Franklin Bank, SSB - Agency, FHA/VA

Update - 2008-07-30: The Houston Business Journal reported Franklin Bank received a non-compliance notice from NASDAQ on 2008-07-23 for failing to maintain the required minimum share price of $1 for 30 consecutive days. The bank has 180 days, or until 2009-01-20, to regain compliance. In a press release, Franklin Bank said "This notification will not impact the listing of Franklin's common stock at this time."

"Franklin has previously disclosed receipt from Nasdaq of notifications of noncompliance with Nasdaq Marketplace Rule 4310(c)(14) (the "Reporting Rule") regarding Franklin's failure to timely file its Annual Report on Form 10-K for the year ended December 31, 2007 and its Quarterly Report on Form 10-Q for the three months ended March 31, 2008. As previously disclosed, Nasdaq has granted Franklin until September 15, 2008 to make these delayed filings. The July 23, 2008 letter from Nasdaq has no effect on Franklin's compliance with the Reporting Rule."

Update - 2008-06-17: Shares in Franklin Bank have fallen from previous highs of over $20.00 to 93 cents today. We've gathered a list of outstanding law suits:

• Schwartz Junell Greenberg & Oathout LLP filed a Class Action Complaint for Violations of the Federal Securities Laws against Franklin Bank Corp.
• Sarraf Gentile LLP Files Class Action Lawsuit Against Franklin Bank Corp.
• Dyer & Berens LLP Announces Shareholder Lawsuit Filed on Behalf of Investors Who Purchased or Otherwise Acquired Franklin...
• Law Offices of Howard G. Smith Announces Class Action Lawsuit Against Franklin Bank Corp.
• Schatz Nobel Izard P.C. Announces Class Action Lawsuit Against Franklin Bank Corp.
• Brower Piven Encourages Investors Who Have Losses in Excess of $100,000 From Investment in Franklin Bank Corp. to Inquire About the Lead Plaintiff Position...
• Shalov Stone Bonner & Rocco LLP Reminds Investors That the Franklin Bank Corp. Securities Fraud Class...
• The Rosen Law Firm Announces the Filing of Shareholder Class Action Charging Franklin Bank Corp. With Violations...
• Coughlin Stoia Geller Rudman & Robbins LLP said it filed a class action lawsuit against Franklin Bank Corp. ...
• KGS Notifies Franklin Bank Corp. Shareholders That They Have Until August 5, 2008 to File...
• Lin L. Blansit Files Civil Claim For Discrimination On The Basis Of Disability On Behalf Of Former Franklin Bank Corp. Employee
• Anderson + Wanca and Philip A. Bock, P.C. Pursue Class Action Against Franklin Bank Corp. For Sending Unsolicited Faxes in IL

Update - 2008-06-12: According to a Bloomberg article today, Franklin has announced it will shut down its warehouse lending unit. Citing an unnamed source, it states:

"The Houston-based company is "substantially exiting" the so-called warehouse-lending business, firing most of its 20 employees, said the person, who asked not to be identified because the move hasn't been announced."

There has still been no official announcement of the closure of their wholesale lending division.

Original listing - 2008-05-22: We recently heard Houston-based Franklin Bank shut down wholesale lending operations, but now the entire company appears to be teetering on the brink of failure.

According to Reuters, CEO Anthony Nocella "will accelerate his personal plans to retire" and has stepped down, and the bank's holding company faces an SEC probe that "comes on the heels of a 10-week internal investigation that the bank said uncovered a variety of accounting errors, largely related to residential mortgage loans."

This in from a tipster:

"I heard from one insider that they are not announcing that they have closed down wholesale because they don't want it posted on the implode-o-meter website. The reasons they are so against this is because of their already low common stock price. Today it is up about $.14 to $1.56! They are in jeopardy of being de-listed by NASDAQ and they feel their stock would further plummet if listed on the implode-o-meter. Furthermore... a higher up in the operations made the decision to buy a bulk of loans a few months ago that have almost all gone bad. They opened a separate division who's focus is to get these loans refinanced off the books.

They had about 650 employees and with wholesale gone they are down to about 500. They would typically fund anywhere from $30 million - $60 million in good times. Now that wholesale is out of the picture they are really not funding anything."

From a page on their web site about Retail Mortgage Loan Production Offices: "In just over three years, Franklin Bank has grown total assets to over $4 billion and has over 600 employees in 60 locations in 34 states." Allmortgagedetail.com reports average monthly origination volume across all channels in 2006 was $53.8 million, a drop from 2005's average of $67.2 million.

Franklin had 38 retail mortgage banking offices per their 2006-12-31 Annual Report. Twelve offices were closed in the quarter ending 2007-09-30 according to their 2007-12-20 10Q filing:

"Non-interest expense for the three and nine months ended September 30, 2007 increased $332,000, or 6%, and decreased $672,000, or 4%, respectively, compared to the same periods in 2006. The increase for the three months ended September 30, 2007 primarily related to charges associated with closing twelve retail mortgage offices during the third quarter as well as an increase in real estate owned expenses due to an increase in the number of foreclosed real estate properties. The decrease for the nine months ended September 30, 2007 was primarily due to decreases in salaries and benefits and loan expenses partly offset by an increase in real estate owned expenses. Salaries and benefits decreased $1.3 million, or 13%. This decrease was primarily the result of lower commissions due to the volume of originations. Loan expenses decreased $573,000, or 34%. This decrease was primarily due to the lower volume of originations. The increase in real estate owned expenses was due to an increase in the number of foreclosed real estate properties."

"Franklin's single family portfolio is also geographically diversified over 49 states." On closer look, it seems a full-third is in hard-set California, with the balance of more than half in Texas and Florida. From their latest Earnings Release dated 2007-12-31:

The largest concentration of this portfolio is in California and Texas. The following table is the geographic location of the single family mortgage loan portfolio for states that exceed 3% of the total portfolio as of December 31, 2007 (in thousands):

State	Amount	%
California	$598,369	33 %
Texas	243,929	13 %
Florida	137,445	7 %
New York	75,721	4 %
Virginia	64.480	4 %
Massachusetts	64,360	4 %
Maryland	55,850	3 %
New Jersey	54,112	3 %
Illinois	50,038	3 %
Washington	46,582	3 %
Other	444,407	23 %
Total	$1,835,292

The Houston Business Chronicle reports Franklin "will appear before the NASDAQ listing qualifications panel May 22 [today] to argue for continued listing of its shares, pending the filing of outstanding financial statements."

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