Loans Expert

Since Franklin Bank customers became Prosperity Bank customers Nov. 7, depositors have not seen a change in their banking, but loan customers are confronting, in some cases, major problems.

Those hurting, in particular, are customers with home loans, sub-contractors with lines of credit and customers in the construction industry who depend on monthly draws for work performed.

The source of the pain is that Prosperity Bancshares, Inc. assumed the deposits of all 46 branches of Houston-based Franklin Bank, including the location in Kingsland, but they did not assume the loans.

For now, and for the next 30 to 60 days, the Federal Deposit Insurance Corporation (FDIC) owns loans. Payments continue, but not all activity from loans does.

“In May 2008, we signed a construction loan with Franklin Bank to provide financing for a new home to be built in Burnet,” said Elizabeth Donahue. “As of now, approximately 50 percent of the total costs have been advanced to the builder. Since May, the monthly interest on my loan has been paid on time.

“When it was reported that Franklin Bank had been taken over, I called to check the status of the loan,” she continued. “I was told it was frozen and all files were being sent to the FDIC.

“They will review everything and release the files to Prosperity Bank at some unspecified future date. It must then be reviewed and approved by Prosperity. The builder cannot get further draws until all of this has been completed. I was further told that I must continue to pay interest on the outstanding balance.”

According to Sue Schwarz of C& S Signature Homes Custom Building in Kingsland, Donahue’s contractor, “all we can do at this time is stop work and wait for the FDIC.”

Schwarz is also the accountant for S&D Cabinets, which has a line of credit at what used to be Franklin.

“Friday night, the 7th, when the FDIC took over Franklin Bank, we didn’t think anything of it, but we wouldn’t have paid bills and written checks out of our Franklin Bank account if we had realized our line of credit would be frozen. We would have used one of our accounts with another bank,” Schwarz said.

“This is a small company and we have to be able to function. The banker told us to open another account, but in the meantime the checks we wrote are being returned.”

From such situations the ripples begin to extend out to sub-contractors and all of the employees and suppliers they may owe.

Dan Rollins of Sugarland, president of Prosperity Bank, confirmed that no deposit accounts have felt any impact and the Franklin Banks they assumed are actively making loans.

“But the FDIC did not sell us any of the loans,” he said. “After 60 days FDIC will begin selling loans to interested parties and our team is actively looking at them for possible purchase. The rules of FDIC are cumbersome.”

Other facets of the FDIC administration of Franklin Bank assets are a little hard to wrap one’s mind around. For instance, some Franklin Bank officials became FDIC employees. Their numbers are linked to an FDIC web site designed to answer questions about accounts and loans.

A spokesman fort the FDIC could not be reached Monday.

But a banker in Houston, now an employee of the FDIC, who asked that his name not be used, said: “We’ve been given a procedure for people asking for draws that we will be taking to a staff meeting soon.”

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Tags: bank loans