PITTSBURGH, October 16, 2019 -
TriState Capital Holdings, Inc. (Nasdaq: TSC) reported record levels of loans, deposits, net interest income, non-interest income and net income in the third quarter of 2019, as well as further improvement in its superior credit quality metrics.
The parent company of TriState Capital Bank and Chartwell Investment Partners reported diluted earnings per share (EPS) of $0.50 in the third quarter of 2019, compared to $0.47 in the third quarter of 2018 and $0.47 in the second quarter of 2019. Net income available to common shareholders was $14.4 million in the third quarter of 2019, increasing 5.4% from $13.6 million in the prior year period and 6.1% from $13.5 million in the second quarter of 2019.
“Our third quarter results continue to demonstrate the company’s ability to deliver robust top- and bottom-line growth in a variety of interest rate environments, with multiple revenue streams, a highly scalable business model, diverse funding sources, and exceptional organic balance sheet growth,” Chairman and Chief Executive Officer James F. Getz said. “We surpassed key milestones including $7 billion in assets, $6 billion in loans and total deposits, and $1 billion in treasury management deposit accounts in the third quarter of 2019, and our new business pipelines for each of investment management, private banking and commercial banking are as strong as ever. We believe TriState Capital is very well positioned for the future with a strong capital position, superior asset quality metrics and effective execution of our growth strategy.”
THIRD QUARTER 2019 HIGHLIGHTS
- Pre-tax income grew to a record $19.4 million, up 20.3% from the prior year period and 18.2% from the linked quarter.
- Non-interest income grew to a record $14.2 million, up 11.7% from the prior year period and 18.9% from the linked quarter.
- Net interest income (NII) grew to a record $32.3 million, up 12.1% from the prior year period and 3.2% from the linked quarter.
- Average deposits grew to $5.95 billion, up 30.2% from the same period last year and 11.4% from the linked quarter.
- Average loans grew to $5.78 billion, up 25.7% from the same period last year and 5.8% from the linked quarter.
- Private banking loans grew to a record $3.37 billion at period end, up 28.2% from one year prior and 5.6% during the quarter.
- Commercial loans grew to a record $2.65 billion at period end, up 24.3% from one year prior and 7.0% during the quarter.
- Non-interest expenses grew 8.1%, from the prior year period, and the bank efficiency ratio was 50.70%.
- 85% of Chartwell’s investment strategies surpassed their benchmarks for the trailing three years and 75% surpassed their benchmarks for the trailing five years.
NII grew to a record $32.3 million in the third quarter of 2019, increasing 12.1% from $28.8 million in the year-ago quarter and 3.2% from $31.3 million in the second quarter of 2019. Double-digit annual NII growth continued as the company grew deposits at a faster rate than loans, maintaining a loan-to-deposit ratio under 100%, and reduced balance sheet risk via the continued growth in private banking loans backed by marketable securities.
Non-interest income grew to a record $14.2 million in the third quarter 2019, increasing 11.7% from $12.8 million in the prior year quarter and 18.9% from $12.0 million in the linked quarter.
TriState Capital’s non-interest income, which represented 30.3% of total revenue in the third quarter of 2019 when excluding net gains on the sale of debt securities, is largely made up of Chartwell investment management fees. Investment management fees were $8.9 million in the third quarter of 2019, compared to $9.8 million in the prior year quarter and $9.3 million in the linked quarter. Borrower-facing interest rate swap activity also generated $4.2 million in fees in the third quarter of 2019, compared to $1.9 million in the prior year quarter and $1.7 million in the linked quarter.
NII and non-interest income, excluding net gains on the sale of debt securities, combined to grow total revenue to a record $46.4 million for the third quarter of 2019, up 11.5% from $41.6 million in the year-ago period and up 7.4% from $43.2 million in the linked quarter.
The company’s investments in talent and building operating scale continue to drive annual revenue and profit growth, client acquisition and product innovation, while achieving incremental operating leverage. TriState Capital Bank’s efficiency ratio for the third quarter of 2019 was 50.70%, compared to 52.86% in the third quarter of 2018 and 55.16% in the linked quarter.
Third quarter 2019 non-interest expense was $27.8 million, increasing 8.1% from $25.7 million in the year-ago period and 0.7% from $27.6 million in the second quarter of 2019. TriState Capital also continued to lower non-interest expense as a percentage of average assets to 1.59% in the third quarter of 2019, down from 1.90% in the third quarter of 2018 and 1.71% in the linked quarter.
Pre-tax, pre-provision net revenue grew to a record $18.6 million in the third quarter of 2019, increasing 17.0% from $15.9 million in the year-ago period and 19.2% from $15.6 million in the linked quarter.
Pre-tax income grew to a record $19.4 million in the third quarter of 2019, increasing 20.3% from $16.1 million in the third quarter of 2018 and increasing 18.2% from $16.4 million in the linked quarter.
TriState Capital’s effective tax rate was 15.8% for the third quarter of 2019. The company’s effective tax rate is impacted by certain factors including the number, timing and size of tax credit investments, as well as the proportion of consolidated earnings attributed to investment management.
Net income available to common shareholders and EPS in the third quarter of 2019 reflected $2.0 million payable for the company’s quarterly cash dividends on Series A and Series B Non-Cumulative Perpetual Preferred Stock.
ORGANIC LOAN GROWTH
TriState Capital continued to show strong organic growth on both sides of its balance sheet, expanding the number and depth of its relationships with high-quality middle-market commercial customers, as well as the high-net-worth clients the bank serves through its national referral network of investment advisors and other financial intermediaries.
Average loans totaled a record $5.78 billion in the third quarter of 2019, growing 25.7% from $4.59 billion in the prior year period and 5.8% from $5.46 billion in the linked quarter. Loans at September 30, 2019 totaled $6.02 billion, growing $1.26 billion, or 26.4%, from September 30, 2018, and $351.7 million, or 6.2%, from June 30, 2019.
TriState Capital’s growing distribution capabilities helped drive new loan originations in its national private banking business for the third quarter of 2019, as the company fortifies its position as the nation’s leading provider of marketable securities-backed loans through independent investment advisory and other financial services firms. Private banking loans totaled $3.37 billion at September 30, 2019, increasing $740.4 million, or 28.2%, from one year prior and $179.5 million, or 5.6%, from the end of the linked quarter.
The company continued to grow relationships with middle-market enterprises in the third quarter of 2019 to drive originations of commercial and industrial (C&I) loans and commercial real estate (CRE) loans. Commercial loans totaled $2.65 billion at September 30, 2019, increasing $517.9 million, or 24.3%, from one year prior and $172.3 million, or 7.0%, from the end of the linked quarter.
C&I loans grew to $992.5 million at September 30, 2019, increasing $221.0 million, or 28.6%, from one year prior and $84.5 million, or 9.3%, from the end of the linked quarter. CRE loans grew to $1.66 billion at September 30, 2019, increasing $297.0 million, or 21.9%, from one year prior and $87.8 million, or 5.6%, from the end of the linked quarter. CRE loans represented 27.5% of total period-end loans.
STRATEGIC DEPOSIT FRANCHISE EXPANSION
TriState Capital continues to support private banking and commercial loan growth with the strategic and organic expansion of its deposit franchise. The bank’s national deposit, treasury management and liquidity management offerings are increasing the number and depth of depositor relationships with financial services businesses, high-net-worth individuals, family offices, middle market companies, professional service firms, specialized payment and transaction processors, municipalities and non-profits.
Average deposits totaled $5.95 billion in the third quarter of 2019, growing 30.2% from $4.57 billion in the same period last year and 11.4% from $5.34 billion in the linked quarter. Deposits at September 30, 2019 totaled $6.09 billion, growing $1.34 billion, or 28.2%, from September 30, 2018, and $307.6 million, or 5.3%, from June 30, 2019.
Treasury management deposit accounts totaled $1.05 billion at September 30, 2019, growing $449.8 million, or 74.6%, in the first nine months of 2019, and $74.6 million, or 7.6%, from June 30, 2019.
The bank’s loan-to-deposit ratio at September 30, 2019 was 98.7%, compared to 100.1% at September 30, 2018 and 97.9% at June 30, 2019.
INTEREST RATE MANAGEMENT
TriState Capital continues to maintain a balance sheet with significant flexibility to manage interest rate risk in changing markets.
The yield on total loans averaged 4.23% during the third quarter of 2019, compared to 4.19% in the prior year period and 4.45% in the linked quarter. Yields reflect the proportion of the portfolio dedicated to private banking non-purpose margin loans secured by marketable securities, an overall focus on variable rate pricing, asset quality, and operating leverage, and downward changes in 30-day LIBOR during the third quarter of 2019. At September 30, 2019, 92% of the company’s loan portfolio was floating rate and primarily indexed to 30-day LIBOR.
Total cost of funds for all deposits and interest-bearing liabilities averaged 2.27% during the third quarter of 2019, compared to 1.94% in the same period last year and 2.42% in the linked quarter. The total cost of deposits averaged 2.27% during the third quarter of 2019, compared to 1.92% in the same period last year and 2.41% in the linked quarter. At September 30, 2019, 21% of deposits were fixed-rate certificates of deposit.
TriState Capital reported a net interest margin of 1.94% for the third quarter of 2019, compared to 2.22% in the third quarter of 2018 and 2.03% in the second quarter of 2019.
Strong investment performance across Chartwell’s active equity and fixed income strategies contributed to growth in assets under management (AUM) during the third quarter of 2019. Chartwell AUM was $9.62 billion at September 30, 2019, $9.87 billion at September 30, 2018 and $9.49 billion at June 30, 2019.
Chartwell’s new business and new flows from existing accounts of $375 million and market appreciation of $153 million more than offset outflows of $398 million in the third quarter of 2019.
Chartwell’s weighted average fee rate was 0.38% at September 30, 2019. Investment management fee revenue was $8.9 million in the third quarter of 2019, compared to $9.8 million in the third quarter of 2018 and $9.3 million in the second quarter of 2019.
TriState Capital maintained strong asset quality metrics in the third quarter of 2019, reflecting the company’s disciplined credit culture and the expansion of its private banking non-purpose margin loans secured by marketable securities. Private banking loans comprised 56.0% of the total loan portfolio at September 30, 2019, while CRE and C&I comprised 27.5% and 16.5% of total loans, respectively.
Non-performing assets (NPAs) were $4.4 million, or 0.06% of total assets, at September 30, 2019, compared to $5.8 million, or 0.10%, at September 30, 2018, and $5.2 million, or 0.08%, at June 30, 2019.
Non-performing loans (NPLs) were $184,000, or 0.0% of total loans, at September 30, 2019, compared to $2.3 million, or 0.05%, at September 30, 2018, and $2.2 million, or 0.04%, at June 30, 2019.
Adverse-rated credits were $26.6 million, or 0.44% of total loans, at September 30, 2019, compared to $28.2 million, or 0.59%, at September 30, 2018, and $26.6 million, or 0.47%, at June 30, 2019.
Net charge offs were $35,000 in the third quarter of 2019, compared to $1.5 million in the year-ago quarter. The company recorded net recoveries of $16,000 in the linked quarter. TriState Capital recorded credits to provision of $607,000 in the third quarter of 2019, $234,000 in the third quarter of 2018 and $712,000 in the second quarter of 2019.
The company’s allowance for loan and lease losses (ALLL) continued to reflect overall credit quality, as well as lower levels of provision required by the growing proportion of low-risk-profile private banking loans in the bank’s portfolio. ALLL represented 0.22% of total loans at September 30, 2019, compared to 0.29% at September 30, 2018 and 0.25% at June 30, 2019.
CAPITAL STRENGTH AND FLEXIBILITY
The company’s regulatory capital levels benefited from retained earnings, as well as its Series B perpetual preferred stock offering completed in the second quarter of 2019. As of September 30, 2019, TriState Capital Holdings reported regulatory capital ratios of 12.38% for total risk-based capital, 12.12% for tier 1 risk-based capital, 9.56% for common equity tier 1 risk-based capital, and 7.91% for tier 1 leverage.
During the nine months ended September 30, 2019, the company repurchased a total of 90,000 shares of its common stock for approximately $1.8 million at an average cost of $20.21 per share. Since the Board first authorized share buybacks in October 2014, the company has repurchased a total of 2.1 million shares for approximately $32.3 million at an average cost of $15.36 per share. TriState Capital had $10.4 million of repurchase authority available at September 30, 2019, under previously disclosed buyback programs authorized by its Board of Directors.
As previously announced, TriState Capital will hold a conference call tomorrow to review its financial results and operating performance.
The live conference call on October 17 will be held at 8:30 a.m. ET. Telephone participants may avoid any delays by pre-registering for the call using the link http://dpregister.com/10135298 to receive a special dial-in number and PIN. Telephone participants who are unable to pre-register should dial in at least 10 minutes prior to the call and request the “TriState Capital investor call.” The call may be accessed by dialing 888-339-0757 from the United States, 855-669-9657 from Canada, or 412-902-4194 from other international locations.
A replay of the call will be available approximately one hour after the end of the conference through October 24. The replay may be accessed by dialing 877-344-7529 from the United States, 855-669-9658 from Canada, or 412-317-0088 from other international locations, and entering the conference number 10135298.
ABOUT TRISTATE CAPITAL
TriState Capital Holdings, Inc. (Nasdaq: TSC) is a bank holding company headquartered in Pittsburgh, Pa., providing commercial banking, private banking and investment management services to middle-market companies, institutional clients and high-net-worth individuals. Its TriState Capital Bank subsidiary had $7.1 billion in assets as of September 30, 2019, and serves middle-market commercial customers through regional representative offices in Pittsburgh, Philadelphia, Cleveland, Edison, N.J., and New York City, as well as high-net-worth individuals nationwide through its national referral network of financial intermediaries. Its Chartwell Investment Partners subsidiary had $9.6 billion in assets under management as of September 30, 2019, and serves institutional clients and TriState Capital’s financial intermediary network. For more information, please visit http://investors.tristatecapitalbank.com
FORWARD LOOKING STATEMENTS
This news release includes “forward-looking statements” in reliance on the safe-harbor for such statements provided by the Private Securities Litigation Reform Act of 1995. The words “achieve,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “maintain,” “opportunity,” “plan,” “potential,” “project,” “sustain,” “target,” “trend,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” and similar expressions, among others, generally identify forward-looking statements. Examples of forward-looking statements include, without limitation, statements relating to TriState Capital’s future plans, objectives or goals and are based on current expectations, plans or forecasts. Such forward-looking statements are subject to risks, uncertainties and changed circumstances that are difficult to predict and are often beyond TriState Capital’s ability to control. Actual results or outcomes could differ materially from those currently anticipated, discussed or projected by forward-looking statements. Such risks and uncertainties include, but are not limited to:
- those related to difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the markets in which TriState Capital operates and in which its loans are concentrated, including the effects of an increase in unemployment levels, slowdowns in economic growth and changes in demand for products or services or the value of assets under management;
- TriState Capital’s level of non-performing assets and the costs associated with resolving problem loans including litigation and other costs;
- possible loan losses, impairment and the collectability of loans;
- changes in market interest rates which may increase funding costs and/or reduce earning asset yields and thus reduce margin;
- the impact of changes in interest rates on the credit quality and value of underlying securities collateral of the loan portfolio and the effect of such changes on the market value of TriState Capital’s investment securities portfolio;
- federal and state regulation, supervision and examination, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations issued thereunder, and potential expenses associated with complying with regulations;
- TriState Capital’s ability to comply with applicable capital and liquidity requirements (including the finalized Basel III capital standards), including our ability to generate liquidity internally or raise capital on favorable terms;
- possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations;
- any impairment of TriState Capital’s goodwill or other intangible assets;
- conditions in the financial markets that may limit TriState Capital’s access to additional funding to meet its liquidity needs;
- the success of TriState Capital’s growth plans, including the successful integration of past and future acquisitions;
- TriState Capital’s ability to fully realize the cost savings and other benefits of its acquisitions, manage risks related to business disruption following those acquisitions, and customer disintermediation;
- TriState Capital’s ability to develop and provide competitive products and services that appeal to its customers and target markets;
- negative perceptions or publicity with respect to any products or services offered by TriState Capital;
- fluctuations in the carrying value of Chartwell’s assets under management;
- the relative and absolute investment performance of Chartwell’s investment products;
- adverse judgments or other resolution of pending and future legal proceedings, and costs incurred in defending such proceedings;
- system failures or breaches of TriState Capital’s network security;
- TriState Capital’s ability to recruit and retain key employees;
- Chartwell’s success in negotiating distribution arrangements and maintaining distribution channels for its products;
- the failure by a key vendor to fulfill its obligations to TriState Capital;
- the effects of problems encountered by other financial institutions that adversely affect TriState Capital or the banking industry generally;
- the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes as well as effects from geopolitical instability and man-made disasters including terrorist attacks;
- possible changes in the speed of loan prepayments by TriState Capital’s customers and loan origination or sales volumes;
- regulatory limits on TriState Capital’s ability to receive dividends from its subsidiaries and pay dividends to its preferred shareholders; and
- the effects of any reputation, credit, interest rate, market, operational, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above.
We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made, and TriState Capital disclaims any duty to revise or update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of TriState Capital for any reason, except as specifically required by law. For further information about the factors that could affect TriState Capital’s future results, please see the company’s most-recent annual and quarterly reports filed on Form 10-K and Form 10-Q, and other documents the company files with the Securities and Exchange Commission from time to time.
NON-GAAP FINANCIAL DISCLOSURES
This news release and the accompanying tables contain financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (GAAP). Specifically, TriState Capital reviews and reports tangible common equity, tangible book value per common share, EBITDA, total revenue, pre-tax, pre-provision net revenue and efficiency ratio. Although TriState Capital believes these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP. Where non-GAAP disclosures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found within this news release and accompanying tables.
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INVESTOR RELATIONS CONTACT
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