Young Bank Overcomes Tall Odds, Strikes It Rich

Team Capital Bank in Bethlehem, Pa., was founded in November 2005, just before one of the worst times in history to be in banking.

Surprisingly, that was a good thing.

The $948 million-asset thrift on Friday said it agreed to sell itself for $122 million in cash and stock to Provident Financial Services (PFS), in Jersey City, N.J.

If Team Capital had been established a few years earlier, it likely would have gotten heavily into "tract-development lending," the types of loans that doomed other institutions, says Bob Rupel, president and chief executive.

"We might have gotten into the type of lending, which was being driven by the economic expansion, which you might have wished you had not gotten into," Rupel says.

"That's the kind of lending where you needed to stray out of certain markets, but not get too far afield," Rupel says. "Going into 2007, we were only two years old and for all of those reasons we stayed out of it."

Team Capital has virtually no exposure to acquisition, development and construction lending, or other categories of real estate loans that became problematic for other banks. Nonperforming assets made up 0.47% of Team Capital's total assets, as of Sept. 30.

In addition to its sterling credit quality, Team Capital was appealing to Provident because of its geography, Rupel says.

"Provident desperately wanted to be in Pennsylvania," Rupel says. "They view it as a growth market."

Chris Martin, Provident's chairman and CEO, acknowledged that Provident has long wanted to expand its lending in eastern Pennsylvania. The $7.3 billion-asset Provident already has about $254 million of commercial real estate loans in the same locations where Team Capital already does business, Martin says.

"We've been looking at that market for a number of years," Martin says.

Provident had considered opening a loan production office in eastern Pennsylvania, but opted instead to buy Team Capital, he says.

"Getting good teams of people familiar with the markets would have taken some allocation of capital and resources," Martin says. "This enables us to leverage our capital in an accretive way."

Team Capital purposely took a measured approach to growing its franchise, Rupel says. It decided to locate branches in five specific locations — Bucks County and the Lehigh Valley in Pennsylvania, and Flemington, West Orange and Somerset County, N.J.

"That really allowed us to grow and build a capital base faster than a lot of de novos that only focused on one market," Rupel says.

While it has no construction-and-development loans, Team Capital does have about $303 million of commercial real estate loans, more than half its total loan book.

"There is a heavy orientation to CRE, like a lot of community banks," Rupel says.

The CRE loans are with "medical arts buildings, hotels, strip centers, office buildings, and a significant number of owner-occupied buildings, like law firms and doctors' offices," Rupel says.

It has also focused on commercial-and-industrial lending to distributors, wholesalers and retailers.

When Team Capital hired Stifel Financial to explore options, the bank considered holding an initial public offering, Rupel says. Another New Jersey community bank, ConnectOne Bancorp (CNOB), in Englewood Cliffs, N.J., held a successful IPO in 2013 and "we had statistics that were every bit as good as theirs," Rupel says.

But one major factor was Team Capital's Small Business Lending Fund holdings, Rupel says. It received $22.4 million from the SBLF in July 2011, and its interest rate on those funds is set to rise to 9% in 2016 from the current 1%.

That exposure made an IPO less attractive, which led to the ultimate decision to seek a buyer.

"We knew that the SBLF money was coming due, or the rate would have increased in 2016," he says. "We knew that in 2014 to 2015, that was something we'd have to seriously look at if we were going to stay seriously independent."