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A chain of woes

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January 31, 2010

Leaders of the Farmers Bank have embodied both power and philanthropy since 1850 when the newly chartered institution chose John H. Hanna as its first president. The Pennsylvania-born lawyer founded the Frankfort Woolen Mills, deeded property to the county for construction of its courthouse and built the Episcopal Church of the Ascension. His successor, Philip Swigert, served as mayor for 20 years and was instrumental in building the city’s first school and water works. Since 1928 – a year before the Great Depression – the bank they started has served as the depository for state government.
More recently, the late Paul Sullivan came to be known, only half-facetiously, as Frankfort’s “godfather” because of the enormous influence he wielded in local public affairs. The president who called himself a “country” banker refused to carry a credit card even when plastic money was setting new standards in the 1970s. A staunch traditionalist,  he judged borrowers by their morality – the inner drive to honor financial and other commitments.
Last week the Farmers Capital Bank Corp. – a holding company of which the eponymous Farmers Bank & Capital Trust Co. is the flagship member – got yet another president/CEO to guide it through troubled times. Tony Busseni resigned and was succeeded by Lloyd Hillard Jr., CEO of the chain’s Elizabethtown bank.  Company officials would not elaborate on the circumstances, leading us to seek interpretation elsewhere. Joe Peek, professor of finance at the University of Kentucky, said he could only speculate but noted that many small to medium-sized banks have struggled since the residential and commercial real estate bubble burst; heads can roll in such situations.
The local bank’s ups and downs cannot easily be isolated from the vicissitudes of others in its group, especially when mergers occur. Both the Frankfort Farmers Bank and a Lawrenceburg branch that merged into it are under an agreement with regulators to improve capital funding ratios. Between September 2008 and September 2009, the number of past-due loans at Farmers Bank more than doubled while its income dropped from $4.3 million to a negative $38,000, the Federal Deposit Insurance Corp. reported. Lawrenceburg Bank and Trust simultaneously trimmed its past-due loans and went from a $950,000 loss to a $770,000 gain.
Elsewhere in the corporation, United Bank and Trust of Versailles merged with Nicholasville and Georgetown branches. United Bank reported a $2.2 million loss and a big increase in past-due loans a year after the merger. FDIC subsequently ordered United to stop “unsafe or unsound banking practices” including inadequate supervision, hazardous lending, lax collection and excessive delinquent loans. Doug Carpenter, senior vice president and chief financial officer of the holding company, said there was no connection between the mergers and the FDIC order.
At the time of his resignation, Busseni was working to issue new Farmers Capital stock aimed at repaying a $30 million federal loan issued under the Capital Purchase Program. But unfavorable prices – Farmers Capital stock was valued at $8.64 Wednesday – were holding up the process. (The high-water mark in the past year was $27.11.) While data from the Securities and Exchange Commission shows some prominent stockholders recently selling thousands of shares, Busseni himself was buying 525 shares.
 We wish President Hillard luck in trying to sort out the entanglements that have sadly tarnished the reputation of a proud Frankfort institution. Let’s hope the local bank  can get back to the fundamentals of responsible borrowing and lending. Somewhere, John H. Hanna must be watching.




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