Exhibit 13

1st FRANKLIN FINANCIAL CORPORATION

ANNUAL REPORT

DECEMBER 31, 1999

FRONT and BACK COVER
(Collage of Photos from Annual Managers' Meeting)

INSIDE FRONT COVER PAGE OF ANNUAL REPORT

(Graphic showing state maps of Alabama, Georgia, Louisiana, Mississippi, North
Carolina and South Carolina which is regional operating territory of Company
and listing of branch offices)

1st FRANKLIN FINANCIAL CORPORATION BRANCH OFFICES

ALABAMA
-------

Alexander City Clanton Florence Jasper Ozark Selma
Andalusia Cullman Gadsden Madison Pelham Sylacauga
Arab Decatur Geneva Moulton Prattville Troy
Athens Dothan Hamilton Muscle Shoals Russellville(2) Tuscaloosa
Bessemer Enterprise Huntsville Opp Scottsboro Wetumpka
Birmingham Fayette

GEORGIA
-------

Adel Calhoun Cumming Griffin McRae Statesboro
Albany Canton Dallas Hartwell Milledgeville Swainsboro
Alma Carrollton Dalton Hawkinsville Monroe Sylvania
Americus Cartersville Dawson Hazlehurst Montezuma Sylvester
Arlington Cedartown Douglas Hinesville Monticello Thomaston
Athens (2) Chatsworth Douglasville(2) Hogansville Moultrie Thomson
Bainbridge Clarkesville East Ellijay Jackson Nashville Tifton
Barnesville Claxton Eastman Jasper Newnan Toccoa
Baxley Clayton Elberton Jefferson Perry Valdosta (2)
Blakely Cleveland Forsyth Jesup Pooler ** Vidalia
Blue Ridge Cochran Fort Valley LaGrange Richmond Hill Warner Robins
Bremen Commerce Gainesville Lavonia Rome Washington
Brunswick Conyers Garden City Lawrenceville Royston Waycross
Buford Cordele Georgetown Madison Sandersville Waynesboro
Butler Cornelia Glennville Manchester Savannah Winder
Cairo Covington Greensboro McDonough

LOUISIANA
---------

Alexandria DeRidder Jena Leesville Natchitoches Pineville
Crowley Franklin Lafayette Marksville New Iberia

MISSISSIPPI
-----------

Bay St. Louis Grenada Hattiesburg Jackson Magee Pearl
Carthage Gulfport Hazlehurst Kosciusko McComb Picayune
Columbia

NORTH CAROLINA
--------------

Monroe Pineville

SOUTH CAROLINA
--------------

Aiken Columbia Gaffney Lancaster Orangeburg Union
Anderson Conway Greenville Laurens Rock Hill York
Cayce Easley Greenwood Marion Seneca
Clemson Florence Greer Newberry Spartanburg

- ----------------------------
** Opened first quarter 2000

TABLE OF CONTENTS

The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Ben F. Cheek, Jr. Office of the Year . . . . . . . . . . . . . 2

Chairman's Letter . . . . . . . . . . . . . . . . . . . . . . . 3

Selected Consolidated Financial Information . . . . . . . . . . 4

Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Management's Discussion of Operations . . . . . . . . . . . . . 13

Management's Report . . . . . . . . . . . . . . . . . . . . . . 18

Report of Independent Public Accountants. . . . . . . . . . . . 19

Financial Statements. . . . . . . . . . . . . . . . . . . . . . 20

Directors and Executive Officers. . . . . . . . . . . . . . . . 36

Corporate Information . . . . . . . . . . . . . . . . . . . . . 36

THE COMPANY

1st Franklin Financial Corporation has been engaged in the consumer finance
business since 1941, particularly in direct cash loans and real estate loans.
The business is operated through 97 branch offices in Georgia, 33 in Alabama,
22 in South Carolina, 13 in Mississippi, 11 in Louisiana and 2 in North
Carolina. At December 31, 1999, the Company had 682 employees.

As of December 31, 1999, the resources of the Company were invested
principally in loans which comprised 69% of the Company's assets. The
majority of the Company's revenues are derived from finance charges earned on
loans and other outstanding receivables. Remaining revenues are derived from
earnings on investment securities, insurance income and other miscellaneous
income.

-1-

CHATSWORTH, GEORGIA

1999 BEN F. CHEEK, JR. "OFFICE OF THE YEAR"

*********************
** PICTURE OF EMPLOYEES **
*********************

This award is presented annually in recognition of the office that represents
the highest overall performance within the Company. Congratulations to the
entire Chatsworth Staff for this significant achievement. The Friendly
Franklin Folks salute you!

-2-

TO OUR INVESTORS, EMPLOYEES AND FRIENDS:

I am very pleased to report to you that 1st Franklin Financial
Corporation closed out the 1900's in excellent condition. We are now looking
forward to the many opportunities that a new century will offer us. Before
leaving the 1900's completely however, I want to acknowledge and recognize
the hard work and preparation by our Y2K committee and data processing staff.
Their efforts paid off handsomely when all of our systems operated properly
on January 1. We had every confidence that the results would be just that
and I am very grateful to them for their planning and execution during the
many months of work that preceded Y2K.

Now may I call your attention to a few of the highlights of our 1999
year which you will find in this Annual Report. Naturally, as you have time,
I hope you will read the entire report in order to get a full and complete
picture of the year's results.

One of our goals for 1999 was to increase our gross receivables by
approximately 15% in order to top $200,000,000. You might recall that we had
a long-standing goal of reaching $200,000,000 in assets by the year 2000.
We reached that goal in 1997, three years ahead of schedule, so having
completed the initial goal, we felt that achieving $200,000,000 in gross loan
receivables by the end of 1999 would be a challenging and worthy goal. You
will note from our balance sheet on page 20 that we made it - - $200,468,312.

With growth in receivables you always look for a nice growth in net
income. Fortunately, that is exactly what occurred when our net income
increased by 6.6% over 1998 reaching an all-time high of $7.7 million. This
occurred even with the additional expense associated with new branch office
openings. During the year, eleven new branches were opened - - 2 in Alabama,
3 in Georgia, 4 in Louisiana and 2 in Mississippi. These new offices brought
the total number of branches to 177 in six southeastern states and our plan
is to continue this growth as we enter 2000.

The 1st Franklin Investment Center continues to grow and support the
growth of our branch system. With the total of our investments approaching
$150 million and the number of our investors standing at 6,133 one can
readily see the vital part that each of our investors plays in the everyday
success of our company. Hopefully, they and others will join with us now and
in the years ahead as we continue to strive to carry out our mission of being
a major provider of credit to individuals and families in the Southeastern
United States.

In an effort to support one of our company's Core Values which is Open,
Honest Communication, we had a company-wide employee survey in early 1999.
The response to the survey was excellent - 72% of our employees completed and
returned the survey and from the results of the survey came some important
changes which we hope will translate into happy and highly motivated
co-workers. We intend to keep the communication lines open.

1st Franklin Financial had a good 1999 and we are excited about the
prospects for a repeat in 2000. Many people were responsible for another
successful year for our company. Certain groups standout, such as my
co-workers, our investors, our bankers and our customers. These people
deserve a special salute and thank you for their year-long encouragement and
support. Hopefully, we will continue to earn your confidence and support in
2000 and for many years to come.

Very sincerely yours,

s/ Ben F. Cheek, III
-----------------------------
Chairman of the Board and CEO

-3-

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Set forth below is selected consolidated financial data of the Company.
This information should be read in conjunction with "Management's Discussion
of Operations" and the more detailed financial statements and notes thereto
included herein.

Year Ended December 31
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In 000's, except ratio data)

Selected Income Statement Data:

Revenues . . . . . . . . . . $ 72,641 $ 65,683 $ 61,498 $ 58,415 $ 55,157
Net Interest Income. . . . . 41,731 37,289 34,470 32,534 30,147
Interest Expense . . . . . . 8,920 8,723 8,801 8,312 8,048
Provision for
Loan Losses. . . . . . . . 8,523 7,031 6,916 6,266 4,631
Income Before
Income Taxes . . . . . . . 9,663 8,859 6,744 8,418 8,969
Net Income . . . . . . . . . 7,748 7,268 1,816 6,238 6,507
Ratio of Earnings to
Fixed Charges. . . . . . . 2.00 1.94 1.72 1.95 2.06

Selected Balance Sheet Data:

Loans, Net . . . . . . . . . $156,124 $138,548 $132,701 $129,684 $120,763
Total Assets . . . . . . . . 227,138 216,675 201,166 191,904 182,084
Senior Debt. . . . . . . . . 113,890 104,446 98,930 94,740 95,541
Subordinated Debt. . . . . . 35,247 38,961 37,247 34,942 30,617
Stockholders' Equity . . . . 64,540 61,364 54,734 53,414 47,747
Ratio of Total Liabilities
to Stockholders' Equity. . 2.52 2.53 2.68 2.59 2.81

-4-

BUSINESS

References in this Annual Report to "1st Franklin", "we", "our" and "us"
refers to 1st Franklin Financial Corporation.

1st Franklin is engaged in the consumer finance business, particularly in
making consumer loans to individuals in relatively small amounts for
relatively short periods of time, and in making first and second mortgage
loans on real estate in larger amounts and for longer periods of time. We
also purchase sales finance contracts from various retail dealers. At
December 31, 1999, direct cash loans comprised 76% of our outstanding loans,
real estate loans comprised 17% and sales finance contracts comprised 7%.

In connection with this business, we write credit insurance as an agent
for a nonaffiliated company specializing in such insurance. Two of our wholly
owned subsidiaries, Frandisco Life Insurance Company and Frandisco Property
and Casualty Insurance Company, reinsure the life, the accident and health and
the property insurance so written.

The following table shows the sources of our earned finance charges over
each of the past five periods:

Year Ended December 31
-------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
Direct Cash Loans . . . . $37,813 $33,579 $30,566 $28,440 $25,898
Real Estate Loans . . . . 7,181 7,112 7,196 7,238 7,058
Sales Finance Contracts . 2,222 1,998 2,268 2,417 2,757
------- ------- ------- ------- -------
Total Finance Charges . $47,216 $42,689 $40,030 $38,095 $35,713
======= ======= ======= ======= =======

We make direct cash loans primarily to people who need money for some
unusual or unforeseen expense or for the purpose of paying off an accumulation
of small debts or for the purchase of furniture and appliances. These loans
are repayable in 6 to 48 monthly installments and generally do not exceed
$10,000 in principal amount. The loans are generally secured by personal
property, motor vehicles and/or real estate. We believe that the interest and
fees we charge on these loans are in compliance with applicable federal and
state laws.

First and second mortgage loans on real estate are made to homeowners who
wish to improve their property or who wish to restructure their financial
obligations. We generally make the loans in amounts from $3,000 to $50,000 on
maturities of 35 to 180 months. We believe that the interest and fees we
charge on these loans are in compliance with applicable federal and state
laws.

Sales finance contracts are purchased from retail dealers. These
contracts have maturities that range from 3 to 48 months and generally do not
individually exceed $7,500 in principal amount. We believe that the interest
rates we charge on these contracts are in compliance with applicable federal
and state laws.

Prior to the making of a loan, we complete a credit investigation to
determine the income, existing indebtedness, length and stability of
employment, and other relevant information concerning the customer. In
granting the loan, we receive a security interest in the real or personal
property of the borrower. In making direct cash loans, we focus on the
customer's ability to repay his or her loan to us rather than on the potential
resale value of the underlying security. In making real estate and sales
finance loans, however, we focus instead on the marketability and value of the
underlying collateral.

-5-

1st Franklin competes with several national and regional finance
companies, as well as a variety of local finance companies in the communities
which we serve. We believe that our emphasis on customer service helps us
compete effectively in the markets we serve.

Our business consists mainly of the making of loans to salaried people
and wage earners who depend on their earnings to make their repayments. Our
ability to continue the profitable operation of our business will therefore
depend to a large extent on the continued employment of these people and their
ability to meet their obligations as they become due. Therefore, a sustained
recession or a significant downturn in business with consequent unemployment
or continued increases in the number of personal bankruptcies among our
typical customer base may have a material adverse effect on our collection
ratios and profitability.

The average annual yield on loans we make (the % of finance charges
earned to average net outstanding balance) has been as follows:

Year Ended December 31
--------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Direct Cash Loans. . . . . . . . 31.92% 31.53% 30.25% 30.75% 31.26%
Real Estate Loans. . . . . . . . 21.55 21.82 21.76 21.53 22.73
Sales Finance Contracts. . . . . 20.94 21.00 20.97 20.77 22.28

The following table contains information about our operations:

As of December 31
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Number of Branch Offices . . . . 177 166 157 144 128
Number of Employees. . . . . . . 682 628 596 575 527
Average Total Loans
Outstanding Per
Branch ( in 000's) . . . . . . $1,133 $1,060 $1,064 $1,138 $1,208
Average Number of Loans
Outstanding Per Branch . . . . 639 624 644 701 765

-6-

DESCRIPTION OF LOANS

Year Ended December 31
---------------------------------------------------
1999 1998 1997 1996 1995
DIRECT CASH LOANS: ---- ---- ---- ---- ----
- -----------------

Number of Loans Made
to New Borrowers. . . . . 34,595 30,282 28,656 27,636 25,840
Number of Loans Made
to Former Borrowers . . . 17,498 16,083 14,626 14,410 14,740
Number of Loans Made
to Present Borrowers. . . 80,695 69,712 65,096 63,329 61,304
Total Number of Loans
Made. . . . . . . . . . . 132,788 116,077 108,378 105,375 101,884
Total Volume of Loans
Made (in 000's). . . . . . $234,172 $196,401 $180,541 $173,196 $164,034
Average Size of
Loans Made. . . . . . . . $ 1,764 $ 1,692 $ 1,666 $ 1,644 $ 1,610
Number of Loans
Outstanding . . . . . . . 95,509 86,819 83,264 80,733 76,549
Total of Loans
Outstanding (in 000's). . $153,170 $131,636 $123,039 $117,141 $107,960
Percent of Total Loans. . . 76% 75% 74% 72% 70%
Average Balance on
Outstanding Loans . . . . $ 1,604 $ 1,516 $ 1,478 $ 1,451 $ 1,410

REAL ESTATE LOANS:
- -----------------

Total Number of Loans
Made. . . . . . . . . . . 2,045 2,226 2,155 2,240 2,674
Total Volume of Loans
Made (in 000's) . . . . . $ 19,439 $ 20,669 $ 22,921 $ 22,398 $ 22,379
Average Size of
Loans Made. . . . . . . . $ 9,105 $ 9,285 $ 10,636 $ 9,999 $ 8,369
Number of Loans
Outstanding . . . . . . . 4,054 4,105 4,101 4,214 4,188
Total of Loans
Outstanding (in 000's). . $ 33,946 $ 33,465 $ 32,630 $ 33,507 $ 32,653
Percent of Total Loans. . . 17% 19% 19% 20% 21%
Average Balance on
Outstanding Loans . . . . $ 8,374 $ 8,152 $ 7,957 $ 7,951 $ 7,797

SALES FINANCE CONTRACTS:
- -----------------------

Number of Contracts
Purchased . . . . . . . . 15,601 13,490 14,662 17,499 19,195
Total Volume of Contracts
Purchased (in 000's). . . $ 19,019 $ 14,612 $ 15,034 $ 17,150 $ 18,885
Average Size of Contracts
Purchased . . . . . . . . $ 1,219 $ 1,083 $ 1,025 $ 980 $ 984
Number of Contracts
Outstanding . . . . . . . 13,531 12,710 13,801 15,941 17,151
Total of Contracts
Outstanding (in 000's). . $ 13,352 $ 10,882 $ 11,334 $ 13,201 $ 13,955
Percent of Total Loans. . . 7% 6% 7% 8% 9%
Average Balance on
Outstanding Contracts . . $ 987 $ 856 $ 821 $ 828 $ 814

-7-

LOANS ACQUIRED, LIQUIDATED AND OUTSTANDING

Year Ended December 31
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)

LOANS ACQUIRED
--------------
DIRECT CASH LOANS. . . . . . $233,445 $195,634 $177,844 $169,825 $164,034
REAL ESTATE LOANS. . . . . . 18,654 20,317 21,532 20,971 22,000
SALES FINANCE CONTRACTS. . . 16,910 14,360 13,943 16,131 17,676
NET BULK PURCHASES . . . . . 3,622 1,371 5,177 5,818 1,588
-------- -------- -------- -------- --------
TOTAL LOANS ACQUIRED . . . $272,631 $231,682 $218,496 $212,745 $205,298
======== ======== ======== ======== ========

LOANS LIQUIDATED
----------------
DIRECT CASH LOANS. . . . . . $212,638 $187,804 $174,643 $164,016 $152,694
REAL ESTATE LOANS. . . . . . 18,959 19,833 23,798 21,544 18,876
SALES FINANCE CONTRACTS. . . 16,549 15,065 16,901 17,904 19,736
-------- -------- -------- -------- --------
TOTAL LOANS LIQUIDATED . . $248,146 $222,702 $215,342 $203,464 $191,306
======== ======== ======== ======== ========

LOANS OUTSTANDING
-----------------
DIRECT CASH LOANS. . . . . . $153,170 $131,636 $123,039 $117,141 $107,960
REAL ESTATE LOANS. . . . . . 33,946 33,465 32,630 33,507 32,653
SALES FINANCE CONTRACTS. . . 13,352 10,882 11,334 13,201 13,955
-------- -------- -------- -------- --------
TOTAL LOANS OUTSTANDING. . $200,468 $175,983 $167,003 $163,849 $154,568
======== ======== ======== ======== ========

UNEARNED FINANCE CHARGES
------------------------
DIRECT CASH LOANS. . . . . . $ 20,281 $ 17,573 $ 16,062 $ 16,270 $ 17,030
REAL ESTATE LOANS. . . . . . 604 345 84 -- 12
SALES FINANCE CONTRACTS. . . 1,816 1,416 1,504 1,829 2,007
-------- -------- -------- -------- --------
TOTAL UNEARNED
FINANCE CHARGES. . . . . $ 22,701 $ 19,334 $ 17,650 $ 18,099 $ 19,049
======== ======== ======== ======== ========

-8-

DELINQUENCIES

We classify delinquent accounts at the end of each month according to the
number of installments past due at that time, based on the original or
extended terms of the contract. When 80% of an installment has been paid, we
do not consider the account delinquent for the purpose of this classification.
When three installments are past due, we classify the account as being 60-89
days past due; when four or more installments are past due we classify the
account as being 90 days or more past due.

The following table shows the amount of certain classifications of
delinquencies and the ratio such delinquencies bear to related outstanding
loans:

Year Ended December 31
--------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except % data)
DIRECT CASH LOANS:
60-89 Days Past Due. . . . . $3,161 $2,631 $2,593 $2,404 $1,914
Percentage of Outstanding. . 2.06% 2.00% 2.11% 2.05% 1.77%
90 Days or More Past Due . . $7,358 $6,358 $5,137 $5,419 $3,286
Percentage of Outstanding. . 4.80% 4.83% 4.18% 4.63% 3.04%

REAL ESTATE LOANS:
60-89 Days Past Due. . . . . $ 437 $ 335 $ 432 $ 426 $ 254
Percentage of Outstanding. . 1.29% 1.00% 1.33% 1.27% .78%
90 Days or More Past Due . . $1,343 $ 879 $ 932 $1,334 $1,196
Percentage of Outstanding. . 3.96% 2.63% 2.86% 3.98% 3.66%

SALES FINANCE CONTRACTS:
60-89 Days Past Due. . . . . $ 318 $ 187 $ 285 $ 339 $ 295
Percentage of Outstanding. . 2.38% 1.72% 2.52% 2.57% 2.11%
90 Days or More Past Due . . $ 554 $ 413 $ 439 $ 602 $ 463
Percentage of Outstanding. . 4.15% 3.80% 3.87% 4.56% 3.32%

-9-

LOSS EXPERIENCE

Net losses (charge-offs less recoveries) and their percentage to the
average net loans (loans less unearned finance charges) and to the
liquidations (payments, refunds, renewals and charge-offs of customer's loans)
are shown in the following table:

Year Ended December 31
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except % data)

DIRECT CASH LOANS
-----------------
Average Net Loans. . . . $118,444 $106,502 $101,051 $ 92,489 $ 82,847
Liquidations . . . . . . $212,638 $187,804 $174,643 $164,016 $152,694
Net Losses . . . . . . . $ 6,800 $ 5,879 $ 5,992 $ 4,617 $ 3,753
Net Losses as % of
Average Net Loans. . . 5.74% 5.52% 5.93% 4.99% 4.53%
Net Losses as % of
Liquidations . . . . . 3.20% 3.13% 3.43% 2.81% 2.46%

REAL ESTATE LOANS
-----------------
Average Net Loans. . . . $ 33,315 $ 32,587 $ 33,066 $ 33,614 $ 31,050
Liquidations . . . . . . $ 18,959 $ 19,833 $ 23,798 $ 21,544 $ 18,876
Net Losses . . . . . . . $ 150 $ 94 $ 141 $ 49 $ 22
Net Losses as % of
Average Net Loans. . . .45% .29% .43% .15% .07%
Net Losses as % of
Liquidations . . . . . .79% .47% .59% .23% .12%

SALES FINANCE CONTRACTS
-----------------------
Average Net Loans. . . . $ 10,612 $ 9,514 $ 10,817 $ 11,640 $ 12,377
Liquidations . . . . . . $ 16,549 $ 15,065 $ 16,901 $ 17,904 $ 19,736
Net Losses . . . . . . . $ 347 $ 398 $ 714 $ 478 $ 434
Net Losses as % of
Average Net Loans. . . 3.27% 4.18% 6.60% 4.11% 3.51%
Net Losses as % of
Liquidations . . . . . 2.10% 2.64% 4.22% 2.67% 2.20%

ALLOWANCE FOR LOAN LOSSES

We determine the allowance for loan losses by reviewing our previous loss
experience, reviewing of specifically identified loans where collection is
doubtful and evaluating the inherent risks and change in the composition of
our loan portfolio. Such allowance is, in our opinion, sufficient to provide
adequate protection against probable loan losses on the current loan
portfolio. The allowance is maintained out of income, except in the case of
bulk purchases when it is provided in the allocation of the purchase price.

-10-

CREDIT INSURANCE
- ----------------
When a borrower authorizes us to so, we write various credit insurance
products in connection with the borrower's loan. We write such insurance as
an agent for a non-affiliated insurance company.

Frandisco Life Insurance Company and Frandisco Property and Casualty
Insurance Company, which are wholly owned subsidiaries of 1st Franklin,
reinsure the insurance written from the non-affiliated insurance company.

REGULATION AND SUPERVISION
- --------------------------
State laws require that each office in which a small loan business is
conducted be licensed by the state and that the business be conducted
according to the applicable statutes and regulations. The granting of a
license depends on the financial responsibility, character and fitness of the
applicant, and, where applicable, the applicant must show finding of a need
through convenience and advantage documentation. As a condition to obtaining
such license, the applicant must consent to state regulation and examination
and to the making of periodic reports to the appropriate governing agencies.
Licenses are revocable for cause, and their continuance depends upon
applicant's compliance with the laws and regulations that are applicable to
the applicant in connection with its receipt of a license. The Company has
never had any of its licenses revoked.

We conduct all of our lending operations under the provisions of the
Federal Consumer Credit Protection Act ("Truth-in-Lending Act"), the Fair
Credit Reporting Act and the Federal Real Estate Settlement Procedures Act.
The Truth-in-Lending Act requires us to disclose to our customers the finance
charge, the annual percentage rate, the total of payments and other
information on all loans.

A Federal Trade Commission ruling prevents us and other consumer lenders
from using certain household goods as collateral on direct cash loans. We
collateralize such loans with non-household goods such as automobiles, boats
and other exempt items.

We are also subject to state regulations governing insurance agents in
the states in which we sell credit insurance. State insurance regulations
require that insurance agents be licensed and limit the premium amount
insurance agents can charge.

-11-

SOURCE OF FUNDS
- ---------------
Our sources of funds stated as a % of total liabilities and stockholder's
equity and the number of persons investing in the Company's debt securities is
as follows:

Year Ended December 31
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Bank Borrowings. . . . . . . . . -% -% -% -% -%
Public Senior Debt . . . . . . . 50 48 49 49 52
Public Subordinated Debt . . . . 16 18 19 18 17
Other Liabilities. . . . . . . . 6 6 5 5 5
Stockholders' Equity . . . . . . 28 28 27 28 26
--- --- --- --- ---
Total. . . . . . . . . . . . . 100% 100% 100% 100% 100%
=== === === === ===

Number of Investors. . . . . . . 6,133 6,116 5,983 5,668 5,575

All of our common stock is held by five related individuals and is not
traded in an established public trading market.

The average interest rate we charge on borrowings, computed by dividing
the interest paid by the average indebtedness outstanding, has been as
follows:

Year Ended December 31
---------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Senior Borrowings. . . . . . . . 5.62% 6.09% 6.12% 6.29% 6.97%
Subordinated Borrowings. . . . . 6.25 6.23 6.58 6.86 6.92
All Borrowings . . . . . . . . . 5.79 6.13 6.25 6.67 6.96

Our financial ratios relating to debt are as follows:

At December 31
---------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total Liabilities to
Stockholders' Equity . . . . 2.52 2.53 2.68 2.59 2.81

Unsubordinated Debt to
Subordinated Debt plus
Stockholders' Equity . . . . 1.28 1.16 1.19 1.17 1.32

-12-

MANAGEMENT'S DISCUSSION OF OPERATIONS

Financial Condition:
- -------------------
The Company ended the 20th century with a record year! At the close of
1999, total assets of the Company were $227.1 million as compared to $216.7
million at the beginning of the year. Gross revenues reached $72.6 million
and net income from these revenues amounted to $7.7 million for the year.
Expansion of branch operations continued with the opening of eleven new
locations during the year, bringing the total to 177 offices.

Being a financial institution, the primary earning assets of the Company
are its loan receivables. Substantial growth occurred in the Company's loan
portfolio during the year just ended due to strong consumer demand. Net
receivables (gross receivables less unearned finance charges) increased $21.1
million during 1999, which was the primary factor driving the increase in
overall assets. Total number of loans being serviced at December 31, 1999
was 113,094 as compared to 103,634 at December 31, 1998, the majority of
which are small consumer loans with an average balance of $1,604. The
Company's goal is to be a major provider of credit to individuals and
families in the Southeastern United States. Management believes this is the
niche market for the services provided by the Company. No commercial loans
are extended in the normal course of business.

Also contributing to the increase in overall assets was a $6.7 million
(14%) growth in the Company's investment portfolio. Cash flows generated by
operations and from sales of Company debt securities outpaced funds required
for daily operations during 1999, thereby creating a surplus of cash. In
an attempt to maximize yield, Management invested the cash surplus in its
investment portfolio. Management maintains a conservative approach when
formulating its investment strategy. The Company does not participate in
hedging programs, interest rate swaps or other activities involving the use
of off-balance sheet derivative financial instruments. The investment
portfolio consists mainly of U.S. Treasury bonds, Government Agency bonds and
various municipal bonds. A significant portion of these investment securities
have been designated as "available for sale" with any unrealized gain or loss
accounted for in the Company's equity section, net of deferred income taxes
for those investments held by the insurance subsidiaries. The remainder of
the investment portfolio represents securities carried at amortized cost and
designated "held to maturity", as Management has both the ability and intent
to hold these securities to maturity. Management had previously reported a
higher increase in investment securities in its report for the nine months
ended September 30, 1999. However, volatility in the bond market during the
current year negatively impacted the investment portfolio as bond market
values declined $1.3 million, net of deferred taxes for those investments
held by the Company's insurance subsidiaries. Also, the Company liquidated
certain investments during the fourth quarter just ended to supplement
financing of the increase in the loan portfolio.

Cash and cash equivalents declined $14.2 million (71%) during 1999
mainly due to funds required to finance the aforementioned increase in the
loan portfolio. At year end, the Company also used an alternative source of
working capital by drawing on its credit line to help finance the loan
activity.

Results of Operations:
- ---------------------
As previously mentioned, gross revenues and net income reached record
levels during the year just ended. The higher lending activity during 1999
resulted in average net receivables increasing $13.8 million (9%) to $162.4
million during 1999 as compared to $148.6 million during 1998. Average net
receivables increased $3.7 million (3%) during 1998 as compared to 1997.
Revenues rose in each of the comparable periods as a direct result of the
higher levels of average net loans outstanding.

The rise in revenues and an improvement in the Company's cost efficiency
ratio were responsible for the increase in profits during the last two years.
During 1999, the cost efficiency ratio declined to 69.4% as compared to 70.0%
-13-

during 1998 and 71.9% during 1997. Low inflation and the low interest rate
environment during the last two years enabled Management to reduce the ratio.
The cost efficiency ratio measures operating expenses against total revenues
net of interest and insurance expenses.

Net Interest Income

Net interest income is the principal component in the composition of the
Company's net income. It represents the margin by which interest income on
earning assets (loans and investment securities) exceeds interest expense on
its interest-bearing debt. The margin increased $4.4 million (12%) during
1999 as compared to 1998 and $2.8 million (8%) during 1998 as compared to
1997. These increases in margin spreads were primarily due to the interest
income earned on the aforementioned higher levels of net receivables
outstanding and due to higher investment income.

Variations in interest expense were insignificant during the three-year
period ended December 31, 1999. Lower market rates of interest enabled the
Company to reduce average borrowing costs during the comparable periods even
though average senior and subordinated debt outstanding increased $11.4
million (8%) during 1999 as compared to 1998 and $3.3 million (2%) during
1998 as compared to 1997. Average interest rates on borrowings were 5.79%,
6.13% and 6.25% during the years ended December 31, 1999, 1998 and 1997,
respectively.

Net Insurance Income

The Company's insurance business plays an integral roll in the overall
income producing operations of the Company, second only to finance charges
earned. Changes in net insurance income generally correspond to changes in
the level of average net outstanding receivables. As average net receivables
increase, the Company typically sees an increase in the number of loan
customers requesting credit insurance, thereby leading to higher levels of
insurance in force. Higher levels of insurance in force generally results in
higher insurance income. Net insurance income rose $2.0 million (13%) during
1999 as compared to 1998 and $1.4 million (10%) during 1998 as compared to
1997. Claims and insurance commissions were slightly higher in 1999 as
compared to 1998 and 1997.

Provision for Loan Losses

The provision for loan losses increased $1.5 million (21%) to $8.5
million for the year just ended as compared to $7.0 million during 1998 and
$6.9 million in 1997. At December 31, 1999, the allowance for loan losses
was 4.50% of net receivables, up from 4.25% and 4.00% at December 31, 1998
and 1997, respectively. Management carefully monitors the credit worthiness
of its loan portfolio considering factors such as previous loss experience,
delinquency status, bankruptcy trends, the ability of the borrower to repay,
underlying collateral and changes in the size of the loan portfolio.
Additions are made to the loss allowance when Management deems it is
appropriate to protect against probable losses in the current portfolio.
During 1999, the increase in the provision and resulting increase in the
allowance for loan losses was attributable to a 15% increase in net charge-
offs, the substandial growth in the loan portfolio and an increase in loans
in non-accrual status. Loans in non-accrual status represent loans 60 days
or more deliquent and on which earnings no longer are accrued. At
December 31, 1999, there were $13.2 million of loans in non-accrual status
compared to $10.8 million and $9.8 million at December 31, 1998 and 1997,
respectively.

Higher recovery rates on loans previously charged off resulted in a
decline in net charge-offs during 1998 as compared to 1997. Although net
losses were lower, rising bankruptcies and problem delinquencies induced
Management to raise the loss allowance to provide for likely losses, which
resulted in a slight increase in the provision for loan losses when compared
to 1997.

Currently, Management believes the allowance for loan losses is
adequate to absorb losses. However, if conditions were to change, future
additions to the allowance may be necessary in order to provide adequate
protection against probable losses in the current portfolio.

Other Operating Expenses

The largest expense category the Company has is personnel expense,
which represented 46% of all expenses during 1999 and 44% in 1998. Increases
in the employee base required to staff the new locations and merit salary
-14-

increases caused personel expense to increase $3.2 million (15%) during the
year just ended as compared to 1998. During 1998 the same expense increased
$1.6 million (8%) as compared to 1997. Higher profits during each of the
last two years resulted in higher accruals for incentive bonuses and profit
sharing expenses, which also contributed to the overall increase in personnel
expense. Medical claims incurred by Company's employees health insurance
plan was another factor contributing to the increase in personnel expense in
1999 as compared to 1998. Medical claims increased 65% to $1.6 million
during the year just ended. Claims declined during the same period a year
ago compared to 1997.

Occupancy expenses increased approximately $.4 million or 7% in both
1999 and 1998 mainly due to start-up costs and additional overhead associated
with the expansion of branch operations. Increased rent expense on leases
renewed in existing offices was an additional contributing factor.

During 1999, other operating expenses rose $.7 million (7%) as compared
to 1998 mainly due to increases in advertising, collection expense, insurance
premiums, computer expenses, supplies, training and development and taxes and
licenses. These same categories (with the exception of training and
development) were also primarily responsible for the $.1 million (1%)
increase in other operating expenses during 1998 as compared to 1997. The
increase was much lower during 1998 due to a decline in legal expenses.
Legal expenses incurred in connection with the Alabama lawsuits added to the
increase in other operating expenses during 1997. Settlement agreements were
reached with certain borrowers who had previously asserted claims or had
stated their intention to file claims against the Company. Although the
Company and its employees deny any wrongdoing or any breach of a legal
obligation or duty to the claimants, Management, in recognition of the
expense and uncertainty of litigation, felt it was in the best interest of
the Company to dispose of those cases.

Income Taxes

Effective income tax rates for the years ended December 31, 1999, 1998
and 1997 were 19.8%, 18.0% and 73.1%, respectively. Rates rose slightly
during 1999 as a result of higher earnings by the insurance subsidiaries.
The rate was higher during 1997 as a result of the Company electing S
Corporation status for income tax reporting purposes effective January 1,
1997. The taxable income or loss of an S Corporation is includable in the
individual tax returns of the stockholders of the Company. Over the years
the Company had prepaid federal and state income taxes due to certain
temporary differences between reported income and expenses for financial
statement purposes and for income tax purposes. Election of S Corporation
status required elimination of all accumulated prepaid/deferred tax
assets and liabilities. Accordingly, deferred income tax assets and
liabilities were eliminated and no provisions for current and deferred income
taxes were made by the Company other than amounts related to prior years when
the Company was a taxable entity. Deferred income tax assets and liabilities
continue to be recognized and provisions for current and deferred income
taxes continue to be made by the Company's subsidiaries. The Company took a
one-time charge of approximately $3.6 million during the first quarter of
1997 to expense the previously deferred income tax asset which it was not
permitted to expense prior to election of becoming an S Corporation.

Certain tax benefits provided by law to life insurance companies
substantially reduce the effective tax rate of the Company's life insurance
subsidiary and thus decreases the Company's overall tax rate below statutory
rates. Investments in tax-exempt securities also allowed the Company's
property and casualty insurance subsidiary to reduce its effective tax rate
below statutory rates.

Liquidity:
- ---------
Liquidity is the ability of the Company to meet short-term financial
obligations, either through the collection of receivables or by generating
additional funds through liability management. Continued liquidity of the
Company is therefore dependent on the collection of its receivables, the sale
of debt securities that meet the investment requirements of the public and
the continued availability of unused bank credit from the Company's lenders.
The previously discussed increases in net cash flows during the year just
ended provided a positive effect on the Company's liquidity.

Most of the Company's loan portfolio is financed through public debt
securities which, because of redemption features, have a shorter average
maturity than the loan portfolio as a whole. The difference in maturities
may adversely affect liquidity if the Company does not continue to sell debt
securities at interest rates and terms that are responsive to the demands of
the marketplace or maintain sufficient unused bank borrowings.
-15-

In addition to the debt securities program, the Company has two external
sources of funds through its credit agreements. One agreement provides for
available borrowings of $21.0 million. At the end of 1999, the Company used
a portion of the credit line leaving approximately $20.0 million available as
compared to $21.0 million available at the end of 1998. The Company has an
additional $2.0 million credit agreement (all of which was available at
December 31, 1999 and 1998).

Liquidity was not adversely affected during the year just ended by the
aforementioned increase in accounts classified as 60 days or more delinquent.
The increase in the loan loss allowance also did not affect liquidity as the
allowance is maintained out of income; however, an increase in the loss rate
may have a material adverse effect on the Company's earnings.

Market Risk:
- -----------
Volatility of market rates of interest can impact the Company's
investment portfolio and the interest rates paid on its debt securities.
These exposures are monitored and managed by the Company as an integral part
of its overall cash management program. It is Management's goal to mitigate
any adverse effect movements in interest rates may have on the financial
condition and operations of the Company. The information in the table below
sumarizes the Company's risk associated with marketable debt securities and
debt obligations as of December 31, 1999. Rates associated with the
marketable debt securities represent weighted averages based on the coupon
rate of each individual security. No adjustment has been made to yield, even
though many of the investments are tax-exempt. For debt obligations, the
table presents principal cash flows and related weighted average interest
rates by contractual maturity dates. The structure of subordinated debenture
debt incorporates various interest adjustment periods which allows the holder
to redeem prior to the contractual maturity without penalty. It is expected
that actual maturities on certain debentures will be prior to the contractual
maturity. Management estimates the carrying value of senior and subordinated
debt approximates their fair values when compared to instruments of similar
type, terms and maturity.

Loans are excluded from the information below since interest rates
charged on loans are based on rates allowable under federal and state
guidelines. Management does not believe that changes in market interest
rates will significantly impact rates charged on loans. The Company has no
exposure to foreign currency risk.

Expected Fiscal Year of Maturity
-----------------------------------------------
2005 & Fair
2000 2001 2002 2003 2004 More Total Value
---- ---- ---- ---- ---- ---- ---- -----
(In millions)
Assets:
Marketable debt securities. . $ 4 $ 8 $ 8 $ 9 $ 7 $19 $55 $54
Average Interest Rate . . . . 5.3% 5.4% 5.2% 5.5% 5.7% 5.3% 5.4%
Liabilities:
Senior Debt:
Senior Notes . . . . . . . $65 - - - - - $65 $65
Average Interest Rate. . . 5.6% - - - - - 5.6%
Commercial Paper . . . . . $48 - - - - - $48 $48
Average Interest Rate. . . 6.3% - - - - - 6.3%
Notes Payable to Banks . . $ 1 - - - - - $ 1 $ 1
Average Interest Rate. . . 8.8% - - - - - 8.8%

Subordinated Debentures. . . $ 6 $ 8 $ 9 $12 - - $35 $35
Average Interest Rate. . 6.1% 5.9% 6.1% 6.0% - - 6.0%

Legal Proceedings:
- -----------------
There is a legal proceeding pending against the Company in Alabama
alleging that the Company's practice of inserting dispute resolution
provisions into its consumer lending documents and requiring consumers to
-16-

abide by such provisions violates the Equal Credit Opportunity Act.
Plaintiffs are seeking declaratory relief that they cannot be compelled to
forfeit their statutorily granted rights under the Truth-in-Lending Act and
other consumer protection laws. Management believes that the Company's
operations are in compliance with applicable laws and regulations and that
the action is without merit. The Company is diligently contesting and
defending against this proceeding. Based on current information available,
Management is unable to predict the potential outcome of this matter or its
impact on the Company's financial condition or business operations.

Year 2000 Issues:
- ----------------
In the Company's 1998 Annual Report and subsequent 1999 quarterly
reports to investors, Management discussed preparations being undertaken to
insure the Company was Year 2000 compliant. Management closely adhered to
the Interagency Guidelines Establishing Year 2000 Standards for Safety and
Soundness which set forth safety and soundness standards pursuant to the
Federal Financial Institutions Examination Council ("FFIEC"). All
information technology ("IT") systems and non-IT systems were tested prior
to the end of 1999. In addition, contingency plans were formulated as a
safeguard in the event of system failures.

The Company did not experience any significant malfunctions or errors in
its operations or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact on its on-going business as a result of the "Year 2000
issue". However, it is possible that the full impact of the date change,
which was of concern due to computer programs that use two digits instead of
four digits to define years, has not been fully recognized. For example, it
is possible that Year 2000 or similiar issues such as leap year related
problems may occur with billing, payroll or financial closings at month,
quarterly or year end. The Company believes that any such problems are
likely to be minor and correctible. In addition, the Company could still be
negatively impacted if its third party suppliers are adversely affected by
the Year 2000 or similar problems that have arisen for its third party
suppliers. The Company will continue to monitor Mission Critical
applications of the Company and third party suppliers throughout the current
year.

The Company expended $28,214 on Year 2000 readiness efforts in 1999.
Management projects expenditures of an additional $10,000 for such efforts
during 2000.

New Accounting Standards:
- ------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income", effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The Company adopted SFAS 130 during 1998.

Also in June 1997, the FASB issued SFAS No. 131 "Disclosure about
Segments of an Enterprise and Related Information," effective for financial
statements beginning after December 15, 1997. This statement requires
companies to determine segments based on how management makes decisions about
allocating resources to segments and measuring their performance.
Disclosures for each segment are similar to those required under current
standards, with the addition of certain quarterly disclosure requirements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company adopted this
accounting standard in 1998 and disclosure is provided in Note 10 of Notes
to Consolidated Financial Statements.

During the first quarter of 1998, the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") No. 98-1, "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use." SOP
No. 98-1 requires capitalization of computer software costs that meet certain
criteria. The statement is effective for fiscal years beginning after
December 15, 1998. The Company adopted SOP No. 98-1 effective January 1,
1999. SOP No. 98-1 did not have a material impact on the Company's financial
position or results of operations.

on the balance sheet as assets and liabilities at fair value. The Statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137 whereby the adoption of SFAS No. 133
was deferred to fiscal years beginning after June 15, 2000. The Company is
evaluating the impact of FASB No. 133 on the Company's future earnings and
financial position but does not expect it to be material.

Forward Looking Statements:
- --------------------------
Certain information in the previous discussion and other statements
contained in this annual report which are not historical facts may be
forward-looking statements that involve risks and uncertainties. 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 future results to
differ from expectations are, but are not limited to, adverse economic
conditions including the interest rate environment, federal and state
regulatory changes, unfavorable outcome of litigation, Year 2000 issues
and other factors referenced elsewhere.

MANAGEMENT'S REPORT

The accompanying financial statements were prepared in accordance with
generally accepted accounting principles by the management of the Company who
assumes responsibility for their integrity and reliability.

The Company maintains a system of internal accounting controls which is
supported by a program of internal audits with appropriate management follow-
up action. The integrity of the financial accounting system is based on
careful selection and training of qualified personnel, on organizational
arrangements which provide for appropriate division of responsibilities and
on the communication of established written policies and procedures.

The financial statements of the Company have been audited by Arthur
Andersen LLP, independent public accountants. Their report expresses their
opinion as to the fair presentation of the financial statements and is based
upon their independent audit conducted in accordance with generally accepted
auditing standards.

The Company's Audit Committee, comprised solely of outside directors,
meets periodically with the independent public accountants, the internal
auditors and representatives of management to discuss auditing and financial
reporting matters. The independent public accountants have free access to
meet with the Audit Committee without management representatives present to
discuss the scope and results of their audit and their opinions on the
quality of financial reporting.

-18-

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO 1st FRANKLIN FINANCIAL CORPORATION:

We have audited the accompanying consolidated statements of financial
position of 1ST FRANKLIN FINANCIAL CORPORATION (a Georgia corporation) AND
SUBSIDIARIES as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of 1st Franklin
Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

s/ ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 29, 2000

-19-

1st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 1999 AND 1998

ASSETS

1999 1998
---- ----
CASH AND CASH EQUIVALENTS:
Cash and Due From Banks. . . . . . . . . . $ 2,176,494 $ 2,408,142
Short-term Investments,
$300,000 in trust in 1999
and 1998 (Note 4). . . . . . . . . . . . 3,738,041 17,703,536
------------ ------------
5,914,535 20,111,678
------------ ------------
LOANS (Note 2):
Direct Cash Loans. . . . . . . . . . . . . 153,169,782 131,635,924
First Mortgage Real Estate Loans . . . . . 28,453,054 27,852,628
Second Mortgage Real Estate Loans. . . . . 5,493,409 5,612,540
Sales Finance Contracts. . . . . . . . . . 13,352,067 10,881,849
------------ ------------
200,468,312 175,982,941

Less: Unearned Finance Charges . . . . . . 22,701,162 19,334,116
Unearned Insurance Premiums
and Commissions. . . . . . . . . . 13,648,715 11,446,901
Allowance for Loan Losses. . . . . . 7,994,102 6,653,763
------------ ------------
Net Loans. . . . . . . . . . . . 156,124,333 138,548,161
------------ ------------

MARKETABLE DEBT SECURITIES (Note 3):
Available for Sale, at fair market value . 47,127,780 39,938,412
Held to Maturity, at amortized cost. . . . 6,734,286 7,205,113
------------ ------------
53,862,066 47,143,525
------------ ------------
OTHER ASSETS:
Land, Buildings, Equipment and Leasehold
Improvements, less accumulated
depreciation and amortization of
$9,155,863 and $8,382,863 in 1999 and
1998, respectively . . . . . . . . . . . 4,556,988 4,687,343
Due from Nonaffiliated Insurance Company . 1,205,895 1,038,554
Miscellaneous. . . . . . . . . . . . . . . 5,474,243 5,145,649
------------ ------------
11,237,126 10,871,546
------------ ------------

TOTAL ASSETS . . . . . . . $227,138,060 $216,674,910
============ ============

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-20-

1st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 1999 AND 1998

LIABILITIES AND STOCKHOLDERS' EQUITY

1999 1998
---- ----
SENIOR DEBT (Note 5):
Senior Demand Notes, including
accrued interest . . . . . . . . . . . . $ 64,930,179 $ 54,819,670
Commercial Paper . . . . . . . . . . . . . 47,994,462 49,626,360
Notes Payable to Banks . . . . . . . . . . 965,000 --
------------- ------------
113,889,641 104,446,030
------------- ------------

ACCOUNTS PAYABLE AND ACCRUED EXPENSES. . . . 13,461,731 11,904,342
------------- ------------

SUBORDINATED DEBT (Note 6) . . . . . . . . . 35,246,639 38,960,747
------------- ------------

Total Liabilities . . . . . . . 162,598,011 155,311,119
------------- -----------

COMMITMENTS AND CONTINGENCIES (Note 7)

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 . . . . . . . . . . 170,000 170,000
Non-Voting Shares; no par value;
198,000 shares authorized;
168,300 shares outstanding as
of December 31, 1999 and 1998. . . . . -- --
Accumulated Other
Comprehensive (Loss) Income . . . . . . (780,772) 556,423
Retained Earnings . . . . . . . . . . . . 65,150,821 60,637,368
------------ ------------
Total Stockholders' Equity. . . 64,540,049 61,363,791
------------ ------------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. . . $227,138,060 $216,674,910
============ ============

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-21-

1st FRANKLIN FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1999 1998 1997
---- ---- ----
INTEREST INCOME:
Finance Charges . . . . . . . . $47,215,543 $42,688,691 $40,030,163
Investment Income . . . . . . . 3,436,214 3,323,660 3,241,054
----------- ----------- -----------
50,651,757 46,012,351 43,271,217
INTEREST EXPENSE: ----------- ----------- -----------
Senior Debt . . . . . . . . . . 6,353,046 5,966,615 6,128,495
Subordinated Debt . . . . . . . 2,567,428 2,756,586 2,672,987
----------- ----------- -----------
8,920,474 8,723,201 8,801,482
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . 41,731,283 37,289,150 34,469,735

PROVISION FOR
LOAN LOSSES (Note 2). . . . . . 8,523,311 7,031,251 6,915,794
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . 33,207,972 30,257,899 27,553,941
----------- ----------- -----------
NET INSURANCE INCOME:
Premiums and Commissions. . . . 21,323,182 19,080,146 17,655,350
Insurance Claims and Expenses . (4,305,860) (4,079,280) (4,077,775)
----------- ----------- -----------
17,017,322 15,000,866 13,577,575
----------- ----------- -----------
OTHER REVENUE (Note 8). . . . . . 666,289 590,924 571,837
----------- ----------- -----------
OPERATING EXPENSES (Note 8):
Personnel Expense . . . . . . . 25,091,643 21,884,828 20,330,220
Occupancy Expense . . . . . . . 5,787,269 5,424,248 5,084,344
Other Expense . . . . . . . . . 10,349,695 9,682,014 9,544,449
----------- ----------- -----------
41,228,607 36,991,090 34,959,013
----------- ----------- -----------
INCOME BEFORE INCOME TAXES. . . . 9,662,959 8,858,599 6,744,340

PROVISION FOR
INCOME TAXES (Note 9) . . . . . 1,915,456 1,590,814 4,928,030
----------- ----------- -----------
NET INCOME. . . . . . . . . . . . $ 7,747,503 $ 7,267,785 $ 1,816,310
=========== =========== ===========

EARNINGS PER SHARE
Voting Common Stock; 1,700
Shares Outstanding
all periods . . . . . . . . . $45.57 $42.75 $10.68
Non-Voting Common Stock; ====== ====== ======
168,300 Shares Outstanding
all periods . . . . . . . . . $45.57 $42.75 $10.68
====== ====== ======

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-22-

1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

Accumulated
Common Stock Other
----------------- Retained Comprehensive
Shares Amount Earnings Income Total
------- -------- ----------- ------------ -----------

Balance at December 31, 1996. . . . . . 170,000 $170,000 $53,200,768 $ 43,288 $53,414,056

Comprehensive Income:
Net Income for 1997 . . . . . . . . -- -- 1,816,310 --
Net change in unrealized gain on
available-for-sale securities . . -- -- -- 299,522
Total Comprehensive Income. . . . . . -- -- -- -- 2,115,832
Cash distributions paid . . . . . . . -- -- (795,739) -- (795,739)
------- -------- ----------- ---------- -----------
Balance at December 31, 1997. . . . . . 170,000 170,000 54,221,339 342,810 54,734,149

Comprehensive Income:
Net Income for 1998 . . . . . . . . . -- -- 7,267,785 --
Net change in unrealized gain on
available-for-sale securities . . . -- -- -- 213,613
Total Comprehensive Income. . . . . . -- -- -- -- 7,481,398
Cash distributions paid . . . . . . . -- -- (851,756) -- (851,756)
------- -------- ----------- ---------- -----------
Balance at December 31, 1998. . . . . . 170,000 170,000 60,637,368 556,423 61,363,791

Comprehensive Income:
Net Income for 1999 . . . . . . . . . -- -- 7,747,503 --
Net change in unrealized gain on
available-for-sale securities . . . -- -- -- (1,337,195)
Total Comprehensive Income. . . . . . -- -- -- -- 6,410,308
Cash distributions paid . . . . . . . -- -- (3,234,050) -- (3,234,050)
------- -------- ----------- --------- -----------
Balance at December 31, 1999. . . . . . 170,000 $170,000 $65,150,821 $(780,772) $64,540,049
======= ======== =========== ========= ===========

1999 1998 1997
---- ---- ----

Disclosure of reclassification amount:
- -------------------------------------
Unrealized holding gains (losses) arising during period,
net of applicable income taxes. . . . . . . . . . . . . $(1,337,804) $ 224,200 $ 299,636

Less: Reclassification adjustment for (gains)
losses included in income, net of applicable
income taxes. . . . . . . . . . . . . . . . . . . . (609) (10,587) (114)
----------- --------- -----------
Net unrealized gains (losses) on securities,
net of applicable income taxes. . . . . . . . . . . . . $(1,337,195) $ 213,613 $ 299,522
=========== ========= ===========

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

-23-

1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1999 1998 1997
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . $ 7,747,503 $ 7,267,785 $ 1,816,310
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses . . . . . . . . . 8,523,311 7,031,251 6,915,794
Depreciation and Amortization . . . . . . . 1,231,641 1,253,361 1,202,836
Provision for Deferred Taxes. . . . . . . . 267,506 115,929 3,661,156
Gain (Loss) on sale of marketable
securities and equipment and premium
amortization on securities. . . . . . . . 177,891 41,872 (12,492)
Increase in Miscellaneous Assets. . . . . . (495,935) (672,382) (285,244)
Increase in Other Liabilities . . . . . . . 1,577,374 1,484,998 67,560
------------ ------------ ------------
Net Cash Provided . . . . . . . . . . . 19,029,291 16,522,814 13,365,920
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased . . . . . . . . . (137,821,710) (118,900,788) (114,175,268)
Loan payments . . . . . . . . . . . . . . . . . 111,722,227 106,022,624 104,242,345
Purchases of marketable securities. . . . . . . (21,998,803) (32,709,322) (28,845,752)
Sales of marketable securities. . . . . . . . . 7,047,365 66,658 --
Redemptions of marketable securities. . . . . . 5,790,000 18,235,000 19,645,000
Principal payments on marketable securities . . 630,367 411,562 365,678
Capital expenditures. . . . . . . . . . . . . . (1,137,906) (1,063,006) (2,677,986)
Proceeds from sale of equipment . . . . . . . . 46,573 25,146 71,370
------------ ------------ ------------
Net Cash Used . . . . . . . . . . . . . (35,721,887) (27,912,126) (21,374,613)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Notes Payable to
Banks and Senior Demand Notes . . . . . . . . 11,075,509 3,750,528 5,291,424
Commercial Paper issued . . . . . . . . . . . . 26,284,371 25,385,223 29,816,406
Commercial Paper redeemed . . . . . . . . . . . (27,916,269) (23,619,308) (30,918,084)
Subordinated Debt issued. . . . . . . . . . . . 5,215,536 6,841,431 6,877,593
Subordinated Debt redeemed. . . . . . . . . . . (8,929,644) (5,127,205) (4,573,535)
Dividends / Distributions Paid. . . . . . . . . (3,234,050) (851,756) (795,739)
------------ ------------ ------------
Net Cash Provided . . . . . . . . . . . 2,495,453 6,378,913 5,698,065
------------ ------------ ------------
NET DECREASE IN
CASH AND CASH EQUIVALENTS . . . . . . . . . . . (14,197,143) (5,010,399) (2,310,628)

CASH AND CASH EQUIVALENTS, beginning. . . . . . . 20,111,678 25,122,077 27,432,705
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ending . . . . . . . . $ 5,914,535 $ 20,111,678 $ 25,122,077
============ ============ ============

Cash paid during the year for: Interest . . . . . $ 8,894,887 $ 8,837,764 $ 8,670,194
Income Taxes . . . $ 1,650,743 $ 1,391,790 $ 1,550,958

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-24-

1st FRANKLIN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business:
1st Franklin Financial Corporation (the "Company") is a consumer finance
company which acquires and services direct cash loans, real estate loans and
sales finance contracts through 177 branch offices. (See inside front cover
for branch office locations.)

Basis of Consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

Fair Values of Financial Instruments:

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

Cash and Cash Equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the relatively short period
of time between the origination of the instruments and their expected
realization.

Loans. The fair value of the Company's direct cash loans and sales
finance contracts approximate the carrying 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 rate charged by the Company approximates market.

Marketable Debt Securities. The fair values for marketable debt
securities are based on quoted market prices. If a quoted market
price is not available, fair value is estimated using market prices
for similar securities. See Note 3 for the fair value of marketable
debt securities.

Senior Debt. The carrying value of the Company's senior debt
approximates fair value due to the relatively short period of time
between the origination of the instruments and their expected payment.

Subordinated Debt. The carrying value of the Company's subordinated
debt approximates fair value due to the repricing frequency of the debt.

Other significant assets and liabilities, which are not considered financial
instruments and for which fair values have not been estimated, include
premises and equipment and deferred taxes.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 1999. The Statement requires companies to record derivatives
on the balance sheet as assets and liabilities at fair value. The Statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137 whereby the adoption of SFAS No. 133
was deferred to fiscal years beginning after June 15, 2000. The Company is
evaluating the impact of FASB No. 133 on the Company's future earnings and
financial position but does not expect it to be material.

Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
-25-

the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates, however, in the opinion of Management, such variances would not
be material.

Income Recognition:
Although generally accepted accounting principles require other methods
to be used for income recognition, the Company uses the Rule of 78's method
to recognize interest and insurance income on loans which have precomputed
charges. Since the majority of these loans are paid off or renewed in less
than one year and because the interest and insurance charges are contractually
rebated using the Rule of 78's method, the results obtained by using the Rule
of 78's closely approximate those that would be obtained if other generally
accepted methods were used.

Finance charges are precomputed and 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 Rule of 78's (which approximates the interest
method). Finance charges on the other direct cash loans and real estate
loans are recognized as income on a simple interest accrual basis. Income
is not accrued on a loan that is more than 60 days past due.

When material, the Company defers loan fees and recognizes them as an
adjustment to yield over the contractual life of the related loan. The
Company's method of accounting for such fees does not materially differ from
generally accepted accounting principles for such fees.

The property and casualty credit insurance policies written by the
Company are reinsured by the property and casualty insurance subsidiary.
The premiums are deferred and earned on a Rule of 78's basis (which
approximates the pro-rata method).

The credit life and accident and health policies written by the Company
are reinsured by the life insurance subsidiary. The premiums are deferred
and earned using the pro-rata method for level-term life policies, the Rule
of 78's (which approximates the pro-rata method) for decreasing-term life
policies and an average of the pro-rata method and Rule of 78's for accident
and health policies.

Claims of the insurance subsidiaries are expensed as incurred and
reserves are established for incurred but not reported (IBNR) claims.

Policy acquisition costs of the insurance subsidiaries are deferred and
amortized to expense over the life of the policies on the same methods used
to recognize premium income.

Depreciation and Amortization:
Office machines, equipment and company automobiles are recorded at cost
and depreciated on a straight-line basis over a period of three to ten years.
Leasehold improvements are amortized over seven years using the double
declining method for book and tax.

Income Taxes:
No provision for income taxes has been made for the Company since it
elected S Corporation status in 1997. The Company's insurance subsidiaries
remain taxable and income taxes are provided where applicable (Note 9).

Collateral Held for Resale:
When the Company takes possession of the collateral which secures a loan,
the collateral is recorded at the lower of its estimated resale value or the
loan balance. Any losses incurred at that time are charged against the
Allowance for Loan Losses.

Bulk Purchases:
A bulk purchase is a group of loans purchased by the Company from another
lender. Bulk purchases are recorded at the outstanding loan balance and an
allowance for losses is established in accordance with management's
evaluation of the specific loans purchased and their comparability to similar
type loans in the Company's existing portfolio.
-26-

For loans with precomputed charges, unearned finance charges are also
recorded based on the Rule of 78's (which approximates the interest method).
Any difference between the purchase price of the loans and their net balance
(outstanding balance less allowance for losses and unearned finance charges)
is amortized or accreted to income over the estimated average life of the
loans purchased.

Marketable Debt Securities:
Management has designated a significant portion of the marketable debt
securities held in the Company's investment portfolio at December 31, 1999
and 1998 as being available-for-sale. This portion of the investment
portfolio is reported at fair market value with unrealized gains and losses
excluded from earnings and reported, net of taxes, in accumulated other
comprehensive income which is a separate component of stockholders' equity.
The remainder of the investment portfolio is carried at amortized cost and
designated as held-to-maturity as Management has both the ability and intent
to hold these securities to maturity.

Stock Dividend:
On January 26, 1996, the Company paid a stock dividend of 99 shares of
Non-Voting Common Stock for each outstanding share of Voting Common Stock.
The Non-Voting Common Stock has terms similar to the Company's Voting Common
Stock, other than its non-voting status. The consolidated financial
statements for prior periods have been adjusted to reflect the effect of
this dividend. All references to common shares and per share information
have been restated to reflect the stock dividend.

Earnings per Share Information:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share",
that specifies the computation, presentation and disclosure requirements for
earnings per share. The Company adopted the new Standard in the quarter
ended December 31, 1997. The Company has no contingently issuable common
shares, thus basic and diluted share amounts are the same.

2. LOANS

The Company held $13,169,809 and $10,804,227 of loans in a non-accrual
status at December 31, 1999 and 1998, respectively.

Contractual Maturities of Loans:
An estimate of contractual maturities stated as a percentage of the loan
balances based upon an analysis of the Company's portfolio as of December 31,
1999 is as follows:

Direct 1st Mortgage 2nd Mortgage Sales
Due In Cash Real Estate Real Estate Finance
Calendar Year Loans Loans Loans Contracts
------------- ----- ----- ----- ---------
2000. . . . . . 72.11% 19.25% 19.87% 72.87%
2001. . . . . . 24.84 18.75 20.35 22.29
2002. . . . . . 2.23 16.54 18.31 4.36
2003. . . . . . .46 12.71 14.89 .40
2004. . . . . . .13 9.50 10.46 .06
2005 & later. . .23 23.25 16.12 .02
------ ------ ------ -------
100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======

Experience of the Company has shown that a majority of its loans will be
renewed many months prior to their final contractual maturity dates.
Accordingly, the above contractual maturities should not be
regarded as a forecast of future cash collections.

Cash Collections on Principal:
During the years ended December 31, 1999 and 1998, cash collections
applied to principal of loans totaled $111,722,227 and $106,022,624,
respectively, and the ratios of these cash collections to average net
receivables were 68.81% and 71.35%, respectively.
-27-

Allowance for Loan Losses:
The Allowance for Loan Losses is based on the Company's previous loss
experience, a review of specifically identified loans where collection is
doubtful and Management's evaluation of the inherent risks and changes in
the composition of the Company's loan portfolio. Such allowance is, in the
opinion of Management, sufficient to provide adequate protection against
probable losses in the current loan portfolio. Specific provision for loan
losses is made for impaired loans based on a comparison of the recorded
carrying value in the loan to either the present value of the loan's
expected cash flow, the loan's estimated market price or the estimated fair
value of the underlying collateral.

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, no installment is counted as being past due if at
least 80% of the contractual payment has been paid. The amount charged off
is the unpaid balance less the unearned finance charges and the unearned
insurance premiums.

An analysis of the allowance for the years ended December 31, 1999, 1998
and 1997 is shown in the following table:

1999 1998 1997
---- ---- ----
Beginning Balance . . . . . . . $6,653,763 $5,968,818 $5,753,221
Provision for Loan Losses . . 8,523,311 7,031,251 6,915,794
Bulk Purchase Accounts. . . . 114,326 24,663 146,606
Charge-Offs . . . . . . . . . (9,699,044) (8,503,698) (8,257,856)
Recoveries. . . . . . . . . . 2,401,746 2,132,729 1,411,053
---------- ---------- ----------
Ending Balance. . . . . . . . . $7,994,102 $6,653,763 $5,968,818
========== ========== ==========

3. MARKETABLE DEBT SECURITIES

Debt securities available for sale are carried at estimated fair market
value. The amortized cost and estimated fair market values of these debt
securities are as follows:

Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
December 31, 1999: ---- ----- ------ -----
U.S. Treasury Securities
and obligations of
U.S. government
corporations and agencies . $15,171,646 $ 8,237 $ (315,592) $14,864,291
Obligations of states and
political subdivisions. . . 30,818,183 125,416 (612,731) 30,330,868
Corporate Securities. . . . . 2,035,316 -- (102,695) 1,932,621
----------- -------- ----------- -----------
$48,025,145 $133,653 $(1,031,018) $47,127,780
=========== ======== =========== ===========
December 31, 1998:
U.S. Treasury Securities
and obligations of
U.S. government
corporations and agencies . $ 9,423,166 $106,662 $ (6,110) $ 9,523,718
Obligations of states and
political subdivisions. . . 28,321,157 641,761 (35,788) 28,927,130
Corporate Securities. . . . . 1,466,768 21,421 (625) 1,487,564
----------- -------- ----------- -----------
$39,211,091 $769,844 $ (42,523) $39,938,412
=========== ======== =========== ===========
-28-

Debt securities designated as "Held to Maturity" are carried at amortized
cost based on Management's intent to hold such securities to maturity. The
amortized cost and estimated fair market values of these debt securities
are as follows:

December 31, 1998:
U.S. Treasury Securities
and obligations of
U.S. government
corporations and agencies . $ 2,756,782 $ 33,843 $ -- $ 2,790,625
Obligations of states and
political subdivisions. . . 3,663,617 52,835 -- 3,716,452
Corporate Securities. . . . . 784,714 25,470 (2,430) 807,754
----------- -------- ---------- -----------
$ 7,205,113 $112,148 $ (2,430) $ 7,314,831
=========== ======== ========== ===========

The amortized cost and estimated fair market values of marketable debt
securities at December 31, 1999, by contractual maturity, are shown below:

Available for Sale Held to Maturity
------------------------ ----------------------
Estimated Estimated
Amortized Fair Market Amortized Fair Market
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less . . $ 4,788,827 $ 4,767,860 $1,631,148 $1,621,874
Due after one year
through five years. . . . 30,906,278 30,349,864 1,645,142 1,606,509
Due after five years
through ten years . . . . 11,543,415 11,227,190 2,860,706 2,753,477
Due after ten years . . . . 786,625 782,866 597,290 554,256
----------- ----------- ---------- ----------
$48,025,145 $47,127,780 $6,734,286 $6,536,116
=========== =========== ========== ==========

Sales of investments in debt securities available-for-sale during 1999
generated proceeds of $7,047,366. Gross gains of $7,882 and gross losses of
$(7,946) were realized on these sales. Proceeds from redemptions of
investment securities due to call provisions and redemptions due to regular
scheduled maturities during 1999 were $6,420,368. Gross gains of $904 were
realized on these redemptions. There were no proceeds generated due to
sales of investment securities.

Sales of investments in debt securities available-for-sale during 1998
generated proceeds of $66,658 and a gain of $977. Proceeds from redemptions
of investment securities due to call provisions and redemptions due to
regular scheduled maturities during 1998 were $18,235,000. Gross gains of
$13,278 and gross losses of $(2,258) were realized on these redemptions.
There were no proceeds generated due to sales of investment securities.

Proceeds from sales of investments in debt securities available for sale
during 1997 were $19,645,000. Gross gains of $2,837 and gross losses of
$(3,782) were realized on these sales.
-29-

4. PLEDGED ASSETS

At December 31, 1999, certain short-term investments of the insurance
subsidiaries were on deposit with the Georgia Insurance Commissioner to meet
the deposit requirements of Georgia insurance laws.

5. SENIOR DEBT

The Company has a Credit Agreement with three major banks which provides
for maximum borrowings of $21,000,000. All borrowings are on an unsecured
basis at 1/4% above the prime rate of interest. An annual facility fee is
paid quarterly based on 5/8% of the available line less the average borrowings
during the quarter. In addition, an agent fee equal to 1/8% per annum of the
total loan commitment is paid quarterly. Borrowings against the credit line
were $965,000 at December 31, 1999.

The Credit Agreement has a commitment termination date of June 30 in any
year in which written notice of termination is given by the banks. If
written notice is given in accordance with the agreement, the outstanding
balance of the loans shall be paid in full on the date which is three and
one half years after the commitment termination date. The banks also may
terminate the agreement upon the violation of any of the financial ratio
requirements or covenants contained in the agreement or in June of any
calendar year if the financial condition of the Company becomes
unsatisfactory to the banks. Such financial ratio requirements include a
minimum equity requirement, an interest expense coverage ratio and a minimum
debt to equity ratio.

The Company has an additional Credit Agreement for $2,000,000 which is
used for general operating purposes. This agreement provides for borrowings
on an unsecured basis at 1/8% above the prime rate of interest and has a
termination date of July 1, 2000.

The Senior Demand Notes are unsecured obligations which are payable on
demand. The interest rate payable on any Senior Demand Note is a variable
rate, compounded daily, established from time to time by the Company.

Commercial Paper is issued by the Company in amounts in excess of
$50,000, with maturities of less than 270 days and at negotiable interest
rates.

Additional data related to the Company's senior debt is as follows:

Weighted
Average Maximum Average Weighted
Interest Amount Amount Average
Year Ended Rate at end Outstanding Outstanding Interest Rate
December 31 of Year During Year During Year During Year
- ----------- ------- ----------- ----------- -----------
(In thousands, except % data)
1999:
Bank . . . . . . . . . 8.75% $ 1,350 $ 25 8.75%
Senior Notes . . . . . 5.59 64,930 58,366 5.21
Commercial Paper . . . 6.32 56,997 53,615 6.10
All Categories . . . 5.92 116,603 112,055 5.64

1998:
Bank . . . . . . . . . .--% $ 192 $ 156 5.95%
Senior Notes . . . . . 5.13 54,820 52,801 5.61
Commercial Paper . . . 6.18 49,626 46,725 6.37
All Categories . . . 5.63 104,446 99,682 5.97

1997:
Bank . . . . . . . . . 5.95% $ 241 $ 217 5.95%
Senior Notes . . . . . 5.92 52,383 47,814 5.92
Commercial Paper . . . 6.52 53,372 50,164 6.52
All Categories . . . 6.21 101,302 98,195 6.23
-30-

6. SUBORDINATED DEBT

The payment of the principal and interest on the subordinated debt is
subordinate and junior in right of payment to all unsubordinated indebtedness
of the Company.

Subordinated debt consists of Variable Rate Subordinated Debentures
which mature four years after date of issue. The maturity date is
automatically extended for an additional four years unless the holder or the
Company redeems the debenture on its original maturity date. The debentures
have various minimum purchase amounts with varying interest rates and
interest adjustment periods for each respective minimum purchase amount.
Interest rates on the debentures are adjusted at the end of each adjustment
period. The debentures may be redeemed by the holder at the applicable
interest adjustment date without penalty. Redemptions at any other time are
subject to an interest penalty. The Company may redeem the debentures for a
price equal to 100% of the principal.

Interest rate information on the Subordinated Debt at December 31 is as
follows:

Weighted Average Rate at Weighted Average Rate
End of Year During Year
------------------------ ---------------------
1999 1998 1997 1998 1998 1997

6.01% 6.39% 6.61% 6.10% 6.52% 6.68%

Maturity information on the Company's Subordinated Debt at December 31,
1999 is as follows:
Amount Maturing
---------------------------------------
Based on Maturity Based on Interest
Date Adjustment Period
----------------- -----------------
2000. . . . . . . $ 6,059,083 $25,291,269
2001. . . . . . . 7,597,108 8,444,898
2002. . . . . . . 9,107,490 559,516
2003. . . . . . . 12,482,958 950,956
----------- -----------
$35,246,639 $35,246,639
=========== ===========

7. COMMITMENTS AND CONTINGENCIES

The Company's operations are carried on in locations which are occupied
under lease agreements. The lease agreements usually provide for a lease
term of five years with a renewal option for an additional five years. Rent
expense was $2,236,708, $1,996,393 and $1,807,899 for the years ended
December 31, 1999, 1998 and 1997, respectively. Under the existing
noncancelable leases, the Company's minimum aggregate rental commitment at
December 31, 1999, amounts to $2,233,302 for 2000, $1,783,112 for 2001,
$1,253,371 for 2002, $806,746 for 2003, $647,778 for 2004 and $49,290 for
the year 2005 and beyond. The total commitment is $6,773,599.

There is a legal proceeding pending against the Company in Alabama
alleging that the Company's practice of inserting dispute resolution
provisions into its consumer lending documents and requiring consumers to
abide by such provisions violates the Equal Credit Opportunity Act.
Plaintiffs re seeking declaratory relief that they cannot be compelled to
forfeit their statutorily granted rights under the Truth-in-Lending Act and
other consumer protection laws. Management believes that the Company's
operations are in compliance with applicable laws and regulations and that
the action is without merit. The Company is diligently contesting and
defending against this proceeding. Management is unable to predict the
potential outcome of this matter or its impact on the Company's financial
condition or business operations.
-31-

8. RELATED PARTY TRANSACTIONS

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 in 1999, 1998 and 1997 related to these agreements was $67,800,
$63,800 and $63,800, respectively, 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
$5,000 per month, which in Management's opinion is at a rate which
approximates that obtainable from independent third parties.

At December 31, 1999, the Company maintained $1,000,000 of certificates
of deposit with Liberty at market rates and terms. The Company also had
$1,851,894 in demand deposits with Liberty at December 31, 1999.

The Company leases a portion of its properties (see Note 7) for an
aggregate of $13,250 per month from certain officers or stockholders. In
Management's opinion, these leases are at rates which approximate those
obtainable from independent third parties.

During 1999, a loan was extended to a real estate development partnership
of which one of the Company's stockholders is a partner. The balance on this
commercial loan (including accrued interest) was $1,672,179 at December 31,
1999.

9. INCOME TAXES

Effective January 1, 1997, the Company elected S Corporation status for
income tax reporting purposes for the parent company (the "Parent"). The
taxable income or loss of an S Corporation is includable in the individual
tax returns of the stockholders of the Company. Accordingly, deferred income
tax assets and liabilities were eliminated and no provisions for current and
deferred income taxes were made by the Parent other than amounts related to
prior years when the Parent was a taxable entity and for amounts attributable
to state income taxes for the state of Louisiana, which does not recognize S
Corporation status for income tax reporting purposes. Deferred income tax
assets and liabilities will continue to be recognized and provisions for
current and deferred income taxes will be made by the Company's subsidiaries.
The Company took a one-time charge of $3.6 million during 1997 in order to
recognize the effect of the S Corporation election.

The Provision for Income Taxes for the years ended December 31, 1999,
1998 and 1997 is made up of the following components:

1999 1998 1997
---------- ---------- ----------
Current - Federal . . . . . . . . $1,619,207 $1,453,990 $1,251,503
Current - State . . . . . . . . . 28,743 21,040 15,371
---------- ---------- ----------
Total Current . . . . . . . . . 1,647,950 1,475,030 1,266,874
---------- ---------- ----------
Prepaid - Federal . . . . . . . . 267,506 115,929 3,343,020
Prepaid - State . . . . . . . . . -- -- 318,136
---------- ---------- ----------
Total Prepaid . . . . . . . . . 267,506 115,929 3,661,156
---------- ---------- ----------

Total Provision. . . . . . $1,915,456 $1,590,814 $4,928,030
========== ========== ==========

-32-

Temporary differences create deferred federal tax assets and liabilities
which are detailed below for December 31, 1999 and 1998:

Deferred Tax
Assets (Liabilities)
---------------------------
1999 1998
---- ----
Insurance Commissions . . . . . . $(2,468,129) $(2,111,122)
Unearned Premium Reserves. . . . . 704,844 573,841
Unrealized Loss (Gain) on
Marketable Debt Securities . . . 116,592 (170,898)
Other. . . . . . . . . . . . . . . (76,381) (34,880)
----------- -----------
$(1,723,074) $(1,743,059)
=========== ===========

The Company's effective tax rate for the years ended December 31, 1998,
1997 and 1996 is analyzed as follows:

1999 1998 1997
---- ---- ----
Statutory Federal income tax rate. . . 34.0% 34.0% 34.0%
State income tax, net of Federal
tax effect . . . . . . . . . . . . . .2 .2 3.3
Net tax effect of IRS regulations
on life insurance subsidiary . . . . (5.9) (6.8) (8.9)
Tax effect of S Corporation status . . (6.3) (6.9) 53.7
Other items. . . . . . . . . . . . . . (2.2) (2.5) (9.0)
---- ---- ----
Effective Tax Rate . . . . . . . . 19.8% 18.0% 73.1%
==== ==== ====

10. SEGMENT FINANCIAL INFORMATION:

In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information," which the Company adopted in 1998.
SFAS No. 131 requires companies to determine segments based on how management
makes decisions about allocating resources to segments and measuring their
performance.

The Company has three reportable segments: Division I, Division II and
Division III. Each segment is comprised of a number of branch offices that
are aggregated based on vice president responsibility and geographical
location. Division I is comprised of offices located in Northeast Georgia,
South Carolina and North Carolina. Offices in Central and South Georgia
comprise Divison II. Divison III is comprised of branch offices in Alabama,
Louisiana, Mississippi and West Georgia.

Accounting policies of the segments are the same as those described in
the summary of significant accounting policies. 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.
-33-

Below is a performance recap of each of the Company's reportable
segments for the three years ended December 31, 1999 followed by a
reconcilement to consolidated Company data:

Division I Division II Division III Total Segments
Year 1999: ---------- ----------- ------------ --------------
- ---------

Revenues:
Finance Charges Earned . . $15,309,451 $14,907,510 $16,908,738 $ 47,125,699
Insurance Income . . . . . 4,880,948 6,848,336 6,279,717 18,009,001
Other. . . . . . . . . . . 107,558 132,796 176,254 416,608
----------- ----------- ----------- -------------
20,297,957 21,888,642 23,364,709 65,551.308
Expenses:
Interest Cost. . . . . . . 2,204,738 2,461,241 2,504,427 7,170,406
Provision for Loan Losses. 1,917,042 2,470,140 2,910,116 7,297,298
Depreciation . . . . . . . 254,577 169,085 377,009 800,671
Other. . . . . . . . . . . 9,006,569 8,439,147 11,031,780 28,477,496
----------- ----------- ----------- ------------
13,382,926 13,539,613 16,823,332 43,745,871
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 6,915,031 $ 8,349,029 $ 6,541,377 $ 21,805,437
=========== =========== =========== ============

Segment Assets:
Net Receivables. . . . . . $50,671,432 $55,941,619 $60,053,102 $166,666,153
Cash . . . . . . . . . . 55,609 58,222 70,139 183,970
Net Fixed Assets . . . . . 518,232 297,094 863,735 1,679,061
Other Assets . . . . . . . 377,459 331,798 703,297 1,412,554
----------- ----------- ----------- ------------
Total Segment Assets . . $51,622,732 $56,628,733 $61,690,273 $169,941,738
=========== =========== =========== ============

Division I Division II Division III Total Segments
Year 1998: ---------- ----------- ------------ --------------
- ---------

Revenues:
Finance Charges Earned . . $13,668,361 $14,101,316 $14,861,961 $ 42,631,638
Insurance Income . . . . . 4,327,262 5,911,613 5,468,594 15,707,469
Other. . . . . . . . . . . 92,156 116,311 154,960 363,427
----------- ----------- ----------- ------------
18,087,779 20,129,240 20,485,515 58,702,533
----------- ------------ ----------- ------------
Expenses:
Interest Cost. . . . . . . 2,082,298 2,439,714 2,336,803 6,858,815
Provision for Loan Losses. 2,008,540 2,140,347 2,222,083 6,370,970
Depreciation . . . . . . . 246,633 187,281 376,404 810,318
Other. . . . . . . . . . . 8,242,026 7,778,589 9,787,743 25,808,358
----------- ----------- ----------- ------------
12,579,497 12,545,931 14,723,033 39,848,461
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 5,508,282 $ 7,583,309 $ 5,762,481 $ 18,854,072
=========== =========== =========== ============
Segment Assets:
Net Receivables. . . . . . $44,690,958 $50,874,052 $51,447,448 $147,012,458
Cash . . . . . . . . . . 53,502 49,830 63,497 166,829
Net Fixed Assets . . . . . 568,992 326,368 787,921 1,683,281
Other Assets . . . . . . . 318,517 417,648 631,598 1,367,763
----------- ----------- ----------- ------------
Total Segment Assets . . $45,631,969 $51,667,898 $52,930,464 $150,230,331
=========== =========== =========== ============

-34-

Division I Division II Division III Total Segments
Year 1997: ---------- ----------- ------------ --------------
- ---------

Revenue:
Finance Charges Earned . . $13,254,994 $13,780,391 $13,027,893 $ 40,063,278
Insurance Income . . . . . 4,434,218 5,378,050 4,699,936 14,512,204
Other. . . . . . . . . . . 95,694 111,584 153,259 360,537
----------- ----------- ----------- ------------
17,784,906 19,270,025 17,881,088 54,936,019
=========== =========== =========== ============
Expenses:
Interest Cost. . . . . . . 2,146,429 2,450,451 2,251,674 6,848,554
Provision for Loan Losses. 1,997,027 2,186,624 2,663,151 6,846,802
Depreciation . . . . . . . 258,989 213,026 410,537 882,552
Other. . . . . . . . . . . 7,602,911 7,452,571 8,774,662 23,830,144
----------- ----------- ----------- ------------
12,005,356 12,302,672 14,100,024 38,408,052
----------- ----------- ----------- ------------
Segment Profit . . . . . . . $ 5,779,550 $ 6,967,353 $ 3,781,064 $ 16,527,967
=========== =========== =========== ============

Segment Assets:
Net Receivables. . . . . . $42,960,935 $49,709,002 $48,867,850 $141,537,787
Cash . . . . . . . . . . . 52,601 46,532 62,168 161,301
Net Fixed Assets . . . . . 527,464 408,556 899,458 1,835,478
Other Assets . . . . . . . 459,098 418,820 679,250 1,557,168
----------- ----------- ----------- ------------
Total Segment Assets . . $44,000,098 $50,582,910 $50,508,726 $145,091,734
=========== =========== =========== ============

RECONCILEMENT: 1999 1998 1997
---- ---- ----
Revenues:
Total revenues from reportable segments . . . $ 65,551,308 $ 58,364,645 $ 54,936,019
Corporate finance charges earned
not allocated to segments . . . . . . . . . 89,844 57,053 (33,114)
Reclass of investment income net
against interest cost . . . . . . . . . . . 1,654,922 1,791,207 1,895,684
Reclass of insurance expense
against insurance income. . . . . . . . . . 4,846,498 4,694,936 4,563,973
Timing difference of insurance
income allocation to segments . . . . . . . 248,958 548,083 (75,457)
Other revenues not allocated to segments. . . 249,681 227 497 211,299
------------ ------------ ------------
Consolidated Revenues . . . . . . . . . . $ 72,641,211 $ 65,683,421 $ 61,498,404
============ ============ ============
Profit or Loss:
Total profit or loss for reportable segments. $ 21,805,437 $ 18,854,072 $ 16,527,967
Corporate earnings not allocated. . . . . . . 4,058,739 832,632 102,728
Corporate expenses not allocated. . . . . . . (14,926,521) (10,828,106) (9,886,355)
Income taxes not allocated. . . . . . . . . . (1,274,696) (1,590,814) (4,928,030)
------------ ------------ ------------
Consolidated Profit . . . . . . . . . . . $ 9,662,959 $ 7,267,784 $ 1,816,310
============ ============ ============
Assets:
Total assets for reportable segments. . . . . $169,941,738 $150,230,331 $145,091,734
Reclass accrued interest
receivable on loans . . . . . . . . . . . . 1,181,899 912,684 915,538
Loans held at corporate home office level . . 2,123,633 2,293,491 947,367
Unearn insurance at corporate level . . . . . (5,823,249) (5,016,709) (4,730,626)
Allowance for loan losses at corporate level. (7,994,102) (6,653,763) (5,968,818)
Cash and cash equivalents
held at corporate level . . . . . . . . . . 5,730,565 19,944,849 24,960,776
Investment securities at corporate level. . . 53,862,066 47,143,525 32,941,755
Fixed assets at corporate level . . . . . . . 2,877,927 3,004,062 3,053,193
Other assets at corporate level . . . . . . . 5,267,583 4,816,440 3,954,653
------------ ------------ ------------
Consolidated Assets . . . . . . . . . . . $227,138,060 $216,674,910 $201,165,572
============ ============ ============

-35-

DIRECTORS AND EXECUTIVE OFFICERS

Directors
- --------
Principal Occupation, Has Served as a
Name Title and Company Director Since
---- ----------------- --------------
Ben F. Cheek, III Chairman of Board, 1967
1st Franklin Financial Corporation

Lorene M. Cheek Housewife 1946

Jack D. Stovall President, 1983
Stovall Building Supplies, Inc.

Robert E. Thompson Physician, Toccoa Clinic 1970

Executive Officers
- ------------------
Served in this
Name Position with Company Position Since
---- --------------------- --------------
Ben F. Cheek, III Chairman of Board and CEO 1989

T. Bruce Childs President 1989

Lynn E. Cox Secretary 1989

A. Roger Guimond Vice President
and Chief Financial Officer 1991

Linda L. Sessa Treasurer 1989

CORPORATE INFORMATION

Corporate Offices General Counsel Independent Accountants
- ----------------- --------------- -----------------------
P.O. Box 880 Jones, Day, Reavis & Pogue Arthur Andersen LLP
213 East Tugalo Street Atlanta, Georgia Atlanta, Georgia
Toccoa, Georgia 30577
(706) 886-7571

Information
- -----------
Informational inquiries, including requests for a Prospectus describing
the Company's current securities offering or the Form 10-K annual report
filed with the Securities and Exchange Commission should be addressed to the
Company's Secretary.

-36-

INSIDE BACK COVER PAGE OF ANNUAL REPORT

BRANCH OPERATIONS

Division I Division III

Northeast Georgia & South Carolina: Alabama, Louisiana, Mississippi and
- ---------------------------------- Northeast Georgia:
Isabel Vickery Youngblood, Senior -----------------------------------
Vice President Jack R. Coker, Vice President
Ronald F. Morrow, Area Vice President Robert J. Canfield, Area Vice
Regina K. Bond, Supervisor President
K. Donald Floyd, Supervisor J. Michael Culpepper, Area Vice
Michael D. Lyles, Supervisor President
Brian L. McSwain, Supervisor Ronald E. Byerly, Supervisor
Harriet H. Moss, Supervisor Bryan W. Cook, Supervisor
Melvin L. Osley, Supervisor Anne Renee Hebert, Supervisor
Virginia K. Palmer, Supervisor Jack L. Hobgood, Supervisor
Timothy M. Schmotz, Supervisor Bruce S. Hooper, Supervisor
Timothy M. Schmotz, Supervisor Janice B. Hyde, Supervisor
Tami D. Settlemyer, Supervisor H. Timothy Love, Supervisor
Johnny M. Olive, Supervisor
R. Darryl Parker, Supervisor
Henrietta R. Reathford, Supervisor
R. Gaines Snow, Supervisor

Division II ADMINISTRATION
- ----------- --------------
Central & South Georgia: Ben F. Cheek, IV, Statistics &
A. Jarrell Coffee, Vice President Planning
Donald C. Carter, Supervisor Lynn E. Cox, Investment Center
Judy A. Landon, Supervisor Samuel P. Greer, Internal Audit
Jeffrey C. Lee, Supervisor Phoebe P. Martin, Human Resources &
Thomas C. Lennon, Supervisor Marketing
Dianne H. Moore, Supervisor Pamela S. Rickman, Operations
Marcus C. Thomas, Supervisor Coordinator
Angela C. Brock, System Support
Manager
Linda L. Sessa, Data Processing