Making a bigger cushion

It was not a bailout to Tim Simmons; it was a chance to bolster the financial foundation of his Aiken-based bank in order to keep lending.

Mr. Simmons is the chairman of Security Federal Bank, which received $18 million from the U.S. Treasury last month.

"It certainly prevented us from stopping to lend money completely until some of our existing loans were paid down," Mr. Simmons said.

Easing the credit crunch was a main point of the $700 billion federal bank bailout bill.

"We were on track to increase our lending by $124 million (for the year)," Mr. Simmons said. "That requires a lot of capital. Our capital was not growing at a fast enough pace to keep up with loan demand."

Security Federal is one of only two locally controlled banks to receive money from the Capital Purchase Program -- a subsection of the Troubled Asset Relief Program, which provides capital to healthy banks.

The other is Queensborough National Bank & Trust, based in Louisville, Ga., which received $12 million in January.

"With it being capital, we can use that to grow the bank's loan portfolio. We can leverage those funds nine or 10 to 1 in loans. For every million in capital, you can loan $9 (million) or $10 million as economic conditions improve," said Bill Thompson, the Augusta market president for Queensborough.

The process is not as simple as the money arriving from the federal coffers and going straight out the door as a bank loan, explained David Oliver, the senior vice president of communications and marketing for the Georgia Bankers Association.

"There is a perception that this is a direct pass-through. That's not technically how it works," Mr. Oliver said. "Banks have to be able to fund their loans through the deposits.

"Capital helps banks acquire the deposits, either through paying local depositors interest or acquiring them on the open market."

In the case of Security Federal, the capital was needed to meet regulatory requirements that it not lend beyond that 10-to-1 ratio of its capital reserves, Mr. Simmons said.

Other banks that do business in the Augusta-Aiken area, but aren't headquartered here, also received money from the Capital Purchase Program: Wachovia (through Wells Fargo), Bank of America, SunTrust, Regions, Fifth Third and AFB&T (through Synovus).

At least one local bank is awaiting word on its application. Southeastern Bank Financial Corp., which runs Georgia Bank & Trust and Southern Bank & Trust, is eligible for $30 million under the program.

Chief Executive Officer R. Dan Blanton said the bank probably will accept only half of that amount when its application moves its way through the red tape of Washington, D.C.

"It gives us a chance to grow in an environment where we've got declining earnings," Mr. Blanton said.

The bank would not use the money to expand its footprint with additional branches, which is a possible use of capital, but will keep it as a way to boost its lending capabilities.

Georgia-Carolina Bancshares, which runs First Bank of Georgia, declined to participate.

"After a thorough review of the program and our current and anticipated financial position, we chose not to apply for funds," President Remer Brinson III said. "Our primary reasons for not applying for the funds are that we did not feel the additional capital was necessary and participation in the program would increase government regulation of our business."

It is not free money, Mr. Oliver said. The federal government is buying stock in the bank and gets dividend payments of 5 percent a year -- and the bank can't pay it all back for at least three years.

If the bank holds the money for more than five years, the dividend payment to the federal government goes up to 9 percent. Mr. Thompson said that it was an attractive rate and that it was money easier to obtain than in the open market.

Mr. Simmons said that privately raised capital is expensive now because of the declining economy.

The bank could have gone with a stock or bond offering and crossed its fingers that it could raise the money in six months.

"Capital in the private sector is higher than years ago, 4 percent more than you would pay then," Mr. Simmons said. "The government program was reasonable and instant."

Mr. Blanton said it would be possible for Southeastern Bank to go to its shareholders to raise $15 million, but "I think it could be pretty painful on the shareholders ... when their assets are worth less."

Mr. Oliver said there are banks not participating because they don't want to deal with the additional restrictions from the Treasury, some of which are changing with the political winds.

"If they are in a good capital position now, some of them have decided not to take on those additional burdens," Mr. Oliver said.

Though banks already provide quarterly reports to regulators, the calls from Congress on transparency in spending Troubled Asset Relief Program funds could result in additional reporting burdens and the extra costs associated with preparing extra reports.

"Bankers would say that is time and effort to do other things," Mr. Oliver said.

Mr. Simmons said the Security Federal staff had no problems with the provisions that the money not go to stockholder dividends or to buy back stock.

"We think it was a great program, a partnership between the government and banks to assist citizens and the economy," he said. "We plan to use that money as they intended. Within five years, we would have earned enough money to pay it back and they earned a return on it."

Reach Tim Rausch at (706) 823-3352 or timothy.rausch@augustachronicle.com.

RECIPIENTS

Only eight Georgia-based banks and nine South Carolina-based banks have received money so far from the U.S. Treasury through the Capital Purchase Program.

Source: U.S. Treasury