Saturday, October 26, 2002

Bank moves to recoup $14M loan

Farmers also defends social tie to Erpenbeck

By James McNair
The Cincinnati Enquirer

Like several other Kentucky banks trying to salvage their money from the Erpenbeck Co. ruins, Frankfort's largest bank has begun taking legal steps to repossess and sell about $14 million worth of unoccupied buildings and property in Kenton and Boone counties.

And addressing a social tie between it and the home builder, Farmers Bank & Capital Trust denies that its judgment was clouded by the attendance of three bank officials on the homebuilding company's Caribbean cruise outing in January 2001.

Earlier this month, Farmers Bank obtained assignments of Erpenbeck mortgages on unsold multifamily buildings and land in the Steeplechase, Erlanger Lakes and Grandview Summit projects. Although the loans dated back to 1999, the mortgages were never filed in Farmers' name. Instead, they were recorded in the name of the bank that put Farmers and Erpenbeck together: Peoples Bank of Northern Kentucky.

"We took them back in our name because we're trying to sell the projects," Farmers CEO Tony Busseni said Friday. "We took them back to move them rather than to finish them."

With $620 million in assets, Farmers faces no grievous financial injury from its Erpenbeck portfolio. But the unpaid $14 million loan balance - down from an original $18 million - has prevented Farmers from doing what banks do: earn interest. Moreover, the bank must spend fresh money on legal fees and other costs in the course of disposing of its Erpenbeck collateral.

"I expect to recover 100 percent," Mr. Busseni said. He added that the properties have generated a lot of interest, in spite of the notoriety attached to the Erpenbeck name.

Farmers officials have generated some notoriety of their own because of a recreational link to Erpenbeck. Two directors, Gene Strong and David Lee, and its chief lending officer, Bruce Brooks, took part in a seven-day Erpenbeck-paid Carnival cruise from New Orleans to Jamaica, Puerto Rico, the Cayman Islands and Mexico in 2001. The cruise, for 170 employees, spouses and guests, cost Erpenbeck about $300,000.

Mr. Strong, who is secretary of the Kentucky Economic Development Cabinet under Gov. Paul Patton, said Friday that he went on the cruise at the invitation of an old friend, Erpenbeck business partner Mick Kennedy. Because Erpenbeck was a Farmers client, Mr. Strong said he sought the advice of Mr. Busseni and Charles Boyd, CEO of Farmers' holding company, Farmers Capital Bank Corp. Neither disapproved, he said.

"I didn't go on the cruise because I was on the Farmers Bank board. I went because I was a friend of Mick Kennedy's," Mr. Strong said in a telephone interview from Japan. "Did I act appropriately? Absolutely. Did I do anything not in the best interest of the bank? No, I didn't."

Mr. Busseni confirmed that Mr. Strong consulted with him before accepting the cruise invitation. He said Mr. Strong and Mr. Lee might have voted on Erpenbeck loans but said the "vast majority" of those loans preceded the January 2001 cruise. Mr. Brooks had nothing to do with the Erpenbeck loans, he said.

"I was the lending officer for those loans because they came out of our correspondent banking group," said Mr. Busseni, who did not go on the cruise.

Mr. Strong was one of those on the cruise who formed a group of crooners called the "Cruisin' Elvi." Preserved on video taken by employees, the group sings "Are You Lonesome Tonight?" and "All Shook Up" before moving onto Mr. Erpenbeck's favorite song, "American Pie."


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