— Historic loan growth, lower funding costs, and NIM reflect TriState Capital Bank’s highly differentiated commercial and private banking relationships, while Chartwell Investment Partners continues to attract new AUM and enhance profitability —
PITTSBURGH–(BUSINESS WIRE)–TriState Capital Holdings, Inc. (Nasdaq: TSC) reported second quarter 2021 financial results including fully organic growth in all of its investment management, private banking and commercial banking businesses, as assets under management (AUM), loans, net interest income, fee income, revenue, pre-tax income and net income reach new record high levels.
The parent company of TriState Capital Bank and Chartwell Investment Partners grew net income available to common shareholders to $15.7 million in the second quarter of 2021, up 86.1% from $8.4 million in the second quarter of 2020 and up 19.5% from $13.1 million in the first quarter of 2021. Income before tax was a record $23.2 million in the second quarter of 2021, increasing 87.7% from $12.4 million in the second quarter of 2020 and 11.7% from $20.8 million in the linked quarter.
The company earned $0.41 per diluted share in the second quarter of 2021, compared to $0.30 in the second quarter of 2020 and $0.35 in the first quarter of 2021. Second 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 strong top- and bottom-line performance during the second quarter reflects the value of our premier relationships and the power of our company with more than $23 billion of on-balance-sheet assets and client assets under management,” Chairman and Chief Executive Officer James F. Getz said. “Our three business lines worked in concert to drive continued growth in total revenue, pre-tax income and net income during the second quarter. Building on its breakout performance in the first quarter, Chartwell grew AUM to a new record of $11.51 billion, while delivering very strong revenue growth. Private banking was a primary driver of strong organic loan growth to $9.28 billion at TriState Capital Bank, complemented by commercial lending with our middle-market clients, further enhancing what we believe is a very attractive risk profile for the company and its balance sheet. As we enter the second half of 2021, we do so from a position of strength, supported by healthy new business pipelines, an agile funding franchise, a highly motivated team and relationships with exceptional clients nationwide.”
SECOND QUARTER 2021 HIGHLIGHTS
- Chartwell’s investment management business continued its strong performance and grew AUM organically to a record $11.51 billion, up 24.4% from June 30, 2020 and 2.7% during the quarter and its fees increased 22.1% from the year-ago quarter and 5.0% from the linked quarter.
- Chartwell’s retail and institutional distribution capability generated year-to-date net inflows of $533.0 million, while enhanced profitability supported product development including a new short duration high-grade fixed income fund to complement its Short Duration BB High Yield strategy.
- Return on average common equity expanded to 10.37%, up 375 basis points from the year-ago period and 131 basis points from the linked quarter, as the company continues to productively deploy capital raised in December 2020.
- Net interest income (NII) grew to a record $42.9 million, up 28.2% from the year-ago quarter and 11.0% from the linked quarter, on historic loan growth and continued net interest margin (NIM) expansion to 1.63%.
- Period-end loans grew organically to a record $9.28 billion, up 29.5% from June 30, 2020 and 8.7%, during the quarter.
- Private banking loans primarily collateralized by marketable securities and other liquid assets represented 61.5% of total loans at period end, growing 40.6% from June 30, 2020 and 13.1% during the quarter, while commercial loans increased by 14.9% from June 30, 2020 and 2.3% during the quarter.
- The company maintained superior credit quality metrics, with period-end non-performing assets (NPAs), non-performing loans (NPLs), and adverse-rated credits declining by 46.0%, 50.8% and 33.0%, respectively, from March 31, 2021.
NII grew to a record $42.9 million in the second quarter of 2021, increasing 28.2% from $33.5 million in the year-ago quarter and 11.0% from $38.7 million in the first quarter of 2021. NIM expanded for the third consecutive quarter to 1.63% for the three months ended June 30, 2021, up from 1.52% in the second quarter of 2020 and 1.59% in the first quarter of 2021.
Non-interest income grew to a record $14.8 million in the second quarter of 2021, up 14.2% from $13.0 million in the year-ago quarter and 8.7% from $13.7 million in the linked quarter. Chartwell investment management fees grew to $9.5 million in the second quarter of 2021, up 22.1% from $7.7 million in the same period the prior year and 5.0% from $9.0 million in the linked quarter, reflecting market appreciation and positive net inflows of client assets. Fees from commercial and private banking clients’ use of TriState Capital’s interest rate swaps offering totaled $3.9 million in the second quarter of 2021, $3.9 million in the prior year quarter and $2.7 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 $57.7 million for the second quarter of 2021, an increase of 24.1% from $46.5 million in the year-ago period and 10.2% from $52.3 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 25.6% of total revenue in the second quarter of 2021 when excluding net gains on the sale of securities, compared to 27.9% from the year-ago period and 26.1% from the linked quarter.
EXPENSES IN LINE WITH EXPECTATIONS
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.
Second quarter 2021 non-interest expense of $34.4 million was in-line with the company’s expectations, increasing 22.5% from $28.1 million in the year-ago period and increasing 10.1% from $31.3 million in the linked quarter. Non-interest expense for the first half of 2021 was $65.7 million, up 14.8% from the first half of 2020. TriState Capital continues to maintain its goal of annual operating expense growth of 10% to 12% for full-year 2021.
Operating expenses continue to be favorably impacted by what are expected to be sustainable reductions in annual Federal Deposit Insurance Corporation (FDIC) insurance expense as a percentage of average assets, as compared to prior years. FDIC insurance expense was $1.1 million in the second quarter of 2021, or an annualized 0.04% of average assets, compared to $2.6 million, or 0.11%, in the same period the prior year, and $1.1 million, or 0.04%, in the linked quarter.
TriState Capital Bank’s efficiency ratio for the second quarter of 2021 was 51.51%, compared to 50.39% in the second quarter of 2020 and 50.59% 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 1.27% in the second quarter of 2021, compared to 1.22% in the second quarter of 2020 and 1.24% in the linked quarter.
Pre-tax, pre-provision net revenue grew to a record $23.2 million in the second quarter of 2021, increasing 26.5% from $18.4 million in the year-ago period and 10.5% from $21.0 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.
TriState Capital’s effective tax rate was 19.2% for the second quarter of 2021. 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 high teens.
Net income available to common shareholders and earnings per share in the second 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.
A combination of investment performance, strong client relationships and a robust new business effort contributed to positive net inflows of $27.0 million for the three months ending June 30, 2021. In addition, Chartwell’s new business pipeline currently has in excess of $65 million in commitments from institutional investors.
Chartwell’s new business and new flows from existing accounts of $458.0 million and market appreciation of $281.0 million more than offset outflows of $431.0 million in the second quarter of 2021. Chartwell’s assets under management grew to $11.51 billion at June 30, 2021, increasing 24.4% from $9.25 billion on June 30, 2020 and 2.7% from $11.20 billion on March 31, 2021.
Annual run-rate revenue grew to $39.9 million as of June 30, 2021, increasing 2.7% from March 31, 2021. Chartwell’s weighted average fee rate was 0.35% at June 30, 2021. Investment management fee revenue was $9.5 million in the second quarter of 2021, compared to $7.7 million in the second quarter of 2020 and $9.0 million in the first quarter of 2021.
Initiatives to enhance Chartwell profitability continue to be reflected in the segment’s improving level of expenses relative to revenue. Chartwell segment expenses were $8.3 million in the second quarter of 2021, compared to $7.5 million in the second quarter of 2020 and $7.9 million in the first quarter of 2021.
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 $8.81 billion in the second quarter of 2021, growing 24.2% from $7.09 billion in the prior year period and 6.4% from $8.28 billion in the linked quarter. Period-end loans totaled a record $9.28 billion on June 30, 2021, growing $2.11 billion, or 29.5%, from June 30, 2020, and $739.7 million, or 8.7%, from March 31, 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 $5.71 billion at June 30, 2021, increasing $1.65 billion, or 40.6%, from one year prior and $659.9 million, or 13.1%, from the end of the linked quarter.
The company continued to grow relationships with top-quality middle-market sponsors and businesses, driving originations of commercial and industrial (C&I) and commercial real estate (CRE) loans while managing credit quality within the portfolio. Commercial loans totaled $3.57 billion at June 30, 2021, increasing $461.7 million, or 14.9%, from one year prior and $79.8 million, or 2.3%, from the end of the linked quarter.
C&I loans grew to $1.24 billion at June 30, 2021, increasing $88.0 million, or 7.6%, from one year prior. C&I loans decreased $8.3 million, or 0.7%, from March 31, 2021, as new loan originations, draws and equipment finance production were offset by amortization and paydowns. The bank did not participate in the Paycheck Protection Program (PPP).
CRE loans grew to $2.33 billion at June 30, 2021, increasing $373.7 million, or 19.1%, from one year prior and $88.1 million, or 3.9%, from the end of the linked 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 $9.56 billion in the second quarter of 2021, growing 19.5% from $8.00 billion in the second quarter of last year and 8.0% from $8.85 billion in the linked quarter. Period-end deposits totaled a record $10.19 billion at June 30, 2021, growing $2.36 billion, or 30.1%, from June 30, 2020, and $941.4 million, or 10.2%, from March 31, 2021.
Treasury management deposit accounts totaled $2.27 billion at June 30, 2021, increasing $1.14 billion, or 101.9%, from June 30, 2020 and $450.1 million, or 24.8%, from March 31, 2021.
The bank’s loan-to-deposit ratio at June 30, 2021 was 91.09%, compared to 91.56% at June 30, 2020 and 92.36% at March 31, 2021, reflecting the bank’s differentiated 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 continues to favor an asset-neutral to asset-sensitive approach over the long term.
Investment securities totaled a record $1.34 billion at June 30, 2021, up 64.7% from June 30, 2020 and 8.7% from March 31, 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 0.51% during the second quarter of 2021, compared to 0.87% in the same period last year and 0.59% in the linked quarter. The total cost of deposits averaged 0.42% during the second quarter of 2021, compared to 0.80% in the same period last year and 0.49% in the linked quarter.
At June 30, 2021, 94% 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 second quarter of 2021.
The yield on total loans averaged 2.35% during the second quarter of 2021, compared to 2.69% in the prior year period and 2.41% in the linked quarter. Loan yields resulted primarily from trends in 30-day LIBOR which declined on average approximately 2 basis points during the second 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.
TriState Capital maintained strong asset quality metrics in the second 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 61.5% of the total loan portfolio at June 30, 2021, while CRE and C&I comprised 25.1% and 13.4% of total loans, respectively.
COVID-19 deferral levels continued to decline in line with expectations to four loans representing $41.0 million or 0.4% of total loans on June 30, 2021, from eight loans representing $62.1 million or 0.7% of total loans on March 31, 2021.
The allowance for credit losses on loans and leases (ACL) was $32.6 million at June 30, 2021, compared to $23.3 million at June 30, 2020 and $34.6 million at March 31, 2021. ACL represented 0.91% of commercial loans at period end, excluding private banking loans primarily collateralized by liquid, marketable securities that do not require a reserve, compared to 0.75% at June 30, 2020 and 0.99% at March 31, 2021. As a percentage of total loans, ACL was 0.35% at June 30, 2021, 0.32% at June 30, 2020 and 0.41% at March 31, 2021.
TriState Capital’s net charge offs (NCOs) were $2.3 million in the second quarter of 2021, or 0.10% of total average loans of $8.81 billion. NCOs were $33,000 in the year-ago quarter and $199,000 in the linked quarter.
During the second quarter of 2021, NPAs, NPLs, and adverse-rated credits declined by 46.0%, 50.8% and 33.0%, respectively, from March 31, 2021 to June 30, 2021.
NPAs were $13.7 million, or 0.12% of total assets, at June 30, 2021, compared to $9.5 million, or 0.10%, at June 30, 2020 and $25.5 million, or 0.24%, at March 31, 2021. NPLs were $11.2 million, or 0.12% of total loans, at June 30, 2021, compared to $6.8 million, or 0.09%, at June 30, 2020 and $22.7 million, or 0.27%, at March 31, 2021.
Total adverse-rated credits, including NPLs, were $34.1 million, or 0.37% of total loans, at June 30, 2021, compared to $33.0 million, or 0.46%, at June 30, 2020 and $50.9 million, or 0.60%, at March 31, 2021.
TriState Capital recorded provision expense of $96,000 in the second quarter of 2021, $6.0 million in the second quarter of 2020 and $224,000 in the linked quarter.
CAPITAL STRENGTH AND EFFICIENCY
The company’s strong balance sheet included $1.87 billion in cash, equivalents and securities at June 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 65.68% of total assets at the end of the second quarter of 2021.
As of June 30, 2021, estimated regulatory capital ratios for TriState Capital Holdings were 13.94% for total risk-based capital, 11.94% for tier 1 risk-based capital, 9.06% for common equity tier 1 risk-based capital, and 6.86% for tier 1 leverage, reflecting the historic level of asset growth in the second quarter of 2021. For TriState Capital Bank, the estimated capital ratios were 13.26% for total risk-based capital, 12.80% for tier 1 risk-based capital, 12.80% for common equity tier 1 risk-based capital, and 7.34% for tier 1 leverage.
The company’s common shareholders equity to total assets was 5.3% on June 30, 2021. The ratio of common shareholders’ equity excluding intangible assets, or tangible common equity (TCE), to total assets excluding intangible assets was 4.81% on June 30, 2021. The TCE ratio was 9.58% excluding private banking loans primarily collateralized by liquid, marketable securities on June 30, 2021. The TCE ratio and TCE ratio excluding private banking loans are non-GAAP metrics utilized to provide a greater understanding of the capital adequacy of financial services companies.
TriState Capital had $9.8 million of common stock repurchase authority available at June 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.
As previously announced, TriState Capital will hold a conference call tomorrow to review its financial results and operating performance.
The live conference call on July 22 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/10157838/e9f425b8be 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://services.choruscall.com/links/tsc210722.html 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 July 29. 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 10157838.
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 $11.46 billion in assets as of June 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 $11.51 billion in assets under management as of June 30, 2021, and serves institutional clients and TriState Capital’s financial intermediary network. For more information, please visit http://investors.tristatecapitalbank.com.
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.
267-932-8760, ext. 302
Jeff Schoenborn and Kate Croft