If Peoples State Bank in Jeffersonville, Ga., was in any other state, Capitol Bancorp Ltd. would not have had much interest in buying it.
Peoples has just $21 million of assets, it has lost close to $2 million over the last three years, and its hometown, about 100 miles southeast of Atlanta, is not exactly bustling.
Moreover, Capitol, of Lansing, Mich., rarely buys banks. It has grown to assets of $3.1 billion largely by starting banks in high-growth markets such as Phoenix, Las Vegas, and San Diego.
But Capitol has good reason to buy a 51% stake in Peoples. Joseph D. Reid, the Michigan company's president and chief executive, said it would be one of the most significant moves in his company's 24-year history, because it would allow it to expand into Atlanta, a market it has long coveted.
Peoples, founded in 1934, "is an old bank but this is a new opportunity," Mr. Reid said in an interview this week. "This is going to accelerate our de novo strategy in Georgia."
Acquiring Peoples and its one branch would qualify Capitol as a Georgia holding company. That is important because out-of-state banking companies cannot charter banks or even open branches in Georgia unless they buy a Georgia bank, explained Walter G. Moeling 4th, an attorney with Powell Goldstein LLP in Atlanta.
"People stand on their heads to get around it, but it's a flat-out rule," Mr. Moeling said. "Georgia is very conservative in that regard."
Indeed, one of Capitol's subsidiaries has had a loan production office in Atlanta since 2002. Capitol has been eager to turn the office into a full-fledged bank, but has been unable to because of the law.
Mr. Reid said Monday that Capitol is waiting on regulatory approval for the Peoples deal, and it plans to convert the loan production office into a bank soon after closing the deal.
He did not disclose a sale price. The application to buy the stake was reported last month in the Federal Register.
Capitol entered the Southeast in April 2004 by acquiring a controlling stake in the $68 million-asset First Carolina State Bank in Rocky Mount, N.C.
That deal was a departure for Capitol, whose strategy is predicated on opening banks in fast-growing markets. Typically it provides a little more than half the capital for a start-up and buys out the minority stake three or four years later when the bank is on its feet and in the black, keeping the management team in place.
Capitol owns controlling stakes in 33 banks in nine states, including Michigan, Arizona, California, and Washington.
It is hardly alone in targeting Atlanta, one of the nation's hottest bank start-up markets. According to the Federal Deposit Insurance Corp., 38 banks have been chartered in the Atlanta metropolitan statistical area since the beginning of 2002.
Though buying Peoples would give Capitol the Atlanta springboard it needs, it has no intention of neglecting the Jeffersonville bank. Mr. Reid said he has asked longtime Georgia banker Steve Watts, Peoples' executive vice president, to run Peoples under Capitol.
Peoples "hasn't done that well lately, but hopefully we can help energize it," Mr. Reid said.
Mr. Moeling said Capitol may find that it lucked into something with Peoples. Twiggs County is rural now, but the expansion of nearby Macon offers the prospect of substantial growth.
"The fringes of Macon are starting to lap on the shores of Jeffersonville," Mr. Moeling said.
John Bergquist, an analyst with Sandler O'Neill & Partners LP, said it makes sense for Capitol to acquire Peoples. "They probably invested less than $6 million, and now they have the real option of expanding," he said.
