LEXINGTON, Ky. -- Central Bank and Trust Co. was once one of this city's premier corporate banks. It played a major role in revitalizing downtown and helped finance the growth of thoroughbred horse breeding, a major business in the region.

But Central, which has $380 million in assets, has a struggle on its hands: all of its local rivals have been swallowed by multibillion-dollar super-regional companies.

Looking Down a Rocky Road

"I'll be quite frank with you," says Wayne L. Smith, Central's ebullient and plain-spoken chief executive. "Down the road it's going to be much more difficult for [us] to see sustained growth."

Mr. Smith, 56, is putting up a valiant, if uphill, fight. He has changed the institution's focus to retail banking and is trying to steal customers from competitors by playing up Central's independence and local autonomy.

To drive the point home, Central has launched an aggressive advertising campaign using such headlines as, "We're happy to announce Central Bank is still Central Bank," and "What makes us different is that we've stayed the same."

Mr. Smith also hopes to raise his own visibility by going outside the bank on sales calls, a practice he abandoned years ago.

For now, at least, Central's independence is assured. The estate of the late Garvice D. Kincaid, a former chairman of Central, controls half the company's outstanding shares. The three-member committee charged with executing Mr. Kincaid's estate insists it has no plans to sell.

Although Central's stock would probably command a substantial premium, the committee believes that Lexington would be better served if the company remained independent.

Mr. Kincaid, who died in 1975, "was a very civic-minded person," says Charles R. Hembree, a committee member and chairman of Central Bank. "Keeping the bank independent enables that [tradition] to go on."

But the realities of what is happening in Lexington are crystal clear to Mr. Smith, who has been at Central 17 years, the last six as chief executive.

Long-Term Impact

Since Kentucky opened its borders to interstate banking in 1984, the state has experienced rampant consolidation. National City Corp. in Cleveland, PNC Financial Corp. in Pittsburgh, and Fifth Third Bancorp in Cincinnati all have staked out claims in Lexington.

And last December, Banc One Corp. announced it would acquire First Security Corp., the city's largest banking company. The deal is expected to close in August.

"I don't think the regulators understand yet that competition is good, but it can also hurt and it's [hurt]all the banks here in town," Mr. Smith says.

Central has seen its market share in Lexington erode since the mid-1980s. In 1984, it had 15% of the city's deposits, making it the second-largest player. It now ranks third, with 13% of the market.

First City in the dominant player with a 41% share, and National City's Lexington outpost, Commerce National Bank is ranked second with a 15% share.

This year, however, Central seems to be defending its franchise nicely.

Mr. Smith says the company's advertising campaign has won it new business, and it seems to be on the mend from a disastrous 1990, when it lost $2.7 million. Earnings for the first six months of this year are $1.2 million, double the level in the half last year.

Emphasis on Service

And Central's new focus on retail banking will keep it a formidable competitor, says Mr. Smith, because it plays to the bank's strength: its ability to deliver superior customer service.

While Banc One or National City may have more clout with their extensive product offerings, Mr. Smith says Central can offer the hometown touch his out-of-town rivals can't match.

For example, he says that customers who open an account with more than $500 gets a personal letter from him, thanking them for their business. And he says he will personally handle customer complaints.

"We don't go through channels here," he says. "If I've got a customer who tells me a teller has treated her snotty, I call the teller."

Mr. Smith also believes that Central can offer quicker response time on loan decisions. "We have local policies, local decisions, and local pricing," he says. "It don't come from Columbus, it don't come from Cincinnati, or Indianapolis, or Pittsburgh. It comes from right here."

Threat from Banc One

Still, Mr. Smith acknowledges that it's going to become increasingly defficult to lure new customers, particularly after Banc One takes over First Security.

He says he has a lot of admiration for the marketing prowess of the Columbus-based company and expects it presence to make a major difference in the Lexington marketplace.

He certainly has first hand knowledge of Banc One's strengths. He and Banc One president Donald L. McWhorter worked together for 10 years at Clermont National Bank in Mr. Smith's hometown of Milford, Ohio. "It's kind of different, isn't it. Here we are competing now," he says.

Bank One's entry into the market isn't Mr. Smith's only headache. A six-year-old lawsuit against the executors of the Kincaid estate threatens to put a majority of the bank's shares into new, possibly less-friendly hands.

The, suit brought by Mr. Kincaid's two twin daughters, charges the executors with mismanaging the estate. It is expected to go to trial within the next year. Mr. Smith declines to comment on the suit.

"We're having the most fun we've had in years," Mr. Smith says. "But we know it won't last forever."

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