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More Banks Say No To Bailout

Posted: Nov 18, 2008 13:20 PM by Eric Fox

Tickers in this Article: BSRR, TCBK, HBHC, CCBG, BOKF

Several more banks have said "thanks, but no thanks" to the government's Capital Purchase Program (CPP) that was part of the Troubled Asset Relief Program (TARP) passed by Congress earlier this fall.

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Capital City Bank Group (Nasdaq:CCBG), a regional bank headquartered in Tallahassee, Florida, has $2.7 billion in assets. The company issued a press release last week stating its intent to decline participation in the CPP program. The bank cited its total risk-based capital ratio of 14.76% as of September 30 as the reason.

"Our conservative culture and risk management practices through the years have enabled us to accumulate sufficient capital to manage through difficult economic times such as the ones we are currently experiencing," said CEO William Smith. Capital City reported third quarter earnings in late October of $4.8 million, or 29 cents per share. Although the company was solidly profitable, it is experiencing some stress from bad loans. The bank took a loan loss provision of $10.4 million during the quarter, and its nonperforming assets as a percent of loans and other real estate owned (REO) stood at 3.51%. (Read about the bodies that protect your bank deposits in Bank Failure: Will Your Assets Be Protected?)

BOK Financial (Nasdaq:BOKF), an Oklahoma-based regional bank with $21 billion in assets, operates through several subsidiaries in Texas, Arkansas, Colorado, Missouri, New Mexico, Arizona, Kansas and Oklahoma. BOK Financial also operates a trust division and a brokerage subsidiary. The bank is a closely held institution with George Kaiser owning 66% of outstanding stock.

Watching Risk Ratios
BOK turned down the CPP, citing its strong capital ratios, with Tier 1 capital at 9.25% and tangible capital ratio at 7.16%. The bank also has reserved $209 million for credit losses, or 1.65% of its outstanding loan portfolio. The bank did not overindulge in real estate loans during the boom times and, as a result, managed to keep that category at a low of 35% of total loans, including only 8% in construction and land development, the worst performing loan category. One possible area of concern is lending in the energy sector, where the bank has 16% of its loans. If oil and gas prices continue to decline, this sector may see higher defaults. (You can learn more about these ratios at How Do Banks Determine Risk?)

Hancock Holding (Nasdaq:HBHC) is a regional bank based in Mississippi with assets of $6.1 billion spread over Mississippi and several other Southeastern U.S. states. The bank turned down the CPP investment and, like BOK and Capital City Bank Group, it cited its strong total risk-based capital ratio of 11.9%. Hancock recently reported its third-quarter results, which revealed net income of $16 million, or 50 cents per share. The bank reported a shockingly low 0.59% ratio of nonperforming assets to total loans and foreclosed assets.
The biggest problem the bank faces is seasonal hurricanes due to its prominent location on the Gulf Coast.

California, Here We Come!
TriCo Bancshares (Nasdaq:TCBK) and Sierra Bancorp (Nasdaq:BSRR), two small banks in California, also turned down the TARP. Sierra Bancorp reported a total risk-based capital ratio of 13.65% as of September 30 and TriCo Bancshares reported a total risk-based capital ratio of 12.4%.

Bottom Line
More banks have declined to participate in the U.S. Treasury-run CPP program - with a common denominator of strong capital, diversity of the loan portfolio and perhaps the unspoken characteristic of good common sense.

See where the TARP fits into all-time government financial relief programs at Top 6 U.S. Government Financial Bailouts.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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