Friday, May 10, 2002

Banks liked being lender to builder

By Jeff McKinney,
The Cincinnati Enquirer

        For years, Greater Cincinnati bankers viewed the Erpenbeck Co. as a good credit risk, prompting large and small banks to invest tens of millions of dollars in the Edgewood home builder's projects.

        A reputation as one of the area's largest home builders; impeccable credit quality; and former president A. William “Bill” Erpenbeck's status among Northern Kentucky's business and social elite were enough to convince lenders to finance the construction of hundreds of homes, condominiums and apartments over roughly a decade.

        The Erpenbeck home-building empire began to crumble in late April when the company came under federal investigation for suspected bank fraud, affecting lenders, title companies, subcontractors and consumers who bought its homes.

        More important, the crisis has left many in the Tristate business community asking how an estimated 19 lenders — local and regional community banks — could leave themselves exposed to the Erpenbeck Co. fiasco.

        Federal and state banking regulators might provide a clue after completing their investigation of Peoples Bank of Northern Kentucky, the Crestview Hills bank that had business ties to Erpenbeck Co.

        Two Tristate bankers, whose companies have filed lawsuits against the home builder, offered suggestions Thursday about how the crisis occurred.

        Tom Noe, chief financial officer of Peoples Community Bank in West Chester, said Mr. Erpenbeck was the kind of borrower that a banker would kill for. He was a third-generation home builder, for years had a solid company with strong cash flow and was building 500 homes a year.

        Mr. Noe said his company made loans — in the “million range” to Mr. Erpenbeck's company within the last year, and they were all paid back on time with no glitches. He said the home builder became 30 days late on loans in late March. Mr. Noe said the bank contacted the company to inquire, and before it got a response, the fiasco was public.

        Earlier this month, Peoples Community Bank of West Chester — not affiliated with Peoples Bank of Northern Kentucky — filed foreclosure suits for about $2 million in Erpenbeck & Kennedy homes it financed. It called for the repossession of homes and condos in six local subdivisions. None of the homes was sold to individuals. Erpenbeck & Kennedy was a company run by Bill Erpenbeck, his brothers Jeff and Gary Erpenbeck and partner Mick Kennedy.

        Jerry Cook, president of First Security Trust Bank in Florence, said he also had no problems with the Erpenbeck Co. until the past three months. He said his bank had provided about $700,000 for three or four loans to help the company build homes in Northern Kentucky. He said all the loans were paid.

        Mr. Cook said his bank had no problems receiving construction-related loan payments that came from closings. That's an area being examined in the FBI's bank fraud investigation.

        Mr. Cook said he is unsure what caused the Erpenbeck Co. to suddenly have problems with lenders.

        First Security Trust Bank also has filed a foreclosure against Erpenbeck & Kennedy, seeking more than $417,000 in financing for three homes in Savannah Lakes in Boone County.


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