Community Banks Refusing TARP Funds (AUBN, HARL, UBCP, AMNB, KRNY)

In a time of trouble, crisis, and inability to raise capital, there are many banks out there which have decided to refuse the government’s bailout TARP funds.  These banks appear to be more solid than many of the troubled banks, and interestingly enough their stocks have by and large held up better.  We compiled a list of smaller community banks which have refused to participate in TARP funds.  Some of these banks are Auburn National Bancorporation, Inc. (NASDAQ: AUBN), Harleysville Savings Financial Corp. (NASDAQ:HARL), United Bancorp, Inc. (Nasdaq: UBCP), American National Bankshares Inc. (Nasdaq: AMNB), and Kearny Financial Corp. (NASDAQ:KRNY).  Below are the ratios and explanations for each.

On November 21, Auburn National Bancorporation, Inc. (NASDAQ: AUBN)said that it did not apply for funds available through the TARP. Auburn said it was well-capitalized, profitable, and continues to lendand grow in the markets its serves.  It even listed its Tier 1 Leverageratio as 8.87%, Tier 1 Risk-Based Capital ratio was 14.54%, and TotalRisk-Based Capital ratio was 15.50%, which it says are all well abovecurrent regulatory requirements.  Auburn National is the parent companyof Alabama-based AuburnBank, with total assets of approximately $735million.

On November 20, Harleysville Savings Financial Corp. (NASDAQ:HARL)opted not to apply for TARP funds. The company said that its Boardbelieves that the costs of the preferred shares and the limitationsthey impose on future capital management are not in the best interestof shareholders.  Harleysville Savings has elected to participate inthe Federal Deposit Insurance Corporation’s Transaction AccountGuarantee Program which provides a full guarantee on all non-interestbearing transaction accounts held by any depositor, regardless ofdollar amount, through December 31, 2009.  Harleysville SavingsFinancial Corporation is the holding company for Harleysville SavingsBank in Pennsylvania.

On November 18, United Bancorp, Inc. (Nasdaq: UBCP) announced alongwith a stock buyback and dividend hike that it has declinedparticipation for TARP funds.  United Bancorp, Inc. is based in MartinsFerry, Ohio and has total assets of approximately $453.0 million andtotal shareholder’s equity of approximately $32.3 million as ofSeptember 30, 2008.

November 18, 2008, American National Bankshares Inc. (Nasdaq: AMNB)announced along with its dividend that it did not file an applicationfor TARP funds as it was well-capitalized.  It listed a Tier Irisk-based capital ratio of 16.67%, a total risk-based capital ratio of17.92%, and a leverage ratio of 12.98%, as of September 30, 2008.  Thecompany said its capital position, profitability, and risk-managementpractices give it sufficient capital to meet its growth plans. AmericanNational Bankshares Inc. is a bank holding company with assets ofapproximately $800 million and is based in Danville, Virginia.  It isthe holding company of American National Bank and Trust Company servingSouthern and Central Virginia and the northern portion of Central NorthCarolina with 20 branches. The Bank also manages approximately $450million of additional assets in its Trust and Investment ServicesDivision.

On November 14, Kearny Financial Corp. (NASDAQ:KRNY) announced that itwould not apply for additional TARP capital, based in large part on thestrength of its own capital base with its ratio of tangible equity totangible assets at 18.1% and the Bank’s Tier 1 risk-based capital ratiowas 37.7%.  Both are deemed as far in excess of the 6.00% levelrequired to be classified "well-capitalized" under regulatoryguidelines.   At September 30, 2008, Kearny Financial Corp. had totalassets, deposits and stockholders’ equity of $2.06 billion, $1.35billion and $474.6 million, respectively. Kearny Financial Corp. is theholding company for Kearny Federal Savings Bank, based in Fairfield,New Jersey with 27 retail branch offices located in Bergen, Hudson,Passaic, Morris, Middlesex, Essex, Union and Ocean Counties, New Jersey.

Jon C. Ogg
November 28, 2008