Franklin Bank Corp. of Houston more than doubled its allowance for credit losses, adding $20 million to bring the allowance to $36 million.
Credit costs on its commercial loan portfolio alone would reach $5 million to $7.5 million next year, the company said Monday.
The huge reserve increase is designed to eliminate uncertainty for the quarter and the foreseeable future, chairman Lewis S. Ranieri said during a conference call with analysts.
"I don't want to do this again," Mr. Ranieri said. "I'm not being Pollyanna."
Franklin also announced it would have to amend its quarterly Securities and Exchange Commission report to recategorize $13.5 million in four loans to one borrower as troubled debt restructurings. The change will not affect net income, which was $7.5 million, or 30 cents a diluted share, in the third quarter, compared with $5.1 million, or 21 cents per diluted share, a year earlier.
The moves caused J.P. Morgan Securities Inc. analyst John Pancari to reduce his fourth-quarter estimate by 50 cents, to a 17-cent loss.
"The bank's move to increase reserves is consistent with our concern that [Franklin's] below-peer reserves did not appear adequate in light of the bank's national real estate exposure," Mr. Pancari wrote. "While we view the move favorably, we remain cautious that sharply higher losses could drive the need for an additional loan loss reserve build, particularly in light of likely sharp increases in NPLs in coming" quarters.
