<PAGE>
                       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, 2002

                         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, 2002.



<PAGE>
                          FRANKLIN FINANCE CORPORATION

                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>

ITEM 1.  FINANCIAL STATEMENTS:                                                                                 PAGE
<S>                                                                                                          <C>
         STATEMENTS OF FINANCIAL CONDITION AT SEPTEMBER 30, 2002 (unaudited)
               AND DECEMBER 31, 2001 ........................................................................   1

         STATEMENTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED
               SEPTEMBER 30, 2002 AND 2001 (unaudited) ......................................................   2

         STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTHS AND THREE MONTHS ENDED
               SEPTEMBER 30, 2002 AND 2001 (unaudited) ......................................................   2

         STATEMENTS OF SHAREHOLDERS' EQUITY FOR NINE MONTHS ENDED SEPTEMBER 30, 2002
               (unaudited) AND FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 ...............................   3

         STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
               AND 2001 (unaudited) .........................................................................   4

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

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

         COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 TO NINE MONTHS ENDED
               SEPTEMBER 30, 2001 ...........................................................................   9

         COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED
               SEPTEMBER 30, 2001 ...........................................................................  10


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ..........................................  10

ITEM 4.  CONTROLS AND PROCEDURES ............................................................................  10

                                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS ..................................................................................  11

ITEM 2.  CHANGES IN SECURITIES ..............................................................................  11

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES ....................................................................  11

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................................................  11

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

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

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

</TABLE>



                                       ii
<PAGE>



                          FRANKLIN FINANCE CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                                                                                      ----------------------------------------
                                                                                      SEPTEMBER 30, 2002     DECEMBER 31, 2001
                                                                                      ----------------------------------------
ASSETS                                                                                   (Unaudited)
<S>                                                                                   <C>                    <C>
Cash in checking                                                                        $      3,919            $     78,468
Cash in savings                                                                                1,785                 250,099
-----------------------------------------------------------------------------------------------------------------------------
Total cash in bank                                                                             5,704                 328,567
Loans
  Residential mortgage loans                                                               9,756,137              10,189,063
  Commercial mortgage loans                                                               32,355,524              22,898,516
  Allowance for loan losses                                                                  (12,000)                (12,000)
-----------------------------------------------------------------------------------------------------------------------------
Net loans                                                                                 42,099,661              33,075,579

Mortgage-backed securities, available for sale                                                     -               9,267,333
Accrued Interest                                                                             171,758                 213,048
Due from parent company                                                                      164,220                 138,795
Prepaid expenses and other assets                                                              9,501
-----------------------------------------------------------------------------------------------------------------------------
Total assets                                                                            $ 42,450,844            $ 43,023,322
=============================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Dividend payable - Common                                                                $         -            $  1,279,356
Accrued expenses                                                                               2,315                  23,000
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                      2,315               1,302,356

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 income                                                             -                  78,688
Retained earnings                                                                            806,251                       -
-----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                                42,448,529              41,720,966
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                              $ 42,450,844            $ 43,023,322
=============================================================================================================================

</TABLE>





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

                                       1
<PAGE>



                          FRANKLIN FINANCE CORPORATION
                      STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>


                                                             NINE MONTHS ENDED                       THREE MONTHS ENDED
                                                  ----------------------------------------------------------------------------
                                                                SEPTEMBER 30,                           SEPTEMBER 30,
                                                         2002                  2001               2002                 2001
                                                  ----------------------------------------------------------------------------
<S>                                               <C>                     <C>                <C>                <C>
INTEREST INCOME
Interest on residential loans                        $  542,256            $  647,926         $  176,922           $  213,980
Interest on commercial loans                          1,525,808               998,628            583,965              349,015
Interest on mortgage-backed securities                  201,028               738,961                  -              238,290
Interest on money market                                 10,301                12,869              1,391                3,424
------------------------------------------------------------------------------------------------------------------------------
Total interest income                                 2,279,393             2,398,384            762,278              804,709
------------------------------------------------------------------------------------------------------------------------------

NON INTEREST INCOME
Gain on sale of securities                              158,672               126,609                  -              126,609

NON INTEREST EXPENSE
Advisory fee - paid to parent                            93,749                93,749             31,251               31,251
Loan service fee - paid to parent                       108,810                76,517             39,495               30,632
Other general and administrative                         78,580                72,533             32,158               27,300
------------------------------------------------------------------------------------------------------------------------------
Total non interest expense                              281,139               242,799            102,904               89,183
------------------------------------------------------------------------------------------------------------------------------
Net income                                            2,156,926             2,282,194            659,374              842,135
==============================================================================================================================
Preferred stock dividend                              1,350,675             1,350,675            450,225              450,225
------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders          $  806,251            $  931,519         $  209,149           $  391,910
==============================================================================================================================

 EARNINGS PER COMMON SHARE                           $    36.52            $    42.19         $     9.47           $    17.75

</TABLE>



                          FRANKLIN FINANCE CORPORATION
                 STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



<TABLE>
<CAPTION>

                                                           NINE MONTHS ENDED                     THREE MONTHS ENDED
                                                 -------------------------------------------------------------------------
                                                              SEPTEMBER 30,                          SEPTEMBER 30,
                                                        2002                2001                2002               2001
                                                 --------------------------------------------------------------------------
<S>                                              <C>                    <C>                 <C>                 <C>
Net income                                          $ 2,156,926         $ 2,282,194         $  659,374          $  842,135

Other comprehensive income
   Unrealized gain on securities:
      Unrealized holding gains arising
         during the period                               79,984             236,205                 67             147,457
   Less: Reclassification adjustment for
          gains included in net income                  158,672              83,562                  -              83,562
---------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) / income                     (78,688)            152,643                 67              63,895
---------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                $ 2,078,238         $ 2,434,837         $  659,441          $  906,030
===========================================================================================================================
</TABLE>


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



                                       2
<PAGE>
                          FRANKLIN FINANCE CORPORATION
                       STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            Other
                                                Common       Preferred       Paid in    Comprehensive    Retained
                                                 Stock         Stock         Surplus    Income (Loss)    Earnings        Totals
----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>            <C>           <C>            <C>           <C>
BALANCE AT JANUARY 1, 2000                    $ 6,623,100   $ 20,700,000   $ 14,319,178   $(360,542)   $             $ 41,281,736
Net Income                                                                                               2,847,455      2,847,455
Dividends on 8.70% Noncumulative
   Series A Preferred Shares                                                                            (1,800,900)    (1,800,900)
Dividend on Common Stock ($43.58 per share)                                                             (1,046,555)    (1,046,555)
Change in accumulated other
   comprehensive income                                                                     402,065                       402,065
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                    6,623,100     20,700,000     14,319,178      41,523                    41,683,801
Net Income                                                                                               3,092,256      3,092,256
Dividends on 8.70% Noncumulative
   Series A Preferred Shares                                                                            (1,800,900)    (1,800,900)
Dividend on Common Stock ($47.40 per share)                                                             (1,291,356)    (1,291,356)
Change in accumulated other
   comprehensive income                                                                      37,165                        37,165
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                    6,623,100     20,700,000     14,319,178      78,688                    41,720,966
Net Income                                                                                               2,156,926      2,156,926
Dividends on 8.70% Noncumulative
   Series A Preferred Shares                                                                            (1,350,675)    (1,350,675)
Change in accumulated other
   comprehensive income                                                                     (78,688)                      (78,688)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 (UNAUDITED)     $ 6,623,100   $ 20,700,000   $ 14,319,178   $       -    $   806,251   $ 42,448,529
==================================================================================================================================
</TABLE>



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


                                       3
<PAGE>




                          FRANKLIN FINANCE CORPORATION
                      STATEMENTS OF CASH FLOWS (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                 NINE MONTHS ENDED
                                                                                        ------------------------------------
                                                                                                     SEPTEMBER 30,
                                                                                             2002                   2001
                                                                                        ------------------------------------
<S>                                                                                     <C>                    <C>
OPERATING ACTIVITIES:
Net Income                                                                              $  2,156,926            $ 2,282,194
Adjustments to reconcile net income to cash provided by
operating activities:
   Amortization on securities                                                                105,065                 18,502
   Gain on sale of available for sale securities, net                                       (158,672)               126,609
   Change in accrued interest receivable                                                      41,290                (25,256)
   Change in due from parent, prepaid expenses and other assets                             (113,614)              (500,235)
   Change in other liabilities                                                               (20,685)                13,575
----------------------------------------------------------------------------------------------------------------------------
Total adjustments                                                                           (146,616)              (366,805)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                  2,010,310              1,915,389

INVESTING ACTIVITIES:

Proceeds from maturities and paydowns of mortgage-backed securities                        2,734,043              2,384,783
Proceeds from sales of mortgage-backed securities                                          6,586,897
Net increase in loans                                                                     (9,024,082)            (1,496,571)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                                          296,858                888,212

FINANCING ACTIVITIES:
Dividends paid on common stock                                                            (1,279,356)            (1,046,555)
Dividends paid on preferred stock                                                         (1,350,675)            (1,350,675)
----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                                     (2,630,031)            (2,397,230)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                        (322,863)               406,371
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                                             328,567                 12,666
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                $    5,704             $  419,037
============================================================================================================================
</TABLE>






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



                                       4
<PAGE>



                          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, 2001 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, 2002 are
not necessarily indicative of the results to be expected for the year ended
December 31, 2002.

The Statement of Financial Condition as of December 31, 2001 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.

Pursuant to the terms of the Certificate of Designation under which the
preferred stock was originally issued, Franklin Finance Corporation can redeem
the preferred stock at any time after December 22, 2002. Franklin Finance
Corporation intends to redeem all of its 2,070,000 outstanding 8.70%
Non-Cumulative Preferred Stock, Series A, effective December 31, 2002 subject to
approval by the Office of the Comptroller of the Currency. The redemption price
will be $10.00 per share, plus the accrued and unpaid dividends declared by the
Board of Franklin Finance for the quarter ending December 31 2002.


NOTE 2 - RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS

Of the residential mortgage loans included in the portfolio, 21.8% and 21.5%
bear interest at fixed rates at September 30, 2002 and 2001, respectively. At
September 30, 2002, the interest rates of the fixed rate residential mortgage
loans included in the portfolio ranged from 6.63% to 10.88% per annum. At
September 30, 2001 these rates ranged from 6.63% to 9.50%. The weighted average
interest rate of the fixed rate residential mortgage loans included in the
portfolio at September 30, 2002 and 2001, respectively, was approximately 7.74%
and 7.42% per annum.





                                       5
<PAGE>



Of the residential mortgage loans included in the portfolio, 82.1% and 78.5%
bear interest at adjustable rates at September 30, 2002 and 2001, 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 4.13% to 8.88% per annum as
of September 30, 2002. At September 30, 2001 these rates ranged from 5.38% to
9.50%. As of September 30, 2002 and 2001, respectively, the weighted average
current interest rate of the residential mortgage loans included in the
portfolio that are ARMs was approximately 6.16% and 7.53% 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 $107,149 to $2.0 million as of September 30, 2002, and $118,798 to
$2.0 million as of September 30, 2001.

Of the commercial mortgage loans included in the portfolio at September 30, 2002
and 2001, respectively, 70.3% and 80.4% bear interest at fixed rates. The
interest rates of the fixed rate commercial mortgage loans included in the
portfolio ranged from 5.25% to 11.00% per annum at September 30, 2002 and 7.75%
to 9.75% per annum at September 30, 2001. The weighted average current interest
rate of the commercial mortgage loans included in the portfolio that are fixed
rate loans was 8.01% and 8.52% per annum, as of September 30, 2002 and September
30, 2001, respectively.

Of the commercial mortgage loans included in the portfolio at September 30, 2002
and 2001, respectively, 29.7% and 19.6% 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 5.00% per
annum to 9.75% per annum as of September 30, 2002 and 6.25% to 7.50% per annum
as of September 30, 2001. The weighted average yield equaled 6.29% and 7.08% per
annum, at September 30, 2002 and 2001, respectively.


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

At September 30, 2002 and 2001, the mortgage-backed securities held by the
Company totaled $0 and $13.2 million, respectively. At September 30, 2001, these
securities had a weighted average yield of 6.14% and a weighted average term to
maturity of 2.50 years.


NOTE 4 - PREFERRED STOCK

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. Pursuant to the terms of the Certificate
of Designation under which the preferred stock was originally issued, Franklin
Finance Corporation can redeem the preferred stock at any time after December
22, 2002. Franklin Finance Corporation intends to redeem all of its 2,070,000
outstanding 8.70% Non-Cumulative Preferred Stock, Series A, effective December
31, 2002 subject to approval by the Office of the Comptroller of the Currency.
The redemption price will be $10.00 per share, plus the accrued and unpaid
dividends declared by the Board of Franklin Finance for the quarter ending
December 31 2002.
..


NOTE 5 - DIVIDENDS

To comply with current IRS regulations, it is expected that common dividends
will be declared in fourth quarter 2002.



                                       6
<PAGE>
                                     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.

Pursuant to the terms of the Certificate of Designation under which the
preferred stock was originally issued, Franklin Finance Corporation can redeem
the preferred stock at any time after December 22, 2002. Franklin Finance
Corporation intends to redeem all of its 2,070,000 outstanding 8.70%
Non-Cumulative Preferred Stock, Series A, effective December 31, 2002 subject to
approval by the Office of the Comptroller of the Currency. The redemption price
will be $10.00 per share, plus the accrued and unpaid dividends declared by the
Board of Franklin Finance for the quarter ending December 31 2002.

LOANS

At September 30, 2002 and December 31, 2001, respectively, the Company had $9.8
million and $10.2 million invested in loans secured by first mortgages or deeds
of trust on single-family residential real estate properties ("Residential
Mortgage Loans"). The $432,926 net decrease from the balance at December 31,
2001, resulted from a combination of decreases due to Residential Mortgage Loan
principal collections and payoffs along with increases caused by loan purchases.
Management intends to continue to reinvest proceeds received from repayments of
loans into additional Residential or Commercial Mortgage Loans to be purchased
from either the Bank or its affiliates. See "Results of Operations."

At September 30, 2002 and December 31, 2001, respectively, the Company had $32.4
million and $22.9 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 $9.5 million net increase from the
balance at December 31, 2001, resulted from Commercial Mortgage Loan purchases.
Management intends to continue to reinvest proceeds received from repayments of
loans in additional Commercial or Residential Mortgage Loans to be purchased
from either the Bank or its affiliates. See "Results of Operations."









                                       7
<PAGE>

At September 30, 2002 and December 31, 2001, 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 which is charged to income and reduced
by net charge-offs. No provisions were deemed necessary during the three months
ended September 30, 2002 or September 30, 2001.

MORTGAGE-BACKED SECURITIES

At September 30, 2002 and December 31, 2001, the Company had outstanding
principal balances of $0 and $9.3 million, respectively, invested in "FHLMC"
mortgage-backed securities and "FNMA" mortgage-backed securities. The $9.3
million net decrease from the balance at December 31, 2001, resulted from sales
of securities, principal collections and maturities. Management intends to
invest in Residential and Commercial Mortgage Loans.


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. 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 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.

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.


                                       8
<PAGE>



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 90% 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.

Franklin Finance Corporation intends to redeem all of its 2,070,000 outstanding
8.70% Non-Cumulative Preferred Stock, Series A, effective December 31, 2002
subject to approval by the Office of the Comptroller of the Currency. The
redemption price will be $10.00 per share, plus the accrued and unpaid dividends
declared by the Board of Franklin Finance for the quarter ending December 31
2002. The Company intends on selling the mortgage loans, which as of September
30, 2002 totaled $42.2 million, to the Bank in order to raise the funds to
redeem the stock and pay the dividend effective December 31, 2002.


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 90
percent (95% in taxable years prior to January 1, 2001) 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, 2002, 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, 2002 TO NINE MONTHS ENDED
SEPTEMBER 30, 2001

During the nine-month periods ended September 30, 2002 and September 30, 2001
(the "nine-month period"), the Company reported net income of $2.2 million and
$2.3 million, respectively. Interest income on Residential Mortgage Loans
totaled $542,256 and $647,926 for the nine-month periods, respectively, which
represents an average yield on such loans of 7.08% and 7.85%, respectively.
Interest income on Commercial Mortgage Loans totaled $1.5 million and $998,628
for the nine-month periods, respectively, which represents an average yield on
such loans of 7.61% and 8.43%, respectively. The average loan balance of the
Residential Mortgage Loan portfolio for the nine-month periods was $10.4 million
and $11.0 million, respectively. The average balance of the Commercial Mortgage
Loan portfolio for the nine-month periods was $27.1 million and $15.8 million,
respectively.

Interest income earned on the mortgage-backed investment securities for
nine-month periods ended September 30, 2002 and September 30, 2001 totaled
$201,028 and $738,961, respectively. The nine-month average yield for September
30, 2002 and September 30, 2001 was 6.19% and 6.83% on an average balance of
$4.4 million and $14.6 million, respectively.

Gain on sale of available for sale securities total $158,672 and $126,609 for
the nine-month periods ended September 30, 2002 and September 30, 2001.
Management intends to use the proceeds from investment sales to purchase higher
yielding commercial and residential mortgage loans.

Non interest expenses totaled $281,139 and $242,798 for the nine-month periods
ended September 30, 2002 and September 30, 2001, respectively, and were
comprised of loan servicing fees and advisory fees paid to the Bank, and general
and administrative expenses. Advisory fees paid to the Bank were $93,749 for
each of the nine-month periods ended September 30, 2002 and September 30, 2001.
Loan servicing fees paid to the Bank of $108,810 and $76,517 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. Loan
servicing fees increased due to the overall increase in average loan balances.
General and administrative expenses consist primarily of insurance, single
business tax and outside audit costs.



                                       9
<PAGE>


COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED
SEPTEMBER 30, 2001

During the three-month periods ended September 30, 2002 and September 30, 2001
(the "three-month period"), the Company reported net income of $659,374 and
$842,135, respectively. The decrease of $182,761 can be attributed to the
overall decrease in interest income as it relates to increases in both
Residential Mortgage loans and Mortgage-backed Securities. See "Financial
Condition". Management expects a stabilization in net income throughout the
remainder of 2002 as the company shifts its focus towards increasing its
holdings in commercial real estate loans. Interest income on Residential
Mortgage Loans totaled $176,922 and $213,980 for the three-month periods,
respectively, which represents an average yield on such loans of 7.16% and
7.64%, respectively. Interest income on Commercial Mortgage Loans totaled
$583,965 and $349,015 for the three-month periods, respectively, which
represents an average yield on such loans of 7.41% and 8.31%, respectively. The
average loan balance of the Residential Mortgage Loan portfolio for the
three-month periods was $10.0 million and $11.2 million, respectively. The
average balance of the Commercial Mortgage Loan portfolio for the three-month
periods was $32.1 million and $16.8 million, respectively.

Operating expenses totaling $102,904 and $89,183 for the three-month periods
ended September 30, 2002 and September 30, 2001 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 $39,495 and
$30,632 for the three-month periods, respectively, noting that the increase of
$8,863 can be attributed to the overall increase in the total average loan
balances as compared to the same period of 2001. The amount paid to the Bank is
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 which calls for a fee to be charged
when a loan payment is made each month. General and administrative expenses
consist primarily of insurance and outside audit costs which management expects
to remain consistent throughout the remainder of 2002.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4.  CONTROLS AND PROCEDURES

         (a)      The term "disclosure controls and procedures" is defined in
                  Rules 13a-14(c) and 15(d)-14(c) of the Securities Exchange Act
                  of 1934 (the "Exchange Act"). These Rules refer to the
                  controls and under procedures of a company that are designed
                  to ensure that information required to be disclosed by a
                  company in the reports that it files under the Exchange Act is
                  recorded, processed, summarized and reported within required
                  time periods. Our Chief Executive Officer, who is also our
                  principal financial officer, has evaluated the effectiveness
                  of our disclosure controls and procedures as of a date within
                  90 days before the filing of this quarterly report (the
                  "Evaluation Date"), and has concluded that our disclosure
                  controls and procedures are effective in providing him with
                  material information relating to the Bank known to others
                  within the Bank which is required to be included in our
                  periodic reports filed under the Exchange Act.

         (b)      There have been no significant changes in the Bank's internal
                  controls or in other factors which could significantly affect
                  internal controls subsequent to the Evaluation Date.




                                       10
<PAGE>




                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is not the subject of any material litigation. Neither the Company,
the Bank, nor 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

(b) The following exhibit is filed as part of the report:

         Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
         adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) No reports on Form 8-K were issued during the three months ended
September 30, 2002.



                                       11
<PAGE>


                                   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, 2002.

                          FRANKLIN FINANCE CORPORATION
                                  (Registrant)


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


                                  CERTIFICATION

I, David L. Shelp, President, Chief Executive Officer, and Chief Financial
Officer of Franklin Finance Corporation, (the "registrant"), certify that:

         1.       I have reviewed this quarterly report on Form 10-Q of the
                  registrant;
         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact necessary to make the
                  statements made, in light of the circumstances under which
                  such statements were made, not misleading with respect to the
                  period covered by this quarterly report;
         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  registrant as of, and for, the periods presented in this
                  quarterly report;
         4.       I am responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and I have:

                           (a)      designed such disclosure controls and
                                    procedures to ensure that material
                                    information relating to the registrant is
                                    made known to me by others, particularly
                                    during the period in which this quarterly
                                    report is being prepared;

                           (b)      evaluated the effectiveness of the
                                    registrant's disclosure controls and
                                    procedures as of a date within 90 days prior
                                    to the filing date of this quarterly report
                                    (the "Evaluation Date"); and

                           (c)      presented in this quarterly report my
                                    conclusions about the effectiveness of the
                                    disclosure controls and procedures based on
                                    my evaluation as of the Evaluation Date;

        5.        I have disclosed, based on my most recent evaluation, to the
                  registrant's auditors and the audit committee of the board of
                  directors (or persons fulfilling the equivalent function):

                           (a)      all significant deficiencies in the design
                                    or operation of internal controls which
                                    could adversely affect the registrant's
                                    ability to record, process, summarize and
                                    report financial data and have identified
                                    for the registrant's auditors any material
                                    weaknesses in internal controls; and

                           (b)      any fraud, whether or not material, that
                                    involves management or other employees who
                                    have a significant role in the registrant's
                                    internal controls; and

        6.        I have indicated in this quarterly report whether or not there
                  were significant changes in internal controls or in other
                  factors that could significantly affect internal controls
                  subsequent to the date of my most recent evaluation, including
                  any corrective actions with regard to significant deficiencies
                  and material weaknesses.


                           /s/ DAVID L. SHELP
                           ------------------------------------
November 13, 2002          David L. Shelp
                           Director, President, Chief Executive Officer and
                           Chief Financial Officer
                           (Principal executive and principal financial officer)






                                       12
<PAGE>

                                 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
99.1    Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002