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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)) 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) - Get Perspecta, Inc. Report


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

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, which had $307 billion in total assets when it was failed on Sept. 26 and was acquired by

JPMorgan Chase

(JPM) - Get JP Morgan Chase & Co. Report

. 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 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.

Franklin Bank Corp.'s shares moved in line with the peak in housing activity and into the mortgage crisis. They were trading around $21 in late 2006 but slid in a pretty straight line to 26 cents at Friday's market close. Like most of the other failed institutions this year, Franklin concentrated its lending on residential mortgages and commercial construction loans. The bank was considered significantly undercapitalized as of Sept. 30, with a leverage ratio of 2.11% and a risk-based capital ratio of 5.11%. Again, these ratios need to be at least 5% and 10%, respectively, for an institution to be considered well capitalized under regulatory guidelines.

Franklin Bank Corp.'s chairman is Lewis Ranieri, former vice chairman of Salomon Brothers and a well-known pioneer in the mortgage-backed securities market. Franklin announced on Tuesday it was in negotiations with un-named investors to raise new capital.

With the bank short of capital and loan charge-offs outpacing Franklin's provisions for loan loss reserves, time simply ran out. The good news is that none of the failed bank's depositors will lose money. The bad news is that the FDIC estimated that losses to its insurance fund would be between $1.4 billion and $1.6 billion.

As for Security Pacific, the FDIC announced that all of the failed institution's deposits would be taken over by

Pacific Western Bank

of San Diego, a subsidiary of

PacWest Bancorp

(PACW) - Get PacWest Bancorp Report


Security Pacific Bank had been assigned an E- (very weak) financial strength rating by Ratings, in September, a downgrade from D- in the previous quarter.

The institution's third-quarter report showed that it just couldn't keep pace with losses from residential construction loans. Security Pacific's net loan charge-offs during the third quarter were running at an annualized pace of 23.68% of average loans, and the bank slipped to significantly undercapitalized, with a leverage ratio of 3.14% and a risk-based capital ratio of 5.00%.

Security Pacific's four branches were to reopen Monday as Pacific Western branches.

Free Bank and Thrift Ratings

As the pace of failures accelerates, it's important to keep an eye on the health of your bank or savings and loan. Ratings provides objective, conservative financial strength ratings for all U.S. banks and thrifts.

While the FDIC has temporarily raised deposit insurance limits, it is still a good idea to check out your institution's rating and ask some questions if the rating is below a C- (Fair Financial Strength).

It is also important to consider that you or someone you know may be affiliated with a business or municipal depositor (such as a school district) that keeps large uninsured balances in a local institution.

Financial Strength Ratings on each of the nation's 8,600 banks and savings and loans are available at no charge on the

Banks & Thrifts Screener

. In addition, the Financial Strength Ratings for 4,000 life, health, annuity and property/casualty insurers are available on the

Insurers & HMOs Screener


Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.