By Jeff McKinney
The Cincinnati Enquirer

Northern Kentucky has become a hotbed of chitchat as big banks in Southwest Ohio eye potential buyouts on the river's booming Kentucky side.

That interest - fueled by expectations that a growing population with higher income in Northern Kentucky will need a battery of financial services in the years ahead - is tempting such Cincinnati mainstays as Fifth Third, Key, Huntington, PNC Bank and U.S. Bank.

Bankers and analysts who follow the Tristate banking market note that Northern Kentucky already has been targeted for a flurry of branch office construction in 2004-2005.

But some say the big banks may be forced to trump their competitors by buying up banks or thrifts, allowing them to build a much larger presence and add customers faster than by opening branches.

Of the 25 or so banks and thrifts that operate mainly in Boone, Kenton and Campbell counties, Crestview Hills-based Bank of Kentucky would be the most likely takeover candidate, analysts say. The bank has 25 branches, assets of $820 million and is the area's most dominant community bank. Among other Northern Kentucky banks that could be attractive buyout candidates:

• Heritage Bank Inc. The Erlanger-based institution has assets of $231 million, deposits of $191 million and seven branches in Boone, Kenton and Campbell counties.

• Citizens Bank of Northern Kentucky. Based in Newport, Citizens has assets of $170 million, deposits of $150 million and five branches in Campbell County.

• First Bank of Northern Kentucky. Formerly First National Bank of Northern Kentucky, the Fort Mitchell-based bank has assets of $72 million, deposits of $65 million and one branch in Kenton County.

The growth curve prompted the Bank of Kentucky to pay $15 million to buy most of the assets and deposits of Peoples Bank of Northern Kentucky in 2002. That deal allowed the Bank of Kentucky to pick up new branches in Crestview Hills, Crescent Springs, Edgewood, Fort Wright, Hebron, Independence, Highland Heights and Richwood, all areas where it did not operate before.

The deal also was an early view of outside interest in the banking fortunes of Northern Kentucky.

Other bidders hungry for Peoples included Lexington's Central Bank & Trust and Cambridge, Ohio-based Camco Financial Corp., parent of Advantage Bank, with five offices in Northern Kentucky. Louisville's Commonwealth Bancshares, parent of First Security Trust in Florence, was another bidder.

Peoples sold most assets

The Peoples purchase came after the bank was forced to sell most of its assets and deposits in the wake of ties to troubled Northern Kentucky homebuilder William "Bill" Erpenbeck, who pleaded guilty to bank fraud.

But Don Bahr, senior vice president of branch administration at the Bank of Kentucky, said the bank would have bought Peoples anyway if that option came along.

"We would have been open to acquiring Peoples even if that bank did not have the Erpenbeck-related problems because it fit our future growth plans," Bahr said.

Bank of Kentucky and Peoples were among five banks that opened in Boone, Kenton and Campbell counties beginning in the early 1990s. They figured they could capture a niche, providing personalized services to customers turned off by high fees and other byproducts of the wave of mega-mergers that swept banking in the late 1980s and early '90s.

But the hunters now may find themselves the hunted.

Key Bank, which has no Northern Kentucky presence, might be the most aggressive. Jack Kopnisky, president of consumer banking at the bank's Cleveland-based parent, KeyCorp, said his strategy includes acquiring a bank or thrift in Cincinnati or Northern Kentucky to increase local market share.

John Taylor, regional president at PNC Bank for Cincinnati and Northern Kentucky, said his bank would look at ways of increasing market share in Northern Kentucky, including acquisitions.

Fast-growth areas prime

He said PNC would be interested in all Northern Kentucky areas growing at a very fast pace.

He said that includes Boone, Kenton and Campbell counties, where PNC now only has eight branches. He added that the bank also is interested in Grant and Pendleton counties, where PNC does not operate. Specifically, Taylor said PNC is attracted to markets in Hebron, Taylor Mill, Union and Cold Spring/Alexandria.

"We find Northern Kentucky as equally attractive as Butler and Warren counties," Taylor said. "It's very attractive because of the growth dynamics that have taken place there the past 10 years."

Good growth area for banks

Kathy Beechem, executive vice president at U.S. Bank, which operates 24 branches in Northern Kentucky, said the bank is always looking for smaller acquisitions to "fill in" markets where it operates.

"We're not actively looking, but we would look at all opportunities to grow and Northern Kentucky is a good market for that," she said.

Rick Baylor, president and chief executive at Camco Financial Corp., said Northern Kentucky offers a wealth of growth opportunities for his bank.

Camco entered Northern Kentucky in November 2001 after it acquired the parent of Fort Mitchell-based Columbia Federal Savings Bank in a cash and stock deal worth about $30 million. That purchase gave Camco a bank with assets of about $110 million and branches in Fort Mitchell, Crescent Springs, Erlanger, Florence and Covington.

He said Camco would be interested in additional acquisitions in Northern Kentucky similar to the Columbia Federal Savings if a deal came along. .

"We're always looking for opportunities to expand our franchise, including in Northern Kentucky," he said. "That could include possible acquisitions there."

Mike Prescott, regional president for Huntington Bank in Southern Ohio/Northern Kentucky, said if a bank or thrift in Northern Kentucky were looking for a new partner, Huntington would be interested in a merger or acquisition.

Prescott said Huntington does not have a presence in Campbell County and would like to grow in Boone County.

Prescott said Huntington would be open to acquiring large and small banks in the market, including ones that might have overlapping branches with its branches in Northern Kentucky or small banks that would put it in new neighborhoods there.

Growth by acquisition

And Fifth Third, the Cincinnati-based banking giant, likely would be among banks that would look across the river if a willing seller came along. Fifth Third, Northern Kentucky's largest bank with $1.14 billion in deposits, has grown in that market by doing acquisitions.

Fifth Third has been on the sidelines from doing deals because of a Federal Reserve investigation, but could soon get back in the game once that inquiry is completed. That could happen by spring.

Jerry Kohlhepp, chairman and chief executive at First Bank of Northern Kentucky, said the market could be an obvious target for bank acquisitions given its recent and expected continued growth.

But the former U.S. Bank executive who came out of retirement in 2002 to help turn around troubled First Bank of Northern Kentucky, is uncertain if larger banks acquiring smaller ones would be good for consumers or small businesses.

His reason: Smaller banks are typically more responsive to customers' needs than bigger banks, something smaller bankers in Northern Kentucky say has given them a niche over larger banks in recent years .

Still, Kohlhepp acknowledges that Northern Kentucky would be a choice market for big banks willing to deal. He would not comment on whether a suitor has approached the bank.

First Bank has struggled in recent years, including suffering financial losses tied to more than $10 million in business loans and being forced by regulators to change some of its operations.

But if a suitor came along, First Bank would be receptive.

"If we were approached, we would listen as any bank would," he said.

E-mail jmckinney@enquirer.com