TriState Capital Reports First Quarter 2014 Financial Results

TriState Capital Holdings, Inc. (NASDAQ: TSC) today reported meaningful loan and revenue growth, as well as strong credit quality and profitability, for the first quarter ended March 31, 2014.

The holding company for TriState Capital Bank and Chartwell Investment Partners, Inc. reported net income of $4.6 million in the first quarter of 2014, compared to $4.8 million in the fourth quarter of 2013 and $2.9 million in the first quarter of 2013.

Diluted earnings per share were $0.16 in the first quarter of 2014, $0.17 in the fourth quarter of 2013 and $0.13 in the first quarter of last year, when TriState Capital had 6.6 million fewer average diluted common shares outstanding prior to its May 2013 initial public offering.

“We are pleased with TriState Capital Bank’s strong loan portfolio growth and credit quality, as well as early contributions by our recently acquired Chartwell business, which combined to help drive revenues and earnings in the first quarter,” Chairman and Chief Executive Officer James F. Getz said. “Pairing a highly profitable and capital-light investment management business with our branchless bank model immediately enhanced our risk profile, diversified our sources of revenue, and increased our capability to self-generate additional capital and liquidity from earnings to help fund continued growth.”

FIRST QUARTER 2014 HIGHLIGHTS

• Total loans of $1.9 billion at period end grew 15.2%, annualized, from Dec. 31, 2013 and 14.1% from March 31, 2013.
• Total deposits of $2.2 billion at period end grew 47.8%, annualized, from Dec. 31, 2013 and 21.4% from March 31, 2013.
• Acquisition of Chartwell Investment Partners closed March 5, with the new subsidiary contributing $2.5 million in investment management services revenue in the last month of the quarter.
• Chartwell assets under management grew by $517 million to $8.0 billion at March 31, 2014.

FIRST QUARTER 2014 RESULTS

TriState Capital’s first quarter 2014 net interest income of $15.9 million compared to $16.4 million in the linked fourth quarter of 2013 and $14.3 million in the year-ago first quarter of 2013. First quarter 2014 net interest income reflects two fewer days’ revenue than the linked quarter, growth in interest earning cash balances in the first three months of the year, and a majority of first quarter loan growth originating in late March. The full interest-income benefit of first quarter loan growth is expected to be realized going forward from the second quarter of 2014. Compared to the year-ago quarter, higher net interest income reflects substantial growth in average loan balances over the last 12 months.

From a credit quality perspective, provision expense was $608,000 in the first quarter of 2014, compared to $473,000 and $2.1 million for the linked and year-ago quarters, respectively.

Net interest margin was 2.86% in the first quarters of 2014 and 2013, compared to 2.97% in the fourth quarter of 2013. NIM in the first quarter of 2014 reflected higher interest earning cash balances maintained in order to fund loan production anticipated in the second quarter of 2014, including continued growth of TriState Capital’s lower-credit-risk private banking channel lending. NIM continued to benefit from improved funding costs, which averaged 0.52% in the first quarter of 2014 compared to 0.54% in the linked quarter and 0.70% in the year ago quarter.

Non-interest income for the first quarter of 2014 was $4.5 million, compared to $1.6 million in the linked quarter and $1.8 million recorded in the year-ago quarter. Non-interest income was enhanced by about one month of investment management services revenues, totaling $2.5 million, from TriState Capital’s new Chartwell subsidiary.

Non-interest income also included pre-tax gains from the sales of fixed rate investment securities available-for-sale of $1.0 million in the first quarter of 2014, $13,000 in the linked quarter and $784,000 in the year-ago quarter.

Revenues, excluding gains from investment securities sales, grew to $19.3 million in the first quarter of 2014, an increase of 7.6% over $18.0 million in the linked quarter and 25.9% over $15.3 million in the year-ago quarter.

First quarter 2014 non-interest expense of $12.8 million, or 2.22% of average assets on an annualized basis, reflects typical first quarter seasonality in compensation and payroll-related expenses. Also, $1.9 million of TriState Capital’s first quarter 2014 non-interest expense represents about one month of compensation and other costs associated with operating the Chartwell business acquired in March. Fourth quarter 2013 non-interest expense was $11.2 million, or 1.98% of average assets, annualized. For the year-ago quarter, non-interest expense was $9.6 million, or 1.87% of average assets, annualized.

The first quarter 2014 efficiency ratio for the Bank was 64.11%, compared to 58.21%, excluding nonrecurring acquisition expenses, in the fourth quarter of 2013 and 62.73% in the first quarter of 2013. The first quarter 2014 efficiency ratio was largely impacted by the bank’s lower revenues than in the linked quarter, which consisted of two fewer days’ loan interest income, as well as loan growth originating in March 2014. As compared to the year ago quarter, the bank had higher expenses resulting from costs associated with operating as a publicly traded company.

Pre-tax, pre-provision net revenue was $6.5 million in the first quarter of 2014, compared to $6.7 million in the linked quarter and $5.7 million in the year-ago quarter.

BALANCE SHEET GROWTH

Double-digit loan growth in the first quarter of 2014 reflected steady execution of TriState Capital’s strategy for continued loan growth. The Company continued to expand its lower-credit-risk private banking channel lending and saw continued growth in its commercial real estate loan portfolio. Loans totaled $1.9 billion at March 31, 2014, growing 15.2%, annualized, from Dec. 31, 2013, in spite of the seasonal slowdown in originations that many banks typically experience in the first quarter each year. Total loans grew 14.1% from March 31, 2013.

Private banking channel loans totaled $602.1 million at March 31, 2014, compared to $569.3 million at the end of the linked quarter and $446.4 million one year prior. Middle market commercial banking channel loans totaled $1.33 billion at March 31, 2014, compared to $1.29 billion at the end of the linked quarter and $1.25 billion one year prior.

Deposits grew 47.8%, annualized, during the first quarter to $2.19 billion at March 31, 2014, while deposit funding costs declined 2 basis points from the linked quarter. Compared to the year-ago quarter, deposits grew 21.4% at period end, while deposit funding costs declined 18 basis points.

TriState Capital remains very well positioned to profit from a rising interest-rate environment, and the bank continues to manage a highly asset-sensitive balance sheet. At March 31, 2014, 81% of TriState Capital’s loans and 53% of its securities portfolio were floating rate. In addition, 42% of deposits were fixed-rate time deposits.

ASSET QUALITY

Non-performing assets (NPAs) to total assets were 1.20% at March 31, 2014, 0.95% at Dec. 31, 2013, and 0.84% at March 31, 2013. The increase was due to the addition of two non-performing loans in the first quarter. In addition, the allowance for loan losses to non-performing loans measured 64.63% at the end of the first quarter, compared to 93.61% and 102.56% at the end of the linked and prior year quarters, respectively.

Net charge offs to average loans, annualized, were 0.19% in the first quarter of 2014 and 0.60% in the year-ago quarter. For the fourth quarter of 2013, the company had net recoveries representing 0.05% of average loans, annualized. The allowance for loan losses to total loans was 0.97% as of March 31, 2014, compared to 1.02% at Dec. 31, 2013 and 1.04% at March 31, 2013.

INVESTMENT MANAGEMENT PERFORMANCE

Chartwell Investment Partners’ assets under management were $8.0 billion at March 31, 2014 compared to $7.5 billion at Dec. 31, 2013. The first quarter 2014 increase in AUM of $517 million is attributed to net client inflows of $374 million and market appreciation of $143 million.

Chartwell investment management fees for the first 13 weeks of 2014 totaled $7.3 million, of which $2.5 million from March is reflected in TriState Capital’s first quarter consolidated non-interest income.

CAPITAL STRENGTH

TriState Capital’s consistent earnings power continued to support capital ratios in excess of the highest required regulatory benchmark levels. As of March 31, 2014, TriState Capital’s tier 1 leverage ratio was 10.61% and the ratio of tangible equity to tangible assets was 9.85%.

CONFERENCE CALL

As previously announced, TriState Capital will hold a conference call tomorrow to review its financial results and operating performance.

The live conference call on April 24 will be held at 8:30 a.m. ET and may be accessed by dialing 888-317-6016 from the United States, 855-669-9657 from Canada or 412-317-6016 from other international locations. Participants should dial in at least 10 minutes prior to the call and request the “TSC Earnings Call.”

A replay of the call will be available approximately one hour after the end of the conference through 9 a.m. ET on May 1, 2014. The replay may be accessed by dialing 877-344-7529 from the United States or 412-317-0088 from other locations and entering the conference number 10044059.

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 has $2.5 billion in assets, as of March 31, 2014, and serves middle-market commercial customers through regional representative offices in Pittsburgh, Philadelphia, Cleveland, Princeton, 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 has $8.0 billion in assets under management, as of March 31, 2014, and serves TriState Capital’s financial intermediary network and over 150 institutional clients. For more information, please visit http://investors.tristatecapitalbank.com.

FORWARD LOOKING STATEMENTS

This press release includes “forward-looking” statements related to TriState Capital that can generally be identified as describing TriState Capital’s future plans, objectives or goals. Such forward-looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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.

NON-GAAP FINANCIAL DISCLOSURES

This news release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (GAAP). Although TriState Capital believes 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.

TRISTATE CAPITAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES

The information set forth above contains certain financial information determined by methods other than in accordance with GAAP. These non-GAAP financial measures are “tangible equity,” “tangible equity to tangible assets,” “common shares outstanding with preferred converted to common,” “book value per share with preferred converted to common,” “tangible book value per share with preferred converted to common,” “total revenue,” “pre-tax, pre-provision net revenue,” and “efficiency ratio.” Although we believe these non-GAAP financial measures provide a greater understanding of our business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

“Tangible equity” is defined as shareholders' equity reduced by intangible assets, including goodwill, if any. We believe this measure is important to management and investors to better understand and assess changes from period to period in shareholders' equity exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing both equity and assets, while not increasing our tangible equity or tangible assets.

“Tangible equity to tangible assets” is defined as the ratio of shareholders' equity reduced by intangible assets, divided by total assets reduced by intangible assets. We believe this measure is important to many investors who are interested in relative changes from period to period in equity and total assets, each exclusive of changes in intangible assets.

“Common shares outstanding with preferred converted to common” is defined as shares of our common stock issued and outstanding, inclusive of our issued and outstanding Series C preferred stock. We believe this measure is important to many investors who are interested in changes from period to period in our shares of common stock issued and outstanding giving effect to the conversion of shares of our Series C preferred stock which were convertible at the option of the holder and were converted to common stock immediately prior to the closing of the initial public offering, which closed on May 14, 2013. Convertible shares of preferred stock had the effect of not impacting shares of common stock issued and outstanding until they were converted, at which point they added to the number of shares of common stock issued and outstanding.

“Book value per share with preferred converted to common” is defined as book value, divided by shares of common stock issued and outstanding with preferred stock converted to common stock. We believe this measure is important to many investors who are interested in changes from period to period in book value per share inclusive of shares of preferred stock that could be converted to shares of common stock. Prior to conversion, convertible shares of preferred stock had the effect of not impacting book value per common share, but reduced our book value per share with preferred converted to common.

“Tangible book value per share with preferred converted to common” is defined as book value, excluding the impact of goodwill, if any, divided by common shares outstanding with preferred converted to common. We believe this measure is important to many investors who are interested in changes from period to period in book value per share exclusive of changes in intangible assets and inclusive of shares of preferred stock that could be converted to shares of common stock. Goodwill is an intangible asset that is recorded in a purchase business combination. Prior to conversion, convertible shares of preferred stock had the effect of not impacting tangible book value per common share, but reduced our tangible book value per share with preferred converted to common.

“Total revenue” is defined as net interest income and non-interest income, excluding gains and losses on sales of investment securities available-for-sale. We believe adjustments made to our operating revenue allow management and investors to better assess our operating revenue by removing the volatility that is associated with certain other items that are unrelated to our core business.

“Pre-tax, pre-provision net revenue” is defined as net income, without giving effect to loan loss provision and income taxes, and excluding net gain (loss) on sale of investment securities available-for-sale. We believe this measure is important because it allows management and investors to better assess our performance in relation to our core operating revenue, excluding the volatility that is associated with provision for loan losses or other items that are unrelated to our core business.

“Efficiency ratio” is defined as non-interest expense divided by our total revenue. We believe this measure allows management and investors to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.