Franklin Bank Corp. (FBTX)
Interview with:
Anthony Nocella, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
community banking, mortgage banking, residential construction, and mortgage banker finance.

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Franklin Bank Corp’s acquisition strategy is for continuity in management with a community bank philosophy

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Savings Banks

Franklin Bank Corp.

9800 Richmond Avenue, Suite 680
Houston, TX 77042
Phone: 713-339-8900

Anthony Nocella
President and
Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor
January 2004

Anthony Nocella
President and Chief Executive Officer

Mr. Nocella, a director of Franklin since April 2002, is our President and Chief Executive Officer, and is the Chairman, Chief Executive Officer and President of the bank. Mr. Nocella was co-founder, Vice Chairman, Director of Bank United Corp. and was Chief Financial Officer of Bank United Corp. from its inception in 1988 until its merger with Washington Mutual in February 2001. He founded and managed commercial banking, financial markets (mortgage banking and capital markets) and was Chairman of the brokerage division of that bank. Mr. Nocella directed the issuance of the first commercial mortgage-backed bonds (REMIC), and the first single-family residential REMIC issued by Salomon Brothers and FNMA, and brought three companies public, Bank United Corp. (1996), PSFS (1983) and Humana, Inc., formerly American Medicorp, Inc. (1970). From 1988 to 1990, Mr. Nocella provided consulting services to Bank United Corp., as well as other financial institutions as President of Nocella Management Company, a firm that specialized in asset and liability management consulting for financial institutions. From 1981 to 1987, Mr. Nocella served as Executive Vice President and Chief Financial Officer of Meritor Financial Group, as well as President and founder of its commercial banking/financial markets arm, Meritor Financial Markets. During his 13 years at Meritor (1974 to 1987), he also served as President of PSFS Management Company, the holding company of The Philadelphia Saving Fund Society, the nation's largest savings institution at the time. Mr. Nocella's other positions have included Controller and Director of Financial Services for American Medicorp, Inc., Senior Managing Auditor and Consultant for KPMG Peat Marwick and adjunct professor of finance at St. Joseph's University and Drexel University. Mr. Nocella, a Certified Public Accountant, received an undergraduate degree in accounting from LaSalle University and an M.B.A. in computer science and finance from Temple University. He also completed the Graduate Bank Financial Management Program of the Wharton School at the University of Pennsylvania. Mr. Nocella is a delegate and member of the Basel II Committee of the America's Community Bankers, Past Chairman and a director of the Texas Savings and Community Bankers Association, and delegate and Past President and Key Member of the Financial Executives Institute. Mr. Nocella also serves on the National Association of Home Builders Mortgage Roundtable.

Company Profile:
Franklin Bank Corp. (the Company) (NasdaqNM: FBTX), founded in August 2001.  The primary businesses of the Company’s wholly owned subsidiary, Franklin Bank SSB (the Bank) include community banking, mortgage banking, residential construction, and mortgage banker finance. The bank currently operates 13 full service community banking branches; 4 are located in the outlying areas surrounding Austin, Texas, and 9 are located in the Tyler/Jacksonville area, two regional residential construction lending offices, in Florida and Arizona, and 38 retail mortgage offices in 16 states throughout the United States of America, including Texas and a regional wholesale origination office in California. Through the bank, Franklin Bank Corp. originates single-family residential mortgages loans, provide community banking products and services, originate residential construction loans and provide mortgage banker finance products and services.

CEOCFOinterviews: Mr. Nocella, what was the original idea for Franklin Bank?

Mr. Nocella: “We began with the idea to create a significant community bank in the state of Texas. Our areas will be primarily in the outlying suburban areas of communities in a triangle from Austin to east Texas.”

CEOCFOinterviews: Why is there a need?

Mr. Nocella: “Primarily because the institutions that were serving these communities, have lending and capital restrictions because of growth; there is a high population growth in these communities. Our bankers provide personalized services and are trusted financial advisors in their communities. We think we are capable of doing that.  We are oriented to the smaller communities. We think we can help.”

CEOCFOinterviews: Where did your management group come from?

Mr. Nocella: “The management group was together prior to the foundation of Franklin at a company called Bank United. Further, just about all of the management group came from there as a result of an acquisition by Washington Mutual of Bank United. There were community bankers and people who were used to being relationship oriented and providing personalized service. Our success at Bank United is legendary.

CEOCFOinterviews: What about when you went public?

Mr. Nocella: “Bank United began with about three dollars and thirty cents a share in December of 1988 then we went public in 1996, we were at twenty dollars a share. We finally sold to Washington Mutual for sixty-seven dollars a share.”

CEOCFOinterviews: How is the economy in the geographic area that you service?

Mr. Nocella: “The economy is very good. The smaller community population growth is quite substantial.   One of the acquisitions that we did was Jacksonville bank, which grew at fourteen-and-a-half percent over the last five years. The deposit growth over the last five years has been substantial; when you take a look at the metropolitan areas, most of the deposit franchises have negative growth, and that is because of the tremendous competition. Here, the market share of the institutions that we acquire will grow with the population due to our philosophy of managing the institutions.”

CEOCFOinterviews: How do you manage the mortgage business?

Mr. Nocella: “The mortgage business is national and we have 38 branches at the present time. We do it a little different than other people; it is based on a net profit business, in other words, if the branch manager doesn’t make any money from a profit standpoint, he doesn’t get paid. It is different from most retail operations.  It was in yesterday’s Houston Chronicle that many of the mortgage brokers are being asked to disclose their fees that they receive from their borrowers.  Many of these brokers want a new life and that is part of our process, to entice many former brokers to become retail offices or if they have the where-with-all and the capital capacity, to become a small mortgage bank.”

CEOCFOinterviews: Why do people come to you for mortgages and what is it that Franklin does differently?

Mr. Nocella: “It is strictly a relationship business. We have 122 products and we are well located. We have four business lines.  We have the community bank in the Texas area.  We have a mortgage banker finance operation.  We have construction lending and mortgage banking. We bank builders and builders have an affinity to mortgage banking and our mortgage bank finance operation creates a correspondent relationship with the mortgage bankers. The mortgage brokers have relationships with real estate brokers. We are not just a refinancer of mortgages.”

We bank with people who are buying or reselling homes, so we originate purchase money mortgages. That is our basic business and that doesn’t fluctuate as wildly. We are offering the services to each area, as you go through the process.  From the community bank where you walk into the bank and make a mortgage, and if you were in Phoenix, Florida, Las Vegas, Atlanta, or California, we have established relationships with people who have been in this business for many years, and in some cases over twenty years. The average person at Franklin has worked together for ten to twelve years and we all are doing the same thing we have been doing. We are serving the same commercial banking customers that we always have.”

CEOCFOinterviews: What made you decide to go public in December, and what are your plans for the future?

Mr. Nocella: “We first founded the institution, to actually be a private institution and we were, for a short time then we did a 144A offering, which is essentially a private offering. The 144A offering had a requirement that within one year from November 2002 we would have to go public. We didn’t think we were going to grow as quickly and the market was going to be as good as it was but the market was great. Our offering was very successful and sold many times the offered shares.”

CEOCFOinterviews: You have done a number of acquisitions.  What is your acquisition strategy?

Mr. Nocella: “There are two kinds of acquisitions, the franchise acquisition and the in-fill acquisition. A franchise is about 500 million dollars and it would be located in the area I mentioned from east Texas to Austin and probably stopping at Houston where our headquarters is located. We will be expanding outside of the metropolitan areas. We are looking for community banks who are able to lend money as well as take deposits and do all the things that a bank needs to do in a local community. A community banker knows their customers’ names.”

CEOCFOinterviews: Will the banks that you acquire keep their own name?

Mr. Nocella: “Yes they will.”

CEOCFOinterviews: What is the reason for you doing it that way?

Mr. Nocella: “Because the banks we are dealing with have had a legacy. We believe any of the institutions that we want to buy, have done a great job in the community and the owners and directors should stay in some capacity. We created advisory boards, which allow us to continue to prospect for new opportunities and new employees and customers in the community. We are going to continue the community bank philosophy and name and just provide capital, better technology, and more products.”

CEOCFOinterviews: What about new branches?

Mr. Nocella: “We are doing a number of new branch applications throughout the state.”

CEOCFOinterviews: About how much of your business is the community bank, and how much is the mortgage area?

Mr. Nocella: “The approximate levels of profitability when I look forward to 2005 is about 30% of our net before taxes in the community banking operation. The single-family residential loans are about 25% and the mortgage banking business, which is fee based, is about 15%. Our residential construction and mortgage banker finance are about 15% each.”

CEOCFOinterviews: Are there any products or services that you are not offering that you plan to offer or see a need to do so?

Mr. Nocella: “We are in the pilot stages in just about every product. We roll them out as time goes on; they may not be in a physical location simply because that particular acquisition didn’t offer it. All the services are in the base units.”

CEOCFOinterviews: What are your challenges going forward?

Mr. Nocella: “The two things that have hurt the banking industry over the years is inflation and high interest rates and a flat yield curve, where the short interest rates and the long interest rates are the same, eliminating the spread in banking.”

CEOCFOinterviews: Why should potential investors be interested in Franklin, and what should they realize that they might not see on the surface?

Mr. Nocella: “It starts off with management; we are the same management team that created a tremendous return for our investors at Bank United. We have a technology platform that is state-of-the-art, and was just put together; this couldn’t have been put together just a couple years ago because of the changes in banking technology. We have the same customers, management team and the same returns as well as the same goals and the same people. We have been doing it and we are going to do it again.”

CEOCFOinterviews: In closing, what is the most important thing you do as CEO?

Mr. Nocella: “The most important thing I do is to plan the next few years and decide where we would like to be geographically, what products we want to put in those areas, and how we can deliver our technologies in those areas, and how we want to focus the business. I look at the geographical and product expansion of existing businesses; and acquisition expansion.”

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