Atlantic Capital turns down bailout funds

As financial institutions across the country line up to request government bailout money, at least one small Atlanta bank is saying no thanks to the offer.

Atlantic Capital Bank says it is on such sound financial footing that it has decided to opt out of the $250 billion federal program, which is designed to shore up the nation’s battered banking industry and spur new lending.

“We didn’t need the money. We’re very well capitalized,” said Doug Williams, the bank’s president and CEO. “We don’t need new capital to continue to lend and grant credit in our community.”

Williams figures his bank could have been eligible to receive $9 million to $10 million, based on the funding formula used by the U.S. Treasury Department.

Although the government is offering favorable terms, Williams said the money comes with an uncomfortable catch: the government reserves the right to change the terms of any transaction at a later date.

Five Georgia banks have announced they’ve received an infusion of cash through the federal government’s Troubled Asset Relief Program, or TARP — most notably the state’s two biggest banks, SunTrust and Synovus. SunTrust alone has received $3.5 billion and has applied for $1.4 billion more.

There’s no central clearinghouse keeping track of which banks have applied for TARP funds. The Treasury Department is not releasing any names, and some banks are keeping mum in case their applications are rejected, a potentially crippling blow.

Indeed, Williams said a big concern of his early on was that the Treasury would essentially be picking winners and losers, and that only banks that receive TARP funds would be viewed as in shape to survive the crisis.

Atlantic Capital made its decision some time ago, before the Dec. 8 deadline for privately held companies to apply for government funding. But the bank is going public with its strategy because he doesn’t want customers and potential clients to worry when they learn the bank hasn’t received federal funds.

“We don’t want anybody to feel like we’re not a recipient of TARP funds and therefore there was some reason we weren’t able to get them,” he said. “We want everyone to know we didn’t need it, and the reasons we didn’t need it.”

Joe Brannen, president of the Georgia Bankers Association, said Atlantic Capital is the only bank in the state that has announced it’s not applying for federal funding. But he believes many banks have taken a similar tact, especially institutions that are well capitalized and did not lend heavily in the Atlanta suburban real estate market.

“Many banks have enough capital or they have access to capital if they need it,” Brannen said.

In addition, Brannen said, about 82 of the state’s 336 banks can’t even apply for TARP funds because they are either too small or are chartered as nonprofit institutions.

The TARP program has proved popular, in large part because it’s providing capital at relatively cheap rates at a time when money of any kind is hard to get.

The program essentially provides a way for the government to invest in banks. The Treasury buys shares of stock in the companies, which must pay a 5 percent return annually for the first five years. That’s far cheaper than other methods of raising cash.

The prospect has created something of a frenzy in the marketplace, with companies such as American Express and GMAC becoming banks in order to apply for TARP funds.

Atlantic Capital has several factors running in its favor that’s allowed the bank to avoid feeding at the federal trough.

The institution opened in May 2007 with $125 million in start-up capital, far more than most new, or de novo, banks. And as a new bank, it’s not saddled with bad loans like so many of its competitors.

The timing, too, was auspicious. Metro Atlanta’s residential real estate market had already begun its downward slide, and Atlantic Capital was able to steer clear of that rapidly deteriorating sector.

The bank, based in Buckhead, has focused instead on serving midsize businesses, a “select” pool of commercial real estate developers and wealthy families.

But money is at the heart of Atlantic Capital’s decision not to seek an infusion of federal funds. The bank, relatively speaking, is flush with cash.

At the end of the third quarter, Atlantic Capital’s Tier 1 capital level — a key measure of funds available to cover potential losses —- stood at 26 percent, far greater than the 6 percent required to be considered “well capitalized” by regulators. The bank had $384 million in assets at the end of the third quarter.

“We’re arguably the best-capitalized bank in America,” Williams said. “The prospect of adding capital from the U.S. government, even at the low rate of 5 percent, just wasn’t necessary in our case.”

Like most new banks, Atlantic Capital has yet to turn a profit. Through the end of the third quarter, the bank reported a loss of $6.7 million.

Atlantic Capital is taking part in one new federal program related to the financial crisis: the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program, which provides unlimited insurance coverage of all funds held in non-interest bearing accounts through the end of 2009.