<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, 2000

                         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
REQUIRED 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, 2000.











<PAGE>   2





                          FRANKLIN FINANCE CORPORATION

                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION
<TABLE>
<S>                                                                                                    <C>
ITEM 1. FINANCIAL STATEMENTS

STATEMENTS OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999...............1

STATEMENTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER
     30, 2000 AND SEPTEMBER 30, 1999 (UNAUDITED)........................................................2

STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTHS AND THREE MONTHS ENDED
     SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 (UNAUDITED)..............................................2

STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
     SEPTEMBER 30, 1999 (UNAUDITED).....................................................................3

STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
     (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1999 AND 1998.........................................4

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)...............................................................5


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........7


COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED SEPTEMBER 30, 1999..............9

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED SEPTEMBER 30, 1999............10


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 VOTE OF SECURITY HOLDERS..............................................11

ITEM 5.  OTHER INFORMATION..............................................................................11

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...............................................................11

SIGNATURES .............................................................................................12

EXHIBITS 11 & 12........................................................................................13

EXHIBIT 27 ............ ................................................................................14

</TABLE>


                                       ii


<PAGE>   3
                          FRANKLIN FINANCE CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                                  AT
                                                             ----------------------------------------
                                                                SEPTEMBER 30, 2000  DECEMBER 31, 1999
                                                             ----------------------------------------
<S>                                                             <C>                 <C>
ASSETS                                                                       (unaudited)
Cash in checking                                                    $     12,975         $    137,391
Cash in savings                                                          358,034              754,320
-----------------------------------------------------------------------------------------------------
Total cash in bank                                                       371,009              891,711
Loans
 Residential mortgage loans                                           10,937,426           11,633,594
 Commercial mortgage loans                                            14,809,998           11,886,818
 Allowance for loan losses                                               (12,000)             (12,000)
-----------------------------------------------------------------------------------------------------
Net loans                                                             25,735,424           23,508,412

Mortgage-backed securities, available for sale                        15,825,485           17,108,295
Accrued interest - mortgage-backed securities                             95,071              104,223
Accrued interest - residential loans                                      63,491               51,437
Accrued interest - commercial loans                                       64,098               46,296
Due from parent company                                                                       200,872
Prepaid expenses and other assets                                        126,648              179,921
-----------------------------------------------------------------------------------------------------
Total assets                                                        $ 42,281,226         $ 42,091,167
=====================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Dividend payable - Common                                           $                    $    666,347
Accrued expenses                                                          78,971               20,500
-----------------------------------------------------------------------------------------------------
Total current liabilities                                                 78,971              686,847

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                                    (188,689)            (237,958)
Retained earnings                                                        748,666
-----------------------------------------------------------------------------------------------------
Total shareholders' equity                                            42,202,255           41,404,320
-----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                          $ 42,281,226         $ 42,091,167
=====================================================================================================
</TABLE>

See Notes to Financial Statements




                                       1

<PAGE>   4


                          FRANKLIN FINANCE CORPORATION
                      STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>

                                                                NINE MONTHS ENDED        THREE MONTHS ENDED
                                                           --------------------------------------------------
                                                                   SEPTEMBER 30,            SEPTEMBER 30,
                                                                2000          1999      2000           1999
                                                           --------------------------------------------------
<S>                                                         <C>          <C>          <C>          <C>
INTEREST INCOME
Interest on residential loans                               $  660,613   $  702,105   $  211,153   $  234,227
Interest on commercial loans                                   835,714      726,292      287,805      230,811
Interest on mortgage-backed securities                         777,912      580,901      256,960      228,361
Interest on money market                                        35,458        9,664       15,900        9,664
-------------------------------------------------------------------------------------------------------------
Total interest income                                        2,309,697    2,018,962      771,818      703,063
-------------------------------------------------------------------------------------------------------------

NON INTEREST EXPENSE
Director's fees                                                  5,000        5,000        1,000        3,000
Outside services                                                 1,616        4,299                     1,624
Audit expense                                                    3,999       20,625        3,499        7,625
Advisory fee                                                    93,749       93,754       31,251       31,210
Insurance                                                       17,001       16,997        5,667        5,667
Loan service fee                                                66,749       59,098       21,181       21,110
Single business tax                                             18,900       27,000        6,900       21,000
Other operating expense                                          3,342        1,513        1,110        1,513
-------------------------------------------------------------------------------------------------------------
Total non interest expense                                     210,356      228,286       70,608       92,749
-------------------------------------------------------------------------------------------------------------
Net income                                                   2,099,341    1,790,676      701,210      610,314
-------------------------------------------------------------------------------------------------------------
Preferred stock dividend                                     1,350,675    1,350,675      450,225      450,225
-------------------------------------------------------------------------------------------------------------
Net income available to common shareholders                 $  748,666   $  440,001   $  250,985   $  160,089
=============================================================================================================

EARNINGS PER COMMON SHARE - BASIC AND DILUTED               $    33.91   $    19.93   $    11.37   $     7.25

</TABLE>


See Notes to Financial Statements


                          FRANKLIN FINANCE CORPORATION
                       STATEMENTS OF COMPREHENSIVE INCOME
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED       THREE MONTHS ENDED
                                                            -------------------------------------------------
                                                                   SEPTEMBER 30,           SEPTEMBER 30,
                                                                2000           1999     2000           1999
                                                            -------------------------------------------------
<S>                                                         <C>           <C>           <C>          <C>
Net income                                                  $  748,666    $ 440,001   $  250,985   $  160,089

Other comprehensive income (loss)
  Unrealized holding gains (losses) on securities,
    available for sale                                          49,269     (155,259)      63,521     (145,072)
-------------------------------------------------------------------------------------------------------------
Comprehensive income                                        $  797,935    $ 284,742   $  314,506   $   15,017
=============================================================================================================

</TABLE>




See Notes to Financial Statements




                                        2

<PAGE>   5

                          FRANKLIN FINANCE CORPORATION
                      STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                 ------------------------------
                                                                                          SEPTEMBER 30,
                                                                                       2000           1999
                                                                                 ------------------------------
<S>                                                                               <C>             <C>
OPERATING ACTIVITIES:
Net Income                                                                        $  2,099,341    $  1,790,676
Adjustments to reconcile net income to cash provided by
operating activities:
  Amortization on securities                                                           106,917          41,867
  (Increase)/decrease in accrued interest receivable                                   (20,704)        111,326
  Decrease in due from parent, prepaid expenses and other assets                       228,763       1,987,564
  Decrease in other liabilities                                                       (607,876)       (661,608)
--------------------------------------------------------------------------------------------------------------
Total adjustments                                                                     (292,900)      1,479,149
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                            1,806,441       3,269,825

INVESTING ACTIVITIES:
Purchase of securities available for sale                                                           (9,934,840)
Proceeds from maturities and paydowns of mortgage-backed securities                  1,250,544       6,878,902
Purchase of residential loans                                                       (2,019,624)     (2,060,697)
Purchase of commercial loans                                                        (4,028,874)     (7,046,768)
Net decrease in loans                                                                3,821,486      10,946,730
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                 (976,468)     (1,216,673)

FINANCING ACTIVITIES:
Dividends paid on preferred stock                                                   (1,350,675)     (1,350,675)
--------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                               (1,350,675)     (1,350,675)
--------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents                                  (520,702)        702,477
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                                       891,711         106,546
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                        $    371,009    $    809,023
==============================================================================================================
</TABLE>


See Notes to Financial Statements









                                       3


<PAGE>   6


                          FRANKLIN FINANCE CORPORATION
                       STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>



                                                                                          Accumulated
                                                                                             Other
                                                 Preferred        Common      Paid in     Comprehensive   Retained
                                                   Stock           Stock      Surplus      Gain/(Loss)    Earnings       Totals
----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>           <C>          <C>
BALANCE AT JANUARY 1, 1998                     $ 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                                                                                                2,467,247     2,467,247
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
  comprehensive loss                                                                         (193,450)                   (193,450)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                     20,700,000     6,623,100    14,319,178      (237,958)                 41,404,320
Net Income                                                                                                2,099,341     2,099,341
Dividends on 8.70% Noncumulative
  Series A Preferred Shares                                                                              (1,350,675)   (1,350,675)
Change in accumulated
  comprehensive loss                                                                           49,269                      49,269
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 (UNAUDITED)      $ 20,700,000  $  6,623,100  $ 14,319,178   $  (188,689)  $   748,666  $ 42,202,255
==================================================================================================================================
</TABLE>




See Notes to Financial Statements



                                       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, 1999 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, 2000 are
not necessarily indicative of the results to be expected for the year ended
December 31, 2000.

The Statement of Financial Condition as of December 31, 1999 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, 58.0% and 52.6%
bear interest at fixed rates at September 30, 2000 and 1999, respectively. At
both September 30, 2000 and September 30, 1999, the interest rates of the fixed
rate residential mortgage loans included in the portfolio ranged from 6.00% to
10.00% per annum. The weighted average interest rate of the fixed rate
residential mortgage loans included in the portfolio at September 30, 2000 and
1999, respectively, was approximately 7.86% and 7.51% per annum.

Of the residential mortgage loans included in the portfolio, 42.0% and 47.4%
bear interest at adjustable rates at September 30, 2000 and 1999, 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 6.75% to 9.625% per annum as
of September 30, 2000. At September 30, 1999 these rates ranged from 5.50% to
8.375%. As of September 30, 2000 and 1999, respectively, the weighted average
current interest rate of the residential mortgage loans included in the
portfolio that are ARMs was approximately 8.15% and 7.08% per annum.




                                       5

<PAGE>   8
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)


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 $125,751 to $2.1 million as of September 30, 2000, and $131,257 to
$2.1 million as of September 30, 1999.

Of the commercial mortgage loans included in the portfolio at September 30, 2000
and 1999, respectively, 75.8% and 60.7% bear interest at fixed rates. The
interest rates of the fixed rate commercial mortgage loans included in the
portfolio ranged from 7.25% to 12.00% per annum at September 30, 2000 and 7.75%
to 9.75% per annum at September 30, 1999. The weighted average current interest
rate of the commercial mortgage loans included in the portfolio that are fixed
rate loans was 8.95% and 8.91% per annum, as of September 30, 2000 and 1999,
respectively.

Of the commercial mortgage loans included in the portfolio at September 30, 2000
and 1999, respectively, 24.2% and 39.3% 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 both September 30, 2000 and September 30, 1999.
The weighted average yield equaled 8.32% and 8.38% per annum, at September 30,
2000 and 1999, respectively.


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

At September 30, 2000 and 1999, the mortgage-backed securities held by the
Company totaled $15.8 million and $17.8 million, respectively. At September 30,
2000, these securities had a weighted average yield of 7.19% and a weighted
average term to maturity of 2.43 years. At September 30, 1999, these securities
had a weighted average yield of 7.33% and a weighted average term to maturity of
2.14 years.


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

The Company's Board of Directors declared $1,350,675 of preferred stock
dividends for both of the nine months ended September 30, 2000 and September 30,
1999. To comply with current IRS regulations, it is expected that common
dividends will be declared in the fourth quarter of 2000.



                                       6

<PAGE>   9

                                     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.



FINANCIAL CONDITION


ORGANIZATION

Franklin Finance Corporation 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, FHLMC
mortgage-backed securities and FNMA mortgage-backed securities.


LOANS

At September 30, 2000 and December 31,1999, respectively, the Company had $10.9
million and $11.6 million invested in loans secured by first mortgages or deeds
of trust on single-family residential real estate properties ("Residential
Mortgage Loans"). The $696,168 net decrease from the balance at December 31,
1999, resulted from Residential Mortgage Loan principal collections and
individual loan payoffs of $2.7 million and the purchase of loans for the
portfolio of $2.0 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, 2000 and December 31, 1999, respectively, the Company had $14.8
million and $11.9 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 $2.9 million net increase from the
balance at December 31, 1999, resulted from Commercial Mortgage Loan principal
collections and individual loan payoffs of $1.1 million and the purchase of
loans for the portfolio of $4.0 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, 2000 and December 31, 1999, respectively, the Company had no
nonaccrual 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 which is charged to income and reduced
by net charge-offs. No provisions were deemed necessary during the nine months
ended September 30, 2000 or September 30, 1999.


                                       7



<PAGE>   10



MORTGAGE-BACKED SECURITIES

At September 30, 2000 and December 31, 1999, the Company had outstanding
principal balances of $15.8 million and $17.1 million, respectively, invested in
"FHLMC" mortgage-backed notes and "FNMA" mortgage-backed securities. The $1.3
million net decrease from the balance at December 31, 1999, resulted from
principal collections. These loans are for single family residential loans.
Management used the repayments of principal on these mortgage-backed securities
to invest in residential or commercial mortgage loans. These loans
traditionally have a higher interest rate than mortgage-backed securities.
Management expects to continue to reinvest the principal pay down of the
mortgage-backed securities into both residential and commercial mortgage loans.


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 are concentrated in the
State of Michigan. Geographic concentration of loans may present risks in
addition to those present with respect to mortgage loans. 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 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 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


                                       8


<PAGE>   11


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.


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, 2000, 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, 2000 TO NINE MONTHS ENDED
SEPTEMBER 30, 1999

During the nine-month periods ended September 30, 2000 and September 30, 1999
(the "nine-month period"), the Company reported net income of $2.1 million and
$1.8 million, respectively. Interest income on Residential Mortgage Loans
totaled $660,613 and $702,105 for the nine-month periods, respectively, which
represents an average yield on such loans of 7.79% and 7.80%, respectively.
Interest income on Commercial Mortgage Loans totaled $835,714 and $726,292 for
the nine-month periods respectively, which represents an average yield on such
loans of 8.60% and 9.05%, respectively. The average loan balance of the
Residential Mortgage Loan portfolio for the nine-month periods was $11.3 million
and $12.0 million, respectively. The average balance of the Commercial Mortgage
Loan portfolio for the nine-month periods was $13.0 million and $10.7 million,
respectively.

Interest income earned on the mortgage-backed investment securities for the
nine-month periods ended, September 30, 2000 and September 30, 1999 totaled
$777,912 and $580,901, respectively. The nine-month average yield for September
30, 2000 and September 30, 1999 was 6.33% and 4.90% on an average balance of
$16.4 million and $15.8 million, respectively.

Non interest expense totaled $210,356 and $228,286 for the nine-month periods
ended September 30, 2000 and September 30, 1999, respectively, and were
comprised of loan servicing fees and advisory fees paid to the Bank, directors
fees and general and administrative expenses. Advisory fees paid to the Bank
were $93,749 and $93,754 for the nine-month periods ended September 30, 2000 and
September 30, 1999, respectively. Audit expenses were $3,999 and $20,625 for the
nine-month periods ended September 30, 2000 and September 30, 1999,
respectively. Single business taxes were $18,900 and $27,000 for the nine-month
periods ended September 30, 2000 and September 30, 1999, respectively. Loan
servicing fees paid to the Bank of $66,749 and $59,098 for the nine-month
periods, respectively, were based on a servicing fee rate of 0.375% 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


COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED
SEPTEMBER 30, 1999

During the three-month periods ended September 30, 2000 and September 30, 1999
(the "three-month period"), the Company reported net income of $701,210 and
$610,314, respectively. Interest income on residential mortgage loans totaled
$211,153 and $234,227 for the three-month periods, respectively, which
represents an average yield on such loans of 7.67% and 7.94%, respectively.
Interest income on commercial mortgage loans totaled $287,805 and $230,811 for
the three-month periods, respectively, which represents an average yield on such
loans of 8.36% and 9.32%, respectively. The average loan balance of the
residential mortgage loan portfolio for the three-month periods was $11.0
million and $11.8 million, respectively. The average balance of the commercial
mortgage loan portfolio for the three-month periods was $13.8 million and $9.9
million, respectively.


                                       9


<PAGE>   12


Interest income earned on the mortgage-backed investment securities for the
three-month periods ended September 30, 2000 and September 30, 1999 totaled
$256,960 and $228,361, respectively. The three-month average yield for September
30, 2000 and September 30, 1999 was 6.43% and 5.22% on an average balance of
$16.0 million and $17.5 million, respectively.

Non interest expense totaled $70,608 and $92,749 for the three-month periods
ended September 30, 2000 and September 30, 1999, respectively, and were
comprised of loan servicing fees and advisory fees paid to the Bank, directors
fees and general and administrative expenses. Advisory fees paid to the Bank
were $31,251 and $31,210 for the three-month period ended September 30, 2000 and
September 30, 1999, respectively. Single business taxes were $6,900 and $21,000
for the three-month period ended September 30, 2000 and September 30, 1999,
respectively. Loan servicing fees paid to the Bank of $21,181 and $21,110 for
the three-month period, respectively, were based on a servicing fee rate of
0.375% 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

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, 2000.

                                       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 13, 2000.

                          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 and Chief Financial Officer
              (Principal financial and accounting officer)

























                                       11



<PAGE>   14
                                 Exhibit Index
                                 -------------

<TABLE>
<CAPTION>
Exhibit No.             Description
-----------             -----------
<S>                     <C>
    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
</TABLE>