##### Table of Contents



UNITED STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-17771
 FRANKLIN CREDIT HOLDING CORPORATION
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    26-3104776
(IRS Employer
Identification No.)101 Hudson Street 
Jersey City, New Jersey
(Address of Principal 
Executive Offices)
    
    07302
(Zip code)
 (201) 604-1800
 þ o
 o o
  o Large accelerated filer
o Accelerated filer
o Non-accelerated filer (Do not check if a smaller reporting company)
þ Smaller reporting company
 o þ




---



##### 



PagePART I.
    
    FINANCIAL
INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statement of Changes in Stockholders (Deficit) for the nine
months ended September 30, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Application of Critical Accounting Policies and Estimates
    
    
    25Portfolio Characteristics
    
    
    26Results of Operations
    
    
    31Liquidity and Capital Resources
    
    
    40Borrowings
    
    
    42Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    53Item 4T.
    
    Controls and Procedures
    
    
    54PART II.
    

OTHER
INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    55Item 1A.
    
    Risk Factors
    
    
    55Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 3.
    
    Defaults Upon Senior Securities
    
    
    55Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    55Item 5.
    
    Other Information
    
    
    55Item 6.
    
    Exhibits
    
    
    57SIGNATURES
    
    
    58Exhibit 10.101Exhibit 10.102Exhibit 10.103Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  September 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCash and cash equivalents
    
    $
    16,476,257
    
    
    $
    21,426,777Restricted cash
    
    
    1,205,640
    
    
    
    27,890,706Investment in REIT securities
    
    
    477,316,409
    
    
    
    Investment in trust certificates at fair value
    
    
    77,633,425
    
    
    
    Mortgage loans and real estate held for sale
    
    
    386,670,763
    
    
    
    Notes Receivable:Principal
    
    
    
    
    
    
    1,021,648,291Purchase discount
    
    
    
    
    
    
    (9,777,475
    )Allowance for loan losses
    
    
    
    
    
    
    (471,093,159
    )Net notes receivable
    
    
    
    
    
    
    540,777,657Notes receivable held for sale
    
    
    3,655,474
    
    
    
    Originated loans held for investment:Principal, net of deferred fees and costs
    
    
    
    
    
    
    391,704,319Allowance for loan losses
    
    
    
    
    
    
    (49,876,092
    )Originated loans held for investment, net
    
    
    
    
    
    
    341,828,227Accrued interest receivable
    
    
    44,684
    
    
    
    10,055,241Other real estate owned
    
    
    
    
    
    
    60,748,390Deferred financing costs, net
    
    
    7,325,277
    
    
    
    7,824,432Other receivables
    
    
    4,550,404
    
    
    
    7,028,334Building, furniture and equipment, net
    
    
    1,707,778
    
    
    
    2,042,436Income tax receivable
    
    
    1,641,503
    
    
    
    2,126,590Other assets
    
    
    764,864
    
    
    
    634,652Total assets
    
    $
    978,992,478
    
    
    $
    1,022,383,442LIABILITIES AND STOCKHOLDERS (DEFICIT)Liabilities:Notes payable, net of debt discount of $192,833 at September 30, 2009
and $205,976 at December 31, 2008
    
    $
    1,365,825,005
    
    
    $
    1,442,126,964Financing agreements
    
    
    1,000,000
    
    
    
    1,958,011Nonrecourse liability
    
    
    386,670,763
    
    
    
    Accounts payable and accrued expenses
    
    
    6,615,952
    
    
    
    15,056,870Terminated derivative liability
    
    
    8,200,000
    
    
    
    Derivative liabilities, at fair value
    
    
    14,924,068
    
    
    
    27,753,436Total liabilities
    
    
    1,783,235,788
    
    
    
    1,486,895,281Commitments and ContingenciesStockholders (Deficit):Preferred stock, $0.01 par value; authorized 3,000,000;
issued and outstanding: none
    
    
    
    
    
    
    Common stock and additional paid-in capital, $0.01 par value,
22,000,000 authorized shares; issued and outstanding: 8,025,295 at September 30, 2009 and 8,025,295 at December 31, 2008
    
    
    22,093,495
    
    
    
    23,383,120Noncontrolling interest in subsidiary
    
    
    1,884,740
    
    
    
    Accumulated other comprehensive (loss)
    
    
    (16,197,385
    )
    
    
    (27,753,436
    )Retained (deficit)
    
    
    (812,024,160
    )
    
    
    (460,141,523
    )Total stockholders (deficit)
    
    
    (804,243,310
    )
    
    
    (464,511,839
    )Total liabilities and stockholders (deficit)
    
    $
    978,992,478
    
    
    $
    1,022,383,442
   3




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Interest income
    
    $
    13,030,707
    
    
    $
    19,122,096
    
    
    $
    46,161,847
    
    
    $
    78,047,824Dividend income
    
    
    10,678,495
    
    
    
    
    
    
    
    21,307,794
    
    
    
    Purchase discount earned
    
    
    
    
    
    
    547,392
    
    
    
    392,127
    
    
    
    2,134,142Gain on recovery from contractual loan purchase rights
    
    
    
    
    
    
    
    
    
    
    30,550,000
    
    
    
    (Loss) on mortgage loans and real estate held for sale
    
    
    
    
    
    
    
    
    
    
    (282,593,653
    )
    
    
    (Loss) on valuation of investments in trust certificates
and notes receivable held for sale
    
    
    
    
    
    
    
    
    
    
    (62,651,940
    )
    
    
    Fair valuation adjustments
    
    
    (4,186,598
    )
    
    
    
    
    
    
    (18,580,564
    )
    
    
    Gain on sale of other real estate owned
    
    
    
    
    
    
    743,653
    
    
    
    374,344
    
    
    
    1,126,360Servicing fees and other income
    
    
    1,460,381
    
    
    
    3,706,094
    
    
    
    5,687,547
    
    
    
    8,903,967Total revenues/(losses)
    
    
    20,982,985
    
    
    
    24,119,235
    
    
    
    (259,352,498
    )
    
    
    90,212,293Operating Expenses:Interest expense
    
    
    21,202,037
    
    
    
    18,267,375
    
    
    
    56,002,429
    
    
    
    60,052,011Collection, general and administrative
    
    
    8,721,929
    
    
    
    12,702,951
    
    
    
    34,320,637
    
    
    
    34,631,247Provision for loan losses
    
    
    
    
    
    
    10,560,709
    
    
    
    169,479
    
    
    
    299,708,175Amortization of deferred financing costs
    
    
    43,810
    
    
    
    297,917
    
    
    
    499,155
    
    
    
    871,882Depreciation
    
    
    153,509
    
    
    
    247,732
    
    
    
    468,049
    
    
    
    862,034Total expenses
    
    
    30,121,285
    
    
    
    42,076,684
    
    
    
    91,459,749
    
    
    
    396,125,349(Loss) before provision for income taxes
    
    
    (9,138,300
    )
    
    
    (17,957,449
    )
    
    
    (350,812,247
    )
    
    
    (305,913,056
    )Income tax
    
    
    238,475
    
    
    
    
    
    
    
    671,640
    
    
    
    Net (loss)
    
    
    (9,376,775
    )
    
    
    (17,957,449
    )
    
    
    (351,483,887
    )
    
    
    (305,913,056
    )Net income attributable to noncontrolling interest
    
    
    192,670
    
    
    
    
    
    
    
    398,750
    
    
    
    Net (loss) attributable to common share stockholders
    
    $
    (9,569,445
    )
    
    $
    (17,957,449
    )
    
    $
    (351,882,637
    )
    
    $
    (305,913,056
    )Net (loss) per common share:Basic and diluted
    
    $
    (1.20
    )
    
    $
    (2.25
    )
    
    $
    (43.98
    )
    
    $
    (38.34
    )Weighted average number of shares outstanding:Basic and diluted
    
    
    8,006,545
    
    
    
    7,986,545
    
    
    
    8,000,295
    
    
    
    7,979,045(Loss) available to common shareholders
    
    $
    (9,569,445
    )
    
    $
    (17,957,449
    )
    
    $
    (351,882,637
    )
    
    $
    (305,913,056
    )Accumulated other comprehensive (loss)
    
    
    (5,609,693
    )
    
    
    (20,917,822
    )
    
    
    (340,326,586
    )
    
    
    (302,833,080
    )Comprehensive (loss)
    
    $
    (3,959,752
    )
    
    $
    (2,960,373
    )
    
    $
    (11,556,051
    )
    
    $
    (3,079,976
    )
   4




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 AccumulatedCommon Stock and
    
    
    Other
    
    
    NoncontrollingAdditional Paid-in Capital
    
    
    Comprehensive
    
    
    Interest
    
    
    RetainedShares
    
    
    Amount
    
    
    Loss
    
    
    in Subsidiary
    
    
    (Deficit)
    
    
    TotalBALANCE, JANUARY 1, 2009
    
    
    8,025,295
    
    
    $
    23,383,120
    
    
    $
    (27,753,436
    )
    
    $
    
    
    
    $
    (460,141,523
    )
    
    $
    (464,511,839
    )Stock-based compensation
    
    
    
    
    
    
    196,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,365Initial transfer of noncontrolling interest
in subsidiary
    
    
    
    
    
    
    (1,710,490
    )
    
    
    
    
    
    
    1,710,490
    
    
    
    
    
    
    
    Net income attributed to minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398,750
    
    
    
    
    
    
    
    398,750Non-dividend distribution
    
    
    
    
    
    
    224,500
    
    
    
    
    
    
    
    (224,500
    )
    
    
    
    
    
    
    Amortization  unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    11,556,051
    
    
    
    
    
    
    
    
    
    
    
    11,556,051Net (loss) attributed to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (351,882,637
    )
    
    
    (351,882,637
    )BALANCE, SEPTEMBER 30, 2009 (UNAUDITED)
    
    
    8,025,295
    
    
    $
    22,093,495
    
    
    $
    (16,197,385
    )
    
    $
    1,884,740
    
    
    $
    (812,024,160
    )
    
    $
    (804,243,310
    )
   5




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 Nine Months Ended September 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) attributed to common shareholders
    
    $
    (351,882,637
    )
    
    $
    (305,913,056
    )Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:Gain on sale of other real estate owned
    
    
    (374,344
    )
    
    
    (1,126,361
    )Depreciation
    
    
    468,049
    
    
    
    862,034Amortization of deferred costs and fees on originated loans
    
    
    48,215
    
    
    
    (469,797
    )Loss on mortgage loans and real estate held for sale
    
    
    282,593,653
    
    
    
    Fair valuation adjustments
    
    
    18,580,565
    
    
    
    Loss on valuation of investment in trust certificates and notes receivable held for sale
    
    
    62,651,940
    
    
    
    Principal collections on mortgage loans held for sale
    
    
    39,381,995
    
    
    
    Paid in kind interest
    
    
    16,287,530
    
    
    
    Proceeds from sale of real estate held for sale
    
    
    33,525,181
    
    
    
    Amortization of deferred financing costs
    
    
    499,155
    
    
    
    871,882Amortization of debt discount and success fees
    
    
    13,143
    
    
    
    23,372Stock-based compensation
    
    
    196,365
    
    
    
    218,147Purchase discount earned
    
    
    (392,127
    )
    
    
    (2,085,030
    )Provision for loan losses
    
    
    169,479
    
    
    
    299,708,175Minority interest
    
    
    398,750
    
    
    
    Changes in operating assets and liabilities:Accrued interest receivable
    
    
    1,432,088
    
    
    
    8,031,406Other receivables
    
    
    2,477,930
    
    
    
    (1,040,490
    )Income tax receivable
    
    
    485,087
    
    
    
    (363,680
    )Other assets
    
    
    (257,401
    )
    
    
    (16,171
    )Accounts payable and accrued expenses
    
    
    (8,440,918
    )
    
    
    (7,572,754
    )Terminated derivative liability
    
    
    8,200,000
    
    
    
    Net cash provided by/(used in) operating activities
    
    
    106,061,698
    
    
    
    (8,872,323
    )CASH FLOWS FROM INVESTING ACTIVITIES:(Increase)/decrease in restricted cash
    
    
    26,685,066
    
    
    
    16,852,595Principal collections on notes receivable
    
    
    11,141,145
    
    
    
    68,277,490Principal collections on loans held for investment
    
    
    5,857,079
    
    
    
    54,306,747Investment in short-term securities
    
    
    
    
    
    
    4,735,308Put back of acquired notes receivable
    
    
    
    
    
    
    1,803,604Proceeds from sale of other real estate owned
    
    
    19,227,015
    
    
    
    29,539,748Purchase of building, furniture and equipment
    
    
    (6,201
    )
    
    
    (145,408
    )Net cash provided by investing activities
    
    
    62,904,104
    
    
    
    175,370,084CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments of notes payable
    
    
    (90,357,632
    )
    
    
    (165,481,229
    )Proceeds from financing agreements
    
    
    2,017,052
    
    
    
    996,773Principal payments of financing agreements
    
    
    (2,975,063
    )
    
    
    (1,080,668
    )Repayment of notes payable
    
    
    (2,245,000
    )
    
    
    Payments on nonrecourse liability
    
    
    (80,355,679
    )
    
    
    Net cash (used in) financing activities
    
    
    (173,916,322
    )
    
    
    (165,565,124
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (4,950,520
    )
    
    
    932,637CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    21,426,777
    
    
    
    18,266,066CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    16,476,257
    
    
    $
    19,198,703SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    32,740,196
    
    
    $
    60,447,880Cash payments for taxes
    
    $
    519,571
    
    
    $
    363,680NON-CASH INVESTING AND FINANCING ACTIVITY:Transfer from notes receivable and loans held for investment to OREO
    
    $
    20,566,413
    
    
    $
    71,758,851
   6




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 1. BUSINESS
 Overview
 March 2009 Restructuring
     7




---



##### Table of Contents



8




---



##### Table of Contents



Going Concern Uncertainty  Franklin Holding
   Operating Losses and Stockholders Deficit
    9




---



##### Table of Contents



Transfers and Servicing
    10




---



##### Table of Contents



Licenses to Service Loans and December 2008 Corporate Reorganization
     11




---



##### Table of Contents



Franklins Business
   12




---



##### Table of Contents



13




---



##### Table of Contents



Loan Servicing
   14




---



##### Table of Contents



Due Diligence Services
  Financing
   15




---



##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures
 Consolidations
  16




---



##### Table of Contents



Derivatives and Hedging
 Debt
 Financial Instruments
 Subsequent Events
 Basis of Presentation
   17




---



##### Table of Contents



Loss
Per Share
 Investment in REIT Securities
 Investment in Trust Certificates
 Mortgage Loans and Real Estate Held for Sale Transfers and Servicing
 Nonrecourse Liability
  18




---



##### Table of Contents



Fair Valuation Adjustments
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2009Valuation (loss) on OREO sold
    
    $
    (1,209,856
    )
    
    $
    (12,774,763
    )Valuation gain/(loss) on mortgage loans and OREO
    
    
    2,590,303
    
    
    
    (14,456,112
    )Valuation gain/(loss) on nonrecourse liability
    
    
    (6,078,765
    )
    
    
    10,289,967Other
    
    
    511,720
    
    
    
    (1,639,656
    )(Loss) on valuation
    
    $
    (4,186,598
    )
    
    $
    (18,580,564
    )
 Notes Receivable Held for Sale
 Income Recognition on Investment in Trust Certificates and Mortgage Loans and Real Estate Held
for Sale
 Notes Receivable and Income Recognition
  19




---



##### Table of Contents



Originated Loans Held for Investment
  Allowance for Loan Losses
  20




---



##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008Allowance for loan losses, beginning of period
    
    $
    
    
    
    $
    462,369,168Provision for loan losses
    
    
    
    
    
    
    2,042,349Loans transferred to OREO
    
    
    
    
    
    
    (11,408,951
    )Loans charged off
    
    
    
    
    
    
    (21,119,116
    )Loans transferred to Huntington
and loans exchanged for trust certificates and retained
    
    
    
    
    
    
    Loans transferred to loans held for sale
    
    
    
    
    
    
    Other, net
    
    
    
    
    
    
    151,068Allowance for loan losses, end of period
    
    $
    
    
    
    $
    432,034,518
 Nine Months Ended September 30,2009
    
    
    2008Allowance for loan losses, beginning of period
    
    $
    520,969,251
    
    
    $
    254,661,653Provision for loan losses
    
    
    169,479
    
    
    
    269,629,524Loans transferred to OREO
    
    
    (6,517,919
    )
    
    
    (18,122,066
    )Loans charged off
    
    
    (14,029,345
    )
    
    
    (74,177,371
    )Loans transferred to Huntington
and loans exchanged for trust certificates and retained
    
    
    (481,453,374
    )
    
    
    Loans transferred to loans held for sale
    
    
    (17,435,075
    )
    
    
    Other, net
    
    
    (1,703,017
    )
    
    
    42,778Allowance for loan losses, end of period
    
    $
    
    
    
    $
    432,034,518
  Derivatives Derivatives and Hedging
    21




---



##### Table of Contents



22




---



##### Table of Contents



Fair Value Measurements
 Fair Value Measurements and Disclosures,
 
    
    Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
    
    Level 2 Inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets and inputs that are observable for the asset
of liability, either directly or indirectly, for substantially the full term of the
financial instrument. Fair values for these instruments are estimated using pricing
models, quoted prices of securities with similar characteristics, or discounted cash
flows.
    
    Level 3 Inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Fair values are initially valued based upon transaction
price and are adjusted to reflect exit values as evidenced by financing and sale
transactions with third parties.
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Level 3Interest rate swaps
    
    $
    
    
    
    $
    (14,924,068
    )
    
    $
    
    
    
    $
    Investment in REIT securities
    
    
    
    
    
    
    
    
    
    
    472,413,331
    
    
    
    Investment in trust certificates
    
    
    
    
    
    
    
    
    
    
    77,633,425
    
    
    
    Nonrecourse liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    386,670,763Total
    
    $
    
    
    
    $
    (14,924,068
    )
    
    $
    550,046,756
    
    
    $
    386,670,763
  Investments
    
    
    LiabilitiesBalance, January 1, 2009
    
    $
    
    
    
    $
    Additions
    
    
    623,602,529
    
    
    
    (477,316,409
    )Total recognized unrealized (losses)/gains
    
    
    (51,249,511
    )
    
    
    10,289,967Transfer in/(out)
    
    
    (8,724,287
    )
    
    
    Distributions/payments
    
    
    (13,581,975
    )
    
    
    80,355,679Balance, September 30, 2009
    
    $
    550,046,756
    
    
    $
    (386,670,763
    )
   23




---



##### Table of Contents



Level 1
    
    
    Level 2
    
    
    Level 3Mortgage loans and real estate held for sale
    
    $
    
    
    
    $
    
    
    
    $
    386,670,763
 Subsequent Events
 Declaration of Dividend
  Unrestructured Debt
    24




---



##### Table of Contents



ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 General
 Safe Harbor Statements.
 
 Application of Critical Accounting Policies and Estimate
   25




---



##### Table of Contents



Transfers and
Servicing
 
 Portfolio Characteristics
 Overall Portfolio
   Unpaid
    
    
    Percentage of TotalProperty Types
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    $
    1,268,478,890
    
    
    
    82.41
    %Condos, co-ops, PUD dwellings
    
    
    193,149,884
    
    
    
    12.55
    %Manufactured and mobile homes
    
    
    15,135,861
    
    
    
    0.98
    %Multi-family
    
    
    443,023
    
    
    
    0.03
    %Secured, property type unknown(1)
    
    
    18,464,780
    
    
    
    1.20
    %Commercial
    
    
    1,920,922
    
    
    
    0.12
    %Unsecured loans(2)
    
    
    41,678,994
    
    
    
    2.71
    %Total
    
    $
    1,539,272,354
    
    
    
    100.00
    %
 
 (1)
    
    The loans included in this category are principally small balance (less than $10,000)
second-lien loans acquired, and are collateralized by residential real estate.(2)
    
    The loans included in this category are principally second-lien loans where the Company
is aware that residential real estate collateral has been foreclosed by the first-lien
holder.  26




---



##### Table of Contents



Asset Quality
 Delinquency .
   27




---



##### Table of Contents



December 31, 2008Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Performing  Current
    
    0 - 30 days
    
    $
    373,712,487
    
    
    
    24.28
    %
    
    $
    419,653,369
    
    
    
    27.26
    %Delinquent
    
    31 - 60 days
    
    
    30,511,251
    
    
    
    1.98
    %
    
    
    25,910,879
    
    
    
    1.69
    %61 - 90 days
    
    
    4,302,736
    
    
    
    0.28
    %
    
    
    21,390,383
    
    
    
    1.39
    %90+ days
    
    
    128,904,056
    
    
    
    8.38
    %
    
    
    70,475,899
    
    
    
    4.58
    %Modified Loans
    
    0 - 30 days
    
    
    262,156,611
    
    
    
    17.03
    %
    
    
    299,215,550
    
    
    
    19.44
    %Delinquent
    
    31 - 60 days
    
    
    46,097,510
    
    
    
    2.99
    %
    
    
    32,572,746
    
    
    
    2.12
    %61 - 90 days
    
    
    1,195,906
    
    
    
    0.08
    %
    
    
    15,542,772
    
    
    
    1.01
    %90+ days
    
    
    78,911,624
    
    
    
    5.13
    %
    
    
    41,030,583
    
    
    
    2.66
    %Bankruptcy
    
    0 - 30 days
    
    
    26,527,458
    
    
    
    1.72
    %
    
    
    62,020,559
    
    
    
    4.03
    %Delinquent
    
    31 - 60 days
    
    
    5,929,387
    
    
    
    0.38
    %
    
    
    10,264,968
    
    
    
    0.67
    %61 - 90 days
    
    
    1,644,545
    
    
    
    0.11
    %
    
    
    4,623,655
    
    
    
    0.30
    %90+ days
    
    
    90,762,522
    
    
    
    5.90
    %
    
    
    47,954,730
    
    
    
    3.11
    %Foreclosure
    
    0 - 30 days
    
    
    2,575,557
    
    
    
    0.16
    %
    
    
    19,594,271
    
    
    
    1.27
    %Delinquent
    
    31 - 60 days
    
    
    743,187
    
    
    
    0.05
    %
    
    
    7,639,599
    
    
    
    0.50
    %61 - 90 days
    
    
    123,808
    
    
    
    0.01
    %
    
    
    7,248,534
    
    
    
    0.47
    %90+ days
    
    
    485,173,709
    
    
    
    31.52
    %
    
    
    454,133,857
    
    
    
    29.50
    %Total
    
    $
    1,539,272,354
    
    
    
    100.00
    %
    
    $
    1,539,272,354
    
    
    
    100.00
    %All current loans
    
    0 - 30 days
    
    $
    664,972,113
    
    
    
    43.20
    %
    
    $
    800,483,749
    
    
    
    52.00
    %
    28




---



##### Table of Contents



Notes Receivable Portfolio
   December 31, 2008Performing loans
    
    $
    528,953,209Allowance for loan losses
    
    
    130,724,698Nonaccretable discount*
    
    
    25,277,808Total performing loans, net
allowance for loan losses and nonaccretable discount
    
    
    372,950,703Impaired loans
    
    
    615,159,200Allowance for loan losses
    
    
    340,368,461Nonaccretable discount*
    
    
    72,325,558Total impaired loans, net
allowance for loan losses and nonaccretable discount
    
    
    202,465,181Total notes receivable, net
allowance for loan losses and nonaccretable discount
    
    
    575,415,884Accretable discount*
    
    
    24,860,752Total notes receivable, net
allowance for loan losses and
accretable/nonaccretable discount
    
    $
    550,555,132
 
 *
    
    Represents purchase discount not reflected on the face of the balance sheet in
accordance with Topic 313, Loans and Debt Securities Acquired with Deteriorated Credit
Quality, for loans acquired after December 31, 2004. Accretable Discount is the excess of
the loans estimated cash flows over the purchase prices, which is accreted into income
over the life of the loan. Nonaccretable Discount is the excess of the undiscounted
contractual cash flows over the undiscounted cash flows estimated at the time of
acquisition.   29




---



##### Table of Contents



December 31, 2008Performing Loans:Fixed rate
    
    $
    325,799,144Adjustable rate
    
    
    72,429,367Total Performing Loans
    
    $
    398,228,511Impaired Loans:Fixed rate
    
    $
    162,504,488Adjustable rate
    
    
    112,286,251Total Impaired Loans
    
    $
    274,790,739Total Notes
    
    $
    673,019,250Accretable discount
    
    $
    24,860,752Nonaccretable discount
    
    $
    97,603,366Total Notes Receivable,
net of allowance for loan losses
    
    $
    550,555,132
  Lien Position.
 December 31, 2008Percentage of TotalLien Position
    
    Principal Balance
    
    
    Principal Balance1st Liens
    
    $
    390,020,158
    
    
    
    34.09
    %2nd Liens
    
    
    754,092,251
    
    
    
    65.91
    %Total
    
    $
    1,144,112,409
    
    
    
    100.00
    %
  30




---



##### Table of Contents



Other Real Estate Owned
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Other real estate owned
    
    $
    
    
    
    $
    72,105,644
    
    
    $
    
    
    
    $
    72,105,644OREO as a percentage of total assets
    
    
    
    
    
    
    5.93
    %
    
    
    
    
    
    
    5.93
    %OREO sold (prior to the Restructuring)
    
    $
    
    
    
    $
    11,762,540
    
    
    $
    18,852,671
    
    
    $
    28,413,387Gain on sale
    
    $
    
    
    
    $
    743,653
    
    
    $
    374,344
    
    
    $
    1,126,360
  
 Results of Operations
 Transfers and Servicing Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Overview.
   31




---



##### Table of Contents



Revenues.
        32




---



##### Table of Contents



Operating Expenses.
    33




---



##### Table of Contents



Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Overview.
  34




---



##### Table of Contents



Revenues.
     35




---



##### Table of Contents



Transfers and Servicing
      36




---



##### Table of Contents



Operating Expenses.
    37




---



##### Table of Contents



38




---



##### Table of Contents



Franklin Credit Management Corporation (FCMC)
 Transfers and Servicing
    39




---



##### Table of Contents



Liquidity and Capital Resources
 General
    Short-term Investments.
  40




---



##### Table of Contents



Cost of Funds.
 Under the terms of theForbearance Agreementsand credit agreementIn accordance with the
    
    
    excludedterms of the Restructuring
    
    
    from the RestructuringAgreements
    
    
    AgreementsFHLB 30-day LIBOR advance rate plus 2.60%
    
    $
    
    
    
    $
    16,108,123FHLB 30-day LIBOR advance rate plus 2.75%
    
    
    
    
    
    
    23,708,117LIBOR plus 2.25%
    
    
    777,425,650
    
    
    
    LIBOR plus 2.75%
    
    
    413,992,186
    
    
    
    15.00%
    
    
    134,783,762
    
    
    
    $
    1,326,201,598
    
    
    $
    39,816,240
  Cash Flow from Operating, Investing and Financing Activities
     41




---



##### Table of Contents



Borrowings
  Restructuring Agreements with Lead Lending Bank
  March 2009 Restructuring
   42




---



##### Table of Contents



43




---



##### Table of Contents



Background.
  Summary.
 (1)
    
    in exchange for the transfer of that part of the Portfolio underlying the Bank
Trust Certificates (as defined below), the Company received common membership interests
and Class C preferred membership interests in the REIT having in the aggregate a value
intended to approximate the fair market value of that portion of the Portfolio
transferred to the Bank, which as of March 31, 2009 was approximately $477.3 million
(the REIT Securities). The preferred membership interests have a liquidation value
of $100,000 per unit and an annual cumulative dividend rate of 9% of such liquidation
value. Any dividends on the preferred shares shall be payable only out of funds
legally available for the payment thereof;(2)
    
    principal and interest payments in respect of the Legacy Credit Agreement are
only due and payable to the extent of cash flow of the Company, which cash flow would
include dividends declared and paid in respect of the REIT Securities or any other
assets of the Company, other than the retained interest in FCMC (as discussed below);
and(3)
    
    the Banks recourse in respect of the Legacy Credit Agreement is limited to the
assets and stock of Franklin Holdings subsidiaries, excluding the assets of FCMC
(except for a first lien of the Bank on an office condominium unit and a second
priority lien of the Bank on cash collateral held as security under the Licensing
Credit Agreement) and a portion of FCMCs stock, representing not less than twenty
percent and not more than seventy percent of FCMCs common equity, based on the amounts
received by the Bank from the cash collections from FCMCs servicing of the Portfolio
as discussed in more detail below. Under the terms and conditions of the Restructuring
Agreements, FCMC may pay dividends or other distributions in respect of its capital
stock if FCMC delivers to the Bank a payment to be applied to outstanding obligations
under the Legacy Credit Agreement equal to seventy percent of any such distribution or
dividend that FCMC elects to make or declare, which percentage share may be reduced to
twenty percent based upon the Banks receipt of the agreed amounts of net remittances
from the Portfolio summarized below.
  44




---



##### Table of Contents



(1)
    
    release of thirty percent of the equity in FCMC, ten percent of which has been
transferred to the Companys principal stockholder, Thomas J. Axon, from the Companys
pledges to the Bank in respect of its Legacy Credit Agreement, with the possibility of
release of up to an additional fifty percent (of which a maximum of ten percent would
go to Thomas J. Axon), based upon the Banks receipt of the agreed amounts of net
remittances from the Portfolio, summarized below (the Net Remittances), from March
31, 2009, the effective date of the Legacy Credit Agreement (the Legacy Effective
Date), through the term of the Legacy Credit Agreement; the Bank shall reduce its
interest in the equity in FCMC, as collateral, in accordance with the following
collection levels:
 Minimum Amountof Net RemittancesLevel
    
    (Minimum Level Amount)*
    
    Time Period
    
    Release of Equity Interests*Level 1
    
    $225 million
    
    1 year from the Legacy Effective Date
    
    10% (70% reduces to 60%)Level 2
    
    $475 million
    
    3 years from the Legacy Effective Date
    
    10% (60% reduces to 50%)Level 3
    
    $575 million
    
    No time period specified
    
    10% (50% reduces to 40%)Level 4
    
    $650 million
    
    No time period specified
    
    10% (40% reduces to 30%)Level 5
    
    $750 million
    
    No time period specified
    
    10% (30% reduces to 20%)
 (2)
    
    entry into a servicing agreement enabling the Company to receive fee income in
respect of its continued servicing of the transferred Portfolio; and(3)
    
    entry into amended credit facilities in the aggregate principal amount of $13.5
million, including a $5 million facility for working capital and to support various
servicer licenses, a $2 million revolving facility and a $6.5 million letter of credit
facility to support various servicer licenses.
 
 *
    
    Provided, however, (i) if Net Remittances do not reach the minimum Level 1 amount prior
to the first anniversary of the Legacy Effective Date, but reach the minimum Level 2 amount
prior to the third anniversary of the Legacy Effective Date, the Bank shall retain, as
collateral, 55% of the FCMC equity instead of 50%, as currently scheduled, and any subsequent
reductions in the amount of FCMC equity pledged to the Bank shall be 10% smaller than the
reductions currently scheduled; and provided further that (ii) if Net Remittances do not reach
the minimum Level 1 amount prior to the first anniversary of the Legacy Effective Date and do
not reach the minimum Level 2 amount prior to the third anniversary of the Legacy Effective
Date, then the schedule for release of the equity interests in FCMC currently pledged to the
Bank shall be as follows: (x) upon attaining the minimum Level 3 amount, the pledged equity
interests in FCMC shall reduce 25% (from 70% to 45%); (y) upon attaining the minimum Level 4
amount, the pledged equity interests in FCMC shall reduce an additional 10% (from 45% to 35%),
and (z) upon attaining the minimum Level 5 amount, the pledged equity interests in FCMC shall
reduce an additional 10% (from 35% to 25%).  (1)
    
    the possible transfer of ownership of a portion of FCMC, including a minimum of
twenty percent and a maximum of seventy percent, to the Bank at maturity of the
Companys Legacy Credit Agreement with the Bank, unless further extended if the Company
is not otherwise able to satisfy or refinance the Legacy Credit Agreement prior to
maturity;
  45




---



##### Table of Contents



(2)
    
    the transfer of ten percent of ownership of FCMC to Franklin Holdings
principal stockholder, Thomas J. Axon, as the cost of obtaining certain guarantees and
pledges required
by the Bank as a condition of the restructuring, subject to increase to an additional
ten percent should the pledge of common shares of FCMC by Franklin Holding to the Bank
be reduced upon the attainment by FCMC of certain net collection targets set by the Bank
with respect to the Portfolio;
 (3)
    
    entry into a service agreement with respect to FCMCs continued servicing of
the Portfolio that allows the Bank to terminate such servicing and, concomitantly,
FCMCs fee income from servicing the Portfolio; and(4)
    
    in part as a result of a tax basis transfer, the Company may incur significant
income tax liabilities at termination of the Legacy Credit Agreement, liquidation of
the Company or any of its direct or indirect subsidiary companies, or certain other
Company events such as a de facto liquidation. The amount of any tax liability that
the Company may incur is not certain since any such calculations need to be performed
on a company by company basis and are influenced by a number of factors including, but
not limited to, the ability to use prior year losses and future results of operations.
 Restructuring Agreements.
 Transferred substantially all of the Portfolio in exchange for the REIT Securities
  (a)
    
    an undivided 100% interest of the Banks portion of consumer mortgage
loans (the Bank Consumer Loan Certificate);(b)
    
    an undivided 100% interest in the Banks portion of consumer REO assets
(the Bank Consumer REO Certificate, and together with the Bank Consumer Loan
Certificate, the Bank Trust Certificates);(c)
    
    an undivided 100% interest in the portion of consumer mortgage loan
assets allocated to the M&I Marshall & Ilsley Bank (M&I) and BOS (USA) Inc.
(BOS) (M&I and BOS collectively, the Participants) represented by two
certificates (the Participants Consumer Loan Certificates); and(d)
    
    an undivided 100% interest in Participants portion of the consumer REO
assets represented by two certificates (the Participants Consumer REO
Certificates, and together with the Participants Consumer Loan Certificate, the
Participants Trust Certificates).
   46




---



##### Table of Contents



Amended and restated substantially all of its outstanding debt.
   47




---



##### Table of Contents



Terms of the Restructured Indebtedness Under the Legacy Credit Agreement.
 Outstanding
    
    
    OutstandingPrincipal Amount
    
    
    Principal Amountat March 31, 2009 
    
    
    at September 30,
    
    
    Applicable Interest
    
    
    Required MonthlyFranklin
    
    
    2009  Franklin
    
    
    Margin Over LIBOR
    
    
    PrincipalAsset/Tribeca
    
    
    Asset/Tribeca
    
    
    (basis points)
    
    
    AmortizationTranche A
    
    $
    838,000,000
    
    
    $
    777,000,000
    
    
    
    225
    
    
    NoneTranche B
    
    $
    407,000,000
    
    
    $
    414,000,000
    
    
    
    275
    
    
    NoneTranche C
    
    $
    125,000,000
    
    
    $
    135,000,000
    
    
    
    N/A
    (1)
    
    NoneUnrestructured Debt
    
    $
    41,000,000
    
    
    $
    40,000,000
    
    
    
    
    (2)
    
    None
 
 (1)
    
    The applicable interest rate is fixed at 15% per annum. Interest will be paid in kind
during the term of the Restructuring.(2)
    
    Interest margin over FHLB 30-day LIBOR advance rate plus 2.60-2.75%.    48




---



##### Table of Contents



49




---



##### Table of Contents



Entered into an amended and restated credit agreement to fund FCMCs licensing obligations and
working capital.
       50




---



##### Table of Contents



Entered into a servicing agreement with the New Trust
      Interest Rate Caps
   51




---



##### Table of Contents



Interest Rate Swaps
       52




---



##### Table of Contents



Notional Amount
    
    
    Term
    
    Maturity Date
    
    
    Fixed Rate
    
    
    Estimated Fair Value*$
    275,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.47
    %
    
    $
    (3,905,931
    )70,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.11
    %
    
    
    (3,960,604
    )45,000,000
    
    
    4 years
    
    March 5, 2012
    
    
    3.43
    %
    
    
    (7,057,533
    )$
    390,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (14,924,068
    )
 
 *
    
    Determined in accordance with Topic 820, Fair Value Measurements and Disclosures, based
upon a Level 2 valuation methodology. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Impact of Inflation
  Interest Rate Risk
     53




---



##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
   54




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
    55




---



##### Table of Contents



56




---



##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber3.1
    
    
    First Amended and Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the Commission) on
December 24, 2008.3.2
    
    
    Amended and Restated By-laws. Incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K,
filed with the Commission on December 24, 2008.10.101*
    
    
    Separation Agreement and General Release, effective October
15, 2009, by and among the Registrant, Franklin Credit
Management Corporation, Tribeca Lending Corp. and William
F. Sullivan.10.102*
    
    
    Second Amendment to Loan Servicing Agreement, dated October
29, 2009, by and between Franklin Credit Management
Corporation and Bosco Credit LLC.10.103*
    
    
    Amendment No.3 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, effective as
of September 30, 2009, by and among the Registrant,
Franklin Credit Asset Corporation, Flow 2006 F Corp., FCMC
2006 M Corp., FCMC 2006 K Corp. and The Huntington National
Bank.31.1*
    
    
    Rule 13a-14(a) Certification of Principal Executive Officer
of the Registrant in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    
    Rule 13a-14(a) Certification of Chief Financial Officer of
the Registrant in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    
    Section 1350 Certification of Principal Executive Officer
of the Registrant in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    
    Section 1350 Certification of Chief Financial Officer of
the Registrant in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.  57




---



##### Table of Contents



SIGNATURES
  FRANKLIN CREDIT HOLDING CORPORATIONNovember 16, 2009
    By:
    /s/ THOMAS J. AXONThomas J. AxonPresident
(Principal Executive Officer)November 16, 2009
    By:
    /s/ PAUL D. COLASONOPaul D. ColasonoExecutive Vice President andChief Financial Officer
(Principal Financial Officer)  58