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Franklin Bank, SSB - Agency, FHA/VA

2008-11-07

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stories: fdic.gov, marketwatch.com, bloomberg.com, bizjournals.com, reuters.com

Franklin has been on our Ailing/Watch list starting in May of this year. From shuttering Wholesale and Warehouse lines, to NASDAQ warnings, and a ton of lawsuits; from 67 million per month in loan production, to making the FDIC's list as the 18th bank this year to fail... Please read the history we chronicled below.

From the FDIC announcement:

"The FDIC estimates that the cost of today's transaction to its Deposit Insurance Fund will be between $1.4 billion and $1.6 billion. Prosperity Bank's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives."

Also visit the Bank Implode-O-Meter report here.

Update from the Ailing/Watch List - 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:

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."

Stay tuned for updates. You can view our Discussion Forum for additional info. Please contact us should you have any details to add.


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Comments:

stlouie at 13:10 2008-05-29 said:
Not too surprising, they had a reputation as fraud merchants and senior management was known to always be on the look for kickbacks, see ya Permalink
bcoen at 13:31 2008-05-29 said:
I had never heard that? Which senior managers were on the prowl for kickbacks? Permalink
truehollywood at 20:08 2008-07-14 said:
Lew Ranieri, the co-inventor of the MBS, believes the mortgage industry can cut through its portfolio of troubled loans by aggressively reducing the principal amount owed on delinquent loans. Speaking at an FDIC meeting on Tuesday, Mr. Ranieri noted that "cutting the principal is better than putting the loan in foreclosure," adding that in a foreclosure "the costs can eat up the principal in a hurry." Because of his long history and expertise in the mortgage industry Mr. Ranieri has the ear of several regulators… Permalink
truehollywood at 08:27 2008-07-30 said:
Franklin Bank Corp. on Tuesday said it had been notified by the NASDAQ stock market on July 23 that it no longer met listing requirements because its share price had been below the required minimum price of $1 for 30 consecutive days.

Houston-based Franklin has until Jan. 20, 2009, to regain compliance. In the meantime the company’s shares will continue to be listed on the NASDAQ under the ticker symbol FBTX.

In May, Franklin chief executive Anthony Nocella resigned in the wake of an internal investigation that uncovered numerous accounting errors related to the bank’s residential mortgages and construction lending.

Lewis Ranieri, Franklin chairman, filled in as CEO until the appointment in late June of Andy Black, president and chief operating officer of the Houston bank holding company’s Franklin Bank operating subsidiary, as interim chief executive.

Franklin Bank Corp. shares closed up 6 cents Tuesday at 62 cents. Permalink

bcoen at 16:35 2008-10-29 said:
Stock price at $.14 down 45% today...I would expect the FDIC to step in very soon.

In my opinion, the management of Franklin is the worst around...especially Sharon Koehl. Permalink

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Important: This company is on our list of lending operations that have "imploded". However, please note that "imploded" is a somewhat subjective and does not necessarily mean operations are ceased permanently: it can mean bankruptcy filing, temporary but open-ended halting of major operations, or "firesale" acquisition. All information here is provisional, and may contain inaccuracies (especially newer information). If you are planning on doing business with this company or any other one listed on this site, you should inquire with them directly on whether they can still meet your needs. Many are still operating in some capacity.