— Private banking loans primarily backed by marketable securities and commercial loans hit new period-end highs, while investment management performance was highlighted by strength of fixed income strategies —
PITTSBURGH–(BUSINESS WIRE)–TriState Capital Holdings, Inc. (Nasdaq: TSC) reported third quarter 2021 financial results, including record net income, organic loan and balance sheet growth and its fourth consecutive quarter of net interest margin (NIM) expansion.
The parent company of TriState Capital Bank and Chartwell Investment Partners reported net income available to common shareholders of $16.9 million in the third quarter of 2021, up 129.7% from $7.4 million in the third quarter of 2020 and up 7.7% from $15.7 million in the second quarter of 2021.
The company earned $0.44 per diluted share in the third quarter of 2021, compared to $0.26 in the third quarter of 2020 and $0.41 in the second quarter of 2021. Third quarter 2021 results include a higher number of diluted average shares outstanding and a $1.1 million increase in preferred dividends, compared to the year-ago quarter, both resulting from the company’s December 30, 2020 private placement of $105 million of common stock, convertible preferred stock and warrants.
“TriState Capital’s performance in the quarter and year to date showcased the tremendous earnings power of our investment management, private banking and commercial banking businesses, along with our ability to sustain profitable and responsible organic revenue growth,” Chairman and Chief Executive Officer James F. Getz said. “Our long record of consistent investment in talent and technology continue to fuel our success in strengthening relationships with our sophisticated clients, attracting new ones, and rapidly scaling each of our businesses. Our agile and low-cost funding capability also enabled TriState Capital to cross the $12 billion-asset milestone during the quarter, as each of our private banking, middle-market commercial and securities portfolios grew to new record levels and we maintain a balance sheet that is well positioned for rising interest rates. We are pleased with our new business pipelines and dialogue with clients, which we believe will enable TriState Capital to sustain our momentum in the near term and accelerate growth over the long term.”
TriState Capital also announced today that it entered into a definitive agreement with Raymond James Financial, Inc., under which Raymond James will acquire TriState Capital. The companies provided additional information on the transaction in a news release that will be made available at https://investors.tristatecapitalbank.com.
THIRD QUARTER 2021 HIGHLIGHTS
- Chartwell year-to-date net inflows from retail and institutional clients totaled $499.0 million, including $149.0 million in fixed income strategies in the third quarter alone.
- Total loans grew by 28.9% from September 30, 2020 and 6.3% during the quarter.
- Commercial loans grew by 14.7% from September 30, 2020 and 2.7% during the quarter, led by fund finance solutions and other commercial and industrial (C&I) lending.
- Private banking loans grew by 39.1% from September 30, 2020 and 8.6% during the quarter, as the company continued to leverage talent and proprietary technology to fortify its position as the nation’s leading independent provider of loans collateralized by marketable securities and other liquid assets.
- Treasury management deposit accounts grew by 82.0% from September 30, 2020 and 8.2% during the quarter.
- Net interest income (NII) increased by 39.4% from the year-ago quarter and 8.8% from the linked quarter on continued loan growth and NIM expansion to 1.65%.
- The company maintained superior credit quality metrics, with period-end non-performing assets (NPAs) and non-performing loans (NPLs) declining by 21.4% and 22.8% respectively during the quarter, while adverse rated credits represented just 0.44% of total loans at period end.
- Return on average common equity expanded to 10.67%, up 511 basis points from the year-ago period and 30 basis points from the linked quarter, as the company continues to productively deploy capital raised in December 2020.
REVENUE GROWTH
NII grew to a record $46.7 million in the third quarter of 2021, increasing 39.4% from $33.5 million in the year-ago quarter and 8.8% from $42.9 million in the second quarter of 2021. NIM expanded for the fourth consecutive quarter to 1.65% for the three months ended September 30, 2021, up from 1.46% in the third quarter of 2020 and 1.63% in the second quarter of 2021.
Non-interest income was $14.2 million in the third quarter of 2021, compared to $16.9 million in the year-ago quarter and $14.8 million in the linked quarter. Chartwell investment management fees of $9.4 million in the third quarter of 2021 are up 16.6% from $8.1 million in the same period the prior year and remained relatively consistent with the $9.5 million reported in the linked quarter. Fees from commercial and private banking clients’ use of TriState Capital’s interest rate swaps offering totaled $3.1 million in the third quarter of 2021, $4.0 million in the prior year quarter and $3.9 million in the linked quarter.
NII and non-interest income, excluding net gains and losses on the sale of debt securities, combined to generate record total revenue of $60.9 million for the third quarter of 2021, an increase of 30.6% from $46.6 million in the year-ago period and 5.6% from $57.7 million in the linked quarter. Total revenue, which is not a financial metric under generally accepted accounting principles (GAAP), is a measure that TriState Capital has consistently utilized to provide a greater understanding of the diversity and balance of its income-generating capabilities. Non-interest income represented 23.3% of total revenue in the third quarter of 2021 when excluding net gains on the sale of securities, compared to 28.2% in the year-ago period and 25.6% in the linked quarter.
EXPENSES REFLECT CONTINUED INVESTMENTS
TriState Capital continues to invest in talent, technology, products and risk and compliance management to support the continued responsible growth of its businesses and balance sheet, to provide a premier client experience, and to scale its efficient branchless operating model.
Third quarter 2021 non-interest expense of $38.0 million increased 20.9% from $31.4 million in the year-ago period and 10.4% from $34.4 million in the linked quarter. TriState Capital currently expects operating expense growth in the mid teens for full-year 2021.
TriState Capital Bank’s efficiency ratio for the third quarter of 2021 was 54.79%, compared to 58.73% in the third quarter of 2020 and 51.51% in the linked quarter. Efficiency ratio is a non-GAAP financial metric utilized to provide a greater understanding of a bank’s level of non-interest expense as a percentage of total revenue.
TriState Capital continued to maintain a low annualized non-interest expense to average assets ratio of 1.30% in the third quarter of 2021, compared to 1.31% in the third quarter of 2020 and 1.27% in the linked quarter.
Pre-tax, pre-provision net revenue of $22.9 million in the third quarter of 2021 increased 50.4% from $15.2 million in the year-ago period and decreased 1.6% from $23.2 million in the linked quarter. Pre-tax, pre-provision net revenue is a non-GAAP financial metric representing net income, without giving effect to loan loss provision and income taxes, and excluding gains and losses on the sale and call of investment securities.
Income before tax was $22.9 million in the third quarter of 2021, compared to $11.5 million in the third quarter of 2020 and $23.2 million in the linked quarter.
TriState Capital’s effective tax rate was 12.6% for the third quarter, reflecting a $3 million historic tax credit. Expenses associated with this tax credit are included in other expenses. 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. The company’s 2021 effective tax rate, based on factors including anticipated tax credit investment opportunities, is currently expected to be in the mid teens.
Net income available to common shareholders and earnings per share in the third quarter of 2021 are net of $3.1 million in dividends payable to holders of the company’s Series A, Series B and Series C Non-Cumulative Perpetual Preferred Stock.
INVESTMENT MANAGEMENT
A combination of investment performance, strong client relationships and a robust new business effort contributed to positive net inflows of $499.0 million for the nine months ending September 30, 2021. In addition, Chartwell’s new business pipeline currently has in excess of $69 million in commitments from institutional investors.
Chartwell’s new business and new flows from existing accounts of $375.0 million was offset by market depreciation of $23.0 million and outflows of $409.0 million in the third quarter of 2021. Chartwell’s assets under management (AUM) totaled $11.45 billion on September 30, 2021, compared to $9.65 billion on September 30, 2020 and $11.51 billion on June 30, 2021.
Reflecting historically low interest rates and the performance of Chartwell’s investment professionals, its fixed income strategies attracted net positive inflows of $149.0 million in the third quarter of 2021. Chartwell fixed income assets grew by 2.6% during the third quarter to $6.75 billion on September 30, 2021, or 58.9% of total AUM.
Annual run-rate revenue was $39.0 million as of September 30, 2021, compared to $33.6 million on September 30, 2020 and $39.9 million on June 30, 2021. Chartwell’s weighted average fee rate was 0.34% at September 30, 2021. Investment management fee revenue was $9.4 million in the third quarter of 2021, compared to $8.1 million in the third quarter of 2020 and $9.5 million in the second quarter of 2021.
Initiatives to enhance Chartwell profitability continue to be reflected in the segment’s improving level of expenses relative to revenue. Investment management fees grew by 18.8%, outpacing a 12.6% increase in Chartwell segment non-interest expense, in the first nine months of 2021 compared to the same period the prior year. Year to date, compared to the first nine months of 2020, Chartwell generated a 138.7% increase in segment net income and a 53.4% increase in segment EBITDA, which is a non-GAAP financial metric representing net income before interest expense, income tax expense, depreciation expense and intangible amortization expense.
ORGANIC LENDING FRANCHISE GROWTH
TriState Capital’s client engagement and distribution capabilities continued to drive the organic growth of both sides of its balance sheet by expanding the number and depth of its premier relationships with high-quality middle-market commercial customers, as well as expanding the number of high-net-worth clients the bank serves through its growing national referral network of financial intermediaries.
Average loans totaled a record $9.43 billion in the third quarter of 2021, growing 27.6% from $7.39 billion in the prior year period and 7.0% from $8.81 billion in the linked quarter. Period-end loans totaled a record $9.87 billion on September 30, 2021, growing $2.21 billion, or 28.9%, from September 30, 2020, and $586.1 million, or 6.3%, from June 30, 2021.
TriState Capital continued to fortify its position as the nation’s leading independent provider of marketable securities-backed loans for clients of independent investment advisory firms, trust companies, broker-dealers, regional securities firms, family offices, insurance companies and other financial intermediaries that do not offer banking services themselves. Private banking loans totaled a record $6.20 billion at September 30, 2021, increasing $1.75 billion, or 39.1%, from one year prior and $490.4 million, or 8.6%, from the end of the linked quarter.
The company continued to grow relationships with top-quality middle-market sponsors and businesses, driving originations of C&I and commercial real estate (CRE) loans while managing credit quality within the portfolio. Commercial loans totaled $3.67 billion at September 30, 2021, increasing $469.3 million, or 14.7%, from one year prior and $95.6 million, or 2.7%, from the end of the linked quarter.
C&I loans grew to $1.34 billion at September 30, 2021, increasing $202.5 million, or 17.8%, from one year prior and $99.9 million, or 8.1%, from June 30, 2021, led by capital call lines of credit and other fund finance offerings, more than offsetting amortization and paydowns. The bank did not participate in the Paycheck Protection Program (PPP).
CRE loans totaled $2.32 billion at September 30, 2021, increasing $266.8 million, or 13.0%, from September 30, 2020 and down $4.3 million, or 0.2%, from June 30, 2021 as new production activity was offset by amortization and paydowns in the third quarter.
STRATEGIC DEPOSIT AND LIQUIDITY MANAGEMENT FRANCHISE EXPANSION
TriState Capital continues to deliver growth on its agile liquidity management franchise, which creates meaningful service-based client relationships and provides highly responsive funding. The bank is winning new business and enhancing the breadth and depth of existing client relationships with its nationally distributed service and liquidity management offerings for financial services businesses, payroll and other specialized payment servicers, real estate firms, high-net-worth individuals, family offices, middle market companies, municipalities and non-profits.
Average deposits totaled a record $10.25 billion in the third quarter of 2021, growing 25.0% from $8.21 billion in the third quarter of last year and 7.3% from $9.56 billion in the linked quarter. Period-end deposits totaled a record $10.76 billion at September 30, 2021, growing $2.57 billion, or 31.4%, from September 30, 2020, and $564.7 million, or 5.5%, from June 30, 2021.
Treasury management deposit accounts totaled $2.45 billion at September 30, 2021, increasing $1.10 billion, or 82.0%, from September 30, 2020 and $186.8 million, or 8.2%, from June 30, 2021.
The bank’s loan-to-deposit ratio at September 30, 2021 was 91.75%, compared to 93.53% at September 30, 2020 and 91.09% at June 30, 2021, reflecting the bank’s ability to manage liquidity levels in line with deployment opportunities.
INTEREST RATE MANAGEMENT
TriState Capital continues to maintain a balance sheet with significant flexibility to manage interest rate dynamics, while offering attractive deposit and loan pricing to clients. Ultimately, the bank favors an asset-sensitive approach over the long term.
Investment securities totaled a record $1.43 billion at September 30, 2021, up 74.3% from September 30, 2020 and 6.9% from June 30, 2021 as the bank continued to build on-balance sheet liquidity.
Approximately 60% of TriState Capital’s non-fixed rate deposits use the Effective Fed Funds Rate or another benchmark as reference points, and the remaining non-fixed rate deposits are priced at rates set with bank discretion. Total cost of funds for all deposits and interest-bearing liabilities averaged 0.49% during the third quarter of 2021, compared to 0.77% in the same period last year and 0.51% in the linked quarter. The total cost of deposits averaged 0.41% during the third quarter of 2021, compared to 0.67% in the same period last year and 0.42% in the linked quarter.
At September 30, 2021, 95% of the bank’s loans were floating rate and indexed to 30-day LIBOR or the Prime Rate. TriState Capital continued to constructively use interest rate floors on existing and new variable rate loans throughout the third quarter of 2021.
The yield on total loans averaged 2.32% during the third quarter of 2021, compared to 2.49% in the prior year period and 2.35% in the linked quarter. Loan yields resulted primarily from trends in 30-day LIBOR, which declined on average less than 1 basis point during the third quarter of 2021. Loan yields were also affected by higher rates of growth in balances of private bank loans relative to commercial bank loans. Loan yield movement was offset by a continued reduction in deposit costs.
NIM expanded for the fourth consecutive quarter to 1.65% for the third quarter of 2021, up 19 basis points from the same period the year prior and 2 basis points from the linked quarter.
ASSET QUALITY
TriState Capital maintained strong asset quality metrics in the third quarter of 2021, reflecting its disciplined credit culture and lower risk profile resulting from the majority of its loans consisting of private banking non-purpose margin loans collateralized by marketable securities. Private banking grew to represent 62.9% of the total loan portfolio at September 30, 2021, while CRE and C&I comprised 23.5% and 13.6% of total loans, respectively.
COVID-19 deferral levels continued to decline in line with expectations to two loans representing $18.8 million or 0.2% of total loans on September 30, 2021, from four loans representing $41.0 million or 0.4% of total loans on June 30, 2021.
The allowance for credit losses on loans and leases (ACL) was $32.4 million at September 30, 2021, compared to $30.7 million at September 30, 2020 and $32.6 million at June 30, 2021. ACL on commercial loans represented 0.82% of commercial loans at period end, excluding private banking loans primarily collateralized by liquid, marketable securities that do not require a reserve, compared to 0.89% at September 30, 2020 and 0.85% at June 30, 2021. As a percentage of total loans, ACL was 0.33% at September 30, 2021, 0.40% at September 30, 2020 and 0.35% at June 30, 2021.
TriState Capital’s net charge offs (NCOs) were $238,000 in the third quarter of 2021, or 0.01% of total average loans of $9.43 billion. NCOs were $0 in the year-ago quarter and $2.3 million in the linked quarter.
During the third quarter of 2021, NPAs and NPLs declined by 21.4% and 22.8%, respectively, from June 30, 2021 to September 30, 2021.
NPAs were $10.8 million, or 0.09% of total assets, at September 30, 2021, compared to $9.5 million, or 0.10%, at September 30, 2020 and $13.7 million, or 0.12%, at June 30, 2021. NPLs were $8.6 million, or 0.09% of total loans, at September 30, 2021, compared to $6.8 million, or 0.09%, at September 30, 2020 and $11.2 million, or 0.12%, at June 30, 2021.
Total adverse-rated credits, including NPLs, were $43.5 million, or 0.44% of total loans, at September 30, 2021, compared to $38.8 million, or 0.51%, at September 30, 2020 and $34.1 million, or 0.37%, at June 30, 2021. TriState Capital maintains a very low ratio of criticized assets to total loans that was more than 10 times lower than the 4.41% most-recent quarter median for publicly traded commercial banks with assets of $10 billion to $20 billion, according to data from S&P Capital IQ.
TriState Capital’s provision for credit losses was de minimis in the third quarter of 2021, $7.4 million in the third quarter of 2020 and $96,000 in the linked quarter.
CAPITAL STRENGTH AND EFFICIENCY
The company’s strong balance sheet included $1.90 billion in cash, equivalents and securities at September 30, 2021. Cash, equivalents, securities and private banking loans — which are primarily collateralized by marketable securities that are monitored daily, liquid and subject to favorable treatment under regulatory capital requirements — represented 66.65% of total assets at the end of the third quarter of 2021.
As of September 30, 2021, estimated regulatory capital ratios for TriState Capital Holdings were 13.71% for total risk-based capital, 11.79% for tier 1 risk-based capital, 9.01% for common equity tier 1 risk-based capital, and 6.61% for tier 1 leverage. For TriState Capital Bank, the estimated capital ratios were 13.38% for total risk-based capital, 12.94% for tier 1 risk-based capital, 12.94% for common equity tier 1 risk-based capital, and 7.24% for tier 1 leverage.
TriState Capital had $9.8 million of common stock repurchase authority available at September 30, 2021 under previously disclosed buyback programs authorized by its Board of Directors. Since the Board first authorized share buybacks in 2014, the company has repurchased a total of 2.1 million shares for approximately $33.0 million at an average cost of $15.39 per share. The company has not repurchased shares on the open market since the second quarter of 2020.
CONFERENCE CALL
As previously announced, TriState Capital will hold an investor conference call tomorrow. The live conference call on October 21 will be held at 8:30 a.m. ET. Telephone participants may avoid any delays by pre-registering for the call using the link https://dpregister.com/sreg/10160497/edacb54f34 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 or Canada, and 412-902-4194 from other international locations.
The live conference call will also be available through an audio webcast accessible at https://events.q4inc.com/attendee/650246783 or https://investors.tristatecapitalbank.com. These links may also be used to access an archived replay of the conference call.
A telephone replay of the call will be available approximately one hour after the end of the conference through October 28. 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 10160497.
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 $12.07 billion in assets as of September 30, 2021, 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 $11.45 billion in assets under management as of September 30, 2021, 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 contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect TriState Capital’s current views with respect to, among other things, future events and the company’s financial performance, as well as the company’s goals and objectives for future operations, financial and business trends, business prospects and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other measures of future financial or business performance, strategies or expectations. These statements are often, but not always, made through the use of words or phrases such as “achieve,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “maintain,” “may,” “opportunity,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “sustain,” “target,” “trend,” “will,” “will likely result,” and “would,” or the negative versions of those words or other comparable statements of a future or forward-looking nature.
Contacts
MEDIA CONTACT
Jack Horner
267-932-8760, ext. 302
412-600-2295 (mobile)
jack@hornercom.com
INVESTOR RELATIONS CONTACT
Lambert
Jeff Schoenborn and Kate Croft
888-609-8351
TSC@lambert.com
