TriState Capital Holdings, Inc.
Q3 2014 Earnings Call Transcript

Published: 23 Oct 2014

[Operator:]

Good morning, everyone and welcome to the TriState Capital Holdings Conference Call to discuss the financial results for the three months ended September 30, 2014, which were released yesterday afternoon. All participants will be in listen-only mode. (Operator Instructions) Before turning the call over to management, I would like to remind everyone that today’s call may contain forward-looking statements related to 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 on how they may affect the company. TriState Capital has no duty to and does not 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 tfcbank.com. Representing TriState Capital today is Jim Getz, Chairman, President and Chief Executive Officer. Jim will be joined by Mark Sullivan, Vice Chairman and Chief Financial Officer for the question-and-answer session. At this time, I would like to turn the conference over to Mr. Getz. Please go ahead.

[Jim Getz:]

Good morning and thank you for joining us today. We're pleased to report third quarter results, which clearly reflect the underlying profitability of TriState Capital Holdings and illustrate our differentiated business strategy. Bottom line we are at $5.7 million or $0.20 per share in the third quarter. The profitable expansion of our highly acid sensitive balance sheet and our investment management business drove growth and non-interest income, earnings and earnings per share to record levels. Together, Chartwell and TriState Capital Bank generated total revenues of $25.5 million in the third quarter, an increase of more than 3% from the linked quarter and 51% from the year ago period. Third quarter annualized revenue also grew to 3.72% of average assets an increase of some 67 basis points from the year ago period. With Chartwell investment fees as well as fees on swap transactions related to our commercial real estate loan portfolio, non-interest income grew to a record $9.3 million in the third quarter up from just over $1 million in the year ago quarter. Non-interest income represented more than 36% of total company revenue compared to the average of just about 25% for $1 billion to $3 billion asset commercial banks. As a percentage of average earning assets in the third quarter, TriState Capital's non-interest income grew to 1.42% annualized, which is an additional 121 basis points from the year ago period. Net interest income grew to $16.2 million in the third quarter increasing by some $474,000 from the year ago period driven by very strong loan growth particularly in private banking and commercial real estate lending. Net interest margin excluding the impact of interest expense for the company's June 2014 subordinated debt placement was 2.58% in the third quarter 2014 compared to 2.57% in the linked quarter. Including the impact of this interest expense, net interest margin was 2.50% in the third quarter. The NIM ranging in the mid twos has been outpaced by growth in net interest income, non-interest income, total earnings and earnings per share, while at the same time allowing us to enhance our credit quality and maintain our interest rate acid sensitivity. We are delivering net interest income growth even as we maintain high levels of floating rate loans at 81% and what we believe to be one of the most highly asset sensitive balance sheets in banking. For example, as of September 30, 2014 our internal model demonstrates that 100 basis point interest rate shock would have resulted in a 5.16% increase in net interest income. That's higher than 12 months prior when our model showed that 100 basis point shock would have increase net interest income by 4.26% on September 30, 2013. Total non-interest expenses were $16.7 million compared to $15.5 million in the linked quarter and $10 million in the year ago period. Third quarter 2014 compensation and benefit expenses increased from the linked period reflecting improved financial performance compared to the second quarter when results lowered incentive compensation accruals at TriState Capital Bank. Compensation and benefit expenses were higher than in the year ago quarter largely as a result of the acquisition of Chartwell and its team, which now numbers 49 employees. With non-interest expense totaling just 2.43% of average assets, even including Chartwell operations, this metric remains well below the average for $1 billion to $3 billion asset commercial banks. The third quarter 2014 efficiency ratio as adjusted for the bank remained in the 50s at 59.68% and the scalability of our business model continues to be highlight by our average full-time employee metrics. Per FTE, our total assets and total revenues were $15.1 million and $554,000 respectively, well above the average for commercial banks with assets in $1 billion to $3 billion. FTEs were 182 at September 30 including Chartwell employees. Looking ahead we're in the process of hiring about three Chartwell sales professionals over the next couple of quarters. Our workforce continues to reinforce the scalable nature of our business model. At TriState Capital Bank, our branchless business model is delivering meaningful deposit and loan growth with a current focus on expanding our private banking and commercial real estate portfolios at a faster rate than commercial and industrial lending. At the same time, we continue to have detailed the infrastructure and the client base making C&I lending a significant part of our portfolio and a core competency of the bank. Loans totaled some $2.3 billion dollars at September 30, growing by 4.2% during the quarter or 16.6% annualized. Over the last 12 months, total loans grew by 30% supporting our goal of achieving long-term compound annual growth rate of 15%. The private banking channel continues to be our greatest source of loan growth. These loans are primarily backed by marketable securities, naturally enhancing the risk profile of our loan portfolio. Accordingly, price and marketable securities-backed loans continues to range between 200 and 250 basis points over LIBOR. Private banking channel balances were up nearly 80% from the year before and these loans, the high net worth individuals are primarily sourced through our growing network of financial intermediaries, which now number 86 firms nationwide. The referral network and our national financial distribution capabilities help to make TriState very unique with compelling upside potential. Private banking is a profitable business line that we leverage to cross-sell additional financial products and services notably investment management. Together, private banking and investment managing are emerging as the engine of future earnings to this company. More on that in a few moments. Back to the loan portfolio. Commercial real estate lending continues to exhibit reasonable pricing and credit support and has remained a growth driver for us. Commercial real estate loan balances are up 37% from the year before. Pricing on commercial real estate loans continues at levels that allow us to add to our portfolio and enhance diversity as well as offset the even more competitive commercial and industrial lending environment. A couple observations on the activity within the loan portfolio. On 09/30/2013 we had outstanding loans of $1.766 billion. Between 09/30/2013 and 09/30/2014 we originated $972 million in loans. We had some $405 million of loans paid off and we actually had loan payoffs of some $36 million. The net loan balance as of 09/30/2014 was up $530 million or 30%. Now what drove that? If you take a look at our C&I outstanding, the C&I outstandings were down some $62 million for that one year period or 80%. The commercial real estate outstandings were up $186 million or up 37% and the private banking outstandings were up $406 million or 80%. As we've indicated previously we're in the process of lowering the proportion of private equity backed share national credits in our portfolio. Through reduced new originations and increased attrition of these credits, as well as continuing growth of our loan portfolio from private banking commercial real estate and direct commercial and industrial lending. As federal loans grew during the third quarter, private equity backed shared national credits declined to 6.4% of total outstandings as of September 30 from 8.1% at June 30, 2014. Total shared national credits declined to 19.6% of total outstandings at September 30, 2014 from 20.8% at June 30, 2014. Shared national credits are not a primary growth driver for us as they were earlier in TriState Capital's life cycle. Shared national credits loans of $20 million or more with at least three banks participating continue to have a role in our portfolio, especially when they bring deposit relations and cross-selling opportunities to us. We've long imposed that internal credit limit at $10 million are pushed at any one shared national credit for averages currently under $5 million outstandings. As we've mentioned previously, we were maintaining relatively high cash balances in the early 2014 to accommodate the acquisition of Chartwell in the first quarter and funding of significant loan growth in the second quarter. We've managed cash sources and at the same time put much of that excess liquidity to work in our lending program reducing cash and equivalents from $193 million to $99 million during the third quarter. We continue to grow our relationships and distribution channels. As evidence of that we have a strong loan pipeline of about $130 million in new originations that we expect to close during the fourth quarter. TriState Capital Holdings and the Bank continue to operate at well capitalized regulatory capital levels. Given current capital the earnings fell at the Bank and Chartwell and anticipated loan growth we expect to operate at well capitalized levels throughout all of 2015. In terms of asset quality, we're pleased with the third quarter 2014 credit metrics. Net charge-offs to average loans annualized were 0.19%. Nonperforming assets represent 1.03% of total assets at quarter end. The provision expense reserved allowance reflected a 12% reduction in total adverse rated credits during the third quarter. This also included the reversal of a downgrade that resulted from the annual shared national credit review earlier this year as a result of an appeal our third quarter 2014 provision was reduced by $300,000. Our provisions expense for the third quarter came in at $651,000 or 12 basis points of average loans annualized. For the trailing 12 months it was 52 basis points. As you have heard us say before we periodically see short term volatility in provision expense which on an annual basis is tracked to historical levels. From 2010 to 2013 our full year provision has averaged 0.46% of average total loans and ranged between 40 and 53 basis points. We’ve continued growth in our private banking portfolio we anticipate this trending to the low end of the range. Turning to deposits, TriState Capital Bank were balances by more than 19% to $2.2 billion at September 30 compared to one year prior. At the same time, we lowered third quarter 2014 deposit funding costs by 6 basis points versus a year ago quarter. Shifting gears, I’d like to spend a few moments on the Chartwell Investment Partners business we acquired in March. As anticipated, Chartwell’s market positioning has a good team of money managers getting a positive response from our financial intermediary network and other perspective clients. As I mentioned earlier, thanks to our financial services distribution capability, investment management and private banking are emerging as the engine of future earnings for this company. Investment management and private banking combined continue to represent approximately 50% of total revenues in both the second and third quarters. In order to provide you with a base line, we wanted to share with you that Chartwell currently has relationships with 16 financial intermediaries. We’ve introduced them to 12 of our financial intermediaries and 16 of our corporate clients over the past several months. Chartwell secured $111 million in new business and inflows in the quarter, offset by outflows of a $175 million as well as market depreciation. The $246 million in market depreciation was almost entirely in Chartwell's equity products, reflecting the general market conditions with the S&P 500 Russell 2000 and other major stock indexes finishing the quarter in negative territory. Assets under management were $7.6 billion on September 30 compared to $7.9 billion at June 30 and $7.5 billion at the end of last year. The weighted average investment fee rate was 38 basis points in the quarter. We see clear opportunities for expanding margins as we build out the retail distribution network while Chartwell's business continues to drive new business and inflows. Chartwell continues to deliver highly credible investment performance as well. Its track record as of September 30 included six of Chartwell 12 investment disciplines beating their benchmarks on a one year performance, eight of the 12 beating their benchmarks on three-year performance and nine of the 12 beat their benchmarks on five-year performance. As you know, investment management does not require extensive capital. And of course Chartwell has already pushed TriState Capitals non-interest income to very meaningful levels. Chartwell Investment Services revenue totaled $7.4 million in the third quarter of 2014 or nearly 30% of total company revenue compared to $7.5 million in the linked quarter. Looking ahead, Chartwell has a strong pipeline of more than $100 million in assets to be funded in the fourth quarter. Given Chartwell's profitability for 2014 under the terms of our acquisition, investment management businesses former limited partners are expected to earn post closing contingent consideration approved by TriState Capital this year and payable to them in the first quarter of 2015. You will remember that the one timer earn-out was valued at six times post closing incremental Chartwell adjusted EBITDA growth for 2014. As we shared with you in January, Chartwell's 2013 adjusted EBITDA was about $6 million. For 2014 adjustment EBITDA projected to be $8.5 million. Accordingly, we disclosed the $15 million accrual toward this one term earn-out of the first quarter of this year. As of September 30 based on Chartwell’s year-to-date EBITDA the investor management business may not only meet or could exceed the projection. As a result, we may need to accrue a one-time expense for the fourth quarter 2014, which will go towards the earn-out. As we reported in January, up to 60% of the earn-out may be paid in thrice the capital cum stock at our option. We’re obviously pleased that Chartwell is performing so well and we’re very proud of the fine work that Tim Riddle and his entire team are doing to serve the clients and accelerate the growth of the business. Reflecting our commitment to return value to stockholders at our regular October meeting on Tuesday, the Board of Directors approved a share repurchase program of up to $10 million authorizing the repurchase of up to one million of our shares of common stock or up to 3.5% of common shares outstanding. We clearly believe that the stock has been significantly undervalued in recent months. So this program authorizes opportunistic purchases through the end of next year. As many of you know, insiders have long owned more than 25% of shares outstanding and most of our Directors have personal investments of $1 million or more in TriState Capital. Consequently, our interests have clearly been aligned with those of our fellow shareholders. Recent insider buying reflects that Officers and Directors continue to have a commitment with a strong performance of TriState Capital Holdings. That concludes my prepared remarks. So, now I'll ask Mark Sullivan, our Vice chairman and CFO to join me for Q&A. Operator? Please open the line for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And the first question comes from John Moran from Macquarie. Please go ahead.

[John Moran -Macquarie Capital:]

Hey, good morning guys.

[Jim Getz:]

Good morning, John.

[John Moran:]

Mark, maybe just a quick question for Mark on the margin and Jim, I think you alluded to some of this in the prepared remarks but Mark if could you give us a hand with more private banking channel coming in and the de-emphasis on C&I, while that spread difference has compressed quite a bit in the last couple of quarters anyway. There is still a margin impact there. Are we looking kind of 250-ish as a run rate here or should we expect some continued compression going forward?

[Mark Sullivan:]

Good question, John, and a couple of things. If you look at the components of NIM and going from 255 in Q2 to 250 in Q3, the yield on interest earning assets actually maintained or actually went up a single basis point and the total drop if you will is attributable to the interest expense of the holding company on the subject. So, a couple of key factors and what allowed that yield on interest earning assets to increase slightly was the shift in the mix and decreasing our average cash balances like close to $100 million and deploying that into high-yielding loans and interest earning assets. So, there could be some slight compression ahead and as we go forward, but that 250 is a pretty solid -- 245 to 250 range, I think is pretty solid as we go forward. A couple of key factors to keep in mind when you look at our NIM and that’s our outside loan growth and its impact from net interest income allows us to offset any rate compression, which comes from primarily the growth in private banking and the other thing, our NIM while certainly a measure that we look at, our unique business model, 36% of our revenue comes from non-interest income that obviously has no play on the NIM.

[John Moran:]

Got it. Thank you. And then for my unrelated follow-up, but good progress obviously on ring fencing the snake of private equity piece of it. Do you guys plan to continue to actively sell that down and I think last time we caught up, you were saying that it could be 0% of the book inside of 12 to 18 month through a combination of ordinary pay-down activity combined with some sales and any update on that timeline would be great.

[Jim Getz:]

John, we’re looking at this as -- approaching it from a responsible and opportunistic standpoint and much of this will eliminate itself by attrition, a lot of these loans are being actively refinanced because of the environment that we are in. Our real focus is truly on the private equity related shared national credits, which now is down to about $144 million of the entire loan portfolio and you just saw that by their percentages that I indicated it’s about 6% of the loan portfolio and we see that continuing to drop. But our commitment continues to be to quality shared national credits that can have multiple relationships with us and let me give you a little bit of an example. This afternoon we’re going to be looking at a company that is an equipment manufacturer and this is an equipment manufacturer in our footprint right in Ohio. We’ve been doing business with this company since May of 2010. It has a EBITDA of over $190 million. Its leverage ratios are highly attractive and since May of 2010, it’s a $10 million credit for us. They’ve maintained $10 million of deposits with us. So about 25% of our shared national [genre] (ph) and there’s no private equity involved in that, about 25% of shared national credit portfolio does have consequential deposits with us in considering metropolitan area we’re in, there really is no reason for us not taking advantage of that, but we are clearly targeting the private equity aspect of the business and through opportunistic and responsible sale and attrition, we anticipate eliminating that portfolio.

[John Moran:]

Okay, got it. Thanks very much. Good quarter guys.

[Operator:]

And the next question comes from Chris McGratty from KBW. Please go ahead.

[Chris McGratty:]

Hey, good morning everybody.

[Jim Getz:]

Good morning, Chris.

[Mark Sullivan:]

Hi Chris.

[Chris McGratty:]

Jim or Mark, on the buyback, your stock sitting at low under [one] (ph) intangible book, I guess what would it take for you to start using it or is this just kind of a cushion to the extent we see market volatility. Is there a certain level that you would be comfortable buying stock or is this just to provide yourself some flexibility in case the market gets sloppy.

[Jim Getz:]

Why don’t I define the level for you? How about today? Looking at the stock where the level is, we’re not going to buying today but where the stock level is, its 1.07 times tangible book and by the way, no one likes to talk about book value anymore. Book value is at 10.7. I find it highly attractive at these levels and that there is real value in the stock, so to answer your question directly, we do anticipate at these levels considering purchasing back shares.

[Chris McGratty:]

Okay, that’s helpful and then if on the balance sheet, Mark, can you help me with the outlook on the remix? Is there more to come? Should we expect earning asset growth to trail loan growth as its fund from liquidity or how should we be thinking about just kind of securities balances and cash.

[Mark Sullivan:]

I think the cash balance is about what we would like to maintain in that 100 to 120 range and -- but will be a continued of its lower bill on the investment portfolio and that loan growth is clearly going to be the driver of balance sheet growth.

[Chris McGratty:]

Okay, thanks.

[Operator:]

The next question comes from Matt Olney from Stephens. Please go ahead.

[Matt Olney:]

Hi, thanks. Good morning guys.

[Jim Getz:]

Good morning, Matt.

[Mark Sullivan:]

Good morning, Matt.

[Matt Olney:]

Hey, I want to go back to John’s question on the margin and I’m trying to get a better idea as to what kind of loan yield pressure we're going to see the next few quarters. So can you give us some more details about the yields of the private equity sponsor loans? I think you had mentioned it was $144 million. What’s the average yield of those loans and the then conversely what are the yields of loans that you’re funding in third quarter?

[Jim Getz:]

The private equity, I’ll answer a part of it and then turn it over to Mark. The private equity loans that -- keep in mind that these are not highly leveraged private equity loans. They are in the range of about 3%-3.5% and what we’re looking at we’re actually putting on commercial real estate activity in the range of around 3%. Currently, today it offsets it. If we didn’t come to you and tell you what we had done on private equity related transactions for this quarter, you wouldn’t have seen it in the numbers since we had meaningful commercial real estate growth. So I don’t think, Matt, you should just look at the private banking aspect of it. We’ve seen, as I think I might have noted in the script, some noticeable improvement in pricing and covenants, believe it or not recourse is starting to come back in some cases. Mark, did you want to comment on that?

[Mark Sullivan:]

No, I just agree with what you just said. Does Matt had any more questions?

[Matt Olney:]

Any more opportunity to take down the cost to funds level from here going forward?

[Mark Sullivan:]

I don’t see that, Matt. I think we’re probably at a point where we just want to maintain where we are given where rates are and be able to maintain it. The only other thing I’ve noticed on the yield on the loans is the delta on what loans are going on today versus what maturing loans are rolling off. That gap has closed quite a bit in this quarter and we’ll continue to do so as we go forward.

[Matt Olney:]

Okay.

[Jim Getz:]

What I would suggest, Matt, as you look at this company, the complexion of it is changing bit with the reliance on non-interest income. I think really from in internal evaluation we pay a lot of attention to the NIM but it’s a factor in our consideration, to us the most important thing is the growth of total revenue, whether it consists of net interest income or non-interest income and the growth of the earnings per share. That’s been our focus and with the non-interest income now at 36%, which is much higher than most of our peers, I think you could really parallel us moving toward where a lot of the large regional banks are where they are around 40% or higher their non-interest income.

[Matt Olney:]

Right, now that makes sense, Jim and it’s good to see Chartwell performing well and I want to ask you about that. The new business flow that you mentioned at Chartwell, I think you said a $111 million in the third quarter and also good pipeline of assets to be funded in coming weeks. Can you give us an idea, is this from the retail accounts or just some legacy institutional accounts?

[Jim Getz:]

Predominantly, during the quarter the activity was from the institutional accounts. They right now as I might have mentioned the script has about 16 financial intermediaries that are doing business with in about $645 million of assets under management at this stage of the game.

[Matt Olney:]

And the Chartwell performance, it sounds like it’s doing pretty well. The potential incremental accrual we could see in the fourth quarter, can you try to put this in a range for us, that they’re reasonable range and did you just that accrual could be paid out in TriState stock?

[Jim Getz:]

Well I’ll tell you what, why don't I set the picture for it and then I’ll have Mark with the numbers to the picture, okay? And the picture really is going to be drawn by the market. If you take a look at the Russell 2000 and how it’s been performing recently, it's been highly volatile, okay? It will be in our interest if they exceed what the expectations were but the market is going to have a lot to do with it, because if you take a look at the third quarter, the market took away $246 million of assets from Chartwell, just the market. Now if you drift back to the first quarter of the year, it provided them with the $143 million of assets positive and in the second quarter, a $179 million of assets positive, so the way to look at this company is through flows of new business from existing accounts -- new business existing account but then there is outflows from reapplication and everything like that, but the market has a lot to do with it and unfortunately, we’ve another two and a half months left in the quarter. Mark, you want to talk to the numbers?

[Mark Sullivan:]

Yeah, I think the thing to keep in mind for Q4 based on the structure of the purchase price and just to refresh it was a multiple of 7.5 of 2013 EBIDTA, which was $6 million and that was a $45 million upfront purchase payment that was made and then there is a contingent earn-out based on the increase in EBITDA from 2014 versus 2013, which we estimated that EBITDA of $8.5 million and so $2.5 million as a multiple of $6 million gave us $15 million and that’s how we book the opening balance sheet and related goodwill and so forth. So if you get to the close of the year, depending on where they come in on that EBITDA target, Chartwell on that $8.5 million EBITDA there could be an adjustment one way or the other and the accounting, as you’re probably aware is somewhat counterintuitive. It used to be a risk adjusted goodwill plus or minus. Now it’s a one-time P&L impact and if the company performs better than you or anyone anticipated, which should be a plus, you take a P&L hit for that adjustment whereas if the company performs poor than you anticipated, you actually get a positive P&L. So, right now we’re tracking very close to $8.5 million. So we’re not making any adjustment as of Q3 and would literally will drive the first week in January coming up with a best estimate on that in terms of any impact to the final EBITDA and the purchase price, which you know would be reflected in Q4.

[Matt Olney:]

Sure, okay. That’s great color. I appreciate it guys and I have got some more questions but I’ll hop back in the queue in case anyone else wants to hop in. Thanks.

[Mark Sullivan:]

Great. Thank you.

[Operator:]

The next question comes from John Moran from Macquarie. Please go ahead.

[John Moran:]

Hey guys. Matt actually just kind of hit on part of my follow-up. But Mark maybe just to tease that out a little bit more, so if I’m understanding it correctly, if there is $2.5 million of EBITDA increase '13 over '14, there would be a $15 million earn-out and that would already have been accrued but anything better than that would require an adjustment? Is that…

[Mark Sullivan:]

Correct. So say the EBITDA came in at 8.8 instead of 8.5, that incremental $300,000 would be earned out to the former Chartwell shareholders if you earned out at a multiple of 6, so there’d be another 1.8 in purchase price pay out to them. That 1.8 would be a one-time P&L hit.

[John Moran:]

Got it. Okay. And then second kind of follow-up on Chartwell, maybe a question for Jim and you alluded a part of this I think in the prepared remarks but I know that we’re kind of in the process of getting some folks in on the retail distribution side and I just wonder if you had a quick update in terms of timing there and then the ultimate objective. If I’m remembering correctly from the time of the acquisition was to kind of double assets under management and take the capture rate from the high 30s to something significantly north of that. If you could just give us a sense of those expectations are still kind of there and where you guys are at in terms of the build out.

[Jim Getz:]

We have a -- John, we have a sales manager in place now at Chartwell and we have two salesmen in place, we’re in the midst of making an offer to another salesmen and I would expect that we probably have a couple more salesmen by the end of the first quarter. We want to be careful of the quality and the nature of the people that we’re hiring. So, I think going into the second quarter we'll be fully staffed and able to move forward. And keep in mind what we've indicated to you that we're looking to grow this consequentially over the next three to five years, but we're also looking to continue to ramp up the institutional business that's a Chartwell legacy business that has consistently done very well. So we're continuing to put resources to work there.

[John Moran:]

Thanks. And in terms of capture rate Jim, is it, I assume not unreasonable to think that that could trend up towards the, into the 40s and 50s as more…

[Jim Getz:]

That's right, because when you're dealing with the retail environment you're looking at fees more in the range of about 60 basis points.

[John Moran:]

Okay, got it. Thanks very much guys.

[Jim Getz:]

Great.

[Operator:]

And the next question comes from Matt Olney from Stephens.

[Matt Olney:]

Hey guys, just a follow-up on your outlook for expenses and how we should think about a forecast, I think you've been pretty clear about you want to add some more resources for Chartwell and that makes sense. It is also fair to assume that you'll be accruing again for performance incentives for the bank starting again in the beginning of 2015. How should we be thinking about as far as expenses in the next few quarters?

[Mark Sullivan:]

Yeah, I think when you look at the non-interest expense its 2.43 this quarter. I think you're going to see it continue to track around that range. We're not going to have significant increase in the head count versus a total number and I think the incentive accrual has got to be normalized in the Q3, Q4 combined and I would see so that the percentage of comp and non-interest income in total I think is at a reasonable run rate as we go forward as a percentage of assets and revenue.

[Matt Olney:]

Okay, and then shifting over towards the loan pipeline, I believe you mentioned it was $130 million right now. Do you have that comparable number for the previous quarter, any of the details within that mix pipeline?

[Mark Sullivan:]

The pipeline for the previous quarter, now keep in mind stuff happens during the quarter. Okay? So these are loans they are in the Q right now the $130 million I think actually the Q then was maybe a little bit less than that around $120 million. These are loans that have been vetted and they take a while to close.

[Matt Olney:]

And just to clarify Jim the $120 million was at September 30 or June 30?

[Jim Getz:]

June 30th.

[Matt Olney:]

June 30. And as far as the mix of those loans, anything different than what we saw as far as the fundings in 3Q which predominantly the CRE and the private banking loans?

[Jim Getz:]

It is going to be dominated by commercial real estate and private banking. And we see that as a trend a bit into the future until the dynamics change a little bit within the context of commercial and industrial. And remember any action that we take on the private equity shared national credits will have an impact on the outstandings of the commercial and industrial side.

[Matt Olney:]

Okay guys, thank you very much.

[Jim Getz:]

Thank you.

[Operator:]

The next question comes from Bill Nasgovitz from Heartland Funds. Please go ahead.

[Bill Nasgovitz:]

Good morning fellows.

[Jim Getz:]

Good morning Bill, how are you today?

[Bill Nasgovitz:]

Well, pretty good. So just could you amplify Jim a little bit on you mentioned at the onset you have now relationships with 86 firms in terms of your sales marketing strategy and so forth? Could you just give us an idea of what the potential might be? I think you’re in three different channels in each of those channels and where you stand?

[Jim Getz:]

Yeah, I’ll give you a general outline. Of those 86 firms, about 12 of them have a national distribution system. And if you look at the outlets that we have on the Registered Investment Advisor site we currently are working with one of the largest providers of capability to that segment of the business. We have if you look at the regional securities firms and on the RIA side, we probably have about 18 firms to 20 firms in place Bill. On the regional securities front, there is about 20-some family offices that we’re doing business with and the remaining amount would be trust companies not necessarily connected to a bank. To answer your question directly, we anticipate ending the year somewhere between $950 million and a $1 billion of outstanding loans in that segment and we look it as multibillion dollar opportunity. Some of these parties, we’ve just recently been signing on and we’re just getting started from a distribution standpoint, so we anticipate another very strong year. Last year, as you saw on the numbers, the loan outstandings were up 80% this year. Of course we are coming from a different base but I would still expect it to be up 40%-50% next year and that’s not off that much because we had a major trust company that we started doing business with it was very adamant. They only wanted to do business with one bank. We were the bank they wanted to do business, so we took their clients out of the bank that was providing loans. They were providing loans to the clients of the trust companies. So we picked up in the second quarter about $200 million of additional loans.

[Bill Nasgovitz:]

Okay. That sounds good. So eventually interest rates are going to go up. What does that mean in terms of potential profitability for TriState?

[Jim Getz:]

Mark, do you want to answer that?

[Mark Sullivan:]

Yeah, sure.

[Bill Nasgovitz:]

Just in this particular area.

[Mark Sullivan:]

In this particular means that private banking…

[Bill Nasgovitz:]

$1 billion?

[Mark Sullivan:]

Yeah, $1 billion going to maybe $2 billion. Exactly and 83% of our loans are variable rate. So it’s not just private banking. It's all CNI and CRE. An increase in 100 basis points in short term rates, LIBOR would translate to north of 5% increase in our net interest income and a 200 basis points would be north of 11% increase in net interest income.

[Bill Nasgovitz:]

Okay. Thank you very much.

[Jim Getz:]

Thanks Bill. Have a good day.

[Operator:]

This concludes our question-and-answer session. I’d like now to turn the conference back over to Mr. Getz for any closing remarks. Please go ahead sir.

[Jim Getz:]

I thank you all for your continued interest in TriState capital and your participation today. We look forward to keeping you up to date on our progress and to hosting our next quarterly call with you in January. Have a nice day. Thank you very much.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.