Soon after budget director Bert Lance became president of the National Bank of Georgia in January, 1975, he made a series of loans that exceeded his lending authority of $100,000 per transaction at the bank, according to sources here.
The loans were flagged by auditors from Financial General corp., a Washington-base bank holding company that at the time owned 60 per cent of the Georgia bank's stock, and were also challenged by NBG's own senior loan committee officers because of the breach of the lending limit as well as other problems, the sources said.
In some cases Lance failed to ascertain whether the borrowers had the means to pay back their loans, and some of the loans he made lacked the collateral usually required by the bank, according to the sources. A number of the loans by federal bank examiners, the sources said.
Recipients of the loans included "a political associates" and friends of Lance, the sources indicated, although the specifics were not revealed. Lance had lost a highly publicized campaign for the governorship of Georgia in 1974 prior to going to NBG.
Officials of NBG declined to comment on whether some of these Lance-authorized loans figured in the $2.8 million of bad loans the bank has written off since the beginning of 1977, putting its earnings into the red by $1.2 million for the first half of the year and causing its directors to suspend the 20-cent quarterly dividend to shareholders.
When confronted with the fact that he was exceeding his loan authority, the sources say, an enraged Lance called a meeting of the directors of the bank and had them raise his personal lending authorization to the bank's full legal limit per loan, which was then $1.7 million.
"He came in very sassy like and said it was all taken care of," one sources said.
"Bert was like a law unto himself," said another indivudal who confronted Lance on the matter. "He didn't think the usual rules applied to him."
"I wouldn't say Bert intentionally made bad loans, but when he did make loans, he didn't care whether there was documentation," said a third source familiar with the internal workings of the bank. "And some of these were questionable loans."
A press spokesman for Lance said in explanation that when Lance first came to the bank "it was the clear intent that whatever the limit was then would have been waived, and then at the minutes of the next board of director's meeting it indeed was."
He cited the March 12, 1975, minutes of the NBG board noting the increase in Lance's lending authority to $1.7 million along with a simiral increase for then-chairman and chief executive officer King D. Cleveland.
The spokeman also said he understood "that the comptroller's report for 1975 on the National Bank of Georgia showed no violations in the lending area and the loan area," but he said he was not familiar with the contents of subsequent reports.
An attorney with the office of the comptroller of the currency, which regulates national banks, said loans made beyond a bank officer's personal lending authority do not violate any federal laws and would be an interanal matter for a bank to deal with. However, if a federal examiner's inspection of a bank's porfolio found such loans, it might raise questions about the adequacy of a bank's internal controls.
William J. Schuiling, who was chairman and chief executive office of Financial General in early 1975 and is now retired , recalled that Financial General continued to Prod Lance about his loans, not only over the fact that they exceeded his lending authorization but also because some were considered to be of poor quality.
The holding company was further exasperated by NBG's takeover in April 1975, of the First National Bank of Tucker, a small bank near Atlanta that had failed.
And it was ready to tell Lance to stop flouting its rules or to get out, Schuiling said, when Lance and some other associates turned around and bought out Financial General's interest in NBG. The transaction was consummated June 30, 1975.
Schuiling, who was reached by telephone in Michigan, said that from his previous contacts with the budgets director "Lance is not a prudent banker and he should not be judged as such in comparison with other bankers."
Although Financial General owned 60 per cent of NBG's stock, it had only one director on the board and found itself unable to enforce its recommendations, particularly with regard to the takeover of the Tucker bank.
"I knew that the National Bank of Georgia had plenty of problems of its own and shouldn't acquire additional problems," said Schuiling, "And I knew that its capital ration was not up to general of another bank it would create additional pressure for more capital."
"I was greatly disturbed that Lance had done this and influenced the board contrary to our advice," he added. "We could not allow Lance to continue to disregard our recommendations and some actions would have followed, but he came right back and bought us out."
Financial General at the time was considering selling several of its banks as it tried to raise cash to pay off its own loans and was also consolidating its operations in the Washington-Maryland-Virginia area where most of its banks are located.
An additional factor in the sale, according to Schuiling , was the fact that Financial General was an out-of-state holding company as far as NBG was concerned and had failed to get an exemption when the Georgia legislature authorized only state-domiciled holding companies to branch state-wide. It would have therefore found itself in an uncompetitive position with other Georgia banks if it had kept NBG.
Lance and other associated bought out Financial General's 60 per cent stake for about $7.8 million, paying an average price of just over $17 a share which was then the bank's book value.
Lance financed his own purchase of 148,118 shares or 21 per cent of the oustanding NBG stock, with a $2,625 million loan from the Manufacturers Hanover Trust Co. of New York where he subsequently established a correspondent relationship for NBG adn deposited $250,000 of the bank's funds in an account.
The recently released comptroller's report on Lance's Georgia banking activities does not examine whether Lance made loans beyond his lending authority while at NBG, Or whether they met the usual credit standards except in one instance.
It documents "a $100,000 unsecured demand loan from NBG," authorized by Lance and made on Feb. 15, 1975, to Bill L. Campbell, a friend and then a vice president of Calhoun First National Bank of Georgia, where Lance was simultaneously serving as board chairman.
The loan, right at Lance's lending limit, was purportedly to enable Campbell - who would soon be accused and convicted of embezzlement - to "pay other loans," the comptroller's report said, including reduction of an overdraft of $110,000 Campbell was running at the Calhoun Bank.
On July 14, 1975, Lance authorized NBG to loan Campbell another $250,000, the report continues, so he could first repay the Feb. 18 note from NBG and then take care of indebtedness elsewhere.
"National bank examiners critized the credit quality of NBG $250,000 loan to Mr. Campbell during their examination of the bank after the loan was made," the report notes, adding "NBG subsequently realized a $45,340 loss on Mr. Campbell's loan."
Campbell was dismissed from the Calhoun bank the following Aug. 1, after embezzlements totaling nearly $1 million were discovered. Lance himself referred the matter to the FBI, and in 1976 Campbell began sering an eight-year prison term.
The Campbell loan was "made without regard to proper credit documentation," one source familiar with the transaction said.
"He had collateral, but it was in the form of cattle," he added, noting this was not the kind of collateral a bank usually seeks. "The loan simply shouldn't have been made. Campbell had a salary of $22,000 to $24,000 a year at the bank, and he and his wife had close to $1 million in debts," even before the embezzlements were discovered, so the possibility that he could service the debt was virtually nil, this source said.
"But when Bert said make a loan, you made a loan. That may not be uncommon, but it is certainly not good banking," the source said.
Soon after Bert Lance became president of the Natioanl Bank of Georgia in January, 1975, he made loans that exceeded his lending authority of $100,000 per transaction, sources say.