Family ousted from Farmers Bank
After making a splash opening a branch of his family's rural bank in Midtown, records show Aaron Johnson stepped down as CEO of Farmers Bank amid allegations of fraud and a cease and desist consent order filed with the FDIC.
The consent order, published by the Federal Deposit Insurance Corp. on June 28, details a list of required actions to address alleged unsafe banking practices relating to loan procedures, management, expense reimbursement and pay and capital.
The bank neither denied nor admitted wrong doing with the consent order, but was required to add to its board two directors who have no connections to Aaron Johnson, his father, Larry Johnson, or anyone associated with the bank.
The bank i s suing Aaron Johnson over unreimbursed personal expenses charged on a credit card, and investors Scott and R.D. Smith allege the Johnsons pledged their stock in the bank, their only asset, to obtain a $1.5 million “short term” loan when that stock already had been used as collateral for a loan with another lending institution.
Aaron Johnson stepped down in March, and the bank board named veteran David Braly as Farmers Bank CEO. Aaron Johnson, who took over as CEO in 2017 at age 34, was gone after little more than a year and just a few months after the opening of the Midtown branch.
“The Johnsons have controlling interest over the stock, but not the bank,” Braly said. “They have no influence over the bank whatsoever. They are not working for the bank. They are 100% out.”
The Johnsons' history with the bank dates to 1953 when it was purchased by Aaron Johnson's great grandfather, Stancel. The Midtown bank opened in early 2018 at 1300 N Walker with the presidential symbols of various denominations painted large on the walls, a coffee shop, an outdoor Ping-Pong table and porch and a couple of electric scooters.
The opening of the Midtown Bank was ce lebrated with a party attended by some of downtown' s most prominent developers and business owners. Aaron Johnson was named a director of the Oklahoma Banking Association, and he spent much of 2018 promoting the Carnegie bank's expansion from one that focused on agriculture to one also engaged in urban commercial lending.
As t he new CEO, Aaron Johnson boasted the bank had grabbed the top spot in the state for growth in assets, deposits and loans.
Farmers Bank financing signs started popping up across the city and deals included financing the now stalled redevelopment of the Spaghetti Warehouse building in Bricktown by Sam Coury and real estate projects by Shyon Koeppel.
Inquiries and questions about Johnson's operation of the bank started that summer.
The Smith brothers, who filed suit earlier this month against the Johnsons, allege the father and son approached them for a loan in mid-2018 shortly after the Smiths purchased a minority position in their bank holding company.
The Smiths say the Johnsons told them they needed a $1.5 million cash infusion into the bank and that Larry Johnson promised the bank was profitable and the loan could be quickly repaid. The July note was executed with a due date of Oct. 15, but at that time, the Johnsons asked for an extension to March 2019.
Meanwhile, the bank board in October had hired BKD, an accounting firm, to conduct a forensic audit of an American Express card being used by Aaron Johnson. According to court records, the firm determined Johnson was responsible for $398,289 of the charges. Johnson paid back $371,000, but as of the June filing, he still owed $27,389 plus $18,170 in interest.
The bank alleges in its lawsuit Aaron Johnson breached his fiduciary duty with his use of the card and charges others were allowed to make with the account.
Braly has 38 years of experience in banking, including about a dozen leading local banks in the metro. He originally was hired by the bank to be the president and chief lending officer.
“When they hired me, they told me the extent of what they knew,” Braly said. “But they had been kept in the dark about a lot of the issues. Aaron left in March, and I was asked to stay on and take on the role of CEO to assist the board.”
Aaron Johnson was unable to comment on Wednesday. The Smiths allege the Johnsons still owe them $1.5 million, plus interest.
The bank, meanwhile, is implementing the FDIC consent order, including adding two new independent directors, Clint Stone and Mike Sheely, both of whom ar e described by Braly as being “really solid bankers,” each with 40 years in the industry.
Bra ly said the bank has addressed most of the consent order and other measures are ongoing. Executive changes have occurred, as well.
“We appreciate the efforts of the Oklahoma State Banking Department and the FDIC,” Bra ly said .“They opened everyone eyes here and brought everything to light. Looking at the actions of previous management, our board was kept in the dark. Now they are very active in correcting the issues. The problems are exclusive to previous management and their actions.”