<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 MARCH 31, 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
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 MARCH 31, 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 MARCH 31, 1999
                AND DECEMBER 31, 1998.....................................................................................1

               STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,1999
                AND MARCH 31, 1998........................................................................................2

               STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS
                ENDED MARCH 31, 1999 AND MARCH 31, 1998...................................................................3

               STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999
                AND MARCH 31, 1998........................................................................................4

               NOTES TO FINANCIAL STATEMENTS..............................................................................5

      ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
                AND MARCH 31, 1998........................................................................................6

      ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
                RISK  ....................................................................................................9

                           PART II - OTHER INFORMATION

      ITEM 1.  LEGAL PROCEEDINGS .........................................................................................9

      ITEM 2.  CHANGES IN SECURITIES......................................................................................9

      ITEM 3.  DEFAULTS UPON SENIOR SECURITIES............................................................................9

      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................9

      ITEM 5.  OTHER INFORMATION..........................................................................................9

      ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K ..........................................................................9

               SIGNATURES................................................................................................11
</TABLE>






                                       ii
<PAGE>   3

                          FRANKLIN FINANCE CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION


<TABLE>
<CAPTION>

                                                                                March 31, 1999      December 31, 1998
                                                                           --------------------------------------------
Assets                                                                           (unaudited)

<S>                                                                                 <C>                  <C>         
Cash                                                                                $  2,579,427         $    106,546
Loans
   Residential mortgage loans                                                         12,105,222           13,799,073
   Commercial mortgage loans                                                          13,055,471           11,246,854
   Allowance for loan losses                                                             (12,000)             (12,000)
-----------------------------------------------------------------------------------------------------------------------
Net loans                                                                             25,148,693           25,033,927
Mortgage-backed securities, available for sale                                        13,875,481           15,028,748
Accrued interest - mortgage-backed securities                                            121,895              181,089
Accrued interest - residential loans                                                      57,849               67,278
Accrued interest - commercial loans                                                      107,623               79,689
Due from parent company                                                                                     2,039,668
Prepaid expenses and other assets                                                         85,538               22,930
-----------------------------------------------------------------------------------------------------------------------
Total assets                                                                        $ 41,976,506         $ 42,559,875
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY

Due to Franklin                                                                     $    207,465
Dividend payable - Common                                                                                $    962,105
Miscellaneous accounts payable                                                             1,000
-----------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                208,465         $    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                                                     (38,623)             (44,508)
Retained earnings                                                                        164,386
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                          $ 41,768,041         $ 41,597,770
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                          $ 41,976,506         $ 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>
                                                                                 Three Months Ended
                                                                                      March 31,
                                                                             1999               1998
                                                                        -----------------------------------
<S>                                                                         <C>                 <C>      
Interest Income

Interest on residential                                                     $ 247,835           $ 433,425
Interest on, commercial                                                       256,836             394,709
Interest on Mortgage-backed securities                                        185,697
                                                                        -----------------------------------
Total interest on loans and securities                                        690,368             828,134
Provision for loan losses                                                                         (12,000)
                                                                        -----------------------------------

Total interest income after provision for loan losses                       $ 690,368             816,134
                                                                        -----------------------------------
Expenses

Director's fees                                                                 2,000               1,000
Outside services                                                                1,151                 759
Audit expense                                                                  10,000
Advisory fee                                                                   31,272              31,272
Insurance                                                                       5,663               7,699
Loan service fee                                                               25,671              29,786
                                                                        -----------------------------------
Total expenses                                                                 75,757              70,516
                                                                        -----------------------------------
Net income                                                                  $ 614,611           $ 745,618
                                                                        -----------------------------------
Preferred stock dividend                                                      450,225             450,772
                                                                        -----------------------------------
Net income available to common shareholders                                 $ 164,386           $ 294,846
                                                                        ===================================
Earnings per common share - basic                                                7.45               13.36
</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                                                       
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           $          0  $ 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                                                                                                $ 614,611       614,611  
Capital Contribution from
  Common Shareholder
Additional Expenses for Preferred
  Stock Offering
Dividends on 8.70% Noncumulative                                            
  Series A Preferred Shares                                                                                (450,225)     (450,225)

Change in accumulated
  comprehensive loss                                                                              5,885                     5,885 
                                             ------------------------------------------------------------------------------------
Balance, March 31, 1999                        $  20,700,000    $  6,623,100    $ 14,319,178  $ (38,623)  $ 164,386  $ 41,768,041
                                             ------------------------------------------------------------------------------------
</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>
                                                                                          Three Months Ended
                                                                                               March 31,
                                                                                       1999               1998
                                                                                  -------------------------------
<S>                                                                               <C>                <C>                        
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                                        $   614,611        $   745,618
Adjustments to reconcile net income to cash provided by operating activities:
  Provision for loan losses                                                                               12,000
  Amortization on securities                                                           80,835 
  Increase/(decrease)in accrued interest receivable                                    40,689             20,678
  Increase/(decrease) in prepaid expenses and other assets                          1,974,028              1,110
  Decrease/(increase) in other liabilities                                           (753,640)         1,274,261
                                                                                  -------------------------------   
Total adjustments                                                                   1,341,912          1,308,049
                                                                                  -------------------------------               
NET CASH PROVIDED BY OPERATING ACTIVITIES                                           1,956,523          2,053,667
                                                                                  -------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and paydowns of securities available for sale              1,081,349
Purchase of commercial loans                                                       (2,908,412)          (981,840)
Net (increase)/decrease in loans                                                    2,793,646          3,681,715
NET CASH PROVIDED BY INVESTING ACTIVITIES                                             966,583          2,699,875
                                                                                  -------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend on preferred stock                                                          (450,255)          (450,772)
                                                                                  ------------------------------
NET CASH USED IN FINANCING ACTIVITIES                                                (450,255)          (450,772)
                                                                                  -------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                           2,472,881          4,302,770
                                                                                  -------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                      106,546                268
                                                                                   ------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $ 2,579,427        $ 4,303,038
                                                                                  ===============================
</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:

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

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

Of the residential mortgage loans included in the portfolio, 45.0% and 58.9%
bear interest at fixed rates at March 31, 1999 and 1998, respectively. At March
31, 1999, the interest rates of the fixed rate residential mortgage loans
included in the portfolio range from 6.00% per annum to 10.49% per annum. At
March 31, 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 March 31, 1999 and 1998, respectively, was approximately 7.64% and
8.29% per annum.

Of the residential mortgage loans included in the portfolio, approximately 55.0%
and 49.3% bear interest at adjustable rates at March 31, 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 8.99% per annum as of March 31, 1999. At March 31, 1998 these rates
ranged from 7.00% to 8.75%. As of March 31, 1999 and 1998, respectively, the
weighted average current interest rate of the residential mortgage loans
included in the portfolio that are ARMs was approximately 7.30% and 8.01% per
annum.

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 $134,420 to $1.9 million as of March 31, 1999, and $116,659 to $1.9
million as of March 31, 1998.

Of the commercial mortgage loans included in the portfolio at March 31, 1999 and
1998, repsectively, 83.0% and 62.5% bear interest at fixed rates. The interest
rates of the fixed rate commercial mortgage loans included in the portfolio
ranged from 7.50% per annum to 9.99% per annum at March 31, 1999, and 7.75% to
12.00 % per annum at March 31, 1998. The weighted average current interest rate
of the commercial mortgage loans included in the portfolio that are fixed rate
loans was 8.97% and 8.88% per annum as of March 31, 1999 and 1998, repsectively.

Of the commercial mortgage loans included in the portfolio at March 31, 1999 and
1998, respectively, 17.0% and 37.5% 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 8.00% per annum
to 9.49% per annum as of March 31, 1999, and 8.00% to 10.0% per annum as of
March 31, 1998. The weighted average yield equals 8.70% and 8.91% per annum at
March 31, 1999 and 1998, respectively.







                                       5
<PAGE>   8


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

At March 31, 1999 the mortage-backed securities held by the Company totaled
$13.9 million. These securities had a weighted average yield of 7.68% and a
weighted average term to maturity of 1.458 years. There were no mortgage-backed
securities owned by the Company at March 31, 1999.

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 three months ended March 31, 1999 and 1998, respectively, the
Company's Board of Directors declared $450,225 and $450,772 of preferred stock
dividends.
                                     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 Company's judgement as of the date of this report. The Company
disclaims, however, any intent or obligation to update these forward-looking
statements.

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.

On December 22, 1997, the Company commenced its operations upon the closing of
the initial public offering (the "Offering") of 2,070,000 shares of the
Company's 8.70% Noncumulative Exchangeable Preferred Stock, Series A, par value
$10.00 per share (the "Series A Preferred Shares"). The net proceeds to the
Company from the sale of the Series A Preferred Shares were $19.8 million.
Simultaneous with the consummation of the Offering, the Bank made capital
contributions to the Company with respect to its Common Stock in the amount of
$20.7 million, plus an additional $1.1 million representing the underwriting
discount and the expenses of the Offering.





                                       6
<PAGE>   9



The Company used the net proceeds of $42.9 million raised from the Offering and
the capital contributions by the Bank to purchase from the Bank the Company's
initial portfolio of Mortgage Assets, comprised of residential and commercial
mortgage loans ("Mortgage Loans"), at their estimated fair value of
approximately $41.5 million. Such loans were recorded in the accompanying
financial statements at the Bank's historical cost basis of $41.2 million and
the premium paid with the purchase of the loans of $0.3 million.

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 March 31, 1999 and 1998, respectively, the Company had $12.1 and $21.2
million invested in loans secured by first mortgages or deeds of trust on
single-family residential real estate properties ("Residential Mortgage Loans").
The $1.7 million decrease from the balance at December 31, 1998, resulted from
Residential Mortgage Loan principal collections and individual loan payoffs.
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 March 31, 1999 and 1998, respectively, the Company had $13.1 and $17.6
million invested in mortgage loans secured by income-producing properties
("Commerical Mortgage Loans") that consist of retail strip centers, multi-family
residential rental properties, warehouse, industrial and office center
properties located in Michigan. The $1.8 million decrease from the balance at
December 31, 1998, resulted from Commercial Mortgage Loan principal collections
and individual loan payoffs of $1.1 million and the purchase of loans for the
portfolio of $2.9 million. Management intends to continue to reinvest proceeds
received from repayments of loans in additional Commerical Mortgage Loans, or
mortgage backed securities to be purchased from either the Bank or its
affiliates. See "Results of Operations."

At March 31, 1999 the Company had outstanding principal balances of $13.9
million invested in a "FHLMC" mortgage backed note and "FNMA" agency security.
These loans are for single family residential loans.

At March 31, 1999 and 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 three months
ended March 31, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>

                                                              Three Months Ended
                                                                   March 31,
                                                          1999                 1998
                                                --------------------------------------------
<S>                                                 <C>                     <C> 
Balance at beginning of period                      $  12,000               $    -
Provision for loan lossess                                                       12,000
Charge-offs
Recoveries                                      -------------------------------------------- 

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

Interest Rate Risk

The Company's income consists primarily of interest payments on mortgage loans.
If there is a decline in interest rates (as measured by the indices upon which
the interest rates of the adjustable rate mortgage loans are based), then the
Company will experience a decrease in income available to be distributed to its
shareholders. There can be no 




                                       7

<PAGE>   10


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.

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 March 31, 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

During the three-month period ended March 31, 1999 (the "three-month period")
and three months ended March 31, 1998, the Company reported net income of
$614,111 and $745,617, respectively. Interest income on Residential Mortgage
Loans totaled $247,835 and $433,425 for the three-month periods, respectively,
which represents an average yield on such loans of 7.65% and 8.01%,
respectively. Interest income on Commercial 





                                       8

<PAGE>   11



Mortgage Loans totaled $256,836 and $394,709 for the three-month periods,
respectively, which represents an average yield on such loans of 8.45 % and
8.80%, respectively. The average loan balance of the Residential Mortgage Loan
portfolio for the three-month periods was $13.0 million and $21.9 million,
respectively. The average balance of the Commercial Mortgage Loan portfolio for
the three-month periods was $12.2 million and $18.2 million, respectively. The
Company does not anticipate any material change in the amount of interest income
to be earned on these investments for the remainder of fiscal year 1999.

Interest income earned on the mortgage-backed investment securities totaled
$185,697 for the period ended March 31, 1999. The March 31, 1999 average yield
was 7.68% on a balance of $13.9 million. There were no mortgage-backed
securities held by the Company during the three months ended March 31, 1998.

Provision for loan losses of $12,000 was recorded on the Company's loan
portfolio during the three-month period ending March 31, 1998. No additional
provisions were made for the period ended March 31, 1999.

Operating expenses totaling $75,757 and $70,516 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 $25,671 and $29,786 for the three-month
periods, respectively, were based on a servicing fee rate of .375% of the
outstanding principal balances of the Residential and Commerical Mortgage Loans,
pursuant to the servicing agreements between the Company and the Bank. Advisory
fees paid to the Bank for the three-month period totaled $31,272. Directors fees
totaled $2,000 for the three-month period, and represents compensation to the 2
independent members of the Board of Directors. General and administrative
expenses consist primarily of insurance and outside service costs.

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 March 31, 1999, Form 10-Q for a
description of Year 2000 compliance status..

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.




                                       9

<PAGE>   12



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 Three months ended March 31,
    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
May 14, 1999.

                          FRANKLIN FINANCE CORPORATION
                                  (Registrant)

                    By:  /s/ Read P. Dunn


                         --------------------------------------
                         Read P. Dunn
                         Chief Executive Officer
                         (Duly authorized representative)

                    By:  /s/ David L. Shelp


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














                                       11


<PAGE>   14

                                 EXHIBIT INDEX


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 Schedules