Macon's Security Bank is the Georgia banking industry's equivalent of a tropical depression.
The state's fourth-largest bank is working hard to repair its damaged finances, but clouds are gathering and the forecasts don't look good.
Like many of Georgia's banks, Security has been gushing red ink under pressure from a deep recession and the collapse of the real estate market, especially around metro Atlanta where it has a heavy concentration of problem loans to home builders and developers.
But Security Bank faces deeper challenges than most Georgia banks. The institution doubled up its bets on the once-booming Atlanta market by buying up three banks in the market in 2005 and 2006 and acquiring a subsidiary that packaged big loans to real estate developers and other businesses and sold portions to other banks.
In its heyday, that game plan allowed Security Bank to grow more than ten-fold in less than a decade, to more than $2.8 billion in assets at the end of last year.
Now, some of the banks that bought those loans, called "loan participations," have sued Security Bank, alleging unfair practices and demanding that it take them back. Security Bank has largely shut the unit down and recorded about $85 million in charges for loan losses or other problems at the unit.
In a filing with the Securities and Exchange Commission, the company said the lawsuits "have no merit."
Meanwhile, the bank's problems in other areas are piling up fast:
" It has reported back-to-back quarterly losses totaling almost $280 million in the past year and a half, wiping out almost 80 percent of its shareholders' capital.
" Banking regulators issued "cease-and-desist" orders last month against most of Security Bank's operating units, requiring the institution to increase its capital and install tighter management and lending controls.
" Security also disclosed that it withdrew its application last month for up to $65.5 million in bailout money from the federal government's Troubled Asset Relief Program. Some industry experts believe the TARP bailout plan is aimed at doling out money to stronger banks rather than shoring up weaker players.
Security Bank's withdrawal is "an indication that they wouldn't be approved," said attorney Bobby Schwartz, who heads Smith Gambrell & Russell's banking practice in Atlanta. "I always viewed the TARP screening process ... as they're picking winners."
Security Bank's setbacks show parallels to those at a similar-sized Atlanta bank, Silverton Bank, that regulators shut down a little over a week ago after it suffered heavy losses from real estate-related loans to other banks. The so-called banker's bank provides loans and other services such as loan participations to its 1,400 client banks rather than taking deposits or making loans to the public.
A month earlier, regulators cracked down on Silverton Bank with a similar order to increase capital and improve management. The Federal Deposit Insurance Corp. estimated that the takeover of Silverton, which included setting up a temporary "bridge" bank to deal with its client banks, will cost its insurance fund about $1.3 billion.
Security Bank officials say they are taking actions to avoid such a fate by cutting expenses and shoring up the bank's finances with additional capital.
"We've been well aware of the situation and have been working diligently" over the past two years, said Lorraine D. Miller, senior vice president with Security Bank. She said the bank has cut "controllable expenses" such as labor by about 25 percent after eliminating more than 100 jobs. Security also recently agreed to sell two of its 20 bank branches to Heritage Bank, probably by the end of June. She said Security Bank may sell other assets to raise cash.
To cut costs further, said Miller, Security Bank also changed its thinking about operating its acquired banks under separate charters. The company applied earlier this year to consolidate its six bank charters into one bank.
"Originally we thought that having a multibank charter would allow you to be very close to your market," she said. But having six charters also means having six sets of boards of directors, managers and other staff to produce separate reports to regulators. She declined to say how much money the move would save if it is approved by bank regulators. "It's not an insignificant amount," she said.
But some people in the industry question whether such moves will be sufficient to turn Security Bank around if it doesn't get significantly more capital to keep it going until the economy improves.
"I think Security continues to be very troubled," said Schwartz, the banking lawyer.
The bank tried to raise more than $70 million in additional capital last year, to mixed results. After its existing shareholders agreed to chip in $28 million early last year - less than its target of $35 million - the bank turned to a private equity firm for $40 million in additional funding.
Within months, Security Bank reported a $121 million loss. Then-chief executive H. Averett "Rett" Walker resigned not long after.
Unhappy major investors "who put up that [$28 million] and saw it disappear in six months" likely demanded Walker's departure, said banking consultant John Kline with John Kline and Associates in Decatur. Security Bank's then-No. 2 executive, Tony E. Collins, who headed the bank's Atlanta operations, was named president and CEO.
"It was a battlefield promotion," said Kline.
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