Insufficient funds 

Profligate spending and indiscriminate loan practices led to the downfall of a young Farmers Bank executive.

The Farmers Bank location in Midtown included unusual amenities for a bank, including a coffee bar and pingpong tables. - MIGUEL RIOS
  • Miguel Rios
  • The Farmers Bank location in Midtown included unusual amenities for a bank, including a coffee bar and pingpong tables.

Less than a year after opening a branch in Oklahoma City’s Midtown district and reporting state-leading growth, Farmers Bank of Carnegie quietly removed its president after a bank examination resulted in a corrective order from Federal Deposit Insurance Corporation (FDIC) and Oklahoma State Banking Department.

In addition, the bank and its former CEO have been named as defendants in a new lawsuit containing serious allegations, while the bank itself has brought action against its former chief executive.

New image

After decades of operating as a small community bank in Carnegie, Farmers opened a branch at 1300 N. Walker Ave. in April 2018, an unusual and high-style facility with custom pingpong tables, electric scooters, a coffee bar and décor more closely resembling a downtown loft than a traditional bank.

A full-page story featuring the bank’s new CEO, Aaron Johnson, graced the front of The Oklahoman’s Sunday business section on May 27, 2018, and the same publication posted a video to its website, a 6-minute monologue delivered by Johnson seated at the new Farmers coffee bar, showcasing the expensive new Midtown bank offices and extolling his ambitious vision.

Johnson was featured prominently in Farmers social media promotions and extensive marketing efforts, including a self-produced video of the bank president driving around Carnegie in an expensive Audi and flashing a gold Rolex watch.

Then, suddenly, on Feb. 11, Farmers posted a short video to its Instagram account of Johnson introducing David Braly as new president and CEO of the bank. No details were given for the abrupt change or regarding Johnson’s future.

FDIC involvement

A month later, on March 21, FDIC formally disclosed a 25-page consent order demanding a long list of corrective actions including specific restrictions and changes regarding properly qualified management personnel, board supervision, loan policy, reporting of charged-off loans, capital increase and a “realistic, comprehensive budget” as part of a larger profit plan.

The consent order included this as background: “The Bank, by and through its duly elected and acting board of directors, has executed a ‘Stipulation to the Issuance of a Consent Order’ dated February 21, 2019 that is accepted by the FDIC and the State.”

The announcement of the new bank president had been just 10 days prior to the signed stipulation.

The order indicates the corrective action was the result of a report of examination (ROE) dated Sept. 17. Per FDIC rules, ROEs are not a matter of public record.

According to Section 15.1 of the FDIC’s Manual of Examination Policies, a consent order is a type of cease-and-desist order against an insured bank when facts reasonably support that the bank has engaged in unsafe or unsound practices and/or if it has violated a law, rule or regulation.

The manual further explains that the purpose of such an order is to remedy unsafe or unsound practices or violations and correct those conditions.

Fast fall

Johnson became president and CEO of Farmers Bank at age 34, succeeding his father in that role and becoming the fourth generation of his family to helm the institution.

Although the bank was based in 1,672-person Carnegie, Johnson lived in Oklahoma City dating back to 2006, when he took his first official role with Farmers.

County records show that starting in 2014, Farmers began to make a number of multi-million-dollar loans for commercial and residential real estate projects, many signed by Johnson. By September 2015, Johnson was promoted to executive vice president and chief lending officer and elevated to the role of CEO in May 2016.

Dozens of large OKC-area loans followed, and Farmers was soon lauded as the fastest-growing bank in the entire state for 2017, nearly doubling the growth rates of the second-place finishers in terms of assets, loan and deposit growth and besting all of the state’s more than 200 banks.

In 2017 alone, Farmers reported between 80.29 percent and 86.09 percent increases in all three categories, a remarkable feat for what had been a sleepy small-town bank.

By mid 2018, the examination had begun that led to the existing consent order. By February 2019, Braly had been quietly introduced as the new head of Farmers and Johnson was no longer listed as an officer.

Public records reveal that new lending activity declined sharply after Johnson left the bank. Quarterly reports filed with FDIC show that after significant declines from 2011 to 2015, for the period between Jan. 1, 2016 and Dec. 31, 2018, Farmers grew its total assets, loans and deposits by 143.4 percent, 177.2 percent and 175.2 percent year after year.

Yet corresponding net income over the same period took a sharp downturn, culminating in a reported loss of $698,000 in 2018 after recording a bad loan allowance of over $1.2 million.

Suit filed

Several months before Farmers replaced Johnson as its chief executive, the bank engaged an independent accounting firm to investigate staggering sums charged to an American Express card.

In a lawsuit filed last month, Farmers claimed Johnson made personal charges in the amount of $398,389.49 in a 12-month period beginning in June 2017 and the bank paid these charges on behalf of Johnson.

Although the suit indicates Johnson ultimately repaid $371,000, Farmers claims an unpaid balance of $47,948.13 with interest still accruing.

The bank also alleges that Johnson breached his fiduciary duty as CEO by utilizing the card for personal use and having those charges paid by Farmers.

The FDIC’s consent order contains over a full page devoted to new restrictions regarding expenses paid on behalf of employees and directors, including limitations on spending, complete documentation and proper and timely review.

In an answer to the filing, Johnson’s attorney denies money is owed the bank or that it was damaged in any way by the American Express charges.

The matter is still pending in Oklahoma County District Court.

In addition to the FDIC and state regulatory issues, two existing shareholders in Farmers Bank recently filed a legal claim alleging they had been fraudulently induced into lending money to Johnson and his father, Lawrence Johnson. The suit identifies the Johnsons as majority shareholders of the bank.

The action filed by brothers Gary S. and Robert D. Smith asserts they were intentionally misled by Johnson when the pair loaned substantial sums to Farmers Bank, which is also named in the suit. The Smiths claim $1.5 million in promissory notes were executed on July 24, 2018.

The filing states the original due date was extended at the request of the Johnsons after Aaron offered assurances of bank profitability and full payment in mid March. The Smiths filed their lawsuit in early July after no payment was tendered.

The suit includes several additional allegations. In early 2018, bank regulators directed Farmers not to borrow funds without consent, which was not obtained in regard to the subject promissory notes. The Johnsons also allegedly misused assets of the bank, imperiling its ability to repay the notes, and they allegedly defrauded the Smiths and others in conjunction with the sale of stock in Farmers. The stock sales will be the subject of a separate lawsuit.

The Smiths are the principals behind Corsair Cattle Company, a real estate investment and development firm that has sold and renovated a great deal of property in and around the Midtown district.

Johnson and Braly did not return calls from Oklahoma Gazette and OKC Talk. 

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