<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                        COMMISSION FILE NUMBER: 330-23469

                          FRANKLIN FINANCE CORPORATION
             (Exact name of registrant as specified in its charter)

                   MICHIGAN                         38-3372606
          (State or other jurisdiction of       (I.R.S. Employer
            Incorporation or organization)        Identification No.)

                        24725 West Twelve Mile Road
                        Southfield, MI   48034
               (Address of principal executive office) (Zip code)

                                 (248) 358-4710
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(g) of Act:

Title of each class                  Name of each exchange on which registered
-------------------------------------------------------------------------------
8.70% Noncumulative Exchangeable     Nasdaq National Market
Preferred Stock, Series A

Securities registered pursuant to Section 12(g) of the Act:
               N/A
-------------------------------------------------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  X  No
   ----   ----

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

The number of shares outstanding of the registrant's sole class of common stock
is 22,077 shares, $300 par value, as of December 31, 1999. All of the shares of
common stock were held by Franklin Bank at December 31, 1999; accordingly, no
common stock is held by non-affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

None




<PAGE>   2

                          FRANKLIN FINANCE CORPORATION
                          ----------------------------

                                TABLE OF CONTENTS
                                -----------------

                                     PART I
                                     ------

ITEM 1. BUSINESS.....................................................  3
ITEM 2. PROPERTIES...................................................  5
ITEM 3. LEGAL PROCEEDINGS............................................  5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........  5

                                PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
        SHAREHOLDER MATTERS..........................................  5
ITEM 6. SELECTED FINANCIAL DATA......................................  7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS..........................  7
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK.................................................. 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................  i
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
        ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... 11

                                PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 11
ITEM 11. EXECUTIVE COMPENSATION...................................... 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
         OWNERS AND MANAGEMENT....................................... 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 12

                                PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K......................................... 13


Except for the historical information contained herein, the matters discussed
herein may be deemed to be forward-looking statements that involve risk and
uncertainties. Words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Factors which could cause
actual results to differ include, but are not limited to, fluctuations in
interest rates, changes in economic conditions in the Company's market area,
changes in policies by regulatory agencies, the acceptance of new products, the
impact of competitive products and pricing, and the other risks detailed from
time to time in the Company's SEC reports. These forward-looking statements
represent the Company's judgment as of the date of this report. The Company
disclaims, however, any intent or obligation to update these forward-looking
statements.


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<PAGE>   3
                                     PART I

ITEM 1. BUSINESS

GENERAL

Franklin Finance Corporation ("Company") is a Michigan corporation incorporated
on September 25, 1997, and created for the purpose of acquiring and holding real
estate mortgage assets. The Company elected to be treated as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
("Code"), and generally will not be subject to Federal income tax to the extent
that it distributes its earnings to its shareholders and maintains its
qualification as a REIT. All of the shares of the Company's common stock, par
value $300.00 per share ("Common Stock"), are owned by Franklin Bank, N.A., a
nationally chartered and federally insured national bank ("Bank"). The Company
was formed by the Bank to provide the Bank with a cost-effective means of
raising capital.

On December 22, 1997, the Company offered to the public and sold 2,070,000
shares of the Company's 8.70% noncumulative exchangeable preferred stock, Series
A, liquidation preference $10.00 per share ("Series A Preferred Shares").
Simultaneous with the consummation of the preferred stock offering, the Bank
purchased Common Stock in the amount of $20.9 million, net of offering cost.

The Company used the net proceeds raised from the initial public offering of the
Series A Preferred Shares and the sale of the Common Stock in the Bank to
purchase from the Bank the Company's initial portfolio of $41.5 million
residential and commercial mortgage loans ("Mortgage Loans") at their estimated
fair value.

The Company's principal executive office is located at 24725 Twelve Mile Road,
Southfield, Michigan 48034. The Company's telephone number at such address is
(248) 358-4710.

The Company's principal business is to acquire, hold and manage mortgage loans
that will generate net income for distribution to shareholders. The Company
currently acquires all of its mortgage loans from the Bank, consisting of whole
loans secured by first mortgages or deeds of trust on single-family
(one-to-four-unit) residential real estate properties ("Residential Mortgage
Loans") or by commercial real estate properties ("Commercial Mortgage Loans").
The Company also from time to time acquires investment grade mortgage securities
that qualify as real estate assets under Section 856(c)(6)(B) of the Internal
Revenue Code of 1986, as amended ("Code"). Mortgage loans underlying the
mortgage securities are secured by single-family residential, multifamily, or
commercial real estate properties located in the United States.

The Company's policy is not to acquire any commercial mortgage loan if such
commercial mortgage loan constitutes more than 5% of the total book value of the
Mortgage Loans of the Company at the time of its acquisition. The Company's
policy also prohibits the acquisition of any mortgage loan or any interest in a
Mortgage Loan (other than an interest resulting from the acquisition of Mortgage
securities), which mortgage loan (i) is delinquent in the payment of principal
or interest: (ii) is or was at any time during the preceding 12 months (a)
classified, (b) in nonaccrual status, or (c) renegotiated due to financial
deterioration of the borrower; or (iii) has been, more than once during the
preceding 12 months, more than 30 days past due in the payment of principal or
interest. Loans that are in nonaccrual status are generally loans that are past
due 90 days or more in principal or interest and classified loans are troubled
loans which are deemed substandard or doubtful and where the full collectibilty
of principal and interest on such loan is doubtful.

Substantially all of the real estate properties underlying the Company's
Residential Mortgage Loans and all of the commercial properties underlying the
Company's Commercial Mortgage Loans included in the current portfolio are
located in Michigan. Consequently, these Mortgage Loans may be subject to a
greater risk of default than other comparable mortgage loans in the event of
adverse economic, political or business developments and natural hazards in
Michigan that may affect the ability of property owners in Michigan to make
payments of principal and interest on the underlying mortgages.



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<PAGE>   4



Mortgage-backed securities represent an ownership interest in mortgage loans by
financial institutions such as savings and loans, commercial banks or mortgage
companies to finance the borrowers purchase of a home or other real estate.

The majority of Mortgage-backed securities are issued and/or guaranteed by an
agency of the U.S Government, the Government National Mortgage Association (GNMA
or Ginnie Mae), or by government-sponsored enterprises such as the Federal
National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan
Mortgage Corporation (FHLMC or Freddie Mac), Ginnie Mae is a government-owned
corporation within the Department of Housing and Urban Development.

Issuer's of mortgage-backed securities are typically very selective in choosing
the mortgages that make up their pools. Beyond the basic security of the
mortgage loans themselves, mortgage-backed securities issued by Ginnie Mae,
Fannie Mae, and Freddie Mac carry additional guarantees, which enhance their
credit worthiness. These guarantees pertain to the timely payment of principal
and interest.

Unlike Ginnie Mae's guarantee, neither Fannie Mae's nor Freddie Mac's guarantees
are backed by the full faith and credit of the U.S. Government. However, the
credit markets consider the securities of these two entities to be nearly
equivalent to those issued by agencies which have the full faith and credit
guarantee. Thus, they carry an implied AAA rating.

The mortgage-backed securities owned by the Company at December 31, 1999 were
issued by FNMA and the FHLMC.

TAX STATUS OF THE COMPANY

The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1997. As a REIT,
the Company generally will not be subject to Federal income tax on its net
income (excluding capital gains) provided that it distributes annually 95
percent of its REIT taxable income to its shareholders, and meets certain
organizational, stock ownership and operational requirements. If in any taxable
year the Company fails to qualify as a REIT, the Company would not be allowed a
deduction for distributions to shareholders in computing its taxable income and
would be subject to Federal and state income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates. In
addition, the Company would also be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.

The Company does not anticipate that it will engage in the business of
originating mortgage loans and does not expect to compete with mortgage conduit
programs, investment banking firms, savings and loan associations, banks,
mortgage bankers, thrift and loan associations, finance companies, or insurance
companies in acquiring its mortgage loans. As described above, the Company
anticipates that it will purchase all mortgage loans from the Bank.

EMPLOYEES

The Company has three officers. All of the officers of the Company are also
officers of the Bank. The Company does not anticipate that it will require any
additional employees because it has retained the Bank to perform certain
functions pursuant to an Advisory Agreement ("Advisory Agreement").

THE ADVISOR

On December 22, 1997, the Company entered into an Advisory Agreement with the
Bank to administer the day-to-day operations of the Company,(i) monitoring the
credit quality of the mortgage loans held by the Company, (ii) advising the
Company with respect to the acquisition, management, financing and disposition
of the Company's mortgage loans and (iii) maintaining custody of the documents
related to the Company's mortgage loans. The Advisory Agreement has an initial
term of five years, and will be renewed automatically for additional five-year
periods unless notice of nonrenewal is delivered to the Bank by


                                       4

<PAGE>   5


the Company. The Bank will be entitled to receive an annual advisory fee equal
to $125,000 with respect to the advisory and management services provided by it
to the Company.

The Company also entered into two servicing agreements with the Bank to service
the Residential Mortgage Loans and Commercial Mortgage Loans. Pursuant to each
servicing agreement the Bank receives a fee equal to .375% per annum on the
principal balances of the mortgage loans serviced.

The servicing agreements require the mortgage loans to be serviced in a manner
generally consistent with accepted secondary market practices, with any
servicing guidelines promulgated by the Company and, in the case of Residential
Mortgage Loans, with FNMA and FHLMC guidelines and procedures. The servicing
agreements can be terminated without cause with at least sixty days notice to
the Bank and payment of a termination fee.

The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company may, under
certain circumstances, purchase the Series A Preferred Shares and other shares
of its capital stock in the open market or otherwise, provided, however, that
the Company will not redeem or repurchase any shares of its Common Stock for so
long as any Series A Preferred Shares are outstanding without the approval of a
majority of the Independent Directors (as defined in the Certificate of
Designation relating to the Series A Preferred Shares). The Company has no
present intention of causing the Company to repurchase any shares of its capital
stock, and any such action would be taken only in conformity with applicable
federal and state laws and regulations and the requirement for qualifying as a
REIT.

The Company currently intends to make investments and operate its business at
all times in such a manner as to be consistent with the requirements of the Code
to qualify as a REIT. However, future economic, market, legal, tax or other
considerations may cause the Board of Directors, subject to approval by a
majority of independent directors, to determine that it is in the best interest
of the Company and its shareholders to revoke its REIT status. As of December
31, 1999, management of the Company believes that it was in full compliance with
the REIT tax rules and that it will continue to qualify as a REIT under the
provisions of the Code.

The Company has no foreign operations.

ITEM 2.  PROPERTIES

None.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not the subject of any material litigation. None of the Company,
the Bank or any affiliate of the Bank is currently involved in nor, to the
Company's knowledge, is currently threatened with any material litigation with
respect to the mortgage loans included in the Company's portfolio which
litigation would have a material effect on the business or operations of the
Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

GENERAL

The Company is authorized to issue up to 60,000 shares of common stock $300.00
par value per share and 2,500,000 shares of Preferred Stock, $10.00 liquidation
preference per share ("Preferred Stock"). Preferred Stock totaling 2,070,000
shares have been issued as the Series A Preferred Shares. The Bank owns 100% of
the Company's 22,077 shares of Common Stock outstanding at December 31, 1999 and
accordingly, there is no trading market for the Common Stock. In addition, the
Bank intends that, as long as any Series A Preferred

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<PAGE>   6


Shares are outstanding, it will maintain ownership of the outstanding Common
Stock of the Company. Subject to the rights, if any, of the holders of the
Series A Preferred Shares, all voting rights are vested in the Common Stock. The
holders of the Common Stock are entitled to one vote per share.

Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors of the Company out of funds legally available
therefore, provided that, so long as any shares of Preferred Shares are
outstanding, no dividends or other distributions (including redemptions and
purchases) may be made with respect to the Common Stock unless full dividends on
the shares of all series of Preferred Stock have been paid for the prior four
quarters. In order to remain qualified as a REIT, the Company must distribute
annually at least 95% of its annual "REIT Taxable Income" (not including capital
gains) to shareholders.

In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after there have been paid or set aside for
the holders of all series of Preferred Stock the full preferential amounts to
which such holders are entitled, the holders of Common Stock will be entitled to
share equally and ratable in any assets remaining after the payment of all debts
and liabilities.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

The Company's Articles of Incorporation contain certain restrictions on the
number of shares of Common Stock and Preferred Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more that 50% in number or value of its outstanding shares of capital stock my
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year
(other that the first year) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Test"). The capital stock of the Company must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year (the "one Hundred
Persons Test"). The ownership by the Bank of 100% of the shares of Common Stock
of the REIT will not adversely affect the Company's REIT qualification because
each shareholder of the Bank counts as a separate beneficial owner for purposes
of the Five or Fewer Test and the capital stock of the Bank is widely held.
Further, the Articles of Incorporation of the Company contain restrictions on
the acquisition of Preferred Stock intended to ensure compliance with the One
Hundred Persons Test. Such provisions include a restriction that if any transfer
of shares of capital stock of the Company would cause the Company to be
beneficially owned by fewer that 100 persons, such transfer shall be null and
void and the intended transferee will acquire no rights to the stock.

COMMON STOCK

There is no established public trading market in the Company's Common Stock. As
of March 27th, 2000, there were 22,077 issued and outstanding shares of Common
Stock held by one shareholder, the Bank. On December 31, 1999 and 1998, the
Company declared a cash dividend of $30.18, and $43.58 per common share of
Common Stock to the shareholders of record on December 31, 1999 and 1998,
respectively. The dividends' were paid on January 31, 2000 and 1999,
respectively.

PREFERRED STOCK

The Series A Preferred Shares are listed on the Nasdaq National Market under the
trading symbol "FSVBP". As of March 26, 2000, there were 2,070,000 issued and
outstanding Series A Preferred Shares held by approximately 71 holders of
record, which excludes preferred shares held in street name. The following table
reflects the respective high and low sales prices for the Series A Preferred
Shares for the year ended December 31, 1999. The table also indicates the
distributions paid by the Company during this period.



                                       6
<PAGE>   7

<TABLE>
<CAPTION>



                                              Price
               Quarter Ended             High      Low      Distributions

               <S>                       <C>      <C>       <C>
               March 31, 1999            9.750    8.250     $     450,225
               June 30, 1999             9.750    8.125     $     450,225
               September 30, 1999        9.750    7.375     $     450,225
               December 31, 1999         8.375    5.688     $     450,225
</TABLE>


ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data of the Company herein has been derived from the
Financial Statements of the Company, which statements have been audited by Grant
Thornton LLP, independent certified public accountants, as indicated by their
report with respect thereto included elsewhere in this form 10-K. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
included in this form 10-K.

<TABLE>
<CAPTION>

                                                                                                    As of or
                                                                                               For the period from
                                                                    As of or                    December 22, 1997
                                                         For the Years Ended December 31,      (inception) through
                                                           1999                 1998            December 31, 1997
                                                         ---------------------------------------------------------
<S>                                                      <C>              <C>                   <C>
OPERATING DATA:

FOR THE YEAR
Interest income                                          $   2,763,374     $   3,076,526          $        102,547
  Net income                                                 2,467,247         2,763,552                   102,547
  Income available to common shareholders'                     666,347           962,105                    53,207
  Income per common share                                        30.18             43.58                      2.41

DIVIDENDS DECLARED:

Dividends on common stock                                $     666,347     $     962,105          $         53,207
Dividends on preferred stock                                 1,800,900         1,801,447                    49,340

BALANCE SHEET DATA:

AT YEAR END
  Net loans                                              $  23,508,412     $  25,033,927          $     41,488,700
  Mortgage-backed securities                                17,108,295        15,028,748
  Total assets                                              42,091,167        42,559,875                41,744,825
  Total shareholders' equity                                41,404,320        41,597,770                41,642,278
  Number of preferred shares outstanding                     2,070,000         2,070,000                 2,070,000
  Number of common shares outstanding                           22,077            22,077                    22,077
</TABLE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


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<PAGE>   8



FINANCIAL CONDITION

RESIDENTIAL MORTGAGE LOANS. At December 31, 1999 and 1998, the Company had $11.6
million and $13.8 million, respectively, invested in Residential Mortgage Loans.
The decrease is due to repayments of mortgage loans in 1999. The Company
reinvested the proceeds recovered from the repayment of Residential Mortgage
Loans in Mortgage-backed Securities, and Commercial Mortgage Loans.

At December 31, 1999 and 1998, there were no delinquent or nonaccrual
Residential Mortgage Loans.

COMMERCIAL MORTGAGE LOANS. At December 31, 1999 and 1998, the Company had $11.9
million and $11.2 million, respectively, invested in Commercial Mortgage Loans.
The net increase is due to purchase of $9.3 million during 1999, along with
principal paydowns of $8.6 million during 1999.

The following table reflects the composition of Mortgage Loans at December 31,

<TABLE>
<CAPTION>


                                                      1999                                            1998
                                       ---------------------------------------------------------------------------------------
                                                    Weighted                                        Weighted
                                       Principal     Average       Percent of      Principal         Average        Percent of
                                        Balance    Interest Rate   Total Loans      Balance       Interest Rate    Total Loans
                                       ---------------------------------------------------------------------------------------
<S>                                    <C>         <C>              <C>          <C>              <C>              <C>
Loan Type

Residential Mortgage Loans
   Fixed                               $ 6,348,991     7.67%         27.01%      $ 6,252,783          8.16%          24.98%
   Variable                              5,284,603     7.30%         22.48%        7,546,290          7.73%          30.14%
                                       ---------------------------------------------------------------------------------------
                                       $11,633,594     7.50%         49.49%      $13,799,073          7.93%          55.12%

Commercial Mortgage Loans
   Fixed                               $ 8,282,878     8.83%         35.23%      $ 8,270,071          9.36%          33.04%
   Variable                              3,603,940     8.32%         15.33%        2,976,783          8.79%          11.89%
                                       ---------------------------------------------------------------------------------------
                                       $11,886,818     8.68%         50.56%      $11,246,854          9.19%          44.93%

Allowance for Loan Loss                    (12,000)                  (0.05%)         (12,000)                        (0.05%)

Total Loans, Net                       $23,508,412     8.06%        100.00%      $25,033,927          8.49%         100.00%
                                      ---------------------------------------------------------------------------------------
</TABLE>



MORTGAGE-BACKED SECURITIES. At December 31, 1999 and 1998, the Company had $17.1
million and $15.0 million, respectively, invested in mortgage-backed securities.
The increase in 1999 and 1998 is due to the Company's reinvestment of mortgage
loan repayments into mortgage-backed securities. The weighted average maturity
of these investments at December 31, 1999 and 1998 are 3.19 years and 1.61 years
with a yield of 6.10% and 5.88%, respectively.

INTEREST RATE RISK. The Company's income consists primarily of interest payments
on mortgage loans. Currently, the Company does not use any derivative products
or manage its interest rate risk. If there is a decline in interest rates (as
measured by the indices upon which the interest rates of the adjustable rate
mortgage loans are based), then the Company will experience a decrease in income
available to be distributed to its shareholders. There can be no assurance that
an interest rate environment in which there is a significant decline in interest
rates, over an extended period of time, would not adversely affect the Company's
ability to pay dividends on the Series A Preferred Shares.

SIGNIFICANT CONCENTRATION OF CREDIT RISK. Concentration of credit risk arises
when a number of customers engage in similar business activities, or activities
in the same geographical region, or have similar economic features that would
cause their ability to

                                        8

<PAGE>   9



meet contractual obligations to be similarly affected by changes in economic
conditions. Concentration of credit risk indicates the relative sensitivity of
the Company's performance to both positive and negative developments affecting a
particular industry.

Geographically, the Company's Mortgage Loans are generally located in Michigan.
Geographic concentration of loans may present risks in addition to those present
with respect to Mortgage Loans generally. Mortgage Loans secured by properties
located in Michigan may be subject to a greater risk of default than other
comparable mortgage loans in the event of adverse economic, political or
business developments or natural hazards that may affect Michigan and the
ability of property owners in Michigan to make payments of principal and
interest on the underlying mortgages.

LIQUIDITY AND CAPITAL RESOURCES. The objective of liquidity management is to
ensure the availability of sufficient cash flows to meet all of the Company's
financial commitments. In managing liquidity, the Company takes into account
various legal limitations and requirements placed on a REIT.

The Company's principal liquidity needs are to maintain the current portfolio
size through the acquisition of additional mortgage loans as Mortgage Loans
currently in the portfolio mature or prepay and to pay dividends on the Series A
Preferred Shares. The acquisition of additional mortgage loans is intended to be
funded with the proceeds obtained from repayment of principal balances by the
individual mortgagees. The Company does not have and does not anticipate having
any material capital expenditures.

To the extent that the Board of Directors determines that additional funding is
required, the Company may raise such funds through additional equity offerings,
debt financing or retention of cash flows (after consideration of provisions of
the Code requiring the distribution by a REIT of at least 95% of its "REIT
taxable income" and taking into account taxes that would be imposed on
undistributed income), or a combination of these methods, subject to certain
approvals as described in the Company's organizational documents.

RESULTS OF OPERATIONS

For the years ended December 31, 1999, 1998 and 1997, the Company reported net
income available to common shareholders of $666,347, $962,105 and $53,207,
respectively. Interest income on Residential Mortgage Loans totaled $923,300,
$1,464,172, and $50,358 for the years ended December 31, 1999, 1998 and 1997,
respectively, which represents an average yield on such loans of 7.26%, 8.02%,
and 8.20% respectively. Interest income on Commercial Mortgage Loans totaled
$969,145, $1,415,079, and $52,189 for the years ended December 31, 1999, 1998,
and 1997, respectively , which represents an average yield on such loans of
8.38%, 9.43%, and 9.04%, respectively. Interest income on mortgage-backed
securities totaled $850,352 and $197,275 for the years ended December 31, 1999
and 1998, respectively. The yield on mortgage-backed securities for the year end
December 31, 1999 and 1998 were 6.10% and 5.88%, respectively. There was no
interest income or yield on mortgage-backed securities for the short period of
time from inception to year end December 31, 1997. The average loan balance of
the Residential Mortgage Loan portfolio for the years ended December 31, 1999
and 1998 was $74,574 and $67,976, respectively. The average loan balance of the
Commercial Mortgage Loan portfolio for the years ended December 31, 1999 and
1998 was $1,080,143 and $965,143, respectively.

Operating expenses totaled $296,127 and $300,974, respectively, for the years
ended December 31, 1999 and 1998. There were no operating expenses recorded for
the short period of time since inception to year end December 31, 1997.

The Company also declared a cash dividend on December 31, 1999 and 1998 of
$30.18 and $43.58 per Common Share of Common Stock, which were paid on January
31, 2000 and 1999, respectively.

                                        9

<PAGE>   10



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.








                                       10

<PAGE>   11



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>

       CONTENTS                                                                             PAGE

<S>    <C>                                                                                <C>
(a)    Report of Independent Certified Public Accountants                                     ii

(b)    Balance Sheets at December 31, 1999, and 1998                                         iii

(c)    Statements of Income for the years ended December 31, 1999 and 1998 and
       for the period from December 22, 1997 (inception) through
       December 31,1997                                                                       iv

(d)    Statements of Comprehensive Income for the years ended December 31, 1999
       and 1998, and for the period from December 22, 1997 (inception) through
       December 31, 1997                                                                       v

(e)    Statements of Shareholders' Equity for the years ended December 31, 1999
       and 1998, and for the period from December 22, 1997 (inception) through
       December 31, 1997                                                                      vi

(f)    Statements of Cash Flows for the years ended December 31, 1999 and 1998,
       and for the period from December 22, 1997 (inception) through December 31,
       1997                                                                                  vii

(g)    Notes to Financial Statements                                                        viii
</TABLE>




















                                       i
<PAGE>   12



                    REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders of Franklin Finance Corporation:

We have audited the accompanying balance sheets of Franklin Finance Corporation
(the "Company") as of December 31, 1999 and 1998 and the related statements of
income, comprehensive income, shareholders' equity and cash flows for the years
ended December 31, 1999 and 1998 and for the period from December 22, 1997
(inception) through December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 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 Franklin Finance Corporation as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1999 and 1998 and for the period from
December 22, 1997 (inception) through December 31, 1997 in conformity with
generally accepted accounting principles.

/s/ Grant Thornton LLP
----------------------
Grant Thornton LLP
Southfield, Michigan
January 28, 2000, except for not 7, as to which the date is March 20, 2000.







                                       ii




<PAGE>   13
                          FRANKLIN FINANCE CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                           At December 31,
                                                               -----------------------------
Assets                                                              1999             1998
                                                               -----------------------------
<S>                                                            <C>              <C>
Cash in checking                                               $    137,391     $    106,546
Cash in savings                                                     754,320
--------------------------------------------------------------------------------------------
Total cash in bank                                                  891,711          106,546
Loans
  Residential mortgage loans                                     11,633,594       13,799,073
  Commercial mortgage loans                                      11,886,818       11,246,854
Allowance for loan losses                                           (12,000)         (12,000)
--------------------------------------------------------------------------------------------
Net loans                                                        23,508,412       25,033,927

Mortgage-backed securities, available for sale                   17,108,295       15,028,748
Accrued interest - mortgage-backed securities                       104,223          181,089
Accrued interest - residential loans                                 51,437           67,278
Accrued interest - commercial loans                                  46,296           79,689
Due from parent company                                             200,872        2,039,668
Prepaid expenses and other assets                                   179,921           22,930
--------------------------------------------------------------------------------------------
Total assets                                                   $ 42,091,167     $ 42,559,875
============================================================================================

Liabilities and shareholders' equity

Dividend payable - Common                                      $    666,347          962,105
Accrued expenses                                                     20,500
--------------------------------------------------------------------------------------------
Total current liabilities                                           686,847     $    962,105

Shareholders' equity
Common Stock, par value $300.00; 60,000 shares
  authorized, 22,077 shares issued and outstanding                6,623,100        6,623,100
Preferred Stock, liquidation preference $10.00; 2,500,000 shares
  authorized, 2,070,000 shares issued and outstanding            20,700,000       20,700,000
Paid in surplus                                                  14,319,178       14,319,178
Accumulated other comprehensive loss                               (237,958)         (44,508)
Retained earnings
--------------------------------------------------------------------------------------------
Total shareholders' equity                                       41,404,320       41,597,770
--------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                     $ 42,091,167     $ 42,559,875
============================================================================================
</TABLE>


The accompanying notes are an integral part of these statements.






                                       iii

<PAGE>   14


                          FRANKLIN FINANCE CORPORATION
                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>


                                                                           For the Years Ended         For the  period from
                                                                               December 31,              December 22, 1997
                                                                           ---------------------------- (inception) through
                                                                           1999            1998          December 31, 1997
                                                                           ------------------------------------------------
<S>                                                                       <C>          <C>              <C>
Interest income

Interest on residential mortgage loans                                    $   923,300  $   1,464,172    $           50,358
Interest on commercial mortgage loans                                         969,145      1,415,079                52,189
Interest on mortgage-backed securities                                        850,352        197,275
Interest on savings                                                            20,577
---------------------------------------------------------------------------------------------------------------------------
Total interest income                                                       2,763,374      3,076,526               102,547
Provision for loan losses                                                                     12,000
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                         2,763,374      3,064,526               102,547
---------------------------------------------------------------------------------------------------------------------------
Operating expense

Advisory fee - paid to parent                                                 125,000        125,000
Loan service fee - paid to parent                                              81,549        125,053
Other general and administrative                                               89,578         50,921
---------------------------------------------------------------------------------------------------------------------------
Total operating expense                                                       296,127        300,974
---------------------------------------------------------------------------------------------------------------------------
Net income                                                                  2,467,247      2,763,552               102,547
Preferred stock dividend                                                    1,800,900      1,801,447                49,340
---------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholder                                $   666,347  $     962,105    $           53,207
===========================================================================================================================
Income per common share                                                        $30.18         $43.58                 $2.41

</TABLE>

The accompanying notes are an integral part of these statements.





<TABLE>
<CAPTION>

                                                          For the Years Ended        For the period from
                                                              December 31,            December 22, 1997
                                                   -------------------------------   (inception) through
                                                      1999                 1998       December 31, 1997
                                                   ------------------------------------------------------
<S>                                                <C>                  <C>          <C>
Net income                                         $ 2,467,247          $2,763,552        $   102,547

Other comprehensive loss
     Unrealized holding losses on securities
          available for sale                          (237,958)            (44,508)
---------------------------------------------------------------------------------------------------------
Comprehensive income                               $ 2,229,289          $2,719,044        $   102,547
=========================================================================================================
</TABLE>

The accompanying notes are an integral part of these statements.

                                       iv


<PAGE>   15



                          FRANKLIN FINANCE CORPORATION
                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            Other
                                                Common        Preferred         Paid in  Comprehensive  Retained
                                                 Stock          Stock           Surplus   Income (Loss) Earnings        Totals
                                              -----------------------------------------------------------------------------------
<S>                                           <C>             <C>            <C>          <C>          <C>           <C>
Issuance of Common Stock                      $ 6,623,100                    $ 14,319,178                            $ 20,942,278

Initial public offering of 8.70%
  Noncumulative Perferred Stock, Series A
  on December 22, 1997                                       $ 20,700,000                                              20,700,000

Net Income                                                                                            $   102,547         102,547
Dividends on 8.70% Noncumulative
  Series A Preferred Shares                                                                               (49,340)        (49,340)
Dividend on Common Stock ($2.41 per share)                                                                (53,207)        (53,207)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                    6,623,100      20,700,000      14,319,178                              41,642,278
Net Income                                                                                              2,763,552       2,763,552
Capital Contribution from
  Common Shareholder                                                               67,552                                  67,552
Additional Expenses for Preferred
  Stock Offering                                                                  (67,552)                                (67,552)
Dividends on 8.70% Noncumulative
  Series A Preferred Shares                                                                            (1,801,447)     (1,801,447)
Dividend on Common Stock ($43.58 per share)                                                              (962,105)       (962,105)
Change in accumulated other
  comprehensive loss                                                                       $ (44,508)                     (44,508)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                    6,623,100      20,700,000      14,319,178    (44,508)                  41,597,770
Net Income                                                                                              2,467,247       2,467,247
Capital Contribution from
  Common Shareholder
Additional Expenses for Preferred
  Stock Offering
Dividends on 8.70% Noncumulative
  Series A Preferred Shares                                                                            (1,800,900)     (1,800,900)
Dividend on Common Stock ($30.18 per share)                                                              (666,347)       (666,347)
Change in accumulated other
  comprehensive loss                                                                       $(193,450)                    (193,450)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                  $ 6,623,100    $ 20,700,000    $ 14,319,178  $(237,958) $              $ 41,404,320
=================================================================================================================================
</TABLE>



        The accompanying notes are an integral part of these statements.

                                        v


<PAGE>   16



                          FRANKLIN FINANCE CORPORATION
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                   For the Years Ended       For the period from
                                                                      December 31,            December 22, 1997
                                                               --------------------------    (inception) through
                                                               1999                  1998      December 31, 1997
                                                               -------------------------------------------------
<S>                                                           <C>               <C>          <C>
OPERATING ACTIVITIES
Net Income                                                    $ 2,467,247       $  2,763,552     $   102,547
Adjustments to reconcile net income to cash provided by
  (used in) operating activities:
  Provision for loan losses                                                           12,000
  Amortization (Accretion) on securities                           86,644           (440,690)
  Decrease (Increase) in accrued interest receivable              126,100            (99,823)       (228,233)
  Decrease (Increase) in due from parent, prepaid
    expenses and other assets                                   1,781,461            (22,930)        (27,624)
 Increase in other liabilities                                     20,500
------------------------------------------------------------------------------------------------------------
Total adjustments                                               2,014,705           (551,443)       (255,857)
------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES             4,481,952          2,212,109        (153,310)

INVESTING ACTIVITIES
Purchase of commercial loans                                   (9,326,304)                       (18,754,898)
Purchase of residential loans                                  (2,060,697)                       (22,736,015)
Net decrease in loans                                          12,912,516         14,453,659           2,213
Purchase of mortgage-backed securities                         (9,934,840)       (16,451,294)
Proceeds from maturities and pay downs on securities            7,475,543          1,795,798
------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                            (933,782)          (201,837)    (41,488,700)

FINANCING ACTIVITIES
Proceeds from the sale of common stock                                                            20,941,278
Proceeds from the sale of preferred stock                                                         20,700,000
Dividends paid on common stock                                   (962,105)           (53,207)
Dividends paid on preferred stock                              (1,800,900)        (1,850,787)
------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES            (2,763,005)        (1,903,994)     41,641,278
------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH                                   785,165            106,278            (732)
CASH AT BEGINNING OF YEAR                                         106,546                268           1,000
------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR                                           $   891,711            106,546     $       268
============================================================================================================
</TABLE>



        The accompanying notes are an integral part of these statements.


                                       vi

<PAGE>   17
                          FRANKLIN FINANCE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, and 1997

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:

Franklin Finance Corporation (the "Company") is a Michigan corporation which was
incorporated on September 25, 1997 and created for the purpose of acquiring and
holding real estate mortgage assets. The Company is a wholly-owned subsidiary of
Franklin Bank, N.A. (the "Bank"), a nationally chartered commercial bank.

On September 25, 1997, the Company was initially capitalized with the issuance
to the Bank of 1,000 shares of the Company's common stock (the "Common Stock"),
$1.00 par value. On December 22, 1997, the Company commenced its operations upon
consummation of an initial public offering of 2,070,000 shares of the Company's
8.70% Noncumulative Preferred Stock, Series A (the "Series A Preferred Shares"),
$10.00 liquidation preference. These offerings, together with a separate capital
contribution made by the Bank on December 22, 1997, raised net capital of $42.0
million.

The Company used the proceeds from the initial public offering of the Series A
Preferred Shares, the sale of Common Stock to the Bank and the additional
capital contribution to the Company by the Bank to pay the expenses related to
the offering and the formation of the Company and to purchase from the Bank the
Company's initial portfolio of residential and commercial mortgage loans.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following summarizes the significant accounting policies of the Company.

RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS:

Mortgage loans are carried at the principal amount outstanding. Interest income
is accrued and recognized using the interest method or on a basis approximating
a level rate of return over the term of the loan.

Loans are reviewed on a monthly basis and are placed on non-accrual status when,
in the opinion of management, the full collection of principal or interest has
become unlikely. Uncollectible accrued interest receivable on non-accrual loans
is charged against current period income. The Company had no non-accrual loans
at December 31, 1999 and 1998.

ALLOWANCE FOR LOAN LOSSES:

Management periodically reviews the mortgage loan portfolio to establish an
allowance for loan losses if deemed necessary. An allowance is provided after
considering such factors as the economy in lending areas, delinquency
statistics, past loss experience and estimated future losses. The allowance for
loan losses is based on estimates, and ultimate losses may vary from current
estimates. As adjustments to the allowance become necessary, provisions for loan
losses are reported in operations in the periods they are determined to be
necessary.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities purchased by the Company are classified as available
for sale and carried at market value. Unrealized gains and losses on available
for sale securities are excluded from income and recorded as an amount in a
separate component of other comprehensive income or loss until realized.

                                      vii

<PAGE>   18



CONCENTRATIONS OF CREDIT:

All of the real estate properties underlying the Company's Mortgage Loans are
located in Michigan. Consequently, these Mortgage Loans may be subject to a
greater risk of default than other comparable Mortgage Loans in the event of
adverse economic, political or business developments and natural hazards in
Michigan that may affect the ability of residential property owners in Michigan
to make payments of principal and interest on the underlying mortgages.

DUE FROM PARENT COMPANY:

Due from parent company represents principal and interest payments received from
borrowers by the Bank as servicer of the mortgage loans which are being held by
the servicer in a custodial account pending remittance to the Company.

DIVIDENDS:

Preferred Stock. Dividends on the Series A Preferred Shares are payable at a
rate of 8.70% per annum of the liquidation preference (an amount equal to $0.87
per annum per share), if, when and as declared by the Board of Directors of the
Company. Dividends are not cumulative and, if declared, are payable quarterly in
arrears on March 31, June 30, September 30 and December 31.

Common Stock. The shareholder is entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available after all
preferred dividends have been paid.

INCOME PER COMMON SHARE:

Income per common share is computed by dividing net income after preferred
dividends by the weighted average number of common shares outstanding. There are
no dilutive securities which would require a diluted earnings per share
computation. The Company had 22,077 weighted average common shares outstanding
during 1999 and 1998.

INCOME TAXES:

The Company has elected for Federal income tax purposes to be treated as a Real
Estate Investment Trust ("REIT") and intends to comply with the provisions of
the Internal Revenue Code of 1986 (the "IRC"), as amended. Accordingly, the
Company will not be subject to Federal corporate income taxes to the extent it
distributes 95% of its REIT taxable income to shareholders and as long as
certain asset, income and stock ownership tests are met in accordance with the
IRC. During the periods ended December 31, 1999, 1998, and 1997, the Company
distributed 100% of its taxable income. Because the Company believes it
qualifies as a REIT for Federal income tax purposes, no provision for income
taxes is included.

USE OF ESTIMATES:

The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities as of the date of the statement of financial condition and income
and expenses for the reporting period. Actual results could differ from those
estimates.




                                      viii

<PAGE>   19


ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARDS:

The Financial Accounting Standards Board (FASB) has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective in 2001 for the Company; however,
management does not expect this pronouncement to have a significant impact on
the Company's financial position.

NOTE 3 - RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS:

The following reflects the composition of the Company's Mortgage Loans:


<TABLE>
<CAPTION>

                                                           At December 31,
                                               -------------------------------------
                                                   1999                      1998
                                               -------------------------------------
<S>                                            <C>                     <C>
Loan  Type

Residential Mortgage Loans
  Fixed                                        $ 6,348,991              $  6,252,783
  Variable                                       5,284,603                 7,546,290
                                               -------------------------------------
                                                11,633,594                13,799,073
                                               -------------------------------------
Commercial Mortgage Loans
  Fixed                                          8,282,878                 8,270,071
  Variable                                       3,603,940                 2,976,783
                                               -------------------------------------
                                                11,886,818                11,246,854
                                               -------------------------------------
Allowance for Loan Losses                          (12,000)                  (12,000)
                                               -------------------------------------
Net Loans                                      $23,508,412              $ 25,033,927
                                               =====================================
</TABLE>


The properties collateralizing the Company's Commercial Mortgage Loans consist
of retail strip centers, multi-family residential rental properties, warehouse,
industrial and office center properties located in Michigan.



                                       ix

<PAGE>   20




NOTE 4 - MORTGAGE-BACKED SECURITIES

The amortized cost and estimated fair value of the mortgage-backed securities
available for sale at December 31, 1999 and 1998 are shown below.


<TABLE>
<CAPTION>
                                                       GROSS            GROSS
                                    AMORTIZED        UNREALIZED       UNREALIZED
                                      COST             GAINS            LOSSES          FAIR VALUE
                                   ----------------------------------------------------------------
<S>                                <C>               <C>             <C>              <C>
DECEMBER 31, 1999:
  Mortgage-backed securities       $  17,468,838     $   13,630      $   374,173      $  17,108,295

DECEMBER 31, 1998:
  Mortgage-backed securities       $  15,056,245     $    9,435      $    36,932      $  15,028,748
</TABLE>


There were no realized gains, losses and proceeds on sales of securities
available for sale for the years ended December 31, 1999, 1998 and for the
period from December 22, 1997 (inception) through December 31, 1997.

The scheduled maturities of available for sale securities at December 31, 1999
were as follows:

<TABLE>
<CAPTION>
                                                                          AMORTIZED
                                                                           COST                     FAIR VALUE
                                                                      -------------------------------------------
<S>                                                                   <C>                         <C>
Mortgage-backed securities due within one year                        $    1,187,424              $     1,183,416
Mortgage-backed securities due after one through five years               15,656,595                   15,336,030
Mortgage-backed securities due after five through ten years                  624,819                      588,849
-----------------------------------------------------------------------------------------------------------------
Total                                                                 $   17,468,838              $    17,108,295
=================================================================================================================
</TABLE>


There were no pledged securities carried at December 31, 1999 and 1998.

NOTE 5 - RELATED PARTY TRANSACTIONS:

The Company has entered into an advisory agreement (the "Advisory Agreement")
with the Bank. The Bank provides advice to the Board of Directors and manages
the operations of the Company as defined in the Advisory Agreement. The Advisory
Agreement has an initial term of five years which began on December 22, 1997 and
will automatically renew for additional five-year periods unless the Company
delivers a notice of nonrenewal to the Bank. The Advisory Agreement may be
terminated by the Company at any time upon ninety days' prior written notice.
The advisory fee is $125,000 per annum payable in equal quarterly installments.

The Company also entered into a servicing agreements with the Bank for the
servicing of its residential mortgage loans and its commercial mortgage loans
(the "Servicing Agreements"). Pursuant to the Servicing Agreements, the Bank
performs the servicing of the residential and commercial mortgage loans owned by
the Company, in accordance with normal industry practice. The Servicing
Agreements can be terminated without cause with at least thirty days notice to
the Bank and payment of a termination fee. The servicing fee rate is .375% of
the outstanding principal balance of the residential and commercial mortgage
loans.

                                        x
<PAGE>   21
The Company has cash balances of $891,711 and $106,546 as of December 31, 1999
and 1998, respectively, held in deposit accounts with the Bank.

NOTE 6 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The majority of the Company's assets and liabilities are financial instruments;
however, certain of these financial instruments lack an available trading
market. Significant estimates, assumptions and present value calculations were
therefore used for the purposes of deriving the Company's fair values, resulting
in a great degree of subjectivity inherent in the indicated fair value amounts.
Since the fair value is estimated as of the balance sheet date, the amount which
will actually be realized or paid upon settlement or maturity could be
significantly different. Comparability among REITs may be difficult due to the
wide range of permitted valuation techniques and the numerous estimates and
assumptions which must be made.

The following methods and assumptions were used to estimate the fair value
amounts at December 31, 1999 and 1998.

CASH AND DUE FROM BANK:  Carrying amount approximates fair value.

RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS: Fair value of the residential and
commercial mortgage loans is estimated using discounted cash flow analyses based
on contractual repayment schedules. The discount rates used in these analyses
are based on either the interest rates paid on U.S. Treasury securities of
comparable maturities adjusted for credit risk and non-interest operating costs,
or the interest rates currently offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount reflected on the
balance sheet at December 31, 1999 and 1998 are at cost. The approximate fair
value of the total loans at December 31,1999 and 1998 were $23,013,886 and
$24,881.999, respectively.

OTHER FINANCIAL ASSETS: The carrying amounts of due from parent company and
accrued interest receivable approximate fair value.

FINANCIAL LIABILITIES: The carrying amounts of dividends payable - common and
dividends payable - preferred approximate fair value.

NOTE 7 - SUBSEQUENT EVENT:

On March 20, 2000 Franklin Bank, N.A. announced it had entered into an agreement
to merge with Bingham Financial Services Company, a Birmingham, Michigan based
national commercial and manufactured home lending and servicing organization.
The closing is expected in the third quarter of 2000 and is subject to
shareholder and regulatory approvals. Subsequent to the transaction, the Company
will continue to be a wholly-owned subsidiary of the Bank.

                                       xi

<PAGE>   22



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The persons who are directors and executive officers of the Company are as
follows:


   Name                     Age      Position and Offices Held

   Robert M. Walker         56       Director
   Lloyd A. Schwartz        71       Director
   Edward J. Shehab         40       Director and Senior Vice President
   David L. Shelp           53       Director and Chief Financial Officer
   David F. Simon           53       Director and Secretary

The following is a summary of the experience of the executive officers and
directors of the Company:

     Robert M. Walker, age 56, is a certified public accountant and certified
fraud examiner. He has over 28 years of experience in public accounting,
financial and management consulting, and the financial services industry. Mr.
Walker is a member of the Company's Audit Committee.

     Lloyd A. Schwartz, age 71, is a certified public accountant and has served
as the Deputy Receiver/Rehabilator of two Michigan-based insurance companies
since 1993. Mr. Schwartz has also served as a Technical Reviewer for the
Michigan Association of Certified Public Accountants peer review program since
1990. Prior to 1990, Mr. Schwartz was a partner with the accounting firm of
Coopers & Lybrand, LLP. Mr. Schwartz is a member of the Company's Audit
Committee.

     David L. Shelp, age 53, has been the Chief Financial Officer of the Bank
since its inception in 1983. Mr. Shelp was an Assistant Treasurer of another
financial institution in Lansing, Michigan from 1975 to 1981 and its Controller
from 1981 to 1983. Mr. Shelp is a member of the Company's Credit Committee.

     Edward J. Shehab, age 40, joined the Bank in 1985 as a financial analyst.
Prior to that time, Mr. Shehab was an assistant secondary trader at another
financial institution. Since 1998, Mr. Shehab has been Senior Vice President of
Finance at the Bank. Mr. Shehab is a member of the Company's Credit Committee.

     David F. Simon, age 53, is Chairman of the Board of the Bank and has held
this position since its inception in 1983. Mr. Simon is a member of the
Company's Credit Committee. He formerly was an attorney in private practice
specializing in securities and financial institutions law from 1971 to 1991.

INDEPENDENT DIRECTORS

The Company's Certificate of Designation establishing the Series A Preferred
Shares requires that, so long as any Series A Preferred Shares are outstanding,
certain actions by the Company be approved by a majority of the Independent
Directors of the Company. Messrs. Walker and Schwartz are the Company's only
Independent Directors. For so long as there are only two Independent Directors,
any action that requires the approval of a majority of the Independent Directors
must be approved by both Independent Directors.

If at any time the Company fails to pay or declare and set aside for payment a
quarterly cash dividend payment on the Series A Preferred shares, the number of
directors constituting the Board of Directors of the Company will be increased
by two at the Company's next annual meeting and the holders of Series A
Preferred Shares, voting together with the holder of any other outstanding
series of Preferred Stock as a single class, will be entitled to elect two
additional directors to serve on the Company's Board of Directors. Any member of
the Board of Directors elected by holders of the Company's

                                       11

<PAGE>   23


Preferred Stock will be deemed to be an Independent Director for purposes of the
actions requiring the approval of a majority of the Independent Directors. Each
director elected by the holders of shares of the Preferred Stock shall continue
to serve as such director until the later of (i) the full term for which he or
she shall have been elected or (ii) the payment of four quarterly dividends on
the Preferred Stock, including the Series A Preferred Shares.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's officers, directors and persons who own more than
ten percent of either the Common Stock or the Series A Preferred Shares to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
SEC. Such officers, directors and ten percent shareholders are also required by
SEC rules to furnish the Company with copies of all Section 16(a) forms that
they file.

Based solely on its review of copies of such reports received or representations
from certain reporting persons, the Company believes that, during the fiscal
year ended December 31, 1999, all of its officers, directors and ten percent
shareholders complied with all Section 16(a) filing requirements applicable to
them with respect to transactions during fiscal 1999.

ITEM 11.  EXECUTIVE COMPENSATION

Since the Company's inception on December 22,1997, no compensation has been
awarded to, earned by or paid to any of the Company's directors. The Company
does not intend to pay any compensation to any of its directors (other than its
Independent Directors), officers or employees. The Company pays the Independent
Directors a fee of $500 for attendance (in person or by telephone) at each
meeting of the Board of Directors.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Bank owns 100% of the Common Stock of the Company. All voting rights are
vested in the Common Stock.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Set forth below are certain transactions between the Company and its directors
and affiliates. Management believes that the transactions with related parties
described herein have been conducted on substantially the same terms as similar
transactions with unrelated parties. See Note 5 to the financial statements.

The Bank administers the day-to-day operations of the Company and is entitled to
receive fees in connection with the Advisory Agreement. Advisory fees paid to
the Bank for the period ended December 31, 1999 and 1998 totalled $125,000,
$125,000, respectively. There were no advisory fees paid to the parent for the
period ended December 31,1997.

The Bank services the Residential and Commercial Mortgage Loans included in the
Company's portfolio and is entitled to receive fees in connection with the
respective Servicing Agreements. The Company paid the Bank $81,549 and $125,053,
respectively in servicing fees for the period ending December 31, 1999 and 1998,
respectively. There were no loan servicing fees paid to the parent for the
period ended December 31,1997.

The Company had cash balances of $891,711 and $106,546 as of December 31, 1999
and 1998 held in deposit accounts with the Bank.

                                       12

<PAGE>   24



                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a)(1)  The following financial statements of the Company are included in Item
          8 of this report:

          Report of Independent Certified Public Accountants

          Balance Sheets at December 31, 1999 and 1998

          Statements of Income for the years ended December 31, 1999, 1998, and
          for the period from December 22, 1997 (inception) through December 31,
          1997

          Statements of Comprehensive Income for the years ended December 31,
          1999, 1998, and the period from December 22, 1997 (inception) through
          December 31, 1997

          Statements of Shareholders' Equity for the years ended December 31,
          1999, 1998, and for the period from December 22, 1997 (inception)
          through December 31, 1997

          Statements of Cash Flows for the years ended December 31, 1999, 1998,
          and for the period from December 22, 1997 (inception) through December
          31, 1997

          Notes to Financial Statements

  (a)(2)  All other schedules for which provision is made in the applicable
          accounting regulations of the Securities and Exchange Commission are
          not required under the related instruction or are inapplicable and
          therefore have been omitted.

  (a)(3)  Exhibits:
          See Exhibit Index.


Exhibit
  No.    Document
--------------------------------------------------------------------------------
  3.1    Articles of Incorporation of the Company, as amended (incorporated
         herein by reference to Exhibit 3(a) of Form S-11 (file number
         333-10495) filed by the company).

  3.2    Bylaws of the Company (incorporated herein by reference to Exhibit 3(b)
         of Form S-11 (file number 333-10495) filed by the company).

  4.1    Certificate of Designation of 8.70% Noncumulative Exchangeable
         Preferred Stock, Series A (incorporated herein by reference to Exhibit
         3(a)(1) of Form S-11 (file number 333-10495) filed by the company).

 10.1    Residential Mortgage Loan Purchase Agreement and Commercial Mortgage
         Loan Purchase Agreement (incorporated herein by reference to Exhibits
         10.1 and 10.2 of Form S-11 (file number 333-10495) filed by the
         company).

 10.2    Residential Mortgage Loan Servicing Agreement and Commercial Mortgage
         Loan Servicing Agreement (incorporated herein by reference to Exhibit
         10.3 and 10.4 of Form S-11(file number 333-10495) filed by the
         company).

 10.3    Advisory Agreement between the Company and the Bank (incorporated
         herein by reference to Exhibit 10.5 of Form S-11 (file number
         333-10495)filed by the company).

 11      Computation of net income per share.

 12      Computation of ratio of income to fixed charges and Preferred Stock
         dividend Requirements.

27        Financial Data Schedule

(b)       No reports on Form 8-K were issued during the year ended
          December 31, 1999


                                       13

<PAGE>   25



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in Southfield, Michigan on
March 30, 2000.

                        FRANKLIN FINANCE CORPORATION
                                 (Registrant)

                    By: /s/ David Simon
                        -----------------------------------------
                                    Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following officers and directors of the Registrant
and in the capacities and on the dates indicated.

March 30, 2000      By:  /s/ Lloyd A. Schwartz
                         -----------------------------------------
                         Lloyd A. Schwartz
                         Director

March 30, 2000      By:  /s/ Edward J. Shehab
                         -----------------------------------------
                         Edward J. Shehab
                         Director and Senior Vice President

March 30, 2000      By:  /s/ David L. Shelp
                         -----------------------------------------
                         David L. Shelp
                         Director, Chief Financial Officer

March 30, 2000      By:  /s/ David F. Simon
                         -----------------------------------------
                         David F. Simon
                         Director and Secretary

March 30, 2000      By:  /s/ Robert M. Walker
                         -----------------------------------------
                         Robert M. Walker
                         Director







                                       14

<PAGE>   26



                                 EXHIBITS INDEX

Exhibit                                                                 Page No.
--------------------------------------------------------------------------------
 11     Computation of net income per share.                              16

 12     Computation of ratio of income to fixed charges and Preferred
        Stock dividend Requirements.                                      17

 27     Financial Data Schedule













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