Regulators Close Two More Banks

State regulators closed two more banks Friday, bringing to 19 the number of U.S. banks and thrifts that have gone under this year.

The Texas Department of Savings and Mortgage Lending closed Franklin Bank SSB of Houston (held by Franklin Bank Corp (FBTX Quote)) and named the Federal Deposit Insurance Corporation receiver.

Meanwhile, the Commissioner of the California Department of Financial Institutions shut down the $561 million Security Pacific Bank of Los Angeles and named the FDIC as receiver.

The FDIC announced that all of Franklin's deposits, including accounts exceeding deposit insurance limits and brokered deposits, would be taken over by Prosperity Bank, of El Campo, Texas (held by Prosperity Bancshares (PRSP Quote)).

All 46 of Franklin Bank's branches were set to reopen Saturday as branches of Prosperity Bank.

With $5.1 billion in total assets, Franklin was the third-largest bank or thrift closing this year. The largest insitution to go under was Washington Mutual, which had $307 billion in total assets when it was failed on Sept. 26 and was acquired by JPMorgan Chase (JPM Quote). The second largest was IndyMac Bank, which had $32 billion in assets when it failed in July.

Franklin Bank SSB had been assigned a D- (weak) financial strength rating by TheStreet.com Ratings, based on second-quarter financial results.

Although the bank was well capitalized at the end of the second quarter, Franklin's third-quarter report, filed Oct. 31, highlighted the institution's rapid deterioration, as it slipped to "significantly undercapitalized" as of Sept. 30, with a leverage ratio of 2.11% and a risk-based capital ratio of 5.11%. These ratios need to be at least 5% and 10%, respectively, for an institution to be considered well capitalized under regulatory guidelines.