Harleysville National Corp. is asking private investors for cash after the U.S. Treasury Department (Office of the Comptroller of the Currency) demanded the largest bank based in suburban Philadelphia raise capital quickly or else, as my colleague Harold Brubaker reported today in this story.
Separately, Advanta Corp., Spring House, the former credit card lender that sold hundreds of millions of dollars in unsecured notes to small investors, says it's trying to reach "agreement with its regulators" after it suspended a plan to buy out senior note holders due to "a regulatory condition." Advanta's brief statement here
Harleysville chief executive Paul D. Geraghty blamed "legacy credit issues" from "residential real estate development and home equity loans." The bank helped finance the rapid recent development of central and upper Montgomery County's old German farm belt, but the real estate crash has bankrupted borrowers.
At his annual meeting earlier this Spring, Geraghty had told shareholders Harleysville should "meet regulatory requirements for a well-capitalized bank by the end of the year." 

But now Geraghty says regulators won't give Harleysville that long: "The OCC has established individual minimum capital ratios requiring Harleysville to have a Tier 1 leverage ratio of at least eight percent (8%) of adjusted total assets, a Tier 1 risk-based capital ratio of at least ten percent (10%) and a total risk-based capital ratio of at least twelve percent (12%) which must be achieved by June 30, 2009."

Those are higher standards than other banks face: "Each of the above described ratios exceeds the well-capitalized ratios generally applicable to all banks under current regulation," implying regulators think Harleysville's in a hole.

"While the Bank believes these ratios are achievable, in the Bank’s view they probably cannot be achieved by June 30, 2009." 

What's next? "It is uncertain what actions, if any, the OCC will take with respect to noncompliance with these capital ratios by June 30, 2009. 
If the Bank does not meet the OCC’s requirements by the applicable date, the OCC may deem noncompliance to be an unsafe and unsound banking practice which would subject the Bank to such administrative actions or sanctions as the OCC considers necessary."

Last ditch effort: Harleysville "is actively pursuing capital raising alternatives, potential asset sales and other measures designed to address the OCC’s requirements. Progress has already been made in this regard as the Corporation is currently attempting to raise private equity capital."

Best wishes to Paul Geraghty and his team. Otherwise the biggest bank still based in suburban Philadelphia is set to be absorbed by PNC or some other large corporation.
 
Or this could become an opportunity for bank bargain-hunters like the Ira Lubert-Jimmy Lynch-Kirk Wycoff bank investment fund, Patriot Capital; or ex-Sovereign Bank head Jay S. Sidhu; or Commerce Bank founder-turned-Metro Bank backer Vernon Hill, or any other troubled-bank investor who wants 60 branches and a few billion in assets, cheap.