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Prosperity takes over Franklin Bank

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The ongoing financial crisis hit home Friday when Houston-based Franklin Bank, which operates a branch in Cedar Park, announced it had surrendered all of its assets, including deposits, to the Federal Deposit Insurance Corporation (FDIC).

The bank is the only local institution to fail due to inadequate financial resources since the onslaught of the housing and banking crisis.

Franklin Bank announced late Friday that all of its accounts will be transferred to El Campo-based Prosperity Bank.

Franklin Bank operated 14 branch locations in Central Texas and 46 throughout Texas. All have been purchased by Prosperity.

The bank's closure is due primarily to real estate investment in Arizona, California and Florida, said FDIC spokesman David Barr. Franklin Bank made loans to developers and individuals that were in the “gray area” between prime and sub-prime mortgages.

Those loans offered low introductory interest rate mortgages, called “Alt A” mortgages, which would generally adjust after three years. After that time was up, monthly rates would rise severely, leading to mortgage payment increases of up to 50 percent, Barr said. When debtors could no longer afford the increased payments, Franklin's financial status became troubled.

Prosperity's acquisition of Franklin, has, in a way, cut the fat off of Franklin Bank. The troubled assets, Alt A mortgages, have been eliminated from the picture. When Franklin Bank failed, the FDIC took over all liability for those troubled loans. When Prosperity purchased Franklin, it bought pretty much everything but the bad loans.

Representatives from Prosperity Bank were not available for comment Monday, and Franklin Bank officials did not return calls placed to local or corporate offices.

According to a press release from the FDIC, Prosperity has purchased $3.7 billion in deposits as well as $850 million in low risk assets. Prosperity paid a 1.7 percent premium in the purchase, making the price about $4.4 billion.

“It's like a filtering process,” Barr said of the transaction. “All the headaches are left behind with the FDIC as a receiver. The good gets turned over to the acquiring bank, in this case Prosperity.”

Franklin Bank customers should notice relatively few changes as Prosperity takes the reins. The FDIC said that all bank hours will remain the same; accounts will be fully accessible, checks written before the closure will be honored and ATMs will remain operational.

The FDIC urges customers with questions about the takeover to call (800) 591-2845 or visit www.fdic.gov/bank/indi vidual/failed/franklinbank.html.

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