Don't tell TriState Capital Bank's president, Bill Schenck, that loan demand is weak these days.
Though many banks, especially in the slow-growing Northeast, are struggling to generate new loans, TriState's loan volume increased nearly tenfold from June 30 to Dec. 31.
Mr. Schenck said the weak economy might even be benefiting his 13-month-old Pittsburgh bank.
"We are able to pick and choose opportunities, because some other banks are pulling back," said Mr. Schenck, an industry veteran who stepped down as Pennsylvania's secretary of banking in the summer of 2006 to help found the bank.
TriState has offices in three states, Pennsylvania, New Jersey, and Ohio, and it targets middle-market companies. It has thrived largely by recruiting seasoned lenders and credit officers — think 20 years of experience or more — by offering them equity stakes in the privately owned company, which aims to go public within three years.
For such a new enterprise, "there's a lot of gray hair," Mr. Schenck joked.
TriState has yet to turn a profit — it lost $6.1 million in its first year — but he said he is confident it will start making money next year.
In the meantime, the focus is on growth. By Sept. 30 it had amassed $172 million of assets, more than any other bank that opened for business last year, according to Federal Deposit Insurance Corp. data, and by yearend its assets had increased another 89%, to $324 million.
But David Darst, an analyst at First Horizon National Corp.'s FTN Midwest Research Corp., said its loan volume is even more "impressive." Loans accounted for $180 million of its assets in the fourth quarter.
TriState has racked up such numbers despite being in one of the nation's slowest-growing and most overbanked states.
Mr. Schenck, 64, said the key is bringing on lenders with established relationships.
"If you have good people in place, the customers come as a result, and they tell their friends," he said.
The recruits include Thomas A. Bracken, the former chief executive officer of Sun Bancorp in Vineland, N.J., who was brought on to head the Princeton office TriState opened last month.
Its capital base also gives it a higher lending limit than a typical start-up and enables it to serve sophisticated borrowers, Mr. Schenck said; that helps it attract more experienced bankers as well.
An initial round of funding set TriState up with $85 million by its January 2007 opening, a record amount for a start-up in the three states where it operates and about three times more than the average amount raised by other new banks in general. By yearend it had added another $19 million, and it now has enough capital to grow to $1 billion of assets, Mr. Schenck said.
A proven staff is essential to its growth goals, partly because growing ultimately requires winning high-quality business away from competitors, he said.
"There's no question that in the industrial Northeast the growth is not as rapid as it has been in other parts of our country, and this is a very well-banked area, so to some degree, this is a market share game, and we do play that game," he said.
In an interview Friday, Mr. Bracken, 60, said that is one way the economy is helping TriState, because many competitors are becoming more internally focused as they work through issues with earnings and credit quality.
"They are taking their eye off the marketplace," said Mr. Bracken. "The customer base is starting to feel a little ignored."
TriState targets businesses with annual sales of up to $250 million. Mr. Schenck said that even though it has only three offices besides its Pittsburgh headquarters — in Philadelphia, Cleveland, and Princeton — remote deposit capture adds convenience for its far-flung customers.
The bank initially intended to open an office in the Washington area as well, but it is putting off that plan for now, because it is generating more than enough volume at its current sites, he said. "We have a pipeline of loans that is substantial. We have not felt challenged by the ability to grow."
Mr. Schenck said he is not worried about growing too fast, because TriState's lenders are bringing in quality loans, and its chief credit officer, Thomas M. Groneman, has 26 years of experience at sizable regional companies, including Sky Financial Group Inc. in Bowling Green, Ohio, (which Huntington Bancshares of Columbus bought in July) and PNC Financial Services Group Inc. in Pittsburgh.
TriState has no nonperforming loans, but Andrew W. Stapp, an analyst at B. Riley & Co. Inc., said that is to be expected with so many new ones. Nearly 72% of its portfolio consists of commercial and industrial loans, which generally are viewed as less risky than development loans, Mr. Stapp said.
"When you see this type of growth come on, it gives you cause for concern, especially in this shaky environment," but TriState is mitigating some risk with its hiring strategy, he said.
Though they cost more bankers with decades of experience have their pluses, Mr. Stapp said. "These guys can pay for themselves in loan quality. It's a more expensive model, but it often leads to greater profitability, because you have less expense for loan losses."
Mr. Schenck said that TriState would aim to go public shortly after it starts making money.
After the initial offering, he expects the bank to be around for a while. "We're building an organization to be here for a long time, and we think our investors can get value and liquidity by our having a public offering," he said. "We're not building this to sell."
