FRANKFORT, KY -- Former Gov. Brereton Jones has borrowed heavily from a financially distressed bank that he and several other Democratic Party leaders founded in 2001, according to interviews and bank records, reports the Lexington Herald-Leader in its Sunday edition.
Federal regulators have criticized the directors of Frankfort-based American Founders Bank, including Jones, for inadequate supervision. The bank was badly managed and suffered "hazardous lending and lax collection practices," which left it with far too many unpaid loans, according to the Federal Deposit Insurance Corp.
Among the specific concerns cited was improper reporting and recordkeeping of insider loans to bank directors and executives. The FDIC issued a cease-and-desist order to the bank eight months ago to warn it about potential insolvency and try to avoid a taxpayer bailout, reports the Herald-Leader.
Jones, 68, owner of Airdrie Stud horse farm in Woodford County, is the only insider to borrow enough money that the bank is required by law to identify him, which it did at the Herald-Leader's request. Generally, that threshold is $500,000 or five percent of the bank's capital, whichever is less.
Jones would not say how much of the $11 million in insider loans was his. He said he used the loans to refinance, at a lower interest rate, his 2003 purchase of historic, 495-acre Woodburn Stud farm on Old Frankfort Pike, which originally listed for $7.4 million. According to land records, last July Jones also took $16 million in mortgages on his farm properties from Louisville-based PBI Bank in exchange for various loans and a line of credit, the newspaper reports.
The former governor, who served from 1991 to 1995, said he is repaying his loans on time and has not contributed to the bank's problems. Jones said his farms rely on a steady supply of credit, but his assets outweigh his liabilities by $4-to-$1, reports the newspaper.
"There is no financial difficulty here," Jones said. "This is a loan (at American Founders) that any bank would be willing to take," he said. "The public can be guaranteed that there's nothing that's improper going on relative to my financing."
While the weak national economy is spreading pain far and wide in the banking industry, only three of Kentucky's more than 160 state-chartered banks are operating under cease-and-desist orders, the Herald Leader reports. Other than American Founders, they are First Community Bank of Vanceburg and State Bank and Trust Co. of Harrodsburg, according to the FDIC.
As of Dec. 31, American Founder's capitalization -- its assets minus its liabilities -- was falling. It lost $5 million in 2007, according to the bank's reports to the FDIC. More than 8 percent of its $374 million in loans were at least 90 days past-due, or "non-current," ranking it at the bottom of its national peer group.
Also during 2007, its insider lending soared from four loans valued at $7 million to four loans valued at $11 million. Jones launched American Founders with a small circle of friends from Democratic politics and the horse industry, including:
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