Monday, July 29, 2002

Growth key to Peoples Bank purchase

By Jeff McKinney
The Cincinnati Enquirer

        When the Bank of Kentucky swooped in to buy the assets of troubled Peoples Bank of Northern Kentucky last week, it was a bittersweet deal for Robert Zapp.

        Just a decade ago, Mr. Zapp, president of the Bank of Kentucky, sat at the kitchen table with his longtime friend and former Peoples Bank president, John Finnan, and helped him write a business plan that established Peoples.

Robert Zapp, president
(Brandi Stafford photo)
| ZOOM |
  • Headquarters: Florence.
  • Opened: August 1990.
  • Chief executive: Robert W. Zapp.
  • Parent: The Bank of Kentucky Financial Corp.
  • Assets: $535 million.
  • Branches: 17 in Boone, Campbell, Grant and Kenton counties in Northern Kentucky.
  • Employees: 165.
  • Latest annual profits: Earned $7 million, or $1.16 a share, in 2001, up from $4.2 million, or 69 cents a share, in 2000.
        But business decisions overrode emotions Tuesday when Mr. Zapp said his bank would pay Peoples an undisclosed amount of cash to buy its $165 million in assets, $158 million in deposits, eight branches with about 6,000 customers and 20 automated-teller machines in Northern Kentucky.

        “I'm excited and tickled to death to help them and hopefully benefit our shareholders, but really saddened about what brought all this about,” he said.

        What brought about the sale was the Crestview Hills bank's relationship with Northern Kentucky home builder the Erpenbeck Co. Peoples and the home builder have been under investigation after checks intended to pay off construction loans were deposited into Erpenbeck accounts.

        Mr. Zapp cited several reasons to do the deal. It will allow his bank to:

        • Pick up branches in Crestview Hills, Edgewood, Crescent Springs, Fort Wright, Hebron, Independence, Richwood and Highland Heights, areas where Bank of Kentucky had no presence but had a major desire to be.

        • Accelerate its expansion plan by three to four years by making it large enough to more easily buy other smaller banks, not only in Northern Kentucky but in cities such as Louisville, and cross the river into Cincinnati.

        • Instantly boost the size of its assets to about $700 million, making it one of the Tristate's largest banks. Moreover, the bank now has the potential to reach $1.5 billion in assets by 2005, about $500 million more than it initially anticipated. That's key because the company would then have greater stock liquidity to do more deals.

        • Relocate its Florence headquarters and main branch to Peoples' recently expanded headquarters in Crestview Hills, a move that would save it at least $5 million to $6 million in expenses.

        • Speed up Mr. Zapp's dream to acquire other banks in what he describes as the “Golden Triangle” 1/2ndash 3/4 from Northern Kentucky to Lexington to Louisville.

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
        “We'll be at a point now where we would not hesitate to go south if the opportunity came along,” he said.

        But it won't necessarily be easy.

        In Peoples Bank, Mr. Zapp not only inherits assets, but it also gets a bank with public relations damage because of the Erpenbeck fiasco. Peoples Bank also faces potentially millions of dollars in Erpenbeck-related losses 1/2ndash 3/4 liabilities that Bank of Kentucky won't assume, as part of its deal with Peoples.

        That's largely why Mr. Zapp, 50, is elated about what Peoples Bank will bring to his company. He expects higher profits for Bank of Kentucky investors.

        Still, the deal is kind of a “downer,” Mr. Zapp said, given that Mr. Finnan is a longtime friendly competitor and Mr. Zapp was there at Peoples' beginning.

        That why Mr. Zapp thinks it's imperative that he quickly make Peoples Bank's 60 to 65 workers understand that he knows what they've been through.

        He sees blending them into his bank as among his biggest challenges. The deal is expected to be completed within the next three months.

        Mr. Zapp, a veteran banker who has worked at Provident Bank and Fifth Third Bank and was a founder of the Bank of Boone County, said that among his largest tasks initially will be re-organizing the combined entity, ensuring that the best people from each bank are in the best positions to make the new company work.

        For instance, the Bank of Kentucky has a senior vice president that runs all of its lending units. Now, Mr. Zapp said, the new company will have to consider whether to departmentalize those functions, including appointing heads of such things as consumer, mortgage, small business lending and business development.

        “One of the biggest things will be re-evaluating personnel,” Mr. Zapp said. “We'll have to do a lot of restructuring with the new company, making every attempt to integrate their people with our people. They have some very good people.”

        The deal also will bring the Bank of Kentucky some opportunities to offer services that Peoples Bank did not offer.

        Among those: cash management and credit-card payment services to business customers. Bank of Kentucky also will pick up Peoples Bank's trust department, enhancing the trust department that Bank of Kentucky started about 18 months ago but that has been unprofitable.

        “With the merger, it will allow us to go from losing money to making money” in that business, Mr. Zapp said.

        Mr. Zapp also is confident that his bank won't have a large deposit runoff, something that often happens in bank mergers. That circumstance is more profound now, given Peoples' image problems.

        One thing that could be in Bank of Kentucky's favor is that customers of Peoples will now have the security of knowing their deposits are not only insured by the Federal Deposit Insurance Corp., but with a financially strong entity with no apparent major-loss exposure or public-relations problems.

        “Most of their customers we already know because we have many employees who live where their customers are,” Mr. Zapp said. “We see no problems with keeping their customers.”

        Mr. Zapp does not see himself as a crusader with the Peoples Bank deal, although he has great intentions to keep its employees and reassure its customers that they are in better hands with a more profitable and well-capitalized financial institution.

        “I don't see myself as a white knight because this is a bittersweet deal for me,” Mr. Zapp said. “This was strictly a business decision for me that I saw as a good opportunity for our bank.”

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