TriState Capital Holdings, Inc.
Q2 2020 Earnings Call Transcript

Published: 23 Jul 2020

[Operator:]

Good morning, everyone and welcome to the TriState Capital Holdings Conference Call to discuss financial results for the three months ended June 30, 2020. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. Before turning the call over to management, I would like to remind everyone that today’s call may contain forward-looking statements related to the TriState Capital that may generally be identified as describing the company’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 Forms 10-K and 10-Q. You should keep in mind that any forward-looking statements made by TriState Capital speak only as of the date on which they were made. New risks and uncertainties come up from time to time, and management cannot predict these events or how they may affect the company. TriState Capital has no duty to and doesn’t intend to update or revise forward-looking statements after the date on which they are made. To the extent non-GAAP financial measures are discussed in this call, comparable GAAP measures and reconciliations can be found in TriState Capital’s earnings release, which is available on its website at tristatecapitalbank.com. Representing TriState Capital today is Jim Getz, Chairman, President and Chief Executive Officer. He will be joined by David Demas, Chief Financial Officer for the question-and-answer session. At this time, I would like to turn the conference over to Mr. Getz.

[Jim Getz:]

Thank you for joining us this morning. In the nearly five months since fiscal policymakers and the government initiated extraordinary efforts to respond to the pandemic and its impact on the economy, TriState Capital’s differentiated business model continues to empower us to meet the needs of our clients and deliver responsible growth in any environment. Together with credit quality and balance sheet trends, scalable and capital efficient operations and a responsive funding capability, this model has enabled TriState Capital Bank and Chartwell Investment Partners to provide an exceptional experience to our sophisticated clients. We also continue to expand our advisor network and client base during the second quarter with each of our private banking, middle market commercial banking and Investment Management businesses growing meaningfully during the quarter. The balance sheet surpassed the $9 billion milestone with loans growing year-to-date by more than 18% annualized supporting our goal of 15% to 25% loan growth for full-year 2020. This is all organic loan growth and does not include PPP lending or other one-time programs. At the same time, we maintain what we believe are best-in-class asset quality metrics for the second quarter of 2020. We fully expect TriState Capital’s business model will continue to build provide us with very low annual credit costs relative to peers, even as we prudently build loan loss reserves for adverse scenarios. Our objective has always been to outperform in times of credit volatility while capturing risk adjusted profitability in all environments. Our highly scalable branchless model and operating leverage also continue to distinguish this company. The bank's efficiency ratio declined to an all-time low, 50.39% in the second quarter, down some 477 basis points from the year-ago period. Total revenue grew to more than $46 million in the second quarter up 7.6% from the year-ago period outpacing a 1.9% increase in non-interest expense. In addition, second quarter non-interest expense of $28 million is 34% lower than the average bank with $5 billion to $10 billion in assets. And our annualized expense to average assets ratio was just 1.22% in the second quarter or more than 120 basis points below average for similar sized banks. The top line was also supported by non-interest income, which represented nearly 28% of revenue in the quarter. In addition to the Chartwell fees, we had very strong swap fee income of $3.8 million from both private banking and commercial banking clients. All this was accomplished with our high performing workforce largely operating remotely, while simultaneously maintain hallmark levels of personalized and responsive service. Frankly, I believe this company's relationships with our clients and financial intermediaries have never been stronger and we’re inspired by the trust and confidence took place in TriState Capital Bank and Chartwell Investment Partners. Our investment management team is creating significant momentum that is in turn driving Chartwell’s new institutional and retail business, positive net inflows and AUM growth. Chartwell assets under management ended the quarter at $9.3 billion. That's $1 billion higher than at the end of the first quarter, and $1.6 billion ahead of AUM on March 23, which was the markets trough for Chartwell. Market appreciation of $856 million contributed to Chartwell’s growth in the second quarter, demonstrating the positive impact of having diversified active management strategies with nearly 40% of AUM in equities and just over 60% in fixed income. Chartwell generated fees of $7.7 million comprising 60% of non-interest income during the second quarter with an average fee rate of 35 basis points, Chartwell’s annual run rate revenue grew nearly 12% during the second quarter of 2020 to $32 million on June 30. The highly credible performance of Chartwell’s strategies, supported by our sophisticated sales and financial services distribution capability continues to attract institutional and retail accounts. In the first half of the year, Chartwell attracted positive net inflows of $132 million which $75 million of that production coming during the second quarter of 2020, Chartwell’s momentum is evident in the breadth of its relationships. Today, it has more than 325 institutional clients, more than 2,500 retail clients and nearly 40,000 mutual fund shareholders. Financial advisors can also access Chartwell products for their clients in some 50 retail platforms. Looking ahead, Chartwell currently has an excess of $140 million in commitments and its new business pipeline to be funded in the third quarter from institutional investors alone. In addition, Chartwell has meaningful activity and institutional searches and finals and its performance continues to be very strong as we go into the second half of the year. We could not be prouder of the Chartwell team and the momentum they’re engineering, particularly given the broader economic environment. Turning to our banking business and liquidity, you recall that in mid-March, we accelerated deposit gathering in anticipation of clients potential credit needs at the outset of the pandemic in the U.S. Accordingly, deposits grew by 69% annualized during the first quarter. In the second quarter, our branchless and responsive funding mechanism enabled us to manage deposit growth to 2.5% annualized as actual client needs for the foreseeable future became clear and more stable. We continue to actively manage deposits and excess liquidity to match what we expect to be continued organic loan growth. Funding costs declined significantly to 0.87% in the second quarter, down by 155 basis points from 2.42% in the same period last year. For loans, the average yield declined to 2.69% in the second quarter and we maintain interest rate floors on 55% of our total loan portfolio. Net interest margin was 1.52% in the second quarter, inclusive of the effect of the enhanced liquidity position we carried in the quarter. We expect NIM to stabilize in that range in the second half of the year. In terms of commercial banking, we're very pleased with this business execution in the second quarter. The 8% annualized commercial loan growth you saw was entirely from our core business focused on serving middle market businesses with revenue of $10 million to $300 million. We continue to add meaningful new relationships and expand engagements with existing clients. In the first quarter, less than a third of our C&I loan growth was from net increases in credit line utilization. In the second quarter, the $38 million decline in the C&I balances was fully attributed to net pay downs and credit lines offsetting $155 million, and new C&I loans originated in the quarter, our $1.2 billion commercial and industrial portfolio also remains well diversified. Our single largest borrower category remains, financial services and insurance representing some 30% of C&I loans. Our $2 billion commercial real estate portfolio is also well diversified by industry, property type, geography and sponsor with the majority in multi-family and other income producing real estate projects. We continue to have limited exposure to some of the businesses that may be most directly impacted by COVID-19, social distancing and quarantines totaling about 6% of TriState Capital’s more than $7 billion loan portfolio. These credits are underwritten with our traditional focus on strong sponsor support and recourse. For example, $45 million to hotels, $18 million related to restaurant operations, $47 million to senior housing, $23 million to non-renewable energy distribution and production and $340 million in commercial real estate lending to projects with a retail component. Our exposure to retail related CRE loans is very modest at about 4% of loans. And we're confident our borrowers and the composition of that sleeve of the CRE book. These are full banking relationships with corresponding deposits and treasury management services. Over 70% of our retail related project sponsors did not request COVID-19 deferrals. The average rent collection rate has been about 68% on these projects over the quarter. We have no indoor mall related exposures. Our five largest tenant exposures represent about 25% of retail related commercial real estate tenancy encompassing government as well as major brokerage, pharmacy convenience store and Supercenter chain tenants. Our average loan size for retail related commercial real estate is about $3 million. On our first quarter call, we reported that we developed customized deferral arrangements with fewer than 100 loans as of April 15 totaling some $378 million and representing less than 6% of all loans. As we share then in April, we were prepared for another $100 million or so of additional deferrals. And we're pleased to report that modifications remained below that level. As of July 15, we have just over 100 loans with deferrals totaling approximately $437 million and continuing to represent about 6% of total loans. Importantly, 48% of these borrowers are scheduled to resume normal debt service payments in the third quarter. We believe many clients are gaining confidence in their ability to operate during a national health crisis which is reducing the need for deferrals. The pace and shape of any broader economic recovery will influence how these numbers play out. But based on what we see today, deferrals are moving in the right direction. As loans grew by $213 million in the second quarter, adverse rated credits actually declined by nearly $2 million to $33 million or 46 basis points of total loans on June 30. Non-performing loans were less than $7 million or nine basis points of our more than $7 billion loan portfolio on June 30. The increase in non-performance during the second quarter is primarily due to a single commercial real estate loan that company believes is well capitalized, well collateralized and adequately reserved forth. The sponsors challenges are not primarily a results of the pandemic. In addition, not a single loan and the remainder of our portfolio is over 30 days past due. This is obviously a very powerful metric and very typical for our company given our differentiated loan portfolio. We increased our allowance by 35% in the second quarter, and 65% in the first half of the year, primarily reflecting our general reserve build. Standing at more than $23 million, the allowance represents 75 basis points commercial loans with 32 basis points of total loans, including those collateralized by marketable securities. As we shared with you in April, we currently expect to implement CECL on December 31. Based on what we know today, we estimate allowance to range from $30 million to $35 million on December 31 representing 85 to 105 basis points of commercial loans or 40 to 50 basis points of total loans. Asset quality continues to be a differentiator for TriState Capital. Our middle market commercial lending approach and our disciplined process for these credits is a key factor in our success. First and foremost, we’re fortunate to be able to work with some of the highest quality middle market sponsors in our markets, banking proven and established operators. Our risk profile reflects the intentional selection of commercial clients, markets, and products, as well as industry and geographic diversity. Just as important are the considerable investments we've made to build our top notch credit analytical staff. In addition to our Bank President and Commercial President, our Regional Presidents and seven commercial relationship managers, average 30 years experience managing these loans. Our Chief Credit Officer leads a team of two dozen credit analysts, our commercial real estate specifically eight analysts manage our CRE credits with an average of 16 years experience at least a decade in the business. We believe this level of credit analyst experience is a major differentiator for us. We've long made these career positions where analysts can advance professionally and see a path to six figure income. Consequently, we're able to recruit and retain top talent, our analysts scrutinize individual credits, and create positive friction with relationship managers in the field to ensure we’re properly managing and pricing risk. Another key factor in our commercial credit quality is the continual oversight we maintain. For example, every criticized risk rating is reviewed monthly by a special assets committee, including executive management. Every loan that is passed rated is reviewed regularly by a component of our credit committee. We also engage an outside independent party to perform a quarterly portfolio review and have done so since 2008. For new commercial loan opportunities each requires approval from our Credit Committee, which includes, but it's not limited to me, the President of the bank, our CFO and our Chief Credit Officer, and no single person at the company, including me has any individual commercial lending authority. All decisions are made by this committee. In response to the current economic environment, we have also been in contact with every single project sponsor, regardless of rating, monetary, occupancy, rent collection and sponsor liquidity. The underwriting and credit management discipline is married with a commitment to providing accountability, responsiveness and an exceptional client experience to those we serve. Our relationships with these clients and the strength of our sponsors really are the foundation of our commercial real estate business. For our private banking business, TriState Capital’s unmatched distribution capability, processes, teams and advisor relationships are operating as designed. This was clear in the second quarter of 2020 when we delivered 15% annualized growth in private banking loans with record period end balances for this product surpassing $4 billion for the first time. TriState Capital also processed the new record number of private bank applications for high net worth borrowers through independent investment advisors and trust officers and our referral network have now 225 financial intermediary firms. These applications were up 6% for the first quarter and 49% for the second quarter last year. Our digital lending platform also continues to help our team to provide an exceptional client experience during historic financial market volatility while maintaining this business eminently scalable. TriState Capital’s private banking loans are primarily over collateralized by high net worth borrowers, liquid marketable securities portfolios, monitored daily through our proprietary technology. They're subject to favorable treatment under bank regulatory capital requirements and require no reserve. These loans remain our largest and fastest growing category of lending, representing 57% of our $7 billion in total loans. Private bank was taken together with cash and securities represent 61% of the company's $9 billion in assets. Overall, we remain focused on responsible growth for all stakeholders while building an incredible franchise of valuable and meaningful relationships with our clients and financial intermediaries. As some of you may have heard me say, this is a company for all seasons. TriState Capital is designed to not only weather challenging environments but profitably grow and adapt during this them as well. Our business model has been tested and has proven its resilience and effectiveness and we believe it will actually grow even stronger. TriState Capital’s robust and innovative suite of products, services and technology are designed specifically for the sophisticated and unique clients we serve to support momentum and confidence each of our businesses provides to the others creates premium value to our company as a whole with a strong and liquid balance sheet, and ever growing distribution network and a team that excels at servicing clients regionally and nationwide, we remain focused on delivering responsible and sustainable growth over the long-term. That concludes my prepared remarks this morning. I’ll now ask David to join me for Q&A. Operator, please open the line for questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Michael Perito with KBW. Please go ahead.

[Michael Perito:]

Jim, David, good morning.

[Jim Getz:]

Good morning, Mike.

[David Demas:]

Good morning, Mike.

[Michael Perito:]

Thanks for taking the questions. I wanted to start maybe with David, just on the liquidity side. I mean, it seemed like maybe there was a bit more build early in the quarter and that that you guys saw some draw down on based on the kind of the disparity between the average and period end balances, I was wondering if you could comment on that and maybe just give us a little insight as to how you kind of see the cash and investment books tracking over the near-term here, given all the kind of activities related to the pandemic?

[David Demas:]

Sure, I'd be happy to Mike. So in the quarter first and foremost, we're focused on helping our clients navigate the COVID-19 events as they’re unfolding. And so we were building liquidity as we talked to you about in March. But we also built liquidity in April and May to make sure that we understood and we're ready to address our client’s needs. As those needs became more clear to us in the second half of the quarter, we started to move down liquidity in a steady and very client focused fashion. As deposits continue to reprice during the quarter, we continue to deploy that that liquidity and so what you'll see like is starting to stabilize as Jim mentioned this quarter, NII growth will start to return in the second half of the year. I might mention that this was all occurring against the backdrop of LIBOR compressing significantly from about 90 points to about 80 basis points of spread between LIBOR and effective Fed funds. And so you'll see us deploy that liquidity in the second half of the year, and you'll continue to see us reprice our deposit book. For instance, we're repricing our CDs. Now, we're extending duration on the CDs. And we're putting new money on at about 25 to 30 basis points, which is about half of where our deposit pricing is right now. We're also going to gradually reduce the amount of deposits both linked EFF, effective Fed funds. That's declining from about 40% of the book few quarters ago to about mid-30s now and you'll see that continue to decline and so a little bit of compression in NIM caused by a couple of events, liquidity will come down over the next couple of quarters. But we continue to remain focused first and foremost on client needs this quarter and every quarter. And we believe with that focus, they'll continue to reward us with new business and appreciate that we take the long-term view.

[Michael Perito:]

Helpful, David, thank you. And then Jim, maybe a question on capital, you guys raised some debt, the TP ratio nudge to 5% in the quarter up a little bit sequentially. I guess kind of a two-part question, I guess one, do you think, some of those the capital building trends could continue moving forward. And then two, can you just maybe give us a little insight about how you kind of balance it? Obviously, you have the lower risk balance sheet, which needs less capital than traditional peers, but you're growing and presumably, I imagine there'll be some opportunities to grow as we come out of the pandemic here and having capital on hand to kind of take advantage of some of those opportunities, some insights there would be great, thank you.

[Jim Getz:]

Thanks, Mike. I'm going to give you sort of an overview on this and what is foremost should be kept in mind is, we're building a business here. And as we all are aware that the second quarter created challenges for our clients and our industry, we're proud of the results of this quarter considering the circumstances that we functioned under, the effectiveness of our business model was certainly proven in the first two quarters of the year. But from a capital standpoint, we produced what I consider to be meaningful capital organic growth of $16 million. And that was driven really by our net income of $8.4 million and the improvement of our fair value of our investments of some $7.5 million. So essentially, earnings were utilized to strengthen capital. And as you pointed out, we were in the marketplace and actively raised about another $95 million of additional capital. If you look at the increase in our net interest income, it actually increased some 7% over the second quarter 2019. And what you saw that that's looking at it from somewhat of a longer-term perspective, but it's only a year. But if you want to look at the deposit costs, they dropped from 41.4% compared to the first quarter of 2020 and non-interest income and we have to look at other aspects of our revenue growth, our non-interest income was up 8.3% over the second quarter of 2019 during what August would consider somewhat of a volatile market in the stock, bond market and interest rates. Our revenue, total revenue was up 7.6% over the second quarter 2019 and we had a bank efficiency ratio of some 50.39%. So non-interest expense increased some 1.9% from the second quarter of 2019 but and this is important because I consider this statistic to be really the core of this company. Pre-tax, pre-provision net revenue was up 18% over the second quarter of 2019. That's pretty consequential. Chartwell rebounded quickly and is well positioned from a performance and financial metric standpoint for the remainder of the year. The asset quality continued through this whole period of time to be best of class. We increased our allowance by sub-65% in the first half of the year. Our commitment to responsible growth continues to be strong and meet our expectations. And this commitment is clearly reflected in the results that we've gotten, if you take a longer-term perspective, over the past 10 years, we've charged-off net charge-offs of $37 million over 10 years and over the past five years, it's $5 million and our $7 billion loan portfolio to-date we only have one loan, one loan that's past due 30 days or more. The provision level has been earned by this company, the loan portfolio has been designed to perform in the environment that we find ourselves today. We have no dividend expense, no interest rate risks, variable expenses, obviously by looking at the income statement that we produce, meaningfully lower risk profile and a consequential focus on non-interest income. On the net interest margin, we believe the NIM as David was alluding to is bottomed in the second quarter, the liquidity was put on the books by design and we clearly mentioned in the first quarter discussion, it was a risk management tool and a time of stress and stress disease and it's being put to work. And what I would suggest, we note the growth in the investment portfolio, the meaningful growth that has occurred over this quarter. And a reminder on net interest margin. It really has a very limited focus, it doesn't take into account expenses, credit profile, non-interest income, duration. And the other thing that's worth pointing out is these floors that we've put in place are on as I mentioned earlier, 55% of our loan portfolio, over $3.9 billion of this $7 billion portfolio has floors and they were still being put in place in April and May and they average looking at the full portfolio, they averaged 60 to 90 basis points across the full portfolio. And David was recently alluding to where LIBORs been and we've seen it, it's 16, 17, 18 basis points. We have given clear guidance in the first and second quarter that the provision will continue to grow over the next few quarters. And we fully anticipate that our provision will be in line with the CECL requirement in the first quarter of 2021. The loan yield drop, it was clearly offset by the decrease in the deposit costs. Excess liquidity is still on the balance sheet in the second quarter and created approximately a five basis point drag on the net interest margin. So the reason I'm taking this time is everyone on the call here can clearly understand how we look at it. So we continue to invest in our clients and our people, our technology and infrastructure for the future. And if one would merely look at our income statement, you can see that we spent some $2.4 million in the quarter on technology yet beat consensus by 50% from an earnings standpoint. So the first half of the year, we look at has laid a strong foundation for the remainder of the year. So we look at this as a critical quarter that we got through, very successfully due to the people working at this company and the commitment that they make. So I hope I answered your question.

[Operator:]

The next question is from Matt Olney with Stephens. Please go ahead.

[Matt Olney:]

Thanks. Good morning and…

[David Demas:]

Hi, Matt.

[Matt Olney:]

Hey, good morning David. Jim as you noted, the operating expenses increased just 2% year-over-year. Impressive cost controls, especially considering a few years ago expenses would be 10% or 12% per year. As you look forward, what type of expense growth should we be anticipating from here?

[Jim Getz:]

I will allow -- you were talking to me but why I allow David Demas to speak. I think I've commented a lot lately.

[David Demas:]

So Matt, let me build off a couple of things that Jim talked about a minute ago. Chartwell has done a great job this year reexamining the cost that they incurred to run their business operations. And without impacting growth or the experience of the client experience, they've been able to meaningfully reduce operating expenses by 8% to 9% this year. For the entire franchise, operating expenses are up about 5.5% driven almost entirely by FDIC insurance premiums, which is the cost necessary to vary the excess liquidity, which we'll deploy as we've talked about. Importantly, the efficiency ratio continues to improve. And as Jim mentioned, it's just slightly over 50% for the quarter. We continue to build scale on our businesses by providing clients with a highly differentiated experience. And we're really focused on continuing to drive operating leverage, as we've talked to you about in the past, we've achieved about 300 basis points of operating leverage so far this year. I think as you look forward to the remainder of the year, our goal is to keep the efficiency ratio of the bank in that same range. It might bump around a little bit quarter-to-quarter, but we believe we've achieved the scale necessary to continue to run this business. And we don't expect other than compensation costs which are variable in nature and tied to the performance of loan growth swap income and Chartwell performance. Expenses should be muted.

[Matt Olney:]

Okay, that's helpful. And I think going back to the discussion around the net interest income and the margin, you've talked about liquidity levels and why that was elevated in 2Q. I guess I'm still unclear on the path of the loan yields. I mean, does the floors are being put in. I appreciate that. But where do loan yields go from here compared to 2Q levels?

[David Demas:]

So I think you mentioned that about 55% of our book has floors in place right now. And those floors matter depending on the loan or somewhere between 50 and 75 basis points. And as you know, those floors don't expire. They just go away as rates move up. We're putting new commercial real estate loans on at a yield of 325 to 375, commercial and industrial loans are going on the books somewhere between 250 and 350 and private banking loans are going on at 225 to 295 total yield. So that's where we're positioned as where we grow the portfolio for the second half of the year.

[Operator:]

[Operator Instructions]

[David Demas:]

Operator, there are two people in line here.

[Operator:]

Yes, understood. The next question is from Daniel Tamayo with Raymond James. Please go ahead.

[Daniel Tamayo:]

Good morning guys.

[Jim Getz:]

Good morning, Daniel.

[Daniel Tamayo:]

So first, the $437 million in deferrals, can you talk about where those are coming from in terms of the CRE or C&I and which sub segments if possible?

[David Demas:]

Dan, they're mostly CRE. There's a mix, but they're mostly CRE. Let me give you a little bit of data in terms of what we're seeing in that behavior. About 48%, as Jim alluded to have indicated to us that they're going to resume payments in the third quarter. An additional 17% of those loans have indicated that they're going to resume payments in the fourth quarter. So about 63%, in total those loans have indicated that they're going to resume payments here in the third and fourth quarter. The remaining loans in that book continue within the deferral period. We underwrote those deferrals in March and we're reviewing them regularly, we’re in touch with the clients. And overall, each of those borrowers continue to perform better than what we underwrote in March but to get back to your original question about two-thirds of those deferrals are in commercial real estate prorated across in the commercial book.

[Daniel Tamayo:]

Okay. (Inaudible)

[David Demas:]

And would you mind me repeating that, it’s a little garbled. Dan?

[Jim Getz:]

Operator? Dan, go ahead.

[David Demas:]

There was some interference.

[Daniel Tamayo:]

Yes, no I was just asking if there was a little bit more information you're able to provide in terms of within the CRE book. If that was more broad based, the deferrals or if there was any particular sub-segments that you were seeing in the deferrals?

[David Demas:]

No, it’s fairly broad based. There's not a specific industry or geographic area that is concerning to us. It's pretty broad based.

[Jim Getz:]

I think, Dan in the script, we mentioned that 70% of the retail oriented CRE did not apply for any type of relief.

[David Demas:]

Dan, I guess the one item that Jim talked about $44 million in hotels, obviously hotels are seeking referrals and so that that entire $44 million exposure on those loans are on deferrals. But that's about the only conversation.

[Jim Getz:]

Maybe I could go over for you, if you're really trying to look at this carefully the COVID related end of it where we have about a 6% exposure, which is pretty limited compared to some of the other institutions. So if you look at the hotels, we have an exposure of $45 million. There's seven loans there. One of the loans is financing for a ground lease with an operating myriad build on the land and that has $2.3 million outstanding. It is non-recourse but the LTV is 65%. The other non-recourse and this is a DoubleTree hotel. It's about $10.9 million outstanding, 65% LTV, but I should point out that the sponsor here currently has on deposit with us and has had on deposit with us, money of this size for quite some time. Today he has some $81 million with us on deposit. And then the rest of the five loans, the 31.6 are all recourse and there's five loans there. If you look at the food service industry, we have seven loans that are spread between three companies, the largest one being $7.5 million and the smallest one $3.7 million on the senior housing, we have eight loans little over $39 million of outstandings. And one loan is of an assisted living nature, $8.3 million and the other is skilled nursing. And that's that group of seven loans is $30.9 million outstanding. And on the healthcare side, there's five loans $24.1 million outstanding. And that's a pretty good outline of this whole portfolio. What I can tell you is all these are paying as agreed.

[Daniel Tamayo:]

All right, that's great detail. I appreciate all that. And then if I can just kind of shift over to the balance sheet growth here for a second. Can you talk about how the increased uncertainty in the current environment has impacted your lending both in the private banking segment as well as on the commercial side?

[Jim Getz:]

Well, I would say on the private -- let’s start with the commercial side, I would indicate to you that our anticipated growth this year in that area is going to be in the high single digits or around 10%, 11% at most and if you look at the past 24 months, it's been in the mid to high 20% range. On the private banking, we feel high level of confidence in that book of business, and we believe it'll be in the 20% to 25% range. And I believe that you're going to see that portfolio being about 60% of the loan portfolio at the end of next year.

[Daniel Tamayo:]

Terrific, thanks very much. That's all my questions.

[Operator:]

Your next question is from Russell Gunther with D.A. Davidson. Please go ahead.

[Russell Gunther:]

Hey good morning, guys.

[Jim Getz:]

Hi, Russell.

[Russell Gunther:]

I wanted to just quickly follow-up on the deferral conversation please. So of the roughly 35% of that exposure that is at the time not expected to resume normal debt service by the end of the year. One, do you guys consider these to be higher risk exposures given that they're in a forbearance program currently? And if they don't return by the end of the year, how's that going to migrate whether it's into criticize classified or TDRs? And what impact would that have on the reserve?

[David Demas:]

So Russell just to be clear, the remaining portion of those loans are within the deferral periods and we originally underwrote in March, and we're in touch with those folks, and so they still could enter repayment by the end of the year. We just, we haven't confirmed that with them yet or not. They haven't indicated that to us. But as we continue to evaluate each of those credits, there are none. At this point that we're worried about, Jim mentioned that there aren't any delinquencies, defaults or losses emerging in the portfolio yet and so we are not concerned about that remaining 30 plus percent at this point. We'll continue to keep you posted and update you in the third quarter. But nothing that we see emerging or migrating at this point.

[Russell Gunther:]

That's great, David. Thank you. And then last question would be appreciate the update on CECL implementation at the end of the year. Are you able to give us what your estimate of the day one impact would be? And then what, if anything could change given the macro backdrops that would result in a higher number than that $30 million to $35 million all-in?

[David Demas:]

So let me give you some detail in terms of how we set up for CECL in terms of some of the underlying thoughts, as Jim shared with you the 85 to 105 and the $30 million to $35 million. Obviously, the economy's been very mixed, but we do continue to see strength in our clients who overall are navigating this environment pretty well. We've not seen delinquencies, default losses emerge as we've talked about. And as you know, CECL can be very pro-cyclical, it's very volatile in the short-term. And so the drivers of CECL as you know are very forward focused in terms of the consensus, and don't really take into account the full aspects of the portfolio quality. So as we look forward, unemployment and GDP, potential future stimulus, the path of the virus and other factors, create some uncertainty quarter-to-quarter. So we're looking past that, we're sort of blocking out the noise. That's coming to us quarter-to-quarter. And we're really focused on how does 2021 set up at the beginning of the year. And as we look at the setup for 2021, we're thinking about unemployment somewhere between 8% to 10%. And we're thinking about GDP growth, somewhere between 3% to 5% and those are the assumptions that underlie our $30 million to $35 million total reserves. And so that, if those metrics change that obviously could change our outlook. As you compare us to other banks, I would remind you that our credit portfolio is different. We don't have the consumer credit that other banks have, the credit cards, the installment loans, the auto loans, the home equity loans, and so you have to adjust for that as you compare our metrics and the numbers we're sharing from CECL perspective work with where other banks are at this point. That's our view of sort of CECL and where we're headed into 2021.

[Russell Gunther:]

Thanks for sharing that, guys. I appreciate it. That's it for me.

[Jim Getz:]

Thanks.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Getz for any closing remarks.

[Jim Getz:]

Thank you, operator. We continue to thank you for your continued interest and commitment to TriState Capital and look forward to talking to you next quarter. Thank you very much.

[Operator:]

The conference call is now concluded. Thank you for attending today’s presentation. You may now disconnect.