Wednesday, July 24, 2002


Peoples' decision was its only choice

By Jeff McKinney,
The Cincinnati Enquirer

        Given the dark cloud cast by the Erpenbeck Co. fiasco, directors at Peoples Bank of Northern Kentucky essentially had one choice: Sell most of the bank to one of its largest Tristate rivals.

        The decision by Peoples' board to sell its assets, deposits, accounts and eight branches to the Bank of Kentucky for an undisclosed cash price likely was among many options, industry experts said, but getting a viable and fair offer for the troubled Crestview Hills, Ky.-based financial institution was key.

        The directors faced several uncertainties, industry followers said:

        • The final tally of the Erpenbeck-related losses. Erpenbeck, an Edgewood home builder, is under investigation for bank fraud. The company took checks made out to other lenders at home sale closings and deposited them into the company's accounts at Peoples Bank.

        • Not knowing how long its legal battles would continue.

        • The continuing loss of deposits and customers.

        “I'm not sure if they could have sold the entire institution at any price. ...This may have been the best way, given their circumstances with Erpenbeck, to maximize their franchise value at this time,” said Bert Ely, president of Ely & Co., an Alexandria, Va.-based bank consulting firm that monitors and specializes in banking matters.

Click here for all Enquirer reports on Erpenbeck Co.
If you have any additional information on the business dealings of the Erpenbeck Co. or Peoples Bank of Northern Kentucky - or on the involvement of any parties not yet identified in our coverage - please email Enquirer business reporter James McNair at or Kentucky Enquirer reporter Patrick Crowley at
        Chief executive and president Robert Zapp of the Bank of Kentucky said his bank has signed a letter of intent to pay cash for about $165 million in assets, $158 million in deposits, eight branches and automated-teller machines. The deal would make the combined entity one of the Tristate's largest banks with assets of $700 million in assets and 25 branches in Boone, Kenton Campbell, Grant and Kenton counties.

        Mr. Zapp would not disclose how much Bank of Kentucky will pay, saying it has not yet conducted due diligence, and the amount could change depending on several factors before the closing.

        He also said his bank will not buy any loans tied to any Erpenbeck-related entity or affiliate, and the deal won't happen until a plan is in place to resolve any third-party claims against Peoples Bank.

        The deal also calls for the Bank of Kentucky to pick up all of Peoples Bank's employees and all of its branches in Crestview Hills, Crescent Springs, Edgewood, Fort Wright, Hebron, Independence, Richwood and Highland Heights.

        The merger, expected to be completed in about three months, also means that the People's Bank of Northern Kentucky name will disappear.

        “We believe that we have brand value with The Bank of Kentucky name, and we're going to operate (those branches) as such,” Mr. Zapp said. “This is a perfect strategic fit for us because it put us in some locations we weren't at before.”

        Though no executives from Peoples Bank or the Bank of Kentucky would discuss the deal's value, Mr. Ely estimated that the acquirer might pay a range of $20 million to $30 million for the assets and deposits, depending on what Bank of Kentucky finds in its due diligence and what happens to Peoples Bank's deposit base between now and the closing.

        Both banks said there were no concessions, largely because People's Bank will retain all of the liabilities and risk exposure tied to Erpenbeck.

        Still, Mr. Ely said selling part of the bank likely was a last option for Peoples Bank. Uncertainty of how big of a financial hit it might take from Erpenbeck, as well as an image problem, likely forced the bank to take action, he said.

        “Because of the consequence of Erpenbeck, they could not find somebody to buy the whole bank,” he said. “But I seriously doubt this was their first choice because shareholders will get their least return on their investment.”

        Merwin Grayson, president of Peoples Bank, said the Bank of Kentucky made the “best and highest offer” of five bidders, whom he declined to identify.

        Peoples Bank executives said they were local and regional banks among the bidders.

        Another issue that could soon disappear: pressure from Federal Deposit Insurance Corp., which has been investigating the $200 million-asset bank. A sale to Bank of Kentucky would protect depositors' money.

        “When the transfer is complete, the regulatory bodies will go away because the FDIC insures the money,” Mr. Grayson said.


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