Small daily gives frank look at troubled local bank

For most of the time since the banking crisis hit, more than a year ago, the Institute for Rural Journalism and Community Issues has encouraged community newspapers to report on the health of their community banks, using easily available public information gathered by federal regulators and public-interest organizations. We have no idea how good the coverage has been nationwide, but we think it would be hard to beat what we've seen this week in The State Journal of Frankfort, Ky.

First the newspaper reported that the leading bank in town, Farmers Bank & Capital Trust Co., plans to start repaying the $30 million it borrowed from the Troubled Asset Relief Program, and that its non-performing loans increased from $29 million to $44 million over a six-month period earlier this year, according to the Securities and Exchange Commission. Reporter Paul Glasser also cited a recent report by the bank to the Federal Deposit Insurance Corp., revealing that it lost money in September, after making $4.3 million in September 2008.

Those are the kind of figures that could make depositors worry about the solvency of their bank. The newspaper confronted those fears and figures in an editorial (accompanied by a cartoon), saying, "This doesn’t mean the local bank, or its holding company, is on the brink of failure. Most failed institutions are said to have troubled asset ratios of 100 percent." But the editorial also noted that the bank plans to sell stock to repay TARP "at the risk of diluting current shareholders," that the Investigative Reporting Workshop of the American University School of Journalism reported the bank's troubled assets rose to by more than a fifth this year, and its "troubled asset ratio" was 36.9 percent in September, far above the national average of 14.1 percent. And it went back to the start of TARP, noting that the “Treasury Department insisted the loans were not bailouts of participating banks, merely a helping hand to get sound institutions through tough times. But ProPublica, a nonprofit group of investigative journalists, said some of the banks 'have turned out to be not so healthy.'”

The editorial continued relating the local situation to the national, saying the bank "is in the same predicament as its customers: Even though some economists say the recession is over, the recovery is too weak to make anyone feel especially secure. [It] finds neither businesses nor individuals are in the mood to borrow much money, which inevitably depresses the bank’s revenue outlook," the editorial continues. "If Americans really have resolved to reduce their indebtedness, that’s not a bad thing. Farmers Bank was established in an era of fewer consumer goods when people found it prudent to borrow only if they really needed to, and vigilant bankers kept them from diving in over their heads. It’s past time for financiers, and the rest of us, to rediscover the proven wisdom of living within our means."

That's a frank and helpful look at a town's most powerful financial institution, by a newspaper that has a circulation of only 8,000 and is often considered the "local little sister" to metropolitan papers in Louisville and nearby Lexington. While Frankfort is the state capital, it is not metropolitan; it has a population of only 27,000 and a county population of fewer than 50,000, so The State Journal is still very much a community newspaper. It's owned by Ohio-based Dix Communications and makes its edtorials available online only to subscribers, but Opinion Editor Ron Herron has graciously alllowed the pertinent editorial page to be posted on the Institute site, here.