It takes money to make money, and People's Bank of Commerce is poised to raise new capital so it can expand its business lending.
Jackson County's only locally headquartered bank plans to raise $5 million through a new offering this summer, selling 500,000 new shares at $10 each.
"The reality is that we are growing so fast that we're exceeding our expectations," said President and Chief Executive Officer Ken Trautman. "We've had a whole shift in the market to where we are now the go-to lending bank. We have a tremendous opportunity as long as we have capital funds."
People's Bank grew deposits by $15 million — 14 percent — in 2012, and by $13.3 million, another 10.5 percent, during the first quarter of 2013.
"That's 40 percent annualized if we continued at that pace," Trautman said. "We're in a unique position to take advantage of the market disruption (with South Valley Bank & Trust and PremierWest Bank being acquired). We're the only bank left and filling a regional void."
The bank's initial $6 million offering sold out so quickly that another $4 million was tacked on, allowing People's to capitalize at $10 million when it launched in 1997. The most recent offering of $1.7 million, at $9.50 per share, was finalized in January 2011. "The first 10 years were profitable, but saw modest growth," Trautman said. "Once we hit $100 million in size, it's like we took off."
A new office on Barnett Road has taken in $17 million in deposits in four months. People's Bank has 55 employees and could see that grow by another 10 after the offering kicks in and lending expands.
"We know larger size provides significant advantages to meet regulatory demands and be more efficient," Trautman said. "We can leverage our administrative people and hit economies of scale we haven't had."
He said $2.5 million of the $5 million has already been spoken for through rights offerings to shareholders and other insiders. The offering will dilute present ownership value by about 28 percent. "Every shareholder has the right to maintain their share of ownership," Trautman said. "But historically, in this market, some people aren't in position to buy more stock."
As PremierWest, South Valley, Liberty and other competitors have been acquired, there has been a steady migration of funds, Trautman said.
"If you look at the market share in Jackson County for 2007, you see Washington Mutual — which was Western Bank — No. 1," Trautman said. "PremierWest was No. 2, Liberty Bank No. 9, South Valley No. 11, and People's was No. 12 at 2.57 percent. Then in 2012, Umpqua and Wells Fargo were at the top, with People's Bank No. 10 at 4.7 percent. Those disruptions involving the regional banks is what is funding us now."
Regulatory requirements require banks to maintain a sizable chunk of equity, based on the asset risk. Chief Financial Officer Russ Milburn said the People's Bank board requires owner equity to remain above 9 percent of total assets — loans, plus property. "Businesses benefit from a local community bank that's personally concerned, and decisions aren't being made in Seattle, New York or Cleveland," Milburn said. "The people making decisions here are all concentric to where we are."