1st Franklin Financial 10-Q 2006 Q3 Quarterly report

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 September 30, 2006

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 No. 58-0521233

213 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 is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one)  Large Accelerated Filer ___  Accelerated Filer ___  Non-Accelerated Filer  X_  

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 October 31, 2006

Voting Common Stock, par value $100 per share

1,700 Shares

Non-Voting Common Stock, no par value

168,300 Shares

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PART I.  FINANCIAL INFORMATION
ITEM 1.		Financial Statements:
		The information required hereunder is incorporated by reference to the information contained under the following captions in the Company's Quarterly Report to Investors as of and for the Nine Months Ended September 30, 2006.  See Exhibit 19.
			Unaudited Consolidated Statements of Financial Position:
				September 30, 2006 and December 31, 2005
			Unaudited Consolidated Statements of Income and Retained Earnings:
				Three and Nine Months Ended September 30, 2006 and September 30, 2005
			Unaudited Consolidated Statements of Cash Flows:
				Nine Months Ended September 30, 2006 and September 30, 2005
			Notes to Unaudited Consolidated Financial Statements
ITEM 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations:
		The information required hereunder is incorporated by reference to 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 Nine Months Ended September 30, 2006.  See Exhibit 19.
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk:
		The information required hereunder is incorporated by reference to 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 Nine Months Ended September 30, 2006.  See Exhibit 19.
ITEM 4.	Controls And Procedures:
	We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.  An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chairman and Chief Executive Officer ("CEO") and Executive Vice President 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 the Company's disclosure controls and procedures were effective as of September 30, 2006.  No system of controls, no m atter 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. There have been no changes in the Company's internal control over financial reporting that occurred during the third quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II.  OTHER INFORMATION
ITEM 1.	Legal Proceedings:
	1st Franklin Financial Corporation v. Harold J. Barkley, Jr., in his capacity as Standing Trustee of the Chapter 13 Estate of Susan Ann Bozeman, et al., In the United States Bankruptcy Court for the Southern District of Mississippi, Adversary Proceeding Nos., 02-000101, et al. The Trustee for the Southern District of Mississippi (the “Trustee”), filed applications on behalf of certain debtors to employ attorneys to sue 1st Franklin, and those applications were granted.  The Company subsequently filed a complaint against the Trustee in May 2002 seeking to bar him from bringing suit.  The Company’s complaint was based on bankruptcy related defenses and also contained requests for arbitration with respect to the Trustee’s allegations.  The Company filed a motion for summary judgment regarding arbitration. At the request of the Court, and with the approval of the claimants, the Company has submitted orders to the Court to compel all of the remaining claims hereunder to arbitration.  The Company cannot predict whether any such claimants will commence arbitration proceedings and, if they do, what amounts the Company may be liable to pay, although the Company does not believe any such amounts would be, individually or in the aggregate, material. From time to time, the Company is involved in various claims and lawsuits incidental to its business.  In the opinion of Management, it is too early to assess the potential liability in connection with any known claims or suits or whether the ultimate resolution of any such claims or suits could be expected to have a material effect on the Company’s financial position, liquidity or results of operations.
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ITEM 6.	Exhibits:
	(a)	Exhibits:
			10 19 31.1 31.2 32.1 32.2	Letter Agreement, dated as of September 18, 2006, between the Company and Wachovia Bank, National Association (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 19, 2006). Quarterly Report to Investors as of and for the Nine Months Ended September 30, 2006. 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.

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
	/s/ A. Roger Guimond
	Executive Vice President and Chief Financial Officer
Date: November 13, 2006
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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 Nine Months Ended September 30, 2006 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 22 23 24 25

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