<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1999

                         COMMISSION FILE NUMBER: 0-23469

                          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, MICHIGAN 48034
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

                                 (248) 358-4710
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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
EQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                                    YES X NO

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S SOLE CLASS OF COMMON STOCK
IS 22,077 SHARES, $300 PAR VALUE, AS OF SEPTEMBER 30, 1999.

<PAGE>   2
                          FRANKLIN FINANCE CORPORATION

                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                            PAGE
<S>                                                                                                         <C>
     ITEM 1.  FINANCIAL STATEMENTS:
           STATEMENTS OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999
            AND DECEMBER 31, 1998-----------------------------------------------------------------------------1

           STATEMENT OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS
            ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998---------------------------------------------------2

           STATEMENT OF COMPREHENSIVE INCOME FOR NINE MONTHS AND THREE MONTHS
            ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998---------------------------------------------------2

           STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS
            ENDED SEPTEMBER 30, 1999--------------------------------------------------------------------------3

           STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
            AND SEPTEMBER 30, 1998----------------------------------------------------------------------------4

           NOTES TO FINANCIAL STATEMENTS----------------------------------------------------------------------5

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTH PERIODS
            ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998---------------------------------------------------6

     ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET

           RISK-----------------------------------------------------------------------------------------------10

                           PART II - OTHER INFORMATION

     ITEM 1.  LEGAL PROCEEDINGS-------------------------------------------------------------------------------10

     ITEM 2.  CHANGES IN SECURITIES---------------------------------------------------------------------------10

     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES-----------------------------------------------------------------10

     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS---------------------------------------------10

     ITEM 5.  OTHER INFORMATION-------------------------------------------------------------------------------10

     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K----------------------------------------------------------------10


     SIGNATURES-----------------------------------------------------------------------------------------------12
</TABLE>

                                       ii
<PAGE>   3
                          FRANKLIN FINANCE CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                 September 30, 1999 December 31, 1998
                                                                 ------------------------------------
ASSETS                                                               (Unaudited)
<S>                                                                <C>              <C>
Cash                                                               $     809,023    $        106,546
Loans
 Residential mortgage loans                                           12,318,596          13,799,073
 Commercial mortgage loans                                            10,888,066          11,246,854
 Allowance for loan losses                                               (12,000)            (12,000)
----------------------------------------------------------------------------------------------------
Net loans                                                             23,194,662          25,033,927
Mortgage-backed securities, available for sale                        17,807,579          15,028,748
Accrued interest - mortgage-backed securities                            110,049             181,089
Accrued interest - residential loans                                      61,497              67,278
Accrued interest - commercial loans                                       45,184              79,689
Due from parent company                                                                    2,039,668
Prepaid expenses and other assets                                        155,015              22,930
----------------------------------------------------------------------------------------------------
Total assets                                                       $  42,183,009    $     42,559,875
====================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Due to Franklin                                                    $     286,372
Dividend payable - Common                                                           $        962,105
Miscellaneous accounts payable                                            14,125
----------------------------------------------------------------------------------------------------
Total current liabilities                                                300,497             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                                    (199,767)            (44,508)

Retained earnings                                                        440,001
----------------------------------------------------------------------------------------------------
Total shareholders' equity                                            41,882,512          41,597,770
----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                         $  42,183,009    $     42,559,875
====================================================================================================
</TABLE>

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

                                       1
<PAGE>   4
                          FRANKLIN FINANCE CORPORATION
                       STATEMENT OF OPERATIONS (unaudited)

<TABLE>
<CAPTION>
                                                            Nine Months Ended          Three Months Ended
                                                              September 30,               September 30,
                                                             1999         1998          1999         1998
                                                         -------------------------------------------------
<S>                                                      <C>          <C>            <C>         <C>
Interest Income

Interest on residential loans                            $  702,105   $ 1,166,243    $ 234,227   $ 349,727
Interest on commercial loans                                726,292     1,096,584      230,811     345,101
Interest on mortgage-backed securities                      580,901        89,734      228,361      89,734
Interest on money market                                      9,664                      9,664
----------------------------------------------------------------------------------------------------------
Total interest on loans and securities                    2,018,962     2,352,561      703,063     784,562
Provision for loan losses                                                  12,000
----------------------------------------------------------------------------------------------------------
Total interest income after provision for loan 1osses     2,018,962     2,340,561      703,063     784,562
----------------------------------------------------------------------------------------------------------

Expenses

Director's fees                                               5,000         3,000        3,000       2,000
Outside services                                              4,299         5,949        1,624       1,146
Audit expense                                                20,625                      7,625
Advisory fee                                                 93,754        93,816       31,210      31,272
Insurance                                                    16,997        23,083        5,667       7,692
Loan service fee                                             59,098        99,266       21,110      34,342
Single business tax                                          27,000         6,000       21,000       6,000
Other operating expense                                       1,513                      1,513
----------------------------------------------------------------------------------------------------------

Total expenses                                              228,286       231,114       92,749      82,452
----------------------------------------------------------------------------------------------------------

Net income                                                1,790,676     2,109,447      610,314     702,110
----------------------------------------------------------------------------------------------------------

Preferred stock dividend                                  1,350,675     1,351,222      450,225     450,225
----------------------------------------------------------------------------------------------------------

Net income available to common shareholders              $  440,001   $   758,225    $ 160,089   $ 251,885
==========================================================================================================

 Earnings per common share - basic                            19.93         34.34         7.25       11.41
</TABLE>

                          FRANKLIN FINANCE CORPORATION
                        STATEMENT OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                           Nine Months Ended       Three Months Ended
                                                                             September 30,            September 30,
                                                                            1999        1998        1999        1998
                                                                         ----------------------------------------------
<S>                                                                      <C>         <C>          <C>         <C>
Net Income                                                               $ 440,001   $ 758,225    $ 160,089   $ 251,885
   Other comprehensive income, net of tax:
     Unrealized gains on securities:
        Unrealized holding gains (losses) arising during period           (199,767)      3,466     (145,072)      1,784
-----------------------------------------------------------------------------------------------------------------------
        Other comprehensive income(loss)                                  (199,767)      3,466     (145,072)      1,784
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                              $ 240,234   $ 761,691    $  15,016   $ 253,669
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       2
<PAGE>   5
                          FRANKLIN FINANCE CORPORATION
                        STATEMENT OF SHAREHOLDERS' EQUITY
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                            Unrealized
                                                  Preferred     Common        Paid in       Gain/(Loss)     Retained
                                                    Stock        Stock        Surplus      on Securities    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 Preferred 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)
Dividends on Common Stock ($2.41 per share)                                                                   (53,207)      (53,207)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                    $ 20,700,000   $ 6,623,100  $ 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                    $ 20,700,000   $ 6,623,100  $ 14,319,178   $     (44,508)               $41,597,770
Net Income                                                                                                $ 1,790,676     1,790,676
Capital Contribution from
  Common Shareholder
Additional Expenses for Preferred
  Stock Offering
Dividends on 8.70% Noncumulative
  Series A Preferred Shares                                                                                (1,350,675)   (1,350,675)
Change in accumulated
  comprehensive loss                                                                            (155,259)                  (155,259)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999                   $ 20,700,000   $ 6,623,100  $ 14,319,178   $    (199,767) $   440,001   $41,882,512
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Notes to Financial Statements are an integral part of this statement.

                                       3
<PAGE>   6

                          FRANKLIN FINANCE CORPORATION
                      STATEMENT OF CASH FLOWS (unaudited)

<TABLE>
<CAPTION>
                                                                                                Nine Months Ended
                                                                                                   September 30,
                                                                                               1999             1998
                                                                                         -------------------------------
<S>                                                                                      <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                                               $   1,790,676      $  2,109,447
Adjustments to reconcile net income to cash provided by operating activities:
   Provision for loan losses                                                                                      12,000

   Amortization(accretion) on securities                                                        41,867           (84,484)
   (Increase)decrease in accrued interest receivable                                           111,326           (54,140)
   (Increase)decrease in prepaid expenses and other assets                                   1,987,564        (1,098,977)
   (Decrease)increase in other liabilities                                                    (661,608)         (100,547)
                                                                                         -------------------------------
Total adjustments                                                                            1,479,149        (1,326,148)
                                                                                         -------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                    3,269,825           783,299
                                                                                         -------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale                                                   (9,934,840)       (8,674,529)
Proceeds from maturities and paydowns of securities available for sale                       6,878,902           905,167
Purchase of loans                                                                           (9,107,465)         (981,840)
Payments received on loans                                                                  10,946,730        11,389,848
                                                                                         -------------------------------
NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES                                          (1,216,673)        2,638,646
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend on preferred stock                                                                 (1,350,675)       (1,351,222)
                                                                                         -------------------------------
NET CASH USED IN FINANCING ACTIVITIES                                                       (1,350,675)       (1,351,222)
                                                                                         -------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                      702,477         2,070,723
                                                                                         -------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                               106,546               268
                                                                                         -------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               $     809,023      $  2,070,991
                                                                                         ===============================
</TABLE>

The Notes to Financial Statements are an integral part of this statement.

                                       4
<PAGE>   7
                          FRANKLIN FINANCE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements of Franklin Finance Corporation (the
"Company") have been prepared in accordance with the instructions for Form 10-Q.
Accordingly, they do not include all information and footnotes necessary for a
fair presentation of financial condition, results of operations and cash flows
in conformity with generally accepted accounting principles. The statements do,
however, include all adjustments (consisting of normal recurring accruals) which
management considers necessary for a fair presentation of the interim periods.

This Form 10-Q is written with the presumption that the users of the interim
financial statements have read or have access to the Company's Annual Report on
Form 10-K, which contains the latest audited financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations as of December 31, 1998 and for the year
then ended. Therefore, only material changes in financial condition and results
of operations are discussed in the remainder of Part I.

The results of operations for the nine month period ended September 30, 1999 are
not necessarily indicative of the results to be expected for the year ended
December 31, 1999.

The Statement of Financial Condition as of December 31, 1998 has been derived
from the audited Statement of Financial Condition as of that date.

Franklin Finance Corporation 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 of $20.9 million made by the Bank on December 22, 1997, raised net
capital of approximately $41.6 million.

The Company used the proceeds raised 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 at their estimated fair value of approximately $41.5 million. Such loans
were recorded in the accompanying balance sheet at their estimated fair values.

NOTE 2 - RESIDENTIAL  AND COMMERCIAL MORTGAGE LOANS:

Of the residential mortgage loans included in the portfolio, 52.6% and 47.4%
bear interest at fixed rates at September 30, 1999 and 1998, respectively. At
September 30, 1999, the interest rates of the fixed rate residential mortgage
loans included in the portfolio range from 6.00% per annum to 10.00% per annum.
At September 30, 1998 these rates ranged from 6.00% to 10.25%. The weighted
average interest rate of the fixed rate residential mortgage loans included in
the portfolio at September 30, 1999 and 1998, respectively, was approximately
7.51% and 8.17% per annum.

Of the residential mortgage loans included in the portfolio, 47.4% and 52.6%
bear interest at adjustable rates at September 30, 1999 and 1998, respectively.
The interest rates on the "adjustable rate mortgages" or "ARMs" contained in the
portfolio are all tied to the one-year Treasury Index ("One-Year ARM"), and
adjust periodically. The interest rates of the residential mortgage loans
included in the portfolio that are ARMs ranged from 5.50% per annum to 8.375%
per annum as of September 30, 1999. At September 30, 1998 these rates ranged
from 6.875% to 8.55%. As of September 30, 1999 and 1998, respectively, the
weighted average current interest rate of the residential mortgage loans
included in the portfolio that are ARMs was approximately 7.08% and 7.86% per
annum.

                                       5
<PAGE>   8

The commercial mortgage loans included in the portfolio generally consist of
retail strip centers, multi-family residential rental properties, warehouse,
industrial and office center properties located in Michigan. The outstanding
principal balances of the commercial mortgage loans included in the portfolio
ranged from $131,257 to $2.1 million as of September 30, 1999, and $112,459 to
$1.9 million as of September 30, 1998.

Of the commercial mortgage loans included in the portfolio at September 30, 1999
and 1998, respectively, 60.7% and 56.3% bear interest at fixed rates. The
interest rates of the fixed rate commercial mortgage loans included in the
portfolio ranged from 7.75% per annum to 9.75% per annum at September 30, 1999,
and 7.75% to 12.00 % per annum at September 30, 1998. The weighted average
current interest rate of the commercial mortgage loans included in the portfolio
that are fixed rate loans was 8.91 and 9.65% per annum as of September 30, 1999
and 1998, respectively.

Of the commercial mortgage loans included in the portfolio at September 30, 1999
and 1998, respectively, 39.3% and 43.7% bear interest at variable rates which
are typically tied to an index (such as the Bank's Prime Rate or the U.S.
Treasury Index adjusted for a constant maturity of either one year or three
years) and are adjustable periodically. The interest rates borne by the variable
rate commercial mortgage loans included in the portfolio ranged from 7.75% per
annum to 9.75% per annum as of September 30, 1999, and 8.00% to 10.0% per annum
as of September 30, 1998. The weighted average yield equals 8.38% and 8.66% per
annum at September 30, 1999 and 1998, respectively.

NOTE 3 - FEDERAL HOME LOAN MORTGAGE CORPORATION, ("FHLMC") MORTGAGE BACKED
SECURITIES AND FEDERAL NATIONAL MORTGAGE ASSOCIATION, ("FNMA') MORTGAGE BACKED
SECURITIES

At September 30, 1999 and 1998, the mortgage-backed securities held by the
Company totaled $17.8 and $4.6 million, respectively. These securities had a
weighted average yield of 7.33% and a weighted average term to maturity of 2.14
years at September 30, 1999. At September 30, 1998, these securities had a
weighted average term of 1.44 years and yielded a weighted average yield to
maturity of 6.30%.

NOTE 4 - PREFERRED STOCK

On December 22, 1997, the Company sold $20.7 million of Series A Preferred
Shares, $10.00 par value and received net cash proceeds of $19.8 million. Cash
dividends on the Series A Preferred Shares are payable quarterly in arrears at
an annual rate of 8.70%. The liquidation value of each Series A Preferred Share
is $10.00 plus accrued and unpaid dividends for the most recent quarter thereon,
if any, to the date of liquidation. The Series A Preferred Shares are not
redeemable until December 22, 2002, and are redeemable thereafter at the option
of the Company. Except under certain circumstances, the holders of the Series A
Preferred Shares have no voting rights. The Series A Preferred Shares are
automatically exchangeable for a new series of preferred stock of the Bank upon
the occurrence of certain events.

NOTE 5 - DIVIDENDS:

During the nine months ended September 30, 1999 and 1998, respectively, the
Company's Board of Directors declared $1,350,675 and $1,400,562 of preferred
stock dividends. To comply with current IRS regulations, it is expected that
common dividends will be declared in the fourth quarter of 1999.

                                     PART I

ITEM 2 .  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Except for the historical information contained herein, the matters discussed in
this Report 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 Bank'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 Bank's judgement as of the date of this report. The Bank
disclaims, however, any intent or obligation to update these forward-looking
statements.

                                       6
<PAGE>   9

FINANCIAL CONDITION

Organization

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

The Bank administers the day-to-day activities of the Company in its role as
advisor under an Advisory Agreement. The Bank also services the Company's
Mortgage Assets pursuant to servicing agreements between the Company and the
Bank. These assets represent residential loans, commercial mortgage loans,
Federal Home Loan mortgage backed securities, and FNMA agency debt securities.

At September 30, 1999 and December 31, 1998, respectively, the Company had $12.3
and $13.8 million invested in loans secured by first mortgages or deeds of trust
on single-family residential real estate properties ("Residential Mortgage
Loans"). The $1.5 million net decrease from the balance at December 31, 1998,
resulted from Residential Mortgage Loan principal collections and individual
loan payoffs of $3.6 million and the purchase of loans for the portfolio of $2.1
million. Management intends to continue to reinvest proceeds received from
repayments of loans into additional Residential Mortgage Loans or residential
mortgage backed securities to be purchased from either the Bank or its
affiliates. See "Results of Operations."

At September 30, 1999 and December 31, 1998, respectively, the Company had $10.9
and $11.2 million invested in mortgage loans secured by income-producing
properties ("Commercial Mortgage Loans") that consist of retail strip centers,
multi-family residential rental properties, warehouse, industrial and office
center properties located in Michigan. The $300,000 net decrease from the
balance at December 31, 1998, resulted from Commercial Mortgage Loan principal
collections and individual loan payoffs of $7.3 million and the purchase of
loans for the portfolio of $7.0 million. Management intends to continue to
reinvest proceeds received from repayments of loans in additional Commercial
Mortgage Loans, or mortgage backed securities to be purchased from either the
Bank or its affiliates. See "Results of Operations."

At September 30, 1999 and December 31, 1998, the Company had outstanding
principal balances of $17.8 and $15.0 million, respectively, invested in "FHLMC"
mortgage backed notes and "FNMA" agency securities.
These loans are for single family residential loans.

At September 30, 1999 and December 31, 1998, respectively, the Company had no
non-accrual loans (loans contractually past due 90 days or more or with respect
to which other factors indicate that full payment of principal and interest is
unlikely).

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
amount and composition of the loan portfolio, and other factors. The allowance
is increased by provisions for loan losses charged to income and reduced by net
charge-offs. The activity in the allowance for loan losses for the nine months
ended September 30, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                       Nine Months Ended
                                                         September 30,
                                                    1999               1998
                                                   ---------------------------
<S>                                                <C>                <C>
             Balance at beginning of period        $ 12,000           $   -
             Provision for loan losses                                  12,000
             Charge-offs
             Recoveries
                                                   ---------------------------

             Balance at end of period              $ 12,000           $ 12,000
                                                   ---------------------------
</TABLE>
                                       7

<PAGE>   10

Interest Rate Risk

The Company's income consists primarily of interest payments on mortgage loans
and mortgage-backed securities. 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. Conversely, an increase in
interest rates would cause the Company to experience an increase in interest
income. 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. Currently, the Company does not use any derivative
products to manage its interest rate risk.

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 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 generally will be concentrated in
the State of Michigan. Geographic concentration of loans may present risks in
addition to those present with respect to mortgage loans generally. All of the
properties underlying the Company's Residential and Commercial Mortgage Loans
included in the current portfolio are located in Michigan. 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 borrowers in Michigan to make payments of principal and
interest on such loans. The investments held in the FHLMC and FNMA agency
securities help to offset some of the geographic concentration risk in that the
residential mortgage loans collateralizing the securities are representative of
many geographic areas.

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
placed on a REIT as discussed below in "Tax Status of the Company."

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.

                                       8
<PAGE>   11

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, 1998. 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 stockholders, 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 stockholders 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.
As of September 30, 1999, the Company believed that it was in compliance with
the REIT tax rules and that it will continue to qualify as a REIT under the
provisions of the Code.

RESULTS OF OPERATIONS

Comparison of Nine months Ended September 30, 1999 to Nine months Ended
September 30, 1998

During the nine-month period ended September 30, 1999 and September 30, 1998
(the "nine-month period"), the Company reported net income of $440,001 and
$758,225, respectively. Interest income on Residential Mortgage Loans has
declined and totaled $702,105 and $1,166,243 for the nine-month periods,
respectively, which represents an average yield on such loans of 7.80% and
7.93%, respectively. Interest income on Commercial Mortgage Loans has also
declined and totaled $726,292 and $1,096,584 for the nine-month periods,
respectively, which represents an average yield on such loans of 9.05% and
8.97%, respectively. The decline in interest revenue is reflected in both the
decline in the average outstanding loan balances and the average yield earned in
the residential loan portfolio. The decline in the commercial loan portfolio is
the result of the decline in the average outstanding loan balance. The average
loan balance of the Residential Mortgage Loan portfolio for the nine-month
periods was $12.0 million and $19.6 million, respectively. The average balance
of the Commercial Mortgage Loan portfolio for the nine-month periods was $10.7
million and $16.3 million, respectively.

Interest income earned on the mortgage-backed investment securities for the
nine-month period ended September 30, 1999 and September 30, 1998 totaled
$580,901 and $89,734, respectively. The September 30, 1999 nine-month average
yield was 4.90% on an average balance of $15.8 million. For the nine months
ended September 30, 1998 the average yield was 5.70% on an average balance of
$2.1 million.

Interest income earned on loans and securities was $2,009,298 on an average
balance of $38.5 million resulting in a yield of 5.22% for the nine months ended
September 30, 1999. For the same period 1998 the interest income was $2,352,561
on an average balance of $38.0 million resulting in a yield of 6.19%.

The interest increase in the mortgage-backed securities helped to offset the
decrease in the interest income for the residential and commercial mortgage
portfolios. However, the average decrease in the yield earned on all portfolios
has resulted in a decline in the interest income for the period ended September
30, 1999 compared to September 30, 1998 of $333,599.

Provision for loan losses of $12,000 was recorded on the Company's loan
portfolio during the nine-month period ending September 30, 1998. No additional
provisions were necessary for the period ended September 30, 1999.

Operating expenses totaling $228,286 and $231,114 for the nine-month periods,
respectively, were comprised of loan servicing fees and advisory fees paid to
the Bank, directors fees, and general and administrative expenses. Loan
servicing fees paid to the Bank of $59,098 and $99,266 for the nine-month
periods, respectively, were based on a servicing fee rate of .375% of the
outstanding principal balances of the Residential and Commercial Mortgage Loans,
pursuant to the servicing agreements between the Company and the Bank. They have
decreased with the reduction in the corresponding balances of the loan
portfolios which the Bank is servicing for the Company. Administrative expenses
consist primarily of insurance and outside audit expenses.

Franklin Finance Corporation is linked with Franklin Bank's year 2000 compliance
efforts because Franklin Finance Corporation is a wholly owned subsidiary of
Franklin Bank. Please refer to Franklin Bank's September 30, 1999, Form 10-Q for
a description of Year 2000 compliance status.

Comparison of Three Months Ended September 30, 1999 to Three Months Ended
September 30, 1998

During the three-month period ended September 30, 1999 and September 30, 1998
(the "three-month period"), the Company reported net income of $160,089 and
$251,885, respectively. Interest income on Residential Mortgage

                                       9
<PAGE>   12

Loans totaled $234,227 and $349,727 for the three-month periods, respectively,
which represents an average yield on such loans of 7.94% and 8.13%,
respectively. Interest income on Commercial Mortgage Loans totaled $230,811 and
$345,101 for the three-month periods, respectively, which represents an average
yield on such loans of 9.32 % and 9.08%, respectively. The average loan balance
of the Residential Mortgage Loan portfolio for the three-month periods was $11.8
million and $17.2 million, respectively. The average balance of the Commercial
Mortgage Loan portfolio for the three-month periods was $9.9 million and $15.2
million, respectively. See "Comparison of nine months ended September 30, 1999
to nine months ended September 30, 1998" for further discussion of interest
income earned on residential and commercial mortgage loans.

Interest income earned on the mortgage-backed investment securities for
three-month period ended September 30, 1999 and September 30, 1998 totaled
$218,361 and $89,734, respectively. The three-month average yield for September
30, 1999 was 5.22% on an average balance of $17.5 million. See "Comparison of
nine months ended September 30, 1999 to nine months ended September 30, 1998"
for further discussion of interest income earned on mortgage-backed securities.

Operating expenses totaling $92,749 and $82,452 for the three-month periods,
respectively, were comprised of loan servicing fees and advisory fees paid to
the Bank, directors fees, and general and administrative expenses. Loan
servicing fees paid to the Bank of $21,110 and $34,342 for the three-month
periods, respectively, were based on a servicing fee rate of .375% of the
outstanding principal balances of the Residential and Commercial Mortgage Loans,
pursuant to the servicing agreements between the Company and the Bank. General
and administrative expenses consist primarily of insurance and outside audit
costs. See "Comparison of nine months ended September 30, 1999 to nine months
ended September 30, 1998" for further discussion of operating expenses.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is not the subject of any material litigation. Neither 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 Residential Mortgage Loans or Commercial Mortgage Loans included
in the Company's portfolio, which litigation would have a material adverse
effect on the business or operations of the Company.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits required by item 601 of Regulation S-K are set forth below.

 NO.      EXHIBIT
 11       Computation of Net Income Per Common 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 nine months ended
    September 30, 1999

                                       10
<PAGE>   13
                                   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
November 12, 1999.

                          FRANKLIN FINANCE CORPORATION
                                  (Registrant)

         By:  /s/ David F. Simon
              --------------------------------------
              David F. Simon
              Director and Secretary
              (Duly authorized representative)

         By:  /s/ David L. Shelp
              --------------------------------------
              David L. Shelp
              Director, Treasurer and Chief Financial Officer
              (Principal financial and accounting officer)

                                       11
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                               INDEX TO EXHIBITS

  EXHIBIT NO.                 DESCRIPTION
  -----------                 -----------
     11                       Computation of Net Income Per Common Share
     12                       Computation of ratio of income to fixed charges
                              and Preferred Stock dividend requirements.
     27                       Financial Data Schedule