SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

------------------------------

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

For the fiscal year ended December 31, 19961997

( ) 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

1st FRANKLIN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code: (706) 886-7571

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None

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 ___

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant: Not Applicable.

(Cover page 1 of 2 pages)

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 February 28, 1998
- ------------------------------------- --------------------------------
Common Stock, $100 Par Value 1,700 shares
Non-Voting Common Stock, No Par Value 168,300 Shares

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Annual Report to security holders for the fiscal
year ended December 31, 1997 are incorporated by reference into Parts I, II and
IV of this Form 10-K.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)

(Cover page 1 of 2 pages)

State the aggregate market value of the voting stock held by non-
affiliated of the Registrant: Not Applicable.

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 February 28, 1997
------------------------------------- --------------------------------
Common Stock, $100 Par Value 1,700 shares
Non-Voting Common Stock, No Par Value 168,300 Shares

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Annual Report to security holders for the
fiscal year ended December 31, 1996 are incorporated by reference into Parts
I, II and IV of this Form 10-K.

(Cover page 2 of 2 pages)

PART I

Item 1. BUSINESS:

The Company, Page 1; Business, Pages 5 - 12; and Financial Statements,
Pages 17-30 of Registrant's Annual Report to security holders for the
fiscal year ended December 31, 19961997 are incorporated herein by
reference.

Item 2. PROPERTIES:

Map on inside front cover;cover page; paragraph 1 of The Company, Page 1; and
Footnote 7 (Commitments) of Notes to Consolidated Financial Statements,
Page 28 of Registrant's Annual Report to security holders for the
fiscal year ended December 31, 19961997 are incorporated herein by
reference.

Item 3. LEGAL PROCEEDINGS:

During recent months, the Company entered into settlement agreements
with certain borrowers who had previously asserted claimsVarious legal proceedings are pending against the
Company. Although the Company and its employees deny that they are
guilty of any wrongdoing or any breach of any legal obligation or duty
to the Claimants, in recognition of the expense and uncertainty of
litigation, Management felt it was in the best interest of the Company
to dispose of these cases. The following cases previously reported
have been disposed of:

Carl J. White v. 1st Franklin Financial, et al.; Filed in the Circuit
Court of Talladega County, Alabama, Civil Action No. CV-94-374;
previously disclosed in the Company's Form 10-K for the period ended
December 31, 1994. The case was settled on November 26, 1996.

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; previously disclosed in the
Company's Form 10-K for the period ended December 31, 1994. The case
was settled during February 1997.

Annie Liptrot, et al. v. 1st Franklin Financial
Corporation et al.;
Filed("the Company") in Alabama and Georgia alleging violations
of consumer lending laws and violations in connection with the sale of
insurance and loan refinancing. The financial condition and operating
results of the Company could be materially affected in the United States District Court for the Middle Districtevent of Alabama; Civil Action No. CV-95-T-1656-N; previously disclosed inan
unfavorable outcome. However, Management believes that the Company's
Form 10-K foroperations are in compliance with applicable regulations and that the
period ended December 31, 1995.actions are without merit. The case
was settled during March 1997.

Timothy Anthony and Sandrea M. Anthony vs 1st Franklin Financial
Corporation,et al.; Filed inCompany is diligently contesting the
United States District Court for
the Middle District of Alabama, Northern Division, Civil Action No.
CV-95-D-479-N; previously reported in the Company's Form 10-Q for the
period ended September 30, 1995. The case was settled during March
1997.

Dorothy McCurdy vs American General Finance, Inc.; et al. Filed in
the U.S. District Court for the Middle District of Alabama, Northern
Division, Civil Action No. 95-D-1291-N; previously reported in the
Company's Form 10-Q for the period ended September 30, 1995. The case
was settled during March 1997.

Other than ordinary routine litigation incidental to the finance
business, there are no other material pending legal proceedings.remaining complaints.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

Not applicable.
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No matters were submitted to a vote of security holders during the
quarter ended December 31, 1997.

PART II

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, 19961997 is incorporated
herein by reference.

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, 19961997 is incorporated herein by reference.

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, 19961997 is incorporated herein by reference.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

Pages 17 - 30 of Registrant's Annual Report to security holders for
the fiscal year ended December 31, 19961997 are incorporated herein by
reference.

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:

Not applicable.The Company has neither had any disagreements on accounting or
financial disclosures with its accountants nor changed such
accountants.

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Forward Looking Statements:

TheCertain statements contained or incorporated by reference herein under the
captioncaptions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Market for the
Registrant's Common Stock and Related
Stockholders'Stockholder Matters" and elsewhere in this Annual Report on Form 10-K may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance, or achievements of the Company to be
materially different from any future results, performance, or materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among
other things, business the ability to manage cash flow and working capital, and other
factors referenced elsewhere herein.

-2--3-

PART III

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) 69 Since 1970; None
When successor
elected and qualified

Ben F. Cheek, III (3)(4)(5) 6061 Since 1967; Chairman of
When successor Board
elected and qualified

Lorene M. Cheek (2)(4)(6) 8788 Since 1946; None
When successor
elected and qualified

Jack D. Stovall (1)(2) 6162 Since 1983; None
When successor
elected and qualified

Robert E. Thompson (1)(2) 6566 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. These
positions have been held by each respective Director for more than
five years.

(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.

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EXECUTIVE OFFICERS

Name, Age, Position
and Family Relationship Business Experience
- ----------------------- --------------------------------------------------------------------

Ben F. Cheek, III, 6061 Joined the Company in 1961 as attorney and became
Chairman of Board Vice President in 1962, President in 1972 and
Chairman of Board in 1989.

T. Bruce Childs, 6061 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, 3940 Joined the Company in 1983 and became Secretary
Secretary in 1989.
No Family Relationship

A. Roger Guimond, 4243 Joined the Company in 1976 as an accountant and
Vice President and became Chief Accounting Officer in 1978, Chief
Chief Financial Officer Financial Chief Financial Officer Officer in 1991
No Family Relationship and Vice President in 1992.
No Family Relationship

Linda L. Sessa, 4243 Joined the Company in 1984 and became Treasurer in
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 a 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.

-4--5-

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 1997 264,000 210,081 3,044 181,504
Chairman and 1996 252,000 217,932 3,431 98,366
Chairman and98,336
CEO 1995 240,000 220,466 3,033 146,114

CEO 1994 228,000 189,693 2,760 34,268

T. Bruce Childs 1997 264,000 210,081 3,459 163,878
President 1996 246,000 217,692 3,179 87,633
President 1995 228,000 219,986 4,236 130,447

1994 210,000 188,973 4,682 31,071

A. Roger Guimond 1997 142,200 72,001 1,650 54,647
Vice President 1996 132,000 74,362 1,650 29,589
Vice Presidentand CFO 1995 120,000 74,816 1,650 40,959
and CFO 1994 108,000 62,174 1,650 17,945

* 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 $5,931 for 1997, $4,931 for 1996 and
$4,425 for 1995 and
$3,816 for 1994.1995. Includes Company contributions to profit-sharing plan
for the benefit of T. Bruce Childs. Also represents contributions to
profit-sharing plan, and reported compensation from premiums on a life
insurance policy for the benefit of A. Roger Guimond in the amount of
$574 for 1995.

(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.

-5--6-

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

(a) Security Ownership of Certain Beneficial Owners as of January 1,December 31, 1997:

Ownership listed below represents ownership in 1st Franklin Financial
Corporation with respect to any person (including any "group" as that
term is used in Section 13(d)(3) of the Exchange Act) who is known to
the Registrant to be the beneficial owner of more than five percent of
any class of the Registrant's voting securities.

Name and Address of Amount and Nature of Percent
Beneficial Owner Title of Class Beneficial Ownership Of Class
- ---------------------- -------------- --------------------- --------
Ben F. Cheek, III Voting Common 1,160 Shares - Direct 68.24%
225 Valley Drive Stock
Toccoa, Georgia 30577

John Russell Cheek Voting Common 441 Shares - Direct 25.94%
181 Garland Road Stock
Toccoa, Georgia 30577

(b) Security Ownership of Management as of January 1,December 31, 1997:

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 of the Company as
a group:

Amount and Nature of Percent
Name Title of Class Beneficial Ownership Of Class
---- -------------- -------------------- --------
Ben F. Cheek, III Voting Common Stock 1,160 Shares - Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%

T. Bruce Childs Voting Common Stock None None
Non-Voting Common Stock None None

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

__________________________________________

All Directors and
Executive Officers
as a Group Voting Common Stock 1,160 Shares - Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%

(1) Effective January 1, 1997, the Company elected S Corporation status for
income tax reporting purposes for the Company.purposes. Because partnerships are ineligible asto

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be S Corporation shareholders, Cheek Investments, L.P.
-6-
distributed its
shares of the Company to its eight partners (six trusts, Ben F.
Cheek, III and Elizabeth Cheek, wife of Ben F. Cheek,III). Ben F.
Cheek, III and Elizabeth Cheek are grantors of the trust.trusts. Below is a
recaptable of ownership inof non-voting common stock attributable to
Ben F. Cheek, III:

No OfNo. of
Name Shares Percentage
---- ------ ----------
Ben F. Cheek, III 574 .34%
Elizabeth Cheek 574 .34%
Ben Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Ben Cheek Trust B (f/b/o Virginia C. Herring) 18,949 11.26%
Ben Cheek Trust C (f/b/o David W. Herring)Cheek) 18,949 11.26%
Elizabeth Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Elizabeth Cheek Trust B (f/b/o Virginia C. Herring) 18,948 11.26%
Elizabeth Cheek Trust C (f/b/o David W. Cheek) 18,948 11.26%
------- -----
114,840 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. 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 directorDirector and executive
officerExecutive
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
certain management and data processing agreements whereby the
Company provides certain administrative and data processing
services to Liberty for a fee. IncomeAnnual income recorded by the
Company during the three year period ended December 31, 19961997
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$5,000 per month, which in Management's opinion is at a rate which
approximates that obtainable from independent third parties.

At December 31, 1996,1997, the Company maintained $2,300,000$2,100,000 of
certificates of deposit with Liberty at market rates and terms. The
Company also had $1,609,087$1,724,229 in demand deposits with Liberty at
December 31, 1996.
-7-1997.
-8-

PART IV

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, 1996:1997:

Report of Independent Public Accountants.

Consolidated Statements of Financial Position at December 31, 19961997 and
1995.1996.

Consolidated Statements of Income and Retained Earnings for the three
years ended December 31, 1996.1997.

Consolidated Statements of Cash Flows for the three years ended
December 31, 1996.1997.

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
(incorporated herein by reference to Exhibit 3(2)(a) from
Form 10-K for the fiscal year ended December 31, 1994).

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

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

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 29, 1995 (incorporated
herein by reference to Exhibit 3(4)(b) from Form 10-K for the
fiscal year ended December 31, 1994).

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
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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.)
-9-

(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. (Incorporated by reference to Exhibit 10(e) from
Form 10-K for the fiscal year ended December 31, 1994.)

(f) Merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation Consent, Waiver and Eighth Amendment to
Revolving Credit and Term Loan Agreement. (Incorporated
herein by reference to Exhibit 10(f) from Form 10-K for the
fiscal year ended December 31, 1994.)

(g) Ninth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated June 20, 1996. (Incorporated herein by
reference to Exhibit 10(g) from Form 10-K for the fiscal
year ended December 31, 1996.)

(h) Tenth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated January 23, 1998. (Incorporated herein by
reference to Exhibit 10(h) from the registrant's Form S-2
Registration dated March 6, 1998.)

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, 1996,1997, 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, 1996.1997.

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 ScheduleSchedule.

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, 1996.
-9-1997.
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SIGNATURES

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

1st FRANKLIN FINANCIAL CORPORATION

March 27, 199730, 1998 By: s/Ben F. Cheek, III
-------------- -----------------------------------------------
Date Ben F. Cheek, III
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
---------- ----- ----

s/(Ben F. Cheek, III)III Chairman of Board;Board March 27, 1997
-30, 1998
---------------------- Chief Executive --------------
Ben F. Cheek, III Officer

s/(T. Bruce Childs)Bruch Childs President March 27, 1997
-30, 1998
---------------------- --------------
T. BruchBruce Childs

s/(A. Roger Guimond)Guimond Vice President; March 27, 1997
-30, 1998
---------------------- Chief Financial --------------
A. Roger Guimond Officer

s/(W. Richard Acree) Lorene M. Cheek Director March 27, 1997
- ---------------------- --------------
W. Richard Acree

s/(Lorene M. Cheek) Director March 27, 1997
-30, 1998
---------------------- --------------
Lorene M. Cheek

s/(Jack D. Stovall)Stovall Director March 27, 1997
-30, 1998
---------------------- --------------
Jack D. Stovall

s/(Robert E. Thompson)Thompson Director March 27, 1997
-30, 1998
---------------------- --------------
Robert E. Thompson

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:

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

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(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, 1996,1997, which is filed as Exhibit 13 hereto. The
Registrant is a privately held corporation and therefore does not
distribute proxy statements or information statements.

-11--12-