Although several big-name banks opted into the Capital Purchase Program to get an investment from the U.S. Treasury in the form of preferred stock, there are just as many banks running the other way, telling the government to keep its money.

The Capital Purchase Program was announced on October 14; it allows the U.S Treasury to invest up to $250 billion in preferred stock in banking institutions. The application deadline was November 15, 2008. The capital investment is limited to a minimum of 1% of total risk based assets, and a maximum of either 3% of risk-based assets or $25 billion, whichever is lower. The preferred pays a 5% dividend, and the government gets warrants to purchase stock in the participating banks equal to 15% of the preferred investment. In this article I'm going to look at some of the banks that said no to the bailout funds and why they took a stand.

Banks That Said No
(NYSE:BXS) is a regional bank headquartered in Mississippi with assets of $13 billion, and more than 300 locations in eight states in the Southeastern U.S. The bank cited its high risk-based capital of 11.82% at the end of the third quarter, and noted that it avoided many of troubling real estate issues that hit other banks. The company reported a strong quarter in October that was down year-over-year, but earnings still came in at 34 cents per share. The company has seen stress in its portfolio due to the credit crisis, as total non-performing assets reached $97.65 million at the end of the third quarter.

Commerce Bancshares (Nasdaq:CBSH) also said no to the CPP. The bank has $17 billion in assets and 350 branches mostly in the Midwest. The bank said that its earnings, capital and liquidity are sufficient to allow it to operate. Commerce Bancshares also reported earnings of 36 cents per share. This was down 53.2% year-over-year from the 77 cents per share in third quarter of 2007, but anything that isn't a loss is still good news right now. Non-performing assets grew to $46.2 million from $36.7 million, but only represented 0.42% of total loans. The Tier one leverage ratio ended the quarter at 9.12%. A quick look at the balance sheet shows that Commerce Bancshares has many real estate loans, with at least $4.5 out of $11 billion in this category, but it seemed to avoid a heavy concentration in construction and land development. (To analyze a company's risk profile, read Operating Leverage Captures Relationships.)

Hudson City Bancorp (Nasdaq:HCBK) is a New Jersey-based banking institution with offices in New York as well. The company offered a detailed explanation for not seeking CPP loans, citing its average loan to value ratio of 61%, and its refusal to offer any sub prime mortgages, negative amortization loans, payment option loans or other risky products. The bank also discussed its stunningly high total risk-based capital ratio of 21.9%. Hudson City also did not want to be restricted in its ability to pay dividends or buy back stock. (Find out how economic capital and regulatory capital affects risk management in How Do Banks Determine Risk?)

Renasant (Nasdaq:RNST) is another regional bank headquartered in Mississippi that declined the government's offer. It has $3.7 billion in assets, and 65 locations in Mississippi, Tennessee and Alabama. The bank said that its strong capital position, as reflected in its total risk-based capital ratio of 11.84%, would allow the institution to grow strategically during the downturn. The bank reported solid earnings of 36 cents per share for the most recent quarter, which was down from 39 cents in the same quarter in 2007. Also non performing loans as a percentage of total loans ticked up slightly to 1.17% of total.

Bottom Line
At least 60 banks have publicly turned down the U.S Treasury CPP, hundreds others have done it quietly. This defies the conventional wisdom held by the market that all banks are on the brink of failure.

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Tickers in this Article: BXS, CBSH, HCBK, RNST

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