Citizens & Southern National Bank in Atlanta, one of the South's biggest banks, secretly financed the acquistion of 25 Georgia banks by officers, directors and friendly associates of the bank, according to a civil suit filed yesterday by the Securities and Exchange Commissions.

The SEC accused the bank of violating federal securities laws by failing to make full disclosure to its stockholders of the terms of the acquisitions.

The suit, filed in U.S. District Court in Atlanta, said that six of those 25 banks, located near Atlanta, were acquired by C&S in 1975 and that the terms were negotiated by bank officials who were shareholders of the acquired banks.

The C&S officials and friends of the bank were financed in the acquisition of the so-called "correspondent associate banks" by C&S loans featuring preferential interests rates and non-payment of principal, the SEC said.

The commission also said that the loans were secured by stock in the banks acquired with the proceeds, meaning the borrowers didn't have to put up any collateral. What is more, said the commission, the debt service on some of the loans was paid off with dividends from the stock.

To finance the acquisitions of the six banks, C&S issued 4 million shares of stock with a market value of $26.5 million. The result was that C&S paid out 16 percent in additional stock in return for about 4 percent additional assets, the SEC said.

C&S provided personnel to manage the 25 banks, the SEC said.

C&S began financing the secret acquisition of the banks in the late 1950s to bypass a state law which limited banks to acquiring 5 percent of other banks, according to the commission.

The SEC said that in 1975, when the comptroller of the currency and the Georgia banking commissioner questioned the loans to the officers and others, the bank increased the rate on such loans to 8 percent.

But then C&S hiked the pay to bank officers involved to cover the increased interest payment, the complaint says.

The SEC says that C&S never has spelled out these preferential loans and the banking relationships to its shareholders.

In addition, the SEC charged that C&S failed to tell shareholders in 1976 and 1977 that its portfolio of loans receivable was deteriorating because of conditions in the real estate market in Atlanta and nationwide.

The SEC alleges that in 1976 C&S reported exaggerated profits and understated reserves for bad loans.

Among the other bank transactions included in the suit was a $5 million loan to R. Eugene Holley, a former Georgia state senator who was chairman of the Senate Banking Committee. Holley was also active in seeking to get a law passed that would have allowed branch banking.

The SEC says the bank established an unusually small reserve for the loan, and by 1977 charged off approximately $2.8 million in losses "relating to the Holley relationship."

C&S, without admitting or denying the SEC allegations, settled the suit by agreeing to unusual terms dictated by the commission. Among them was that the bank agreed to establish an "acquisition committee" to review all planned acquisitions of banks by C&S. The committee will have the help of an expert consultant, the settlement said.

Another special committee will be established to review credit transactions between the bank and its officers and directors.

The bank also agreed to make a full disclosure to its shareholders of all the transactions questioned in the SEC suit.