberty for a fee. Income recorded by the Company during the three year period ended December 31, 1994 related to these agreements was $63,800 per year which in Management's opinion approximates the Company's actual cost of these services.
Liberty leases its office space and equipment from the Company for $4,200 per month, which in Management's opinion are at rates which approximate these obtainable from independent third parties.
At December 31, 1994, the Company maintained $300,000 of certificates of deposit and $55,518 in a money market account with Liberty at market rates and terms. The Company also had $1,460,003 in demand deposits with Liberty at December 31, 1994.
PART IV
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) 1. Financial Statements:
Incorporated by reference from the Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994:
Report of Independent Public Accountants.
Consolidated Statements of Financial Position at December 31, 1994 and 1993.
Consolidated Statements of Income and Retained Earnings for the three years ended December 31, 1994.
Consolidated Statements of Cash Flows for the three years ended December 31, 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
None - Financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
3. Exhibits:
2. (a) Articles of Merger of 1st Franklin Corporation with and into 1st Franklin Financial Corporation dated December 31, 1994.
3. (a) Restated Articles of Incorporation as amended December 29, 1983 (incorporated herein by reference from Form 10-K for the fiscal year ended December 31, 1983).
4. (a) Executed copy of Indenture dated October 31, 1984, covering the Variable Rate Subordinated Debentures - Series 1 (incorporated herein by reference from Registration Statement No. 2-94191, Exhibit 4a).
(b) Modification of Indenture dated March , 1995.
9. Not applicable.
10. (a) Credit Agreement dated May, 1993 between the registrant and SouthTrust Bank of Georgia, N.A.. (Incorporated herein by reference from Form 10-K for the fiscal year ended December 31, 1993.)
(b) Revolving Credit Agreement dated October 1, 1985 as amended November 10, 1986; March 1, 1988; August 31, 1989 and May 1, 1990, among the registrant and the banks named therein (Incorporated by reference to Exhibit 10 to the registrant's Form SE dated November 9, 1990.)
(c) Fifth Amendment to Revolving Credit Agreement dated April 23, 1992. (Incorporated by reference to Exhibit 10(c) to the Registrant's Form SE dated November 5, 1992.)
(d) Sixth Amendment to Revolving Credit Agreement dated July 20, 1992. (Incorporated by reference to Exhibit 10(d) to the Registrant's Form SE dated November 5, 1992.)
(e) Seventh Amendment to Revolving Credit Agreement dated June 20, 1994.
(f) Merger of 1st Franklin Corporation with 1st Franklin Financial Corporation Consent, Waiver and Eighth Amendment to Revolving Credit and Term Loan Agreement.
11. Computation of Earnings per Share is self-evident from the Consolidated Statement of Income and Retained Earnings in the Registrant's Annual Report to Security Holders for the fiscal year ended December 31, 1994, incorporated by reference herein.
12. Ratio of Earnings to Fixed Charges.
13. Registrant's Annual Report to security holders for fiscal year ended December 31, 1994.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Registrant.
22. Not applicable.
23. Consent of Independent Public Accountants.
24. Not applicable.
27. Financial Data Schedule
28. Not applicable.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
1st FRANKLIN FINANCIAL CORPORATION
March 30, 1995 By: Ben F. Cheek, III --------------- ---------------------------------- Date Chairman of Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated:
Signatures Title Date ---------- ----- ----
Ben F. Cheek, III Chairman of Board; March 30, 1995 -------------------------- Chief Executive Officer
T. Bruce Childs President March 30, 1995 --------------------------
A. Roger Guimond Vice President; March 30, 1995 -------------------------- Chief Financial Officer
W. Richard Acree Director March 30, 1995 --------------------------
Lorene M. Cheek Director March 30, 1995 --------------------------
Jack D. Stovall Director March 30, 1995 --------------------------
Robert E. Thompson Director March 30, 1995 -------------------------- Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
(a) Except to the extent that the materials enumerated in (1) and/or (2) below are specifically incorporated into this Form by reference (in which case see Rule 12b-23b), every registrant which files an annual report on this Form pursuant to Section 15(d) of the Act shall furnish to the Commission for its information, at the time of filing its report on this Form, four copies of the following:
(1) Any annual report to security holders covering the registrant's last fiscal year and
(2) Every proxy statement, form of proxy or other proxy soliciting material sent to more than ten of the registrant's security holders with respect to any annual or other meeting of security holders.
(b) The foregoing material shall not be deemed to be "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Act, except to the extent that the registrant specifically incorporates it in its annual report on this Form by reference.
(c) This Annual Report on Form 10-K incorporates by reference portions of the Registrant's Annual Report to security holders for the fiscal year ended December 31, 1994, which is filed as Exhibit 13 hereto. The Registrant is a privately held corporation and therefore does not distribute proxy statements or information statements.