Bank’s woes beyond money

It was a golden opportunity: right cast, right time, right place.

WestSide Bank in Hiram opened in mid-2006 at the crest of a building boom in a county whose population had tripled over 15 years. It was an idea hatched by two visionary outdoorsmen with a knack for making money.

In rapid order, they recruited the pillars of the community, including political leaders like Congressman Phil Gingrey and Georgia Speaker of the House Glenn Richardson; they selected perhaps Paulding County’s prime location to build the institution’s stately facade, and they raised a lot of money fast, more than $20 million in 45 days.

They worked from a blueprint used successfully in many small towns. In fact, several friends and associates had recently employed a similar plan, almost tripling their investment in just three years.

But just as WestSide started returning profits, the recession brought the operation to a virtual halt.

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“Who would have known three years ago that the economy would go to pieces?” said WestSide director John Walton, a former Paulding commissioner and builder. “No one!”

Last year, the bank lost $4.5 million. This year, it had lost $2.8 million by Sept. 30. It has a pool of $2.7 million in foreclosed properties and $19.3 million in “non-accrual” loans, those far past due and possibly headed for foreclosure. Regulators have stepped up scrutiny of the bank with an enforcement order pushing directors to preserve capital and cut losses.

It’s a familiar tale in Georgia, where there are scores of troubled community banks. But at WestSide, the losses have been more than financial for its tight-knit group of founders.

● In February 2008, a small plane carrying Steve Simpson, one of the two idea men for the bank, and five of his friends and associates (in fact, friends and associates of most of WestSide’s directors), crashed on its way to a golf and hunting trip, killing all aboard. Six bank directors were pallbearers.

● Last fall, bank director Jerry Shearin, Paulding’s commission chairman, was defeated for re-election. He had received $10,000 in contributions from interests connected with the Facility Group, the Smyrna-based construction firm that illegally funneled campaign donations in Mississippi. The donations to Shearin presented his opponent a great issue, especially since the firm had built the county’s $65 million government and court complex.

● Two weeks ago, Richardson, who got divorced last year about the same time as his friend’s deaths, tried to commit suicide.

Shearin, a former insurance agent who befriended Richardson decades ago at a Rotary meeting, said it has been a sobering stretch for all. He and Richardson lost “our three best friends” in the plane crash, Shearin said, referring to Simpson, County Commissioner Hal Echols and John Wesley Rakestraw. Also, the bank lost its biggest champion in Simpson.

Good idea, bad timing

Recruiting politicians to the board of a new bank is Small Town Banking 101. An Atlanta Journal-Constitution analysis last year found that 34 of the state’s 236 legislators are bank directors and 29 others own bank stock.

“It was exactly the people you want — a congressman, a speaker of the house, a county commission chairman, several local developers, a bank president,” Shearin said. “You go after the political and economic leaders of the community. It’s really not rocket science.”

WestSide Bank was born after discussions between Simpson and Orlando Wilson, who made millions hosting (and later selling) a popular TV fishing show, building houses and helping found community banks.

Simpson knew Wilson was trying to put together a string of small-town banks. Wilson knew Simpson, an entrepreneur with several corporations under his belt, was respected in Paulding. Simpson “had a vision for making money and developing property,” Richardson said last year.

“We were trying to target growth areas,” said Wilson, who later left WestSide but is still an investor. “You want to do construction and real estate lending. Those are the most profitable areas for community banks.”

Wilson was hoping to get together maybe six community banks, then merge them and ultimately sell them at a healthy profit — perhaps three times the investment in as many years.

“The idea was good,” he said. “The timing was terrible.”

Flood of investors

WestSide investors were inspired by another local group that started the First National Bank West Metro in 2002 and hit the jackpot three years later when they sold to an out-of-state bank wanting to expand in the fast-growing market.

That group — which included banker and developer Mickey Womble, Echols and former commission Chairman Bill Carruth — chipped in $4.3 million of the initial $12 million investment to launch the bank, according to filings with the Securities & Exchange Commission. In 2005, Memphis-based First Horizon National Corp. bought it for $32 million, nearly tripling the founders’ investment.

“I remember thinking. ‘Wow, that was smart,’ ” Shearin said.

The WestSide group turned to Tren Watson, a veteran banker experienced in shepherding a small bank to a big payday. He was CEO at Southern Heritage Bank in Hall County when it was sold, tripling its investors’ initial stakes. Like WestSide, Southern Heritage was politically connected: Its chairman was state Sen. Casey Cagle, later the lieutenant governor and Richardson’s rival.

The lucrative sale allowed Watson to retire at 56, and he wasn’t eager to start a new bank. But Simpson, an old friend, was persistent, and Watson agreed to serve as CEO. With his wife, he invested well over $500,000, becoming the bank’s fourth-largest shareholder.

“If it had been anybody else, I would have stayed retired,” said Watson.

Simpson, a hunter, bird-dogged potential investors. “He comes up to me, ‘Hey, you want to start a bank?’ I said, ‘Sure,’ ” recalled Shearin. At the time, Shearin was trying to buy land to get an office park started. Rakestraw, also a friend of Gov. Sonny Perdue, was his partner.

They sought out a “broad base of people who want the community to grow,” Shearin recalled. There were developers, naturally, and politicians and local businessmen like Travis Ragsdale, founder of a waste-disposal firm and also the Paulding County Builders Association’s pick to serve on the planning and zoning board.

The list of local luminaries — and a sense of the profits to be made — brought a flood of investors. Organizers hoped to raise $15 million in capital. Nearly 200 investors brought in $20.4 million. The 16 directors put up $8 million of their own money.

Potential conflicts

The connection-heavy bank had plenty of potential conflicts of interest from its start. Richardson’s wife, Susan, served as the real estate agent for the people who sold land to the bank for a combined $1.7 million. The triangle of land is at the intersection of two busy roads, Business Route 6 and U.S. 278, a main entry point to the county.

Likewise, most of the founders borrowed heavily from the bank immediately after its launch. Their loans reached nearly $20 million within a year — almost a third of its total loans and about equal to its capital at the time.

Watson said directors borrowed to show support and quickly grow the loan portfolio. “Sometimes it was not in their personal best interests because they could get better rates elsewhere,” he said. The insiders have paid down half that total and none have defaulted, he said.

Banking lawyer James Stevens said such loans are “good business,” and federal banking rules allow insiders’ borrowing to go as high as the bank’s total capital. “If you’ve got all the community leaders on your board, who else are you going to lend to if not to them?”

New goal: Survival

WestSide started making a profit within a year by lending 85 percent of its money to developers and builders. But after three quarters of profits, it began taking on heavy losses as home sales plunged and borrowers’ payments fell behind.

State and federal regulators have pressured the bank to preserve capital, boost cash reserves, work through its problem loans and improve management, said Watson. Watson has taken a 20 percent pay cut, eliminated perks like car allowances and country club dues and reduced the staff from 28 people to 22.

Shearin said the bankers “saw the storm clouds coming” last year and virtually shut down lending. But they were still surprised, he said, when regulators last year pressured the bank to shed bad loans faster, which would mean booking more losses.

“They told us to get rid of your poor assets and go ahead and take the beating and improve your loan quality,” he said. But that’s tough to do when some 5,000 vacant developed lots are scattered around the county holding down property values.

These days, the directors meet constantly, trying to avoid pessimism. Watson tries to keep it in perspective: “The worst day here is a lot better than the best day in Vietnam,” he said.

Losing an election was tough, but nothing in comparison to what others have endured. To a man, they say they must look forward, not back, especially with all that has happened.

“We’re hunkering down,” Shearin said. “You survive one week at a time.”

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