Wednesday, August 07, 2002

Shareholders at Peoples also take a hit


Scandal hammered stock value

By Patrick Crowley, pcrowley@enquirer.com
The Cincinnati Enquirer

        CRESTVIEW HILLS — In January, after Peoples Bank of Northern Kentucky posted record earnings of $3.1 million for 2001, director William Remke bought $1 million worth of the bank's stock at $38 a share.

CLARIFICATION
    The initial price of stock in Peoples Bank of Northern Kentucky was about $8.50 a share. Peoples' privately held shares have undergone two 2-for-1 stock splits since their issuance in 1992 and have grown in value through the payment of stock dividends. This information was omitted from the original published version of this article.
    In the next few months, when the pending sale of Peoples assets to Bank of Kentucky is expected to close and the bank is liquidated, Peoples shares are likely to fetch $8 to $10, Peoples directors have said.

        Based on the approximately 1.577 million outstanding shares of Peoples stock, the bank's shareholders could end up seeing their investment drop in value from $59.9 million in January to $12.6 million if the stock ultimately sells for $8 a share.

        That's hardly the return that investors expected when they bought into the community bank, which in the past decade grew from a single branch and assets of $6 million to eight branches across Northern Kentucky and assets of $200 million.

        But no one expected the bank to be forced into selling because of its dealings with the Erpenbeck Co., an Edgewood home-building company that, like Peoples Bank, is the subject of a federal bank fraud investigation.

        “Nobody expects to get their hat handed to them when they make an investment or buy stock,” said Fort Thomas lawyer Norb Gettys, a Peoples shareholder who bought his shares at $38 10 years ago, about the time the bank was founded. “It's embarrassing for the directors, and it's embarrassing for the shareholders. You don't go into something like this and expect to lose money.”

BOARD MEMBERS
    Chairman John Yeager, president, Ashley Development Inc.
    Mark Arnzen, senior partner, Arnzen & Wentz
    John S. Domaschko, president, MC Squared Inc.
    Michael J. Gibbons, senior vice president, Lee Hecht Harrison
    John M. Griffin, senior vice president, Griffin Industries
    Paul W. Hemmer Sr., retired, Paul Hemmer Construction Co.
    James H. Huff, chairman, Jim Huff Realty Inc.
    Thomas Mayer, partner and physician, Head and Neck Surgery Associates
    Gary Menne, executive vice president, Peoples Bank of Northern Kentucky
    Joseph Milburn, retired, Steward Iron Works Co.
    Michael O'Brien, partner and physician, Greater Cincinnati Orthopedic Center
    William R. Remke, chief executive officer, Remke Markets Inc.
    Michael Robinson, owner and physician, Northern Kentucky Oral Maxillofacial Surgery Associates
    E. Ted Roeding, president, E.H. Roeding and Co. Inc.
    John P. Schmitz, retired, Greater Cincinnati Orthopedic Center
    Dwayne V. Smith, vice president and physician, Advanced Surgical Care
    Thomas J. Sumerel, president, Sumerel Tire Services
    Source: Peoples Bank of Northern Kentucky
        The board of directors owns about 80 percent of the bank's stock, with the other 20 percent held by individual investors. About 220 shareholders hold an estimated 1.577 million Peoples shares.

        When the bank was founded, directors each purchased about $235,000 worth of stock at $30 to $35 a share, said lawyer Mark Arnzen, a director and the bank's lead attorney.

        Edgewood lawyer John Middleton represents two unidentified shareholders who are closely watching where the stock price finally lands.

        “They are obviously disappointed with what happened ... to the bank and to the price of the stock,” said Mr. Middleton, who has refused to identify his clients or any specifics about their holdings, including how much stock they own or the price at which they bought it.

        “At the (July 16) shareholders meeting, shareholders were told Bill Remke paid $38 a share for the stock he bought earlier this year,” Mr. Middleton said. “Assuming the stock finally goes for $10, you're talking about a pretty substantial loss of $28 a share.

        “My clients are just after fair value of the stock. They have no interest in suing. But they do wonder why the bank is being dissolved and if that is the best deal for the shareholders.”

STORY ARCHIVE
Click here for all Enquirer reports on Erpenbeck Co.
INVESTIGATION
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 jmcnair@enquirer.com or Kentucky Enquirer reporter Patrick Crowley at pcrowley@enquirer.com.
        Mr. Remke, the CEO of the Covington-based Remke Markets grocery store chain, bought the $1 million in stock from an undisclosed shareholder. While shareholders own Peoples, it is not publicly traded on the stock market. Instead, shares are bought and sold by individual shareholders, and only three major trades, including Mr. Remke's, have occurred in the last several years, Mr. Arnzen said.

        “This stock is not actively traded like a publicly held company,” he said. “You can't really take the number of shares outstanding, multiply it by the share price Bill Remke paid and get a true representation of the value of the shares because unless it was being actively traded, there is no way of telling what the actual market for the shares would be.”

        Also in January, all 17 of the bank's board of directors, including Mr. Remke, each exercised $236,000 in stock options at $40 a share. The purchases pumped more than $4 million in new capital into the bank.

        The bank's board of directors said July 23 that the assets of the bank would be sold to Florence-based Bank of Kentucky.

        According to a filing the bank made with the Securities and Exchange Commission July 24, the sale includes Peoples' eight branches, eight automated-teller machines and — assuming no significant changes in Peoples' customers, loans or deposits — $158 million in deposits and the majority of Peoples loan portfolio.

        The sale, however, does not include Peoples stock.

        Pending regulatory and shareholder approval, Peoples Bancorp, the holding company of Peoples Bank, will set aside $16.8 million in an escrow account once the sale closes.

        That is the amount of checks that Erpenbeck company employees are accused of diverting into the company's accounts at Peoples over a two-year period. The money was supposed to be used to pay off first mortgage construction loans, but the checks ended up in Erpenbeck's accounts.

        The Peoples board said the $16.8 million would be used to pay off the first mortgages on the homes. The bank will then pursue recovering money from some of the other banks and title companies involved in Erpenbeck Co. home closings.

        Until all the liabilities are satisfied, a final stock price cannot be determined, although board members have said it could be $8 to $10.

        “It may end up in that range,” Mr. Arnzen said. “We wish it was still $38 a share or $20 a share or as high as possible, because at the end of the day, (board members) are shareholders like everybody else.”

       



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