UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-K
_________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 001-35913
_________
TRISTATE CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_________
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Pennsylvania
20-4929029
One Oxford Centre
301 Grant Street, Suite 2700
Pittsburgh, Pennsylvania 15219
(Address of principal executive offices)
(Zip Code)
(412) 304-0304
(Registrant’s telephone number, including area code)
_________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, no par value
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
No
been subject to such filing requirements for the past 90 days.
Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or
No
for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
As of June 30, 2015, the aggregate market value of the shares of common stock held by non-affiliates, based on the closing price per
share of the registrant’s common stock as reported on The Nasdaq Global Select Market, was approximately $274,976,000.
As of January 31, 2016, there were 28,386,228 shares of the registrant’s common stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement to be filed with the Securities and Exchange Commission for the annual shareholders meeting to be held
May 17, 2016, are incorporated by reference into Part III.
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
4
24
41
41
41
41
42
44
49
84
85
137
137
137
138
138
138
138
138
138
139
141
ITEM 1. BUSINESS
Overview
PART I
TriState Capital Holdings, Inc. (“we”, “us”, “our” or the “Company”) is a bank holding company headquartered in Pittsburgh, Pennsylvania.
The Company has three wholly owned subsidiaries: TriState Capital Bank (the “Bank”), a Pennsylvania chartered bank; Chartwell
Investment Partners, LLC (“Chartwell”), a registered investment advisor; and Chartwell TSC Securities Corp. (“CTSC Securities”),
which is applying to be registered as a broker/dealer with the Securities and Exchange Commission (“SEC”) and Financial Industry
Regulatory Authority (“FINRA”). Through our bank subsidiary we serve middle-market businesses in our primary markets throughout
the states of Pennsylvania, Ohio, New Jersey and New York and we also serve high-net-worth individuals on a national basis through
our private banking channel. We market and distribute our banking products and services through a scalable branchless banking model,
which creates significant operating leverage throughout our business as we continue to grow. Through our investment management
subsidiary, we provide investment management services to institutional, sub-advisory, managed account and private clients on a national
basis. Our broker/dealer subsidiary, once registered, will support the distribution and marketing efforts for Chartwell’s proprietary
investment products.
On March 5, 2014, TriState Capital Holdings, Inc. through its wholly-owned subsidiary, Chartwell Investment Partners, LLC, completed
the acquisition of substantially all of the assets of Chartwell Investment Partners, LP (the “Chartwell acquisition”), an investment
management firm. We believe that this acquisition will continue to enhance our recurring fee revenue, provide new product offerings
for our national network of financial intermediaries, and leverage our financial services distribution capabilities. As a result of this
acquisition, we operate two reportable segments: Bank and Investment Management.
• The Bank segment provides commercial banking and private banking services to middle-market businesses and high-net-worth
individuals through our TriState Capital Bank subsidiary. Total assets of the Bank were $3.2 billion as of December 31, 2015.
• The Investment Management segment provides advisory and sub-advisory investment management services to primarily
institutional plan sponsors through Chartwell and also supports distribution and marketing efforts for Chartwell’s proprietary
investment products through CTSC Securities. On December 16, 2015, the Company entered into a definitive asset purchase
agreement to acquire The Killen Group, Inc. (“TKG”) in a transaction that is expected to close in the second quarter of 2016,
subject to certain client consents and other customary closing conditions. The privately held investment manager has assets
under management of approximately $2.3 billion as of December 31, 2015. Assets under management for this segment were
$8.0 billion as of December 31, 2015 and are expected to increase to more than $10 billion after the closing of the TKG acquisition.
For additional financial information by segment since the Chartwell acquisition, refer to Note 23, Segments, to our consolidated financial
statements.
Our Business Strategy
Our success has been built upon the vision and focus of our executive management team to combine the sophisticated products, services
and risk management efforts of a large financial institution with the personalized service of a community bank. We believe that a results-
based culture, combined with a well managed middle-market and private banking business, and our targeted investment management
business, will continue to grow and generate attractive returns for shareholders. The following are the key components of our business
strategies:
Our Sales and Distribution Culture. We focus on efficient and profitable sales and distribution of investment management services and
banking products and services to middle-market businesses and private banking clients. Our relationship managers and distribution
professionals have significant experience in the banking and financial services industries and are focused on client service. In our banking
business, we monitor gross profit contribution, loan and deposit growth, and asset quality by market and by relationship manager. Our
compensation program is designed within our banking business to incentivize our regional presidents and relationship managers to
prudently grow their loans, deposits and profitability, while maintaining strong asset quality. In our investment management business,
our compensation program is designed to incentivize new assets under management while maximizing the retention of existing clients.
Disciplined Risk Management. We place an uncompromising emphasis on effective risk management as an integral component of our
organizational culture. We use our risk management infrastructure to monitor existing operations, support decision-making and improve
the success rate of existing products and services as well as new initiatives. A major part of our risk management effort has been our
focus on increasing non-interest income, including our expansion into the investment management business through our Chartwell
acquisition and the pending TKG acquisition. Also, in our banking business, this has included our focus on growing loans originated
4
through our private banking channel. We believe these loans have lower credit risk because they are typically personally guaranteed by
high-net-worth borrowers and/or are secured by readily liquid collateral, such as marketable securities.
Experienced Professionals. Having successful and high quality professionals is critical to continuing to drive prudent growth in our
business. In addition to our experienced executive management team and board of directors, we employ highly experienced personnel
across our entire organization. Our regional middle-market banking presidents each have at least 25 years of banking experience and
our middle-market relationship managers have an average of more than 20 years of banking experience. Chartwell’s mission is successfully
executed through the dedication of investment professionals who average over 20 years of industry experience. We believe that our
distinct business model, culture, and scalable platform enable us to attract and retain high quality professionals. Additionally, our low
overhead costs give us the financial capability to attract and incentivize qualified professionals who desire to work in an entrepreneurial
and results-oriented organization.
Efficient and Scalable Operating Model. With respect to our banking business, we believe our branchless banking model gives us a
competitive advantage by eliminating the overhead and intense management requirements of a traditional branch network. Moreover,
we believe that we have a scalable platform and organizational infrastructure that position us to grow our revenue more rapidly than our
operating expenses. We also believe that our investment management business has an efficient and scalable business model that focuses
on institutional direct clients and wholesale distribution channels to reach retail investors.
Lending Strategy. We generate loans through our middle-market banking and private banking channels. These channels provide risk
diversification and offer significant growth opportunities.
• Middle-Market Banking Channel. We target our middle-market business primarily at businesses with revenues between $5.0
million and $300.0 million located within our primary markets. To capitalize on this opportunity, each of our representative
offices is led by an experienced regional president so we can understand the unique borrowing needs of the middle-market
businesses in their area. They are supported by highly experienced relationship managers with a reputation for success in
targeting middle-market business customers and maintaining strong credit quality within their loan portfolios.
• Private Banking Channel. We provide loan products and services nationally to executives and high-net-worth individuals many
of whom we source through referral relationships with independent broker/dealers, wealth managers, family offices, trust
companies and other financial intermediaries. Our private banking products primarily include loans secured by cash, marketable
securities and other asset-based loans. Our relationship managers have cultivated referral arrangements with 119 financial
intermediaries. Under these arrangements, the financial intermediaries are able to refer their clients to us for responsive and
sophisticated banking services. We believe many of our referral relationships also create cross-selling opportunities with respect
to our deposit products and our investment management business. Since inception, we have had no charge-offs related to our
loans secured by marketable securities.
As shown in the following table, we have continued to achieve loan growth through each of our banking channels, although in 2015 we
grew the loans in our private banking channel more than in our middle-market banking channel. Our middle-market banking channel
generated $85.7 million of loan growth for the year ended December 31, 2015.
As of December 31, 2015, loans sourced through our private banking channel represented 47.3% of our loans held-for-investment, and
such loans grew by $355.6 million, or 35.9%, for the year ended December 31, 2015. In addition, as of December 31, 2015, $1.2 billion
of our private banking loans were secured by cash and marketable securities, which represented an increase of $377.3 million, or 47.0%,
for the year ended December 31, 2015. We expect continued strong loan and deposit growth in this channel, in part, because we added
29 new loan referral relationships during the year ended December 31, 2015 for a total of 119 referral relationships at the end of 2015.
We have also experienced continued growth in the number of customers resulting from our existing referral relationships.
5
(Dollars in thousands)
Middle-market banking offices:
Western Pennsylvania
Eastern Pennsylvania
Ohio
New Jersey
New York (1)
Total middle-market banking loans
Total private banking loans
December 31,
2015 Change from 2014
2015
2014
Amount
Percent
$
445,554 $
428,206
$
329,767
259,902
291,795
169,402
1,496,420
1,344,864
338,952
247,131
262,027
134,434
1,410,750
989,302
2,400,052
$
17,348
(9,185)
12,771
29,768
34,968
85,670
355,562
441,232
4.1 %
(2.7)%
5.2 %
11.4 %
26.0 %
6.1 %
35.9 %
18.4 %
Loans held-for-investment
(1) Our New York representative office opened for business in August 2012.
$
2,841,284 $
Deposit Funding Strategy. Since inception, we have focused on creating and growing diversified, stable, and low all-in cost deposit
channels, both in our primary markets and across the United States, without operating a traditional branch network. As of December 31,
2015, we consider nearly 80.0% of our total deposits to be sourced from direct customer relationships. We believe our sources of deposits
continue to provide excellent opportunities for growth both within our primary markets and nationally.
We take a multilayered approach to our deposit growth strategy. We believe our relationship managers are an integral part of this approach
and, accordingly, we have competitive incentives for them to increase the deposits associated with their relationships. We have relationship
managers who are specifically dedicated to deposit generation and treasury management, and we plan to add additional such professionals
as appropriate to support our growth. Additionally, we believe that our financial performance and our products and services, which are
targeted to our markets, enhance our deposit growth. For additional details regarding our deposit products and services, see “Our Products
and Services-Deposits.”
Investment Management Strategy. We have executed on our investment management strategy with the March 5, 2014, closing of the
Chartwell acquisition and the pending TKG acquisition. We believe that this segment has enhanced our recurring fee revenue, provided
new product offerings for our national network of financial intermediaries, and leveraged our financial services distribution capabilities
through the financial intermediaries with which our banking business has worked and developed. All of the employees of Chartwell,
including the experienced management team, joined our investment management business upon the closing and we expect the same to
occur with the TKG employees. In addition, James F. Getz, our Chairman, Chief Executive Officer and President, along with several
members of our board of directors, including James J. Dolan, James E. Minnick and Richard B. Seidel, all have significant experience
in investing in and operating investment management companies and serve on the Board of Directors of Chartwell. Mr. Getz also serves
as Chairman of the Board and Executive Chairman of Chartwell.
Market Reputation. We believe that our strong market reputation has become and will remain a competitive advantage within our primary
markets and nationally for our private banking channel and for our investment management business. We believe that we have established
a reputation as both a sophisticated lender and a customer-focused financial services institution.
Our Markets
For our middle-market banking loans, our primary markets of Pennsylvania, Ohio, New Jersey and New York include the four major
metropolitan statistical areas (“MSA”) of Pittsburgh and Philadelphia, Pennsylvania; Cleveland, Ohio and New York, New York (which
includes northern New Jersey) in which our headquarters and four representative offices are located. We believe that our primary markets
including these MSAs are long-term, attractive markets for the types of products and services that we offer, and we anticipate that these
markets will continue to support our projected growth. With respect to our loans and other financial services and products, we selected
the locations for our representative offices partially based upon the number of middle-market businesses located in these MSAs and their
respective states. As of December 31, 2015, there were nearly 120,000 middle-market businesses in our primary markets with annual
sales between $5.0 million and $300.0 million, which represented approximately 17.0% of the national total as of that date, according to
OneSource Information Services, Inc. According to SNL Financial, the 2015 aggregate population of the four MSAs in which our
headquarters and four representative offices are located was approximately 30 million, which represented approximately 10% of the
national population. We believe that the population and business concentrations within our primary markets provide attractive opportunities
to grow our business.
In addition to middle-market businesses in our primary markets, our private banking business also serves high-net-worth individuals on
a national basis. We primarily source this business through referral relationships with independent broker/dealers, wealth managers,
family offices, trust companies and other financial intermediaries. We view our product offerings as being most appealing to those
households with $500,000 or more in net worth (not including their primary residence).
6
Through our distribution channels, we pursue and create deposit relationships with customers located throughout the United States, as
well as in our primary markets, including the four MSAs where our offices are located. Because our deposit operations are centralized
in our Pittsburgh headquarters all of our deposits are aggregated and accounted for in that MSA. For these distribution and reporting
reasons, we do not consider deposit market share in any MSA or any of our primary markets to be relevant data. However, for perspective
on the size of the deposit markets in which we have offices, the total aggregate domestic deposits of banks headquartered within the four
MSAs were approximately $1.3 trillion as of December 31, 2015, according to SNL Financial.
Our investment management products are primarily distributed in two markets. These markets and their relative percentage of our assets
under management as of December 31, 2015, are as follows: institutional and sub-advisory (90%) and broker/dealers and registered
investment advisors (10%).
Institutional and Sub-Advisory. Chartwell maintains a dedicated sales and client service staff to focus on the distribution of its
products to a wide variety of institutional and sub-advisory clients, including corporate pension and profit-sharing plans, public
pension plans, Taft-Hartley plans, foundations, endowments and registered investment companies. As of December 31, 2015, assets
under management in the institutional and sub-advisory market included $4.9 billion in equity products and $2.3 billion in fixed-
income products.
Broker/Dealer and Independent Registered Investment Advisors. Chartwell maintains sales staff dedicated to calling on national,
regional and independent broker/dealers and registered investment advisors. Broker/dealers and registered investment advisors use
Chartwell’s products to meet the needs of their customers, who are typically retail and/or high-net-worth investors. As of December 31,
2015, assets under management in the broker/dealer and independent registered investment advisor market included $788 million
in equity products and $26 million in fixed-income products.
Our Products and Services
We offer our clients an array of products and services, including loan and deposit products, cash management services, capital market
services such as interest rate swaps and investment management products.
• Our loan products include, among others, loans secured by cash or marketable securities, commercial and personal loans, asset-
based loans, commercial real estate loans, acquisition financing, and letters of credit.
• Our deposit products include, among others, checking accounts, money market deposit accounts, certificates of deposit, and
Promontory’s Certificate of Deposit Account Registry Service® (“CDARS®”) and Insured Cash Sweep® (“ICS”®) services.
• Our cash management and treasury management services include online balance reporting, online bill payment, remote deposit,
liquidity services, wire and ACH services, foreign exchange and controlled disbursement.
• Our investment management business provides equity and fixed income advisory and sub-advisory services to third party mutual
funds, series trust mutual funds, and to separately managed accounts for a spectrum of clients, but primarily focused on ultra-
high-net-worth and institutional clients, including corporations, ERISA plans, Taft-Hartley funds, municipalities, endowments
and foundations.
More information about our key products and services, including a discussion about how we manage our products and services within
our overall business and enterprise risk strategy, is set forth below.
We expect to continue to develop and implement additional products for our clients, including additional investment management product
offerings to our financial intermediary referral sources. For additional information, see “Our Business Strategy-Investment Management
Strategy.”
Loans
Our primary source of income in our Bank segment is interest on loans. Our loan portfolio primarily consists of loans to our private
banking clients, commercial and industrial loans, and real estate loans secured by commercial real estate properties. Our loan portfolio
represents the largest component of our earning assets.
7
The following table presents the composition of our loan portfolio as of December 31, 2015.
(Dollars in thousands)
Private banking loans
Middle-market banking loans:
Commercial and industrial
Commercial real estate
Total middle-market banking loans
Loans held-for-investment
December 31,
2015
Percent of
Loans
$
1,344,864
47.3%
634,232
862,188
1,496,420
2,841,284
$
22.4%
30.3%
52.7%
100.0%
Private Banking Loans. Our private banking loans include both personal and commercial loans sourced through our private banking
channel, which operates on a national basis. These loans primarily consist of loans made to high-net-worth individuals, trusts and
businesses that may be secured by cash, marketable securities, or other financial assets and to a smaller degree, residential property. We
also have a small number of unsecured loans and lines of credit in our private banking loan portfolio that have been made to creditworthy
borrowers. The primary source of repayment for these loans is the income and assets of the borrower(s). Since a majority of our private
banking loans are secured by cash, marketable securities or residential real estate, we believe the credit risk inherent in this segment of
our portfolio is lower than the risk associated with other types of loans. We mitigate such risks through active daily monitoring of the
collateral, utilizing our proprietary monitoring system.
Our private banking lines of credit predominantly are due on demand or have terms of 364 days. Our term loans (other than mortgage
loans) in this category generally have maturities of three to five years. On an accommodative basis, we have made personal residential
real estate loans consisting primarily of first and second mortgage loans for residential properties, including jumbo mortgages. Our
residential mortgage loans typically have maturities of seven years or less. On a limited basis we originated mortgage loans with maturities
of up to ten years and acquired other residential mortgages that had original maturities of up to 30 years. Our personal lines of credit
typically have floating interest rates. We examine the personal cash flow and liquidity of our individual borrowers when underwriting
our private banking loans not secured by cash or marketable securities. In some cases we require our borrowers to agree to maintain a
minimum level of liquidity that will be sufficient to repay the loan.
As of December 31, 2015, we had $1.3 billion of outstanding private banking loans, or approximately 47.3% of loans held-for-investment.
The table below includes all loans made through our private banking channel by collateral type as of the dates indicated.
(Dollars in thousands)
Private banking loans:
Secured by cash and marketable securities
Secured by real estate
Other
Total private banking loans
December 31,
2015
Percent of
Private Banking
Loans
Percent of
Loans
$
$
1,180,717
134,785
29,362
1,344,864
87.8%
10.0%
2.2%
100.0%
41.6%
4.7%
1.0%
47.3%
Commercial and Industrial Loans. Our commercial and industrial loan portfolio primarily includes loans made to service companies or
manufacturers generally for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing,
acquisitions and recapitalizations. Cash flow from the borrower’s operations provides the primary source of repayment for these loans.
The primary risks associated with commercial and industrial loans include potential declines in the value of collateral securing these
loans, the highly-leveraged nature and inconsistent earnings of some commercial borrowers and the larger average balances of commercial
and industrial loans made to individual borrowers. We work throughout the lending process to manage and mitigate such risks within
our commercial and industrial loan portfolio.
Our commercial and industrial loans include both working capital lines of credit and term loans. Working capital lines of credit generally
have maturities ranging from one to five years. Availability under our commercial lines of credit is typically limited to a percentage of
the value of the assets securing the line. Those assets typically include accounts receivable, inventory and occasionally equipment.
Depending on the risk profile of the borrower, we may require periodic accounts receivable and payable agings, as well as borrowing
base certificates representing borrowing availability after applying appropriate advance percentage rates to the collateral. Our commercial
and industrial term loans generally have maturities between three to five years, and typically do not extend beyond seven years. Our
commercial and industrial lines of credit and term loans typically have floating interest rates.
Commercial Real Estate Loans. We concentrate on making commercial real estate loans to experienced borrowers that have an established
history of successful projects. The cash flow from income-producing properties or the sale of property from for-sale construction and
8
development loans are generally the primary sources of repayment for these loans. The equity sponsors of our borrowers generally
provide a secondary source of repayment from their excess global cash flows and liquidity. The primary risks associated with commercial
real estate loans include credit risk arising from the dependency of repayment upon income generated from the property securing the
loan, the vulnerability of such income to changes in market conditions and difficulty in liquidating collateral securing the loans. We work
throughout the lending process to manage and mitigate such risks within our commercial real estate loan portfolio.
A majority of our commercial real estate loans are made to borrowers with projects or properties located within our primary markets.
Our relationship managers are experienced lenders who are familiar with the trends within their local real estate markets.
The table below shows the composition of our commercial real estate portfolio as of December 31, 2015.
(Dollars in thousands)
Commercial real estate term loans:
Income-producing property loans
Owner-occupied term loans
Multifamily/apartment loans
Total real estate term loans
Residential construction loans
Other construction loans
Land development loans
Total commercial real estate loans
December 31,
2015
Percent of
Commercial Real
Estate Loans
Percent of
Loans
$
$
497,969
117,754
117,435
733,158
11,757
106,863
10,410
862,188
57.7%
13.7%
13.6%
85.0%
1.4%
12.4%
1.2%
100.0%
17.5%
4.1%
4.1%
25.7%
0.4%
3.8%
0.4%
30.3%
• Real Estate Term Loans. As of December 31, 2015, approximately $733.2 million, or approximately 25.7% of loans held-for-
investment, consisted of real estate term loans. Our real estate term loans include credit secured by various types of income-
producing properties, owner-occupied term loans and multifamily/apartment loans. In making real estate term loans, we look
for income-producing properties that have established cash flows sufficient to service the proposed loan on an amortizing basis.
Our real estate term loans generally have maturities of five to seven years and are offered with both fixed and floating interest
rates. In addition to providing real estate term loans for investment properties, we also finance owner-occupied commercial
properties.
• Construction Loans. As of December 31, 2015, approximately $118.6 million, or approximately 4.2% of loans held-for-
investment, consisted of residential and other construction loans. Our residential construction loans are typically for single-
family residential properties. Our other construction loans are typically for projects used in manufacturing, warehousing, office,
service, retail and multifamily housing. These loans are usually floating-rate loans. Generally, our construction loans have a
term of one to three years, but can include an amortizing term loan period of generally three to five years contingent upon the
property meeting established debt service coverage levels. Properties related to our construction loans are frequently pre-leased
at a level that will generate sufficient cash flow to service the fully advanced construction loan on an amortizing basis upon the
completion of construction.
•
Land Development Loans. As of December 31, 2015, the remaining $10.4 million, or approximately 0.4% of loans held-for-
investment, consisted of land development loans. Our land development loans include loans to finance the purchase and
development of land for sale. We make these loans on a limited basis. In making land development loans, we typically require
a higher level of equity to be invested by the borrower and strong levels of borrower global cash flows to reduce reliance on
land sales for repayment of the loan. These loans are typically structured as lines of credit with one to three year maturities and
usually have floating interest rates.
Loan Underwriting
Our focus on maintaining strong asset quality is pervasive throughout all aspects of our lending activities, and it is especially apparent
in our loan underwriting function. We are selective in targeting our lending to middle-market businesses, commercial real estate investors
and developers and high-net-worth individuals that we believe will meet our credit standards. Our credit standards are determined by
our Credit Risk Policy Committee that is made up of senior bank officers, including our Chief Credit Officer, Chief Risk Officer, Bank
President, President of Commercial Banking and President of Private Banking.
Our underwriting process is multilayered. Prospective loans are first reviewed by our relationship managers and regional presidents.
The prospective commercial and certain private banking loans are then discussed in a pre-screen group composed of the Chief Credit
Officer, President of Commercial Banking and all of our regional presidents. Applications for prospective loans that are accepted are
9
fully underwritten by our credit administration group in combination with the relationship manager. Finally, the prospective loans are
submitted to our Senior Loan Committee for approval, with the exception of certain loans that are fully secured by cash or marketable
securities. Members of the Senior Loan Committee include our Chairman and Chief Executive Officer, Vice Chairman and Chief Financial
Officer, Vice Chairman, Chief Credit Officer, Bank President, President of Commercial Banking, President of Private Banking and our
regional presidents. All of our lending personnel, from our relationship managers to the members of our Senior Loan Committee, have
significant experience that benefits our underwriting process.
We maintain high credit quality standards. Each credit approval, renewal, extension, modification or waiver is documented in written
form to reflect all pertinent aspects of the transaction. Our underwriting analysis generally includes an evaluation of the borrower’s
business, industry, operating performance, financial condition and typically includes a sensitivity analysis of the borrower’s ability to
repay the loan.
Our lending activities are subject to internal exposure limits that restrict concentrations of loans within our portfolio to certain maximum
percentages of our total loans and/or our total capital levels. These exposure limits are approved by our Senior Loan Committee and our
board of directors based upon recommendations made by the Credit Risk Policy Committee. Our internal exposure limits are established
to avoid unacceptable concentrations in a number of areas, including in our different loan categories and in specific industries. In addition,
we have established an informal limit on individual loans that is materially lower than our legal lending limit.
Our loan portfolio includes Shared National Credits (“SNC”). SNCs are participations in loans of $20 million or more that are shared
by three or more financial institutions. We are typically part of the originating bank group in connection with these loan participations.
We utilize the same underwriting criteria for these loans that we use for loans that we originate directly. These loans are to borrowers
typically located within our primary markets and are generally made to companies that are known to us and with whom we have direct
contact. They offer advantages in a diversified loan portfolio. These loans have helped us to diversify the risk inherent in our loan
portfolio by allowing us to access a broader array of corporations with different credit profiles, repayment sources, geographic footprints
and with larger revenue bases than those businesses associated with our direct loans.
As of December 31, 2015, we had $401.6 million of SNC loans compared to $451.8 million as of December 31, 2014. Included in these
totals were loans to private equity sponsored companies which totaled $58.3 million as of December 31, 2015, a decrease of $70.8 million
from $129.0 million as of December 31, 2014. Due to the perceived higher risk nature of these loans, we intend to continue to manage
private equity backed SNC loans lower, primarily through attrition.
Loan Portfolio Concentrations
Diversified lending approach. We are committed to maintaining a diversified loan portfolio. We also concentrate on making loans to
businesses where we have or can obtain the necessary expertise to understand the credit risks commonly associated with the borrower’s
industry. We generally avoid lending to businesses that would require a high level of specialized industry knowledge that we do not have.
The following table shows the composition of our commercial loan portfolios by borrower industry as of December 31, 2015.
(Dollars in thousands)
Industry:
Real estate, rental and leasing
Service
Manufacturing
Construction
Wholesale trade
Retail trade
Information
Transportation and warehousing
Mining
All others
Total commercial loans
December 31,
2015
Percent of Total
Commercial Loans
$
704,177
287,013
213,387
76,629
45,989
27,867
27,568
26,965
22,302
64,523
47.0%
19.2%
14.3%
5.1%
3.1%
1.9%
1.8%
1.8%
1.5%
4.3%
$
1,496,420
100.0%
Borrowers represented within the real estate, rental and leasing category are largely owners and managers of both residential and non-
residential commercial real estate income-producing properties. Loans extended to borrowers within the service industries include loans
to finance working capital and equipment. Significant trade categories represented within the service industries include, among others,
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financial services, scientific/technical services, health care and hospitality services. Loans extended to borrowers within the manufacturing
industry include loans to manufacturers of paper, chemicals, plastics, rubber, glass and clay products.
Geographic criteria. We focus on developing client relationships with companies that have headquarters and/or significant operations
within our primary markets.
The table below shows the composition of our commercial and industrial loans and our commercial real estate loans based upon the states
where our borrowers are located. Loans to borrowers located in our four primary market states make up 84.4% of our total commercial
loans outstanding as of December 31, 2015. When those loans are aggregated with our loans to borrowers located in states that are
contiguous to our primary market states, the percentage increases to approximately 91.5% of our commercial loan portfolio.
(Dollars in thousands)
Geographic region:
Pennsylvania
Ohio
New Jersey
New York
Contiguous states
Other states
Total commercial loans
Deposits
December 31,
2015
Percent of Total
Commercial Loans
$
504,064
258,720
260,111
239,305
106,780
127,440
33.7%
17.3%
17.4%
16.0%
7.1%
8.5%
$
1,496,420
100.0%
An important aspect of our business franchise is the ability to gather deposits. Deposits provide the primary source of funding for our
lending activities. We offer traditional depository products including checking accounts, money market deposit accounts and certificates
of deposit in addition to CDARS® and ICS® reciprocal products. We also offer cash management and treasury management services,
including online balance reporting, online bill payment, remote deposit, liquidity services, wire and ACH services and collateral
disbursement. Our deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to statutory limits.
As of December 31, 2015, non-brokered deposits represented approximately 60.8% of our total deposits. Our non-brokered deposit
sources primarily include deposits from financial institutions, high-net-worth individuals, family offices, trust companies, wealth
management firms, corporations and their executives. We compete for deposits by offering a range of deposit products at competitive
rates. We also attract deposits by offering customers a variety of cash management services. We maintain direct customer relationships
with many of our depositors whose deposits are considered to be brokered for regulatory purposes, including with many of our CDARS®
and ICS® reciprocal depositors. For additional information about our deposit products and our overall funding strategy, see “Our Business
Strategy-Deposit Funding Strategy.”
The table below shows the balances of our deposit portfolio by type as of the dates indicated.
(Dollars in thousands)
Non-brokered deposits:
December 31,
2015 Change from 2014
2015
2014
Amount
Percent
Noninterest-bearing checking accounts
$
159,859
$
177,606
$
(17,747)
Interest-bearing checking accounts
Money market deposit accounts
Time deposits
Total non-brokered deposits
Brokered deposits:
Interest-bearing checking accounts
Money market deposit accounts
CDARS® time deposits
Time deposits
Total brokered deposits
Total deposits
132,327
931,779
412,086
74,727
820,579
381,408
1,636,051
1,454,320
3,710
532,500
468,530
49,053
1,053,793
952
424,342
412,339
45,000
882,633
$
2,689,844
$
2,336,953
$
57,600
111,200
30,678
181,731
2,758
108,158
56,191
4,053
171,160
352,891
Non-brokered deposits to total deposits
60.8%
62.2%
11
(10.0)%
77.1 %
13.6 %
8.0 %
12.5 %
289.7 %
25.5 %
13.6 %
9.0 %
19.4 %
15.1 %
Investment Management Products and Services
Chartwell Investment Partners manages $8.0 billion in a variety of equity and fixed income investment styles, for over 150 institutional,
sub-advisory and private client relationships as of December 31, 2015. A description of each investment style is provided below.
Equity Investment Styles:
•
Small Cap Value: Chartwell’s Small Cap Value portfolio employs a traditional value style supplemented with both deep and
relative value stocks. Our opportunity set is selected using multiple valuation yardsticks and focuses heavily on company
valuation relative to history. Portfolio decisions result from business reviews assessing the prospects of erasing these valuation
discounts with a focus on fundamental and event-driven catalysts which we believe the market should recognize. The portfolio
aims to be well diversified across all economic sectors and exhibit better growth, profitability and financial strength characteristics
than the small cap value benchmark. Our objective is to outperform small cap value benchmarks over the long term while
producing lower risk scores versus peers.
• Mid Cap Value: Chartwell’s Mid Cap Value portfolio employs a traditional value style supplemented with both deep and relative
value stocks. Our opportunity set is selected using multiple valuation yardsticks and focuses heavily on company valuation
relative to history. Portfolio decisions result from business reviews assessing the prospects of erasing these valuation discounts
with a focus on fundamental and event-driven catalysts which the market should recognize. The portfolio aims to be well
diversified across all economic sectors and exhibit better growth, profitability and financial strength characteristics than the mid
cap value benchmark. Our objective is to outperform mid cap value benchmarks over the long term while producing lower risk
scores versus peers.
•
Small Cap Growth: Our Small Cap Growth portfolio invests in a select set of small companies that have demonstrated strong
growth opportunities through increases in earnings per share. More significantly, we look to invest in company that have
historically continued to broaden, deepen and enhance their fundamental capabilities, competitive positions, product and service
offerings and customer bases. Our plan is to invest in these companies for an intermediate time horizon. Our portfolios focus
on a narrow set of such investments.
• Mid Cap Growth: Our Mid Cap Growth portfolio invests in a select set of mid-cap growth oriented companies. We believe
these businesses have demonstrated strong increases in earnings per share. More significantly, we look to invest in companies
that have historically continued to broaden, deepen and enhance their fundamental capabilities, competitive positions, product
and service offerings and customer bases. Our plan is to invest in these companies for an intermediate time horizon. Our portfolios
focus on a narrow set of such investments.
•
SMID Cap Growth: For clients in our SMID Cap Growth portfolio we invest in a select set of growth companies with small to
mid-market caps. These businesses have demonstrated strong increases in earnings per share. Again, we look to invest in
companies that have historically continued to broaden, deepen and enhance their fundamental capabilities, competitive positions,
product and service offerings and customer bases. Our plan is to invest in these companies for an intermediate time horizon.
Our portfolios focus on a narrow set of such investments.
• U.S. Small Cap: The U.S. Small Cap portfolio integrates the efforts of our Small Cap Value and Small Cap Growth investment
teams. Our quantitative process is designed to result in a universe of securities that we believe are statistically inexpensive
versus the Russell 2000, or which we believe demonstrates superior growth characteristics relative to their economic sector.
The decisive elements of the research process are twofold. From a value standpoint, it is the appraisal of the company’s
fundamental value that we believe separates those with real value from those that are merely inexpensive. On the growth side
our goal is to separate companies with real growth potential from those that are only short-term performers with high valuation
metrics. The final portfolio is constructed as a bottom up residual of stock selection from the “best ideas” of both value and
growth.
• Dividend Value: Our objective in managing the Dividend Value portfolio is to deliver investment returns that exceed that of the
Russell 1000 Value by focusing on what we believe are undervalued stocks with above-average dividend yields. We seek long-
term inflation protection by investing in stocks in the top 40% of the market ranked by dividend yield; companies that we believe
are capable of consistent dividend growth; and stocks that we believe are undervalued with significant potential for capital
appreciation during a full market cycle.
• Covered Call: Our objective in managing the Chartwell Covered Call strategy is to provide market-like returns in rising equity
markets while earning superior returns in flat or down equity markets. We seek to attain this objective by combining a portfolio
of higher dividend paying stocks which have valuations that do not properly reflect our view of their fundamentals and a
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disciplined call overwriting strategy. We join these two investment disciplines in an effort to create a lower volatility total return
solution for clients.
Fixed Income Investment Styles:
•
Intermediate/Core/Short Duration Fixed Income: Chartwell's philosophy of investment grade fixed income management stresses
security selection, preservation of principal, and compounding of the income stream as keys to consistently adding value in the
bond market. We focus our research efforts in the corporate sector of the market. Because the return potential of any bond tends
to be asymmetric - with limited capital appreciation potential, but considerably greater capital loss potential - Chartwell targets
high quality credits with stable-to improving profiles, rather than chasing "cheap" deteriorating credits.
Chartwell utilizes a disciplined value, bottom-up approach to the fixed income market, with emphasis on building the portfolio
through individual security selection. Employing in-depth, fundamental research, our highly experienced six member team
assesses individual securities and selects those that it determines provide the best relative value. Each team member is responsible
for the analysis and trading of one or more fixed income market sectors, including U.S. Government and Agency, Asset-Backed,
Mortgage-Backed, Bank and Finance, Industrial, Utility, and Yankee. Portfolio managers seek to maintain a diversified high
quality portfolio that has more favorable yield characteristics than the benchmark index. Within the investment process,
approximately 80% of the value is sought through the vigorous security selection process, while the remaining balance is sought
to sector allocation and yield curve placement. Our goal is to reduce risk and volatility exposures through credit research;
therefore, duration shifts, sector swapping, interest rate bets and macroeconomic forecasting are not a central focus in our bottom-
up process. Futures, options and other leveraged derivatives are not utilized in our credit central process.
• Core Plus Fixed Income: With flexibility to adjust to each client’s specific guidelines, Chartwell’s Core Plus product invests
across both the U.S. Investment Grade and High Yield markets. By strategically expanding our credit-driven, valued-based
opportunity set, the Core Plus product allows a client’s portfolio to take advantage of Chartwell’s broad ranging corporate bond
expertise and to benefit from the potential for increased income, total return, and diversification.
• High Yield Fixed Income: Chartwell's philosophy of high yield bond management stresses preservation of principal and
compounding of the income stream as keys to adding value in the high yield bond market. We focus on the higher quality tiers
of the market, which offer an attractive yield premium but a lower incidence of credit erosion relative to the market as a whole.
In evaluating investment candidates our perspective is that of a lender. We prefer low beta companies with proven, predictable
business models, and multiple sources of repayment. We utilize both objective and subjective screens to identify the universe
of acceptable investment candidates. In particular, we focus on large capitalization issues demonstrating attributes of financial
transparency, stable-to improving cash flow, internal deleveraging capacity, and ample financial flexibility. Chartwell believes
that the consistent application of high credit standards and strict trading disciplines is the most predictable route to outperformance
in the high yield bond market.
•
Short Duration BB-Rated High Yield Fixed Income: Chartwell's philosophy of high yield bond management stresses preservation
of principal and compounding of the income stream as keys to adding value in the high yield bond market. Again, our focus is
on the higher quality tiers of the market, which offer an attractive yield premium but a lower incidence of credit erosion relative
to the market as a whole. We focus on duration of less than three years with maximum maturities of five years.
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The following table shows the composition of our assets under management by investment style as of December 31, 2015.
(Dollars in thousands)
Equity investment styles:
Small cap value
Mid cap value
Small cap growth
Mid cap growth
SMID cap growth
U.S. small cap
Dividend value
Covered call
Fixed income investment styles:
Intermediate/core/short duration fixed income
Core plus fixed income
High yield fixed income
Short duration BB-rated high yield fixed income
Total assets under management
Competition
December 31,
2015
Percent of
Assets Under
Management
$
1,288,000
59,000
1,260,000
2,241,000
66,000
62,000
341,000
376,000
864,000
324,000
79,000
1,045,000
8,005,000
$
16.1%
0.7%
15.7%
28.0%
0.8%
0.8%
4.3%
4.7%
10.8%
4.0%
1.0%
13.1%
100.0%
We operate in a very competitive industry and face significant competition for customers from bank and non-bank competitors, particularly
regional and national institutions, in originating loans, attracting deposits and providing other financial services. We compete for loans
and deposits based upon the personal and responsive service offered by our highly experienced relationship managers, access to
management and interest rates. As a result of our low fixed operating costs, we believe we are able to compete for customers with the
competitive interest rates that we pay on deposits and that we charge on our loans.
Our management believes that our most direct competition for deposits comes from commercial banks, savings and loan associations,
credit unions, money market funds and brokerage firms, particularly national and large regional banks, which target the same customers
we do. Competition for deposit products is generally based on pricing because of the ease with which customers can transfer deposits
from one institution to another. Our cost of funds fluctuates with market interest rates and our ability to further reduce our cost of funds
may be affected by higher rates being offered by other financial institutions. During certain interest rate environments, additional
significant competition for deposits may be expected to arise from corporate and government debt securities and money market mutual
funds.
Our competition in making loans comes principally from national, regional and large community banks, insurance companies and full
service brokerage firms. Many large national and regional commercial banks have a significant number of branch offices in the areas in
which we operate. Aggressive pricing policies and terms of our competitors on middle-market and private banking loans, especially
during a period of prolonged low interest rates, may result in a decrease in our loan origination volume and a decrease in our yield on
loans. We compete for loans principally through the quality of products and service we provide to middle-market customers and private
banking referral relationships, while maintaining competitive interest rates, loan fees and other loan terms.
Our relationship-based approach to business also enables us to compete with other financial institutions in attracting loans and deposits.
Our relationship managers and regional presidents have significant experience in the banking industry in the markets they serve and are
focused on customer service. By capitalizing on this experience and by tailoring our products and services to the specific needs of our
clients, we have been successful in cultivating stable relationships with our customers and also with financial intermediaries who refer
their clients to us for banking services. We believe our approach to customer relationships will assist us in continuing to compete effectively
for loans and deposits in our primary markets and nationally through our private banking channel.
The investment management business is intensely competitive. In the markets where we compete, there are over 1,000 firms which we
consider to be primary competitors. In addition to competition from other institutional investment management firms, Chartwell, along
with the active-management industry, competes with passive index funds, exchange traded funds (“ETFs”) and investment alternatives
such as hedge funds. We compete for investment management business by delivering excellent investment performance with a committed
customer service model.
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Employees
As of December 31, 2015, we had approximately 192 full-time equivalent employees (139 in our banking business and 53 in our investment
management business).
Supervision and Regulation
The following is a summary of material laws, rules and regulations governing banks, investment management businesses and bank holding
companies, but does not purport to be a complete summary of all applicable laws, rules and regulations. These laws and regulations may
change from time to time and the regulatory agencies often have broad discretion in interpreting them. We cannot predict the outcome
of any future changes to these laws, regulations, regulatory interpretations, guidance and policies, which may have a material and adverse
impact on the financial markets in general, and our operations and activities, financial condition, results of operations, growth plans and
future prospects specifically.
General
The common stock of TriState Capital Holdings, Inc. is publicly traded and listed and, as a result, we are subject to securities laws and
stock market rules, including oversight from the SEC and the Nasdaq Stock Market Rules. Banking is highly regulated under federal
and state law. We are a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and are subject
to supervision, regulation and examination by the Federal Reserve. TriState Capital Bank is a commercial bank chartered under the laws
of the Commonwealth of Pennsylvania. It is not a member of the Federal Reserve System and is subject to supervision, regulation and
examination by the Pennsylvania Department of Banking and Securities and the FDIC.
Our investment management business is subject to extensive regulation in the United States. Chartwell and Chartwell TSC are subject
to Federal securities laws, principally the Securities Act of 1933, the Investment Company Act, the Advisers Act, state laws regarding
securities fraud and regulations promulgated by various regulatory authorities, including the SEC, FINRA, applicable state laws and
stock exchanges. Our investment management business also may be subject to regulation by the U.S. Commodity Futures Trading
Commission (“CFTC”) and the National Futures Association (“NFA”). Changes in laws, regulations or governmental policies, both
domestically and abroad, and the costs associated with compliance, could materially and adversely affect our business, results of operations,
financial condition and/or cash flows.
This system of supervision and regulation establishes a comprehensive framework for our operations. Failure to meet regulatory standards
could have a material and adverse impact on our operations and activities, financial condition, results of operations, growth plans and
future prospects.
Dodd-Frank Act
On July 21, 2010, the Dodd Frank Financial Reform and Consumer Protection Act (“Dodd-Frank Act”) was enacted. The Dodd-Frank
Act aims to restore responsibility and accountability to the financial system by significantly altering the regulation of financial institutions
and the financial services industry. We have complied with the portion of rules that have been finalized and become effective. Many of
the provisions of the Dodd-Frank Act require rulemaking by federal regulatory agencies over the next several years and have delayed
effective dates, which will affect how financial institutions are regulated in the future. The ultimate effect of the Dodd-Frank Act and its
implementing regulations on the financial services industry in general, and on us in particular, is still uncertain at this time.
The Dodd-Frank Act, among other things:
•
•
•
•
•
established the Consumer Financial Protection Bureau;
established the Financial Stability Oversight Council;
changed the assessment base for federal deposit insurance;
required the FDIC to make its capital requirements for insured depository institutions countercyclical, so that capital requirements
increase in times of economic expansion and decrease in times of economic contraction;
required bank holding companies and banks to be “well capitalized” and “well managed” in order to acquire banks located
outside of their home state and required any bank holding company electing to be treated as a financial holding company to be
“well capitalized” and “well managed”;
15
•
•
•
•
directed the Federal Reserve to establish interchange fees for debit cards under a “reasonable and proportional cost” per transaction
standard;
increased regulation of consumer protections regarding mortgage originations, including originator compensation, minimum
repayment standards, and prepayment consideration;
established the Volcker Rule to restrict proprietary trading and ownership of certain funds by banks; and
repealed the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay
interest on business transaction and other accounts.
Some of these provisions may have the consequence of increasing our expenses, decreasing our revenues, and changing or limiting the
activities in which we engage. The specific impact of all these provisions on our current activities or new financial activities that we
may consider in the future, our financial performance and the market in which we operate will depend on the rules the relevant agencies
develop, their implementation and the reaction of market participants to these regulatory developments. Many aspects of the Dodd-Frank
Act are subject to further rulemaking and will take effect over several years. While we cannot predict what effect any presently contemplated
or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our
operations and activities, financial condition, results of operations, growth plans and future prospects.
Volcker Rule Impact on Certain Investment Markets
On December 10, 2013, five federal regulatory agencies (the SEC, CFTC, Federal Reserve, FDIC and OCC) approved and published the
final rules for the implementation of the Volcker Rule. The final rules will go into effect in July 2017. However, the conformance period
may be subject to two additional one-year extensions by the Federal Reserve. Furthermore, commercial banks and their affiliates (the
“Regulated Entities”) can apply for an additional five-year extension for certain qualifying investments.
The final Volcker Rule prohibits Regulated Entities from engaging in “proprietary trading” and imposes limitations on the extent to which
Regulated Entities are permitted to invest in certain “covered funds” (i.e. hedge funds and private equity funds) and requires that such
investments be fully deducted from Tier 1 Capital. It limits a Regulated Entity’s aggregate ownership in hedge funds and private equity
funds to three percent of Tier I capital. Additionally, Regulated Entities are prohibited from owning three percent or more of any single
covered fund.
Importantly for banks, the final rules exempted loans from the proprietary trading restrictions imposed on banks for most other assets.
The Volcker Rule, and particularly subsequent interpretations of what constitutes “covered funds” under the final Volcker Rule, could
have material adverse effects on our investment management business.
Regulatory Capital Requirements
Capital adequacy. The Federal Reserve monitors the capital adequacy of our holding company, on a consolidated basis, and the FDIC
and the Pennsylvania Department of Banking and Securities monitor the capital adequacy of TriState Capital Bank. The regulatory
agencies use a combination of risk-based guidelines and a leverage ratio to evaluate capital adequacy and consider these capital levels
when taking action on various types of applications and when conducting supervisory activities related to safety and soundness. The
risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among
financial institutions and their holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding
liquid assets. Assets and off-balance sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk
categories, each with appropriate risk weights. Regulatory capital, in turn, is classified into the following “tiers” of capital. Common
Equity Tier 1 capital (“CET 1”) includes common equity, retained earnings, and minority interests in equity accounts of consolidated
subsidiaries, less goodwill, most intangible assets and certain other assets. “Tier 1” capital includes, among other things, qualifying non-
cumulative perpetual preferred stock. “Tier 2” capital includes, among other things, qualifying subordinated debt and allowances for
loan and lease losses, subject to limitations. The resulting capital ratios represent capital as a percentage of average assets or total risk-
weighted assets, including off-balance sheet items.
With the phase-in of the Basel III requirements beginning January 1, 2015, the FDIC and Federal Reserve regulations currently require
banks and bank holding companies generally to maintain four minimum capital standards to be “adequately capitalized”: (1) a tier 1
capital to total average assets ratio (“tier 1 leverage capital ratio”) of at least 4%; (2) a common equity tier 1 capital to risk-weighted
assets ratio (“CET 1 risk-based capital ratio”) of at least 4.5%; (3) a tier 1 capital to risk-weighted assets ratio (“tier 1 risk-based capital
ratio”) of at least 6%; and (4) a total risk-based capital (tier 1 plus tier 2) to risk-weighted assets ratio (“total risk-based capital ratio”) of
at least 8%. In addition, the prompt corrective action standards discussed below, in effect, increase the minimum regulatory capital ratios
for banking organizations. These capital requirements are minimum requirements. Higher capital levels may be required if warranted
by the particular circumstances or risk profiles of individual institutions, or if required by the banking regulators due to the economic
16
conditions impacting our primary markets. For example, FDIC regulations provide that higher capital may be required to take adequate
account of, among other things, interest rate risk and the risks posed by concentrations of credit, nontraditional activities or securities
trading activities. When phased in, Basel III will replace the prior regulatory capital rules for all banks, savings associations and U.S.
bank holding companies with greater than $500.0 million in total assets, and all savings and loan holding companies.
Failure to meet capital guidelines could subject us to a variety of enforcement remedies, including issuance of a capital directive, a
prohibition on accepting brokered deposits, other restrictions on our business and the termination of deposit insurance by the FDIC.
The Dodd-Frank Act directs federal banking agencies to establish minimum leverage capital requirements and minimum risk-based capital
requirements for depository institution holding companies and non-bank financial companies supervised by the Federal Reserve that are
not less than the “generally applicable leverage and risk-based capital requirements” applicable to insured depository institutions, in
effect applying the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding
companies. In addition, under the Dodd-Frank Act, the federal banking agencies adopted new capital requirements to address the risks
that the activities of an institution poses to the institution and the public and private stakeholders, including risks arising from certain
enumerated activities. Capital guidelines may continue to evolve and may have material impacts on us or our banking subsidiary.
Prompt corrective action regulations. Under the prompt corrective action regulations, the FDIC is required and authorized to take
supervisory actions against undercapitalized financial institutions. For this purpose, a bank is placed in one of the following five categories
based on its capital: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically
undercapitalized.”
Under the current prompt corrective action provisions of the FDIC, after adopting the Basel III rules, an insured depository institution
generally will be classified in the following categories based on the capital measures indicated:
“Well capitalized”
Tier 1 leverage ratio of 5%
CET 1 risk-based ratio of 6.5%
Tier 1 risk-based ratio of 8%
Total risk-based ratio of 10%, and
Not subject to written agreement, order, capital directive or
prompt corrective action directive that requires a specific capital
level.
“Undercapitalized”
Tier 1 leverage ratio less than 4%
CET 1 risk-based ratio less than 4.5%
Tier 1 risk-based ratio less than 6%, or
Total risk-based ratio less than 8%
“Critically undercapitalized”
Tangible equity to total assets less than 2%
“Adequately capitalized”
Tier 1 leverage ratio of 4%
CET 1 risk-based ratio of 4.5%
Tier 1 risk-based ratio of 6%, and
Total risk-based ratio of 8%
“Significantly undercapitalized”
Tier 1 leverage ratio less than 3%
CET 1 risk-based ratio less than 3%
Tier 1 risk-based ratio less than 4%, or
Total risk-based ratio less than 6%
In addition, the final rules subject a banking organization to certain limitations on capital distributions and discretionary bonus payments
to executive officers if the organization does not maintain a capital conservation buffer of common equity tier 1 capital in an amount
greater than 2.5% of its total risk-weighted assets. The implementation of the capital conservation buffer began on January 1, 2016, at
0.625% and be phased in over a four-year period (increasing by that amount ratably on each subsequent January 1, until it reaches 2.5%
on January 1, 2019).
The effect of the capital conservation buffer when fully implemented will result in the following minimum capital ratios applicable to us
to qualify as adequately capitalized, for banking organizations seeking to avoid the limitations on capital distributions and discretionary
bonus payments to executive officers:
•
4.0% tier 1 leverage ratio;
• minimum CET1 risk-based capital ratio of 7.0%;
• minimum tier 1 risk-based capital ratio of 8.5%; and
17
• minimum total risk-based capital ratio to 10.5%.
Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary
actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category
in which the institution is placed. Subject to a narrow exception, banking regulators must appoint a receiver or conservator for an
institution that is critically undercapitalized. An institution that is categorized as undercapitalized, significantly undercapitalized, or
critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. An
undercapitalized institution also is generally prohibited from increasing its average total assets, making acquisitions, establishing any
branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations
also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.
Furthermore, a bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject
to various limitations. The bank holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5% of an
“undercapitalized” subsidiary’s assets at the time it became “undercapitalized” or the amount required to meet regulatory capital
requirements.
The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities and
the deposit insurance premiums paid by the bank. As of December 31, 2015, TriState Capital Bank met the requirements to be categorized
as “well capitalized” based on the aforementioned ratios for purposes of the prompt corrective action regulations, as currently in effect.
Basel III. The new capital rules prescribe a new standardized approach for risk weightings that expands the risk weighting categories
from the prior four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories,
depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity
exposures, and resulting in higher risk weights for a variety of asset classes, including certain commercial real estate mortgages. Additional
aspects of the New Capital Rules that are most relevant to us include:
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a formula-based approach referred to as the collateral haircut approach to determine the risk weight of eligible margin loans
collateralized by liquid and readily marketable debt or equity securities, where the collateral is marked to fair value daily, and
the transaction is subject to daily margin maintenance requirements;
consistent with the prior risk-based capital rules, assigning exposures secured by single family residential properties to either a
50% risk weight for first-lien mortgages that meet prudential underwriting standards or a 100% risk weight category for all other
mortgages;
providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or
less that is not unconditionally cancellable (previously set at 0%);
assigning a 150% risk weight to all exposures that are non-accrual or 90 days or more past due (previously set at 100%), except
for those secured by single family residential properties, which will be assigned a 100% risk weight, consistent with the prior
risk-based capital rules;
applying a 150% risk weight instead of a 100% risk weight for certain high volatility commercial real estate acquisition,
development and construction loans;
applying a 250% risk weight (beginning January 1, 2018) to the portion of mortgage servicing rights and deferred tax assets
arising from temporary differences that could not be realized through net operating loss carrybacks that are not deducted from
CET1 capital (previously set at 100%); and
the option to use a formula-based approach referred to as the simplified supervisory formula approach to determine the risk
weight of various securitization tranches in addition to the previous “gross-up” method (replacing the credit ratings approach
for certain securitization).
Based on our calculations, we expect that TriState Capital Holdings, Inc. and TriState Capital Bank will meet all minimum capital
requirements when effective and that we and the Bank would continue to meet all capital requirements as fully phased in without material
adverse effects on our business. However, the capital rules may continue to evolve over time and future changes may have a material
adverse effect on our business.
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Acquisitions by Bank Holding Companies
We must obtain the prior approval of the Federal Reserve before: (1) acquiring more than five percent of the voting stock of any bank
or other bank holding company; (2) acquiring all or substantially all of the assets of any bank or bank holding company; or (3) merging
or consolidating with any other bank holding company. The Federal Reserve may determine not to approve any of these transactions if
it would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the
anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned, the convenience and needs of the community to be served, and the record
of a bank holding company and its subsidiary bank(s) in combating money laundering activities.
Scope of Permissible Bank Holding Company Activities
In general, the Bank Holding Company Act limits the activities permissible for bank holding companies to the business of banking,
managing or controlling banks and such other activities as the Federal Reserve has determined to be so closely related to banking as to
be properly incident thereto.
A bank holding company may elect to be treated as a financial holding company if it and its depository institution subsidiaries are
categorized as “well capitalized” and “well managed.” A financial holding company may engage in a range of activities that are (1)
financial in nature or incidental to such financial activity or (2) complementary to a financial activity and which do not pose a substantial
risk to the safety and soundness of a depository institution or to the financial system generally. These activities include securities dealing,
underwriting and market making, insurance underwriting and agency activities, merchant banking and insurance company portfolio
investments. Expanded financial activities of financial holding companies generally will be regulated according to the type of such
financial activity: banking activities by banking regulators, securities activities by securities regulators and insurance activities by
insurance regulators. While we may determine in the future to become a financial holding company, we do not have an intention to make
that election at this time.
The Bank Holding Company Act does not place territorial limitations on permissible non-banking activities of bank holding companies.
The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuation of such activity or
such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank
holding company.
Source of Strength Doctrine for Bank Holding Companies
Under longstanding Federal Reserve policy which has been codified by the Dodd-Frank Act, we are expected to act as a source of financial
strength to, and to commit resources to support, TriState Capital Bank. This support may be required at times when we may not be
inclined to provide it. In addition, any capital loans that we make to TriState Capital Bank are subordinate in right of payment to deposits
and to certain other indebtedness of TriState Capital Bank. In the event of our bankruptcy, any commitment by us to a federal bank
regulatory agency to maintain the capital of TriState Capital Bank will be assumed by the bankruptcy trustee and entitled to a priority of
payment.
Dividends
As a bank holding company, we are subject to certain restrictions on dividends under applicable banking laws and regulations. The
Federal Reserve has issued a policy statement that provides that a bank holding company should not pay dividends unless: (1) its net
income over the last four quarters (net of dividends paid) has been sufficient to fully fund the dividends; (2) the prospective rate of
earnings retention appears to be consistent with the capital needs, asset quality and overall financial condition of the bank holding company
and its subsidiaries; and (3) the bank holding company will continue to meet minimum required capital adequacy ratios. Accordingly, a
bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank
holding company’s financial health, such as by borrowing. The Dodd-Frank Act and Basel III impose additional restrictions on the ability
of banking institutions to pay dividends. In addition, in the current financial and economic environment, the Federal Reserve has indicated
that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum
allowable levels unless both asset quality and capital are very strong.
A part of our income could be derived from, and a potential material source of our liquidity could be, dividends from TriState Capital
Bank. The ability of TriState Capital Bank to pay dividends to us is also restricted by federal and state laws, regulations and policies.
Under applicable Pennsylvania law, TriState Capital Bank may only pay cash dividends out of its accumulated net earnings, subject to
certain requirements regarding the level of surplus relative to capital.
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Under federal law, TriState Capital Bank may not pay any dividend to us if the Bank is undercapitalized or the payment of the dividend
would cause it to become undercapitalized. The FDIC may further restrict the payment of dividends by requiring TriState Capital Bank
to maintain a higher level of capital than would otherwise be required for it to be adequately capitalized for regulatory purposes. Moreover,
if, in the opinion of the FDIC, TriState Capital Bank is engaged in an unsafe or unsound practice (which could include the payment of
dividends), the FDIC may require, generally after notice and hearing, the Bank to cease such practice. The FDIC has indicated that paying
dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe banking practice. The FDIC has
also issued policy statements providing that insured depository institutions generally should pay dividends out of current operating
earnings.
Incentive Compensation Guidance
The federal banking agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking. The incentive
compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related
risk-management, control and governance processes. In addition, under the incentive compensation guidance, a banking organization’s
federal supervisor may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety
and soundness of the organization. Further, provisions of the Basel III regime described above limit discretionary bonus payments to
bank and bank holding company executives if the institution’s regulatory capital ratios fail to exceed certain thresholds. The scope and
content of the U.S. banking regulators’ policies on incentive compensation are likely to continue evolving.
Restrictions on Transactions with Affiliates and Loans to Insiders
Federal law strictly limits the ability of banks to engage in transactions with their affiliates, including their bank holding companies.
Section 23A and 23B of the Federal Reserve Act, and the Federal Reserve’s Regulation W, impose quantitative limits, qualitative standards,
and collateral requirements on certain transactions by a bank with, or for the benefit of, its affiliates, and generally require those transactions
to be on terms at least as favorable to the bank as transactions with non-affiliates. The Dodd-Frank Act significantly expands the coverage
and scope of the limitations on affiliate transactions within a banking organization, including an expansion of the covered transactions
to include credit exposures related to derivatives, repurchase agreements and securities lending arrangements and an increase in the
amount of time for which collateral requirements regarding covered transactions must be satisfied.
Federal law also limits a bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities
controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially
the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with
unaffiliated persons. In addition, the terms of such extensions of credit may not involve more than the normal risk of repayment or present
other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in
the aggregate, which limits are based, in part, on the amount of the bank’s capital. TriState Capital Bank maintains a policy that does
not permit loans to employees, including executive officers.
FDIC Deposit Insurance Assessments
FDIC-insured banks are required to pay deposit insurance assessments to the FDIC. The amount of the deposit insurance assessment for
institutions with less than $10.0 billion in assets is based on its risk category, with certain adjustments for any unsecured debt or brokered
deposits held by the insured bank. Institutions assigned to higher risk categories (that is, institutions that pose a higher risk of loss to the
Deposit Insurance Fund) pay assessments at higher rates than institutions that pose a lower risk. An institution’s risk classification is
assigned based on a combination of its financial ratios and supervisory ratings, reflecting, among other things, its capital levels and the
level of supervisory concern that the institution poses to the regulators. In addition, the FDIC can impose special assessments in certain
instances. Deposit insurance assessments fund the Deposit Insurance Fund. The FDIC has in recent years raised assessment rates to
increase funding for the Deposit Insurance Fund.
The Dodd-Frank Act changed the way that deposit insurance premiums are calculated, increased the minimum designated reserve ratio
of the Deposit Insurance Fund from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminated the upper limit for
the reserve ratio designated by the FDIC each year, and eliminates the requirement that the FDIC pay dividends to depository institutions
when the reserve ratio exceeds certain thresholds.
Additionally, in July 2015, the FDIC published notice of proposed rule-making to modify the FDIC deposit insurance premium assessment
methodology for banks under $10 million. In January 2016, the FDIC proposed revised rule-making to address the significant comments
that it received to the initial proposal. This rule-making will undergo additional comment before becoming final. It is unclear when or
in what form a final revised methodology will become effective. Any revised deposit insurance premium assessment methodology
resulting from these proposals may result in material increases to our FDIC deposit insurance premiums. Continued action by the FDIC
to replenish and increase the Deposit Insurance Fund, as well as the changes contained in the Dodd-Frank Act, may result in higher
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assessment rates, which could reduce our profitability or otherwise negatively impact our operations, financial condition or future
prospects.
Branching and Interstate Banking
Under Pennsylvania law, TriState Capital Bank is permitted to establish additional branch offices within Pennsylvania, subject to the
approval of the Pennsylvania Department of Banking and Securities. The Bank is also permitted to establish additional offices outside
of Pennsylvania, subject to prior regulatory approval.
TriState Capital Bank currently has only one branch located in the State of New Jersey, and it operates three representative offices, with
one each located in the states of Pennsylvania, Ohio and New York. Although our New Jersey office is a “branch” for purposes of
applicable state law, we limit its activities to those we conduct at our representative offices. Because our representative offices are not
branches for purposes of applicable state law and FDIC regulations, there are restrictions on the types of activities we may conduct
through our representative offices. Relationship managers in our representative offices may solicit loan and deposit products and services
in their markets and act as liaisons to our headquarters in Pittsburgh, Pennsylvania. However, consistent with our centralized operations
and regulatory requirements, we do not disburse or transmit funds, accept loan repayments or accept or contract for deposits or deposit-
type liabilities through our representative offices.
Community Reinvestment Act
TriState Capital Bank has a responsibility under the Community Reinvestment Act (“CRA”), and related FDIC regulations to help meet
the credit needs of its communities, including low- and moderate-income borrowers. In connection with its examination of TriState
Capital Bank, the FDIC is required to assess the Bank’s record of compliance with the CRA. The Bank’s failure to comply with the
provisions of the CRA could, at a minimum, result in denial of certain corporate applications, such as for branches or mergers, or in
restrictions on its or our activities, including additional financial activities if we elect to be treated as a financial holding company.
Prior to 2013, our compliance with CRA regulations was assessed under the FDIC’s “large bank” test. CRA regulations provide that a
financial institution may elect to have its CRA performance evaluated under the strategic plan option. The strategic plan enables the
institution to structure its CRA goals and objectives to address the needs of its community consistent with its business strategy, operational
focus, capacity and constraints. TriState Capital Bank worked with the FDIC to develop a strategic plan for CRA evaluation that was
approved by the FDIC in 2013. For 2013 and 2014, our CRA performance was assessed against the goals established in our CRA strategic
plan. In 2015, the FDIC approved our updated CRA strategic plan for the years 2015 through 2017.
TriState Capital Bank received an “outstanding” CRA rating in 2015 and a “satisfactory” CRA rating on each prior CRA examination
since inception.
Financial Privacy
The federal banking and securities regulators have adopted rules that limit the ability of banks and other financial institutions to disclose
non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to
consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third
party. These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside
vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used
to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from
applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions
and experiences with affiliated companies for the purpose of marketing products or services. In addition to applicable federal privacy
regulations, TriState Capital Bank is subject to certain state privacy laws.
Anti-Money Laundering and OFAC
Under federal law, including the Bank Secrecy Act and the USA PATRIOT Act of 2001, certain financial institutions must maintain anti-
money laundering programs that include established internal policies, procedures and controls; a designated compliance officer; an
ongoing employee training program; and testing of the program by an independent audit function. Financial institutions are also prohibited
from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and
customer identification in their dealings with foreign financial institutions and foreign customers. Financial institutions must take
reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious
transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial
institutions.
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The Office of Foreign Assets Control (“OFAC”) administers laws and Executive Orders that prohibit U.S. entities from engaging in
transactions with certain prohibited parties. OFAC publishes lists of persons and organizations suspected of aiding, harboring or engaging
in terrorist acts, known as Specially Designated Nationals and Blocked Persons. Generally, if a bank identifies a transaction, account or
wire transfer relating to a person or entity on an OFAC list, it must freeze the account or block the transaction, file a suspicious activity
report and notify the appropriate authorities.
Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance
in connection with the regulatory review of applications, including applications for bank mergers and acquisitions. Failure of a financial
institution to maintain and implement adequate programs to combat money laundering and terrorist financing and comply with OFAC
sanctions, or to comply with relevant laws and regulations, could have serious legal, reputational and financial consequences for the
institution.
Safety and Soundness Standards
Federal bank regulatory agencies have adopted guidelines that establish general standards relating to internal controls and information
systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. Additionally, the agencies have adopted regulations that provide the authority to order an institution that has been given
notice by an agency that it is not satisfying any of these safety and soundness standards to submit a compliance plan. If, after being so
notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance
plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types
to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the Federal Deposit Insurance Act.
If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil
money penalties.
In addition to federal consequences for failure to satisfy applicable safety and soundness standards, the Pennsylvania Department of
Banking and Securities Code grants the Pennsylvania Department of Banking and Securities the authority to impose a civil money penalty
of up to $25,000 per violation against a Pennsylvania financial institution, or any of its officers, employees, directors, or trustees for: (1)
violations of any law or department order; (2) engaging in any unsafe or unsound practice; or (3) breaches of a fiduciary duty in conducting
the institution’s business.
Bank holding companies are also not permitted to engage in unsound banking practices. For example, the Federal Reserve’s Regulation
Y requires a holding company to give the Federal Reserve prior notice of any redemption or repurchase of its own equity securities, if
the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is equal to 10% or more of
the company’s consolidated net worth. The Federal Reserve may oppose the transaction if it believes that the transaction would constitute
an unsafe or unsound practice or would violate any law or regulation. As another example, a holding company could not impair its
subsidiary bank’s soundness by causing it to make funds available to non-banking subsidiaries or their customers if the Federal Reserve
believed it not prudent to do so. The Federal Reserve has broad authority to prohibit activities of bank holding companies and their
nonbanking subsidiaries that present unsafe and unsound banking practices or that constitute violations of laws or regulations.
Consumer Laws and Regulations
TriState Capital Bank is subject to numerous laws and regulations intended to protect consumers in transactions with the Bank. These
laws include, among others, laws regarding unfair, deceptive and abusive acts and practices, usury laws, and other federal consumer
protection statutes. These federal laws include the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Real Estate Procedures Act of 1974, the S.A.F.E. Mortgage Licensing Act of
2008, the Truth in Lending Act and the Truth in Savings Act, among others. Many states and local jurisdictions have consumer protection
laws analogous, and in addition, to those enacted under federal law. These laws and regulations mandate certain disclosure requirements
and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans and conducting
other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission
rights, action by state and local attorneys general and civil or criminal liability.
In addition, the Dodd-Frank Act created a new independent Consumer Finance Protection Bureau that has broad authority to regulate
and supervise retail financial services activities of banks and various non-bank providers. The Consumer Financial Protection Bureau
has authority to promulgate regulations, issue orders, guidance and policy statements, conduct examinations and bring enforcement
actions with regard to consumer financial products and services. In general, banks with assets of $10.0 billion or less, such as TriState
Capital Bank, will continue to be examined for consumer compliance by their primary federal bank regulator. Nevertheless, positions
established by the Consumer Financial Protection Bureau may become applicable to us.
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Effect of Governmental Monetary Policies
Our commercial banking business and investment management business are affected not only by general economic conditions but also
by U.S. fiscal policy and the monetary policies of the Federal Reserve. Some of the instruments of monetary policy available to the
Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the
“discount window,” open market operations, the imposition of and changes in reserve requirements against member banks’ deposits and
assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates,
and asset purchase programs. These policies influence to a significant extent the overall growth of bank loans, investments, and deposits,
as well as the performance of our investment management products and services and the interest rates charged on loans or paid on deposits.
We cannot predict the nature of future fiscal and monetary policies or the effect of these policies on our operations and activities, financial
condition, results of operations, growth plans or future prospects.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) implemented a broad range of corporate governance, accounting and reporting
measures for companies that have securities registered under the Exchange Act, including publicly-held bank holding companies.
Specifically, the Sarbanes-Oxley Act and the various regulations promulgated thereunder, established, among other things: (i) requirements
for audit committees, including independence, expertise, and responsibilities; (ii) responsibilities regarding financial statements for the
Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) the forfeiture of bonuses or other incentive-based
compensation and profits from the sale of the reporting company’s securities by the Chief Executive Officer and Chief Financial Officer
in the twelve-month period following the initial publication of any financial statements that later require restatement; (iv) the creation of
an independent accounting oversight board; (v) standards for auditors and regulation of audits, including independence provisions that
restrict non-audit services that accountants may provide to their audit clients; (vi) disclosure and reporting obligations for the reporting
company and their directors and executive officers, including accelerated reporting of stock transactions and a prohibition on trading
during pension blackout periods; (vii) a prohibition on personal loans to directors and officers, except certain loans made by insured
financial institutions on nonpreferential terms and in compliance with other bank regulatory requirements; and (viii) a range of civil and
criminal penalties for fraud and other violations of the securities laws.
Impact of Current Laws and Regulations
The cumulative effect of these laws and regulations, while providing certain benefits, add significantly to the cost of our operations and
thus have a negative impact on our profitability. There has also been a notable expansion in recent years of financial service providers
that are not subject to the examination, oversight, and other rules and regulations to which we are subject. Those providers, because they
are not so highly regulated, may have a competitive advantage over us and may continue to draw large amounts of funds away from
traditional banking institutions, with a continuing adverse effect on the banking industry in general.
Future Legislation and Regulatory Reform
New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and
competitive relationships of financial institutions operating in the United States. We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute. Future legislation
and policies, and the effects of that legislation and those policies, may have a significant influence on our operations and activities,
financial condition, results of operations, growth plans or future prospects and the overall growth and distribution of loans, investments
and deposits. Such legislation and policies have had a significant effect on the operations and activities, financial condition, results of
operations, growth plans and future prospects of commercial banks and investment management businesses in the past and are expected
to continue.
Available Information
All of our reports filed electronically with the United States Securities and Exchange Commission (“SEC”), including this Annual Report
on Form 10-K for the fiscal year ended December 31, 2015, our Registration Statement on Form S-1, quarterly reports on Form 10-Q,
current reports on Form 8-K and proxy statements, as well as any amendments to those reports are accessible at no cost on our website
at www.tristatecapitalbank.com under “About Us”, “Investor Relations”, “SEC Documents”. These filings are also accessible on the
SEC’s website at www.sec.gov. You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100
F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330.
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ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. There are risks, many beyond our control, that could cause our
financial condition or results of operations to differ materially from management’s expectations. Some of the risks that may affect us are
described below. If any of the following risks, by itself or together with one or more other factors, actually occur, our business, financial
condition, results of operations and growth prospects could be materially and adversely affected. These risks are not the only risks that
we may face. Our business, financial condition, results of operations and growth prospects could also be affected by additional risks
that apply to all companies operating in the United States, as well as other risks that are not currently known to us or that we currently
consider to be immaterial to our business, financial condition, results of operations and growth prospects. Further, to the extent that any
of the information contained herein constitutes forward-looking statements, the risk factors below also are cautionary statements
identifying important factors that could cause actual results to differ materially from those expressed in any such forward-looking
statements. See “Cautionary Note Regarding Forward-Looking Statements” on page 49.
Risks Relating to our Business
We may not be able to adequately measure and limit our credit risk associated with our loan portfolio, which could lead to unexpected
losses.
The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid timely or at all
or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure. These risks may be affected
by the strength of the borrower’s business sector and local, regional and national market, and economic conditions. Our risk management
practices, such as monitoring the concentration of our loans within specific industries and our credit approval practices, may not adequately
reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic
or any other conditions affecting customers and the quality of the loan portfolio. Finally, many of our loans are made to middle-market
businesses that may be less able to withstand competitive, economic and financial pressures than larger borrowers. A failure to effectively
measure and limit the credit risk associated with our loan portfolio could have a material adverse effect on our business, financial
condition, results of operations and future prospects.
Our allowance for loan losses may prove to be insufficient to absorb losses inherent in our loan portfolio, which could have a material
adverse effect on our financial condition and results of operations.
We maintain an allowance for loan losses that represents management’s judgment of probable losses inherent in our loan portfolio. The
level of the allowance reflects management’s continuing evaluation of historical default and loss experience in our portfolio, general
economic conditions, diversification and seasoning of the loan portfolio, identified credit problems, delinquency levels and adequacy
of collateral. The determination of the appropriate level of the allowance for loan losses is inherently highly subjective and requires us
to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material
changes. Inaccurate management assumptions, continuing deterioration of economic conditions affecting borrowers, new information
regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require
us to increase our allowance for loan losses. In addition, our regulators, as an integral part of their periodic examination, review the
adequacy of our allowance for loan losses and may direct us to make additions to the allowance based on their judgments about information
available to them at the time of their examination. Further, if actual charge-offs in future periods exceed the amounts allocated to the
allowance for loan losses, we may need additional provision for loan losses to restore the adequacy of our allowance for loan losses. If
we are required to materially increase our level of allowance for loan losses for any reason, such increase could have a material adverse
effect on our business, financial condition, results of operations and future prospects.
A material portion of our loan portfolio is comprised of commercial loans secured by equipment or other business assets, the
deterioration in value of which could increase our exposure to future probable losses.
Historically, a material portion of our loans held-for-investment have been comprised of commercial loans to businesses collateralized
by general business assets including, among other things, accounts receivable, inventory and equipment. These commercial and industrial
loans are typically larger in amount than loans to individuals and, therefore, have the potential for larger losses on a single loan basis.
Historically, losses in our commercial and industrial credits have been higher than losses in other segments of our loan portfolio.
Significant adverse changes in various industries could cause rapid declines in values and collectability associated with those business
assets resulting in inadequate collateral coverage that may expose us to future losses. An increase in specific reserves and charge-offs
related to our commercial and industrial loan portfolio could have a materially adverse effect on our business, financial condition, results
of operations and future prospects.
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Because many of our customers are commercial enterprises, they may be adversely affected by any decline in general economic
conditions in the United States which, in turn, could have a negative impact on our business.
Many of our customers are commercial enterprises whose business and financial condition are sensitive to changes in the general economy
of the United States. Our businesses and operations are, in turn, sensitive to these same general economic conditions. If the U.S. economy
does not continue to recover from the recession that lasted from 2007 to 2009 or experiences worsening economic conditions, our growth
and profitability could be constrained. In addition, economic conditions in foreign countries, including uncertainty over the stability of
the euro currency, could affect the stability of global financial markets, which could hinder the U.S. economic recovery. Weak economic
conditions are characterized by deflation, fluctuations in debt and equity capital markets, including a lack of liquidity and depressed
prices in the secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential
and commercial real estate price declines and lower home sales and commercial activity. All of these factors are detrimental to the
business of our customers and could adversely impact demand for our credit products as well as our credit quality. Our business is also
sensitive to monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced
by macroeconomic conditions and other factors that are beyond our control and difficult to predict. Adverse economic conditions and
government policy responses to such conditions could have a material adverse effect on our business, financial condition, results of
operations and future prospects.
Our non-owner-occupied commercial real estate loan portfolio exposes us to credit risks that may be greater than the risks related
to other types of loans.
Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which
are secured by commercial properties, as well as real estate construction and development loans. As of December 31, 2015, we had
outstanding loans secured by non-owner-occupied commercial properties of $744.4 million, or 26.2%, of our loans held-for-investment.
These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the
loan in amounts sufficient to cover operating expenses and debt service. The availability of such income for repayment may be adversely
affected by changes in the economy or local market conditions. These loans expose a lender to greater credit risk than loans secured by
other types of collateral because the collateral securing these loans are typically more difficult to liquidate. Additionally, non-owner-
occupied commercial real estate loans generally involve relatively large balances to single borrowers or related groups of borrowers.
Unexpected deterioration in the credit quality of our non-owner-occupied commercial real estate loan portfolio could require us to
increase our provision for loan losses, which would reduce our profitability and have a material adverse effect on our business, financial
condition, results of operations and future prospects.
We make loans to businesses backed by private equity firms. These loan relationships may have repayment and other characteristics
that are different than those of traditional business loans, which could have an adverse effect on our asset quality and profitability.
As of December 31, 2015, we had $131.7 million in loans to private equity backed businesses, which represented 4.6% of our loans held-
for-investment compared to $231.3 million, or 9.6%, as of December 31, 2014. These loan relationships may have repayment
characteristics that are different than those of our traditional, owner-operated businesses. These loans often are for purposes of financing
private equity groups’ acquisitions of companies that become our borrowers. Acquisition-related loans are generally secured by all
business assets, but often have a weaker secondary source of repayment resulting in greater reliance upon the cash flow generated by the
borrower for repayment, which may be unpredictable. Because private equity groups acquire businesses primarily for financial interests,
they may behave differently than our other commercial borrowers. Of these loans to private equity backed businesses as of December 31,
2015, $58.3 million, or 2.1% of our loans held-for-investment, were SNC loans in which we were not the lead bank compared to $129.0
million, or 5.4%, as of December 31, 2014. In certain circumstances, our lending through participation loans in which we are not the
agent bank to private equity backed businesses can present additional risks because the agent bank or bank group may make different
decisions or otherwise may not be able to respond as a group as quickly or as definitively as we might on our own in the event that a
private equity backed borrower becomes financially or operationally challenged. Because the different characteristics of this segment
of our loan portfolio could negatively impact our profitability or asset quality, which in turn, could have a material adverse effect on our
business, financial condition, results of operation and future prospects, we have over the past several years substantially decreased, the
balance of these loans and the percentage of our total loans they represent. We intend to continue reducing the portion of our loan portfolio
consisting of these private equity backed SNC loans in large part by further diversifying through growth in loans from our private banking
channel and non-private equity backed commercial loans. However, there can be no guaranty we will be successful in our efforts to
further diversify the portfolio.
Our private banking business could be negatively impacted by a prolonged downturn in the securities markets.
Marketable-securities-backed private banking loans represent a material portion of our business and are the fastest growing part of our
loan portfolio. We expect to continue to increase the percentage of our loan portfolio represented by marketable-securities-backed private
banking loans in the future. We believe our risk management practices appropriately mitigate the risk of fluctuations in the market value
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of securities that collateralize these loans. Nevertheless, a sharp or prolonged decline in the value of the collateral that secures these
loans could materially adversely affect this segment of our loan portfolio and, as a result, could materially adversely affect our business.
A prolonged downturn in the real estate market, especially in our primary markets, could result in losses and adversely affect our
profitability.
Historically, a material portion of our loans have been comprised of loans with real estate as a primary component of collateral. The
real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate
in value during the time the credit is extended. The U.S. recession from 2007 to 2009 adversely affected real estate market values across
the country, including in our primary market areas. Future declines in real estate values could impair the value of our collateral and our
ability to sell the collateral upon any foreclosure, which would likely require us to increase our provision for loan losses. In the event
of a default with respect to any of these loans, the amounts we receive upon sale of the collateral may be insufficient to recover the
outstanding principal and interest on the loan. If we are required to re-value the collateral securing a loan to satisfy the debt during a
period of reduced real estate values or to increase our allowance for loan losses, our profitability could be adversely affected, which
could have a material adverse effect on our business, financial condition, results of operations and future prospects.
A material portion of our loan portfolio is comprised of participation transaction interests, which could have an adverse effect on
our ability to monitor the lending relationships and lead to an increased risk of loss.
We achieved a significant portion of our loan growth and diversity in our loan portfolio in our initial years of operation by participating
in loans originated by other institutions (including shared national credits) in which other lenders serve as the agent bank. As of
December 31, 2015, $401.6 million, or 14.1% of our loans held-for-investment, consisted of SNC loans in which we were not the lead
bank. This SNC structure may reduce our control over the monitoring and management of these relationships, particularly participations
with large bank groups, which could lead to increased risk of loss, which could have a material adverse effect on our business, financial
condition, results of operations and future prospects. As a result, we have reduced this component of our loan portfolio from $451.8
million, or 18.8% of our loans held-for-investment as of December 31, 2014, and we intend to continue to further diversify our portfolio
through growth in loans from our private banking channel and direct commercial loans. However, there can be no guaranty we will be
successful in our efforts to further diversify the portfolio.
Our loan portfolio contains large loans, and deterioration in the financial condition of these large loans could have a material adverse
impact on our asset quality and profitability.
If only a few of our largest borrowers become unable to repay their loan obligations as a result of economic or market conditions or
personal circumstances, our non-performing loans and our provision for loan losses could increase significantly, which could have a
material adverse effect on our business, financial condition, results of operations and future prospects. We intend to continue to further
diversify our portfolio with increased focus on growth in loans from our private banking channel and direct commercial loans which
often have smaller loan balances. However, there can be no guaranty we will be successful in our efforts to further diversify the portfolio.
Our lending limit may restrict our growth and prevent us from effectively implementing our business strategy.
We are limited in the amount we can loan to a single borrower by the amount of our capital. Generally, under current law, we may lend
up to 15.0% of our unimpaired capital and surplus to any one borrower. We have also established an informal limit on loans to any one
borrower of $10.0 million. Based upon our current capital levels, the amount we may lend is significantly less than that of many of our
competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business with us.
We accommodate larger loans by selling participations in those loans to other financial institutions, but this strategy may not always be
available. If we are unable to compete effectively for loans from our target customers, we may not be able to effectively implement our
business strategy, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.
We must maintain and follow high loan underwriting standards to grow safely.
Our ability to grow our assets safely depends on maintaining disciplined and prudent underwriting standards and ensuring that our
relationship managers and lending personnel follow those standards. The weakening of these standards for any reason, such as to seek
higher yielding loans, or a lack of discipline or diligence by our employees in underwriting and monitoring loans, may result in loan
defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses, any of
which could adversely affect our net income. Relatedly, as we attempt to uphold those standards in an increasingly competitive lending
environment, we may experience increased refinancing of existing loans and reduced new loan growth. As a result, our business, results
of operations, financial condition or future prospects could be adversely affected.
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We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected
loss of their services.
Our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate and retain highly
qualified senior and middle management and other skilled employees. Competition for employees is intense, and the process of locating
key personnel with the combination of skills and attributes required to execute our business plan may be lengthy. We currently do not
have any employment or non-compete agreements with any of our executive officers or key employees other than certain non-solicitation
and restrictive agreements that we received from certain key employees in connection with our investment management business. We
may not be successful in retaining our key employees, and the unexpected loss of services of one or more of our key personnel could
have a material adverse effect on our business because of their skills, knowledge of our primary markets, years of industry experience
and the difficulty of promptly finding qualified replacement personnel. If the services of any of our key personnel should become
unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, or at all, which could
have a material adverse effect on our business, financial condition, results of operations and future prospects.
Our business has grown rapidly, and we may not be able to maintain our historical rate of growth, which could have a material
adverse effect on our ability to successfully implement our business strategy.
Our business has grown rapidly. Although rapid business growth can be a favorable business condition, financial institutions that grow
rapidly can experience significant difficulties as a result of rapid growth. We seek to grow safely and consistently. This requires us to
manage several different elements simultaneously. Successful growth in our banking business requires that we follow adequate loan
underwriting standards, balance loan and deposit growth without increasing interest rate risk or compressing our net interest margin,
maintain adequate capital at all times, produce investment performance results competitive with our peers and benchmarks, further
diversify our revenue sources, meet the expectations of our clients, and hire and retain qualified employees. If we do not manage our
growth successfully, then our business, results of operations or financial condition may be adversely affected.
We may not be able to sustain our historical rate of growth or continue to grow our business at all. Because of factors such as the
uncertainty in the general economy and the recent government intervention in the credit markets, it may be difficult for us to repeat our
historic earnings growth as we continue to expand. Failure to grow or failure to manage our growth effectively could have a material
adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to
successfully implement our business strategy.
Our utilization of brokered deposits could adversely affect our liquidity and results of operations.
Since our inception, we have utilized both brokered and non-brokered deposits as a source of funds to support our growing loan demand
and other liquidity needs. As a bank regulatory supervisory matter, reliance upon brokered deposits as a significant source of funding
is discouraged. Brokered deposits may not be as stable as other types of deposits, and, in the future, those depositors may not renew
their deposits when they mature, or we may have to pay a higher rate of interest to keep those deposits or may have to replace them with
other deposits or with funds from other sources. Additionally, if TriState Capital Bank ceases to be categorized as “well capitalized”
for bank regulatory purposes, it will not be able to accept, renew or roll over brokered deposits without a waiver from the FDIC. Our
inability to maintain or replace these brokered deposits as they mature could adversely affect our liquidity and results of operations.
Further, paying higher interest rates to maintain or replace these deposits could adversely affect our net interest margin and our results
of operations or financial condition.
Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.
Our ability to implement our business strategy will depend on our liquidity and ability to obtain funding for loan originations, working
capital and other general purposes. An inability to raise funds through deposits, borrowings and other sources could have a substantial
negative effect on our liquidity. Our preferred source of funds for our banking business consists of customer deposits; however, we rely
on other sources such as brokered deposits and Federal Home Loan Bank (“FHLB”) advances. Such account and deposit balances can
decrease when customers perceive alternative investments as providing a better risk/return trade off. If customers move money out of
bank deposits and into other investments, we may increase our utilization of brokered deposits, FHLB advances and other wholesale
funding sources necessary to fund desired growth levels.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment
securities and other sources of liquidity, respectively, to ensure that we have adequate liquidity to fund our banking operations. Any
decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill
obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect
on our liquidity, financial condition, results of operations and future prospects.
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We are subject to interest rate risk that could negatively impact the profitability of our banking business.
Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference
between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest-
bearing liabilities, such as deposits and borrowings. One of the ways in which we attempt to manage interest rate risk is by maintaining
a largely asset sensitive balance sheet combined with longer-term deposits, but conditions could prevent us from successfully
implementing this strategy in the future.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of
various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes
in interest rates, could influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings,
but such changes could also affect our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities,
and the average duration of our assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest
rates received on loans and other investments, our net interest income, and therefore net income, could be adversely affected.
Our loans are predominantly variable rate loans, with the majority being based on LIBOR. While there is a low probability that interest
rates will decline materially from current levels, a continuation of the current levels of historically low interest rates could cause the
spread between our loan yields and our deposit rates paid to compress our net interest margin and our net income could be adversely
affected. Further, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our
business, financial condition, results of operations and future prospects.
Further, short-term interest rates are currently very low by historical standards. These low rates have reduced our cost of funding over
time. We do not believe that we can continue to use these low rates to reduce our cost of funding by the levels we have in past years.
As a result, our business, results of operations, financial condition or future prospects may be adversely affected, perhaps materially.
In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers
to repay their current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-
offs, but also necessitate further increases to our allowance for loan losses, each of which could have a material adverse effect on our
business, results of operations, financial condition and future prospects.
Prolonged lower interest rates may adversely affect our net income.
Prolonged lower interest rates may have an adverse impact on the composition of our earning assets, our net interest margin, our net
interest income and our net income. Among other things, a period of prolonged lower rates may cause prepayments to increase as our
banking clients seek to refinance loans they currently have with us. Such prepayments and refinancing activity can result in a decrease
in the weighted average yield of our earning assets. As a result, our business, results of operations or financial condition may be adversely
affected, perhaps materially.
Our banking business is concentrated in, and largely dependent upon, the continued growth and welfare of the general geographic
markets in which we operate.
Our commercial banking operations are concentrated in Pennsylvania, New Jersey, New York, and Ohio. As a result, our financial
condition and results of operations and cash flows are affected by changes in the economic conditions of any of those states or the regions
of which they are a part. Our success depends to a significant extent upon the business activity, population, income levels, deposits and
real estate activity in these markets. Among other things that could affect those markets is a diminution in shale gas exploration and
production resulting from low energy prices. Shale gas exploration and production is a significant force in driving the economies of
Western Pennsylvania and Northeastern Ohio, two of our significant commercial banking markets. Although we do not make loans to
companies directly engaged in oil and gas exploration and production, adverse conditions that affect these market areas could reduce
our growth rate, affect the ability of our customers to repay their loans, affect the value of collateral underlying loans, impact our ability
to attract deposits and generally affect our financial conditions and results of operations. Because of our geographic concentration, we
may be less able than other regional or national financial institutions to diversify our credit risks across multiple markets.
Our investment management business may be negatively impacted by competition, changes in economic and market conditions,
changes in interest rates and investment performance.
Our investment management business may be negatively impacted by competition, changes in economic and market conditions, changes
in interest rates and investment performance. As a result of our Chartwell acquisition, a material portion of our earnings is derived from
our investment management business, and the proportion of our earnings represented by our investment management business is expected
to increase upon the closing of our pending acquisition of the assets of TKG. The investment management business is intensely competitive.
In the markets where we compete, there are over 1,000 firms which we consider to be primary competitors. In addition to competition
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from other institutional investment management firms, Chartwell and TKG, along with the active-management industry, compete with
passive index funds, ETFs and investment alternatives such as hedge funds. Our ability to successfully attract and retain investment
management clients will depend on, among other things, our ability to compete with our competitors’ investment products, level of
investment performance, fees, client services, marketing and distribution capabilities. Our ability to retain investment management clients
may be impaired by the fact that investment management contracts are typically terminable in nature. Most of our clients may withdraw
funds from under our management at their discretion at any time for any reason, including the performance of the investment advice, a
change in the client’s investment strategy or other factors. If we cannot effectively compete to attract and retain customers, our business,
results of operations or financial condition may be adversely affected.
Additionally, it is possible our management fees could be reduced for a variety of reasons, including among other things, pressure on
them resulting from competition in the investment management sector or regulatory changes, and that we may from time to time reduce
or waive investment management fees, or limit total expenses, on certain products or services offered as part of the our investment
management business for particular time periods to manage fund expenses, or for other reasons, and to help retain or increase managed
assets. If our revenues decline without a commensurate reduction in our expenses, our net income from our investment management
business would be reduced, which could have a material adverse effect on our business, financial condition, results of operations and
future prospects.
Our investment management business may be negatively impacted by changes in general economic and market conditions. The financial
markets and businesses operating in the securities industry are highly volatile (meaning that performance results can vary greatly within
short periods of time) and are directly affected by, among other factors, domestic and foreign economic conditions and general trends in
business and finance, all of which are beyond our control. We cannot guaranty that broad market performance will be favorable in the
future. Declines in the financial markets or a lack of sustained growth may result in declines in the performance of the investment
management business and the level of assets under management. Because the revenues of our investment management business are, to
a large extent, fees based on assets under management, such declines could have a material adverse effect on that business.
Further, changes in interest rates could also adversely affect our investment management business, which will comprise a material part
of our earnings, by decreasing the net asset values of our assets under management and potentially causing investors to shift assets in
ways that negatively impact the fees generated by that business.
Success in the investment management business is largely dependent on investment performance relative to market conditions and the
performance of competing products. Good performance generally assists retention and growth of managed assets, resulting in additional
revenues. Conversely, poor performance tends to result in decreased sales and increased redemptions with corresponding decreases in
revenues to the investment management business. It also could adversely impact any performance-based fees for which we are eligible
in that business. Poor performance could, therefore, have a material adverse effect on our business, results of operations or business
prospects. A significant and prolonged decline in the assets under management of our investment management business could have a
material adverse effect on our future revenues and, to a lesser extent, net income, due to related reductions to distribution expenses
associated with these funds.
The termination or failure to renew fund agreements could have adverse effects on our investment management business.
A material portion of our earnings is derived from investment management agreements and sub-advisor investment management
agreements related to multiple sponsored funds. Investment management agreements are, as required by law, terminable upon 60 days’
notice. In addition, investment management agreements of this nature must be approved and renewed annually by each fund’s board of
directors or trustees, including independent members of the board, or its shareholders, as required by law. Failure to renew, changes
resulting in lower fees, or termination of a significant number of these agreements could have a material adverse impact on our business.
We face significant competitive pressures that could impair our growth, decrease our profitability or reduce our market share.
We operate in the highly competitive financial services industry and face significant competition for customers from bank and non-bank
competitors, particularly regional and nationwide institutions, in originating loans, attracting deposits, providing financial management
products and services and providing other financial services. Our competitors are generally larger and may have significantly more
resources, greater name recognition, and more extensive and established branch networks or geographic footprints than we do. Because
of their scale, many of these competitors can be more aggressive than we can on loan, deposit and financial services pricing. In addition,
many of our non-bank and non-institutional financial management competitors have fewer regulatory constraints and may have lower
cost structures. We expect competition to continue to intensify due to financial institution consolidation; legislative, regulatory and
technological changes; and the emergence of alternative banking sources and investment management products and services. Additionally,
technology has lowered barriers to entry.
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Our ability to compete successfully will depend on a number of factors, including, among other things:
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our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound
business practices;
the scope, relevance, performance and pricing of products and services that we offer;
customer satisfaction with our products and services;
industry and general economic trends; and
our ability to keep pace with technological advances and to invest in new technology.
Increased competition could require us to increase the rates we pay on deposits or lower the rates we offer on loans or fees we charge
on investment management products and services, which could reduce our profitability. Our failure to compete effectively in our primary
markets could cause us to lose market share and could have a material adverse effect on our business, financial condition, results of
operations and future prospects.
Our ability to maintain our reputation is critical to the success of our business.
Our business plan emphasizes building and maintaining strong relationships with our clients. We have benefited from strong relationships
with and among our customers, and also from our relationships with financial intermediaries. As a result, our reputation is one of the
most valuable components of our business.
Our growth over the past several years has depended on attracting new customers from competing financial institutions and increasing
our market share, primarily by the involvement in our primary markets and word-of-mouth advertising, rather than on growth in the
market for financial services in our primary markets. As such, we strive to enhance our reputation by recruiting, hiring and retaining
employees who share our core values of being an integral part of the communities and markets that we serve and delivering superior
service to our customers. If our reputation is negatively affected by the actions of our employees or otherwise, our existing relationships
may be damaged. We could lose some of our existing customers, including groups of large customers who have relationships with each
other, and we may not be successful in attracting new customers. Any of these developments could have a material adverse effect on
our business, financial condition, results of operations and future prospects.
Deterioration in the fiscal position of the U.S. federal government and downgrades in U.S. Treasury and federal agency securities
could adversely affect us and our banking operations.
The business environment in the markets in which we operate and in the United States as a whole have a significant effect on our financial
performance, the ability of borrowers to pay interest on and repay the principal of outstanding loans, the value of collateral securing those
loans, and demand for loans and other products and services we offer and whose success we rely on to drive our future growth. Some
elements of the business environment that affect our financial performance include short-term and long-term interest rates, the prevailing
yield curve, inflation, monetary supply, fluctuations in the debt and equity capital markets, and the strength of the domestic economy and
the local economies in the markets in which we operate. Unfavorable market conditions can result in a deterioration of the credit quality
of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for loan losses, adverse
asset values and a reduction in assets under management. Unfavorable or uncertain economic and market conditions can be caused by
declines in economic growth, business activity or investor or business confidence, limitations on the availability of or increases in the
cost of credit and capital, increases in inflation, changes in interest rates, high unemployment, natural disasters, state or local government
insolvency, or a combination of these or other factors.
Uncertainty about the federal fiscal policymaking process, the medium and long-term fiscal outlook of the federal government, and future
tax rates is a concern for businesses, consumers and investors in the United States. Any unfavorable change in the general business
environment in which we operate, in the United States as a whole or abroad could adversely affect our business, results of operations,
financial condition or future prospects.
The long-term outlook for the fiscal position of the U.S. federal government is uncertain, as illustrated by the 2011 downgrade by certain
rating agencies of the credit rating of the U.S. federal government. In addition to causing economic and financial market disruptions,
any future downgrade, failures to raise the U.S. statutory debt limit, or deterioration in the fiscal outlook of the U.S. federal government,
could, among other things, materially adversely affect the market value of the U.S. and other government and governmental agency
securities that we may hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on
favorable terms. It also could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed
income markets, adversely affecting the cost and availability of funding, which could negatively affect our profitability. The adverse
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consequences of any downgrade could also extend to those to whom we extend credit and could adversely affect their ability to repay
their loans. In addition, any resulting decline in the financial markets could affect the value of marketable securities that serve as collateral
for our loans, which would, in turn, adversely affect our credit quality and could impede the growth that we expect to achieve within
this segment of our loan portfolio. Any of these developments could have a material adverse effect on our business, financial condition,
results of operations and future prospects.
The fair value of our investment securities can fluctuate due to factors outside of our control.
We hold an investment securities portfolio. Factors beyond our control can significantly influence the fair value of securities in our
portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating
agency actions in respect to the securities, defaults by the issuer or with respect to the underlying securities, changes in market interest
rates and continued instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments
and realized or unrealized losses in future periods, which could have a material adverse effect on our business, results of operations,
financial condition and future prospects. The process for determining whether impairment of a security is other-than-temporary often
requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer,
whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in
fair value, the future financial performance and liquidity of the issuer and any collateral underlying the security, and other relevant factors.
Any future reductions in our credit ratings may increase our funding costs or impair our ability to effectively compete for business
and clients.
We have used and may in the future use debt as a funding source. One or more rating agencies regularly evaluate us and their ratings of
our long-term debt based on a number of factors, including our financial strength and conditions affecting the financial services industry
generally. In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity,
asset quality, business mix and level and quality of earnings, and we may not be able to maintain our current credit ratings. Our ratings
remain subject to change at any time, and it is possible that any rating agency will take action to downgrade us in the future.
Any future decrease in our credit ratings by one or more rating agencies could impact our access to the capital markets or short-term
funding or increase our financing costs, and thereby adversely affect our financial condition and liquidity. Our clients and counterparties
may also be sensitive to the risks posed by a ratings downgrade and may terminate their relationships with us, may be less likely to engage
in transactions with us, or may only engage in transactions with us at a substantially higher cost. We cannot predict whether client
relationships or opportunities for future relationships could be adversely affected by clients who choose to do business with a higher-
rated institution. The inability to retain clients or to effectively compete for new business may have a material and adverse effect on our
business, results of operations or financial condition.
Additionally, rating agencies have themselves been subject to scrutiny arising from the financial crisis such that the rating agencies may
make or may be required to make substantial changes to their ratings policies and practices. Such changes may, among other things,
adversely affect the ratings of our securities or other securities in which we have an economic interest.
Our financial results depend on management’s selection of accounting methods and certain assumptions and estimates.
Our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in
accordance with GAAP and with general practices within the financial services industry. The preparation of financial statements in
conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities,
disclosure of contingent assets and liabilities and the reported amount of related revenues and expenses. Certain accounting policies
inherently are based to a greater extent on estimates, assumptions and judgments of management and, as such, have a greater possibility
of producing results that could be materially different than originally reported. They require management to make subjective or complex
judgments, estimates or assumptions, and changes in those estimates or assumptions could have a significant impact on our consolidated
financial statements. These critical accounting policies include: the allowance for loan losses, accounting for investment securities,
evaluation of goodwill and other intangible assets, accounting for income taxes and the determination of fair value for financial
instruments. Due to the uncertainty of estimates involved in these matters, we may be required to significantly increase the allowance
for loan losses or sustain loan losses that are significantly higher than the reserve provided, significantly increase our accrued tax liability
or otherwise incur charges that could have a material adverse effect on our business, financial condition, results of operations and future
prospects.
By engaging in derivative transactions, we are exposed to additional credit and market risk in our banking business.
We use interest rate swaps to help manage our interest rate risk in our banking business from recorded financial assets and liabilities
when they can be demonstrated to effectively hedge a designated asset or liability and the asset or liability exposes us to interest rate
risk or risks inherent in customer related derivatives. We use other derivative financial instruments to help manage other economic risks,
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such as liquidity and credit risk, including exposures that arise from business activities that result in the receipt or payment of future
known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used
to manage differences in the amount, timing, and duration of our known or expected cash receipts principally related to our fixed-rate
loan assets. We also have derivatives that result from a service we provide to certain qualifying customers approved through our credit
process, and therefore, are not used to manage interest rate risk in our assets or liabilities. Hedging interest rate risk is a complex process,
requiring sophisticated models and routine monitoring, and is not a perfect science. As a result of interest rate fluctuations, hedged assets
and liabilities will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation will generally be
offset by income or loss on the derivative instruments that are linked to the hedged assets and liabilities. By engaging in derivative
transactions, we are exposed to credit and market risk. If the counterparty fails to perform, credit risk exists to the extent of the fair
value gain in the derivative. Market risk exists to the extent that interest rates change in ways that are significantly different from what
we expected when we entered into the derivative transaction. The existence of credit and market risk associated with our derivative
instruments could adversely affect our net interest income and, therefore, could have an adverse effect on our business, financial condition,
results of operations and future prospects.
We may be adversely affected by the soundness of other financial institutions.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other
financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships.
We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry,
including broker/dealers, commercial banks, investment banks, and other financial intermediaries. In addition, we participate in loans
originated by other financial institutions (including shared national credits) in which other lenders serve as the lead bank. Further, our
private banking channel relies on relationships with a number of other financial institutions for referrals. As a result, declines in the
financial condition of, or even rumors or questions about, one or more financial institutions, financial service companies or the financial
services industry generally, may lead to market-wide liquidity, asset quality or other problems and could lead to losses or defaults by us
or by other institutions. These problems, losses or defaults could have a material adverse effect on our business, financial condition,
results of operations and future prospects.
We rely on third parties to provide key components of our business infrastructure, and a failure of these parties to perform for any
reason could disrupt our operations.
Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core
application processing, statement production and account analysis. Our business depends on the successful and uninterrupted functioning
of our information technology and telecommunications systems and third-party servicers. The failure of these systems, or the termination
of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because
our information technology and telecommunications systems interface with and depend on third-party systems, we could experience
service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. Replacing
vendors or addressing other issues with our third-party service providers could entail significant delay and expense. If we are unable to
efficiently replace ineffective service providers, or if we experience a significant, sustained or repeated, system failure or service denial,
it could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and subject us to
additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our business, financial
condition, results of operations and future prospects.
We utilize the information systems of third parties to monitor the value of and control marketable securities that collateralize our
loans, and a failure of those systems or third parties could adversely affect our ability to assess and manage the risk in our loan
portfolio.
A significant portion of our loan portfolio is secured by marketable securities that are held by third-party custodians or other financial
services or wealth management firms. We utilize the systems of these third parties to provide information to us so that we can quickly
and accurately monitor changes in value of the securities that serve as collateral. We also rely on these parties to provide control over
marketable securities for purposes of perfecting our security interests and retaining the collateral in the applicable accounts. While we
have been careful in selecting the third-parties with which we do business, we do not control their actions, their systems or the information
that they provide to us. Any problems caused by these third parties, including as a result of their failure to provide services or information
to us for any reason, or their performing services poorly or providing us with incorrect information, could adversely affect our ability
to deliver products and services to our customers or could adversely affect our ability to manage, appropriately assess and react to risk
in our loan portfolio, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and
future prospects.
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We could be subject to losses, regulatory action or reputational harm due to fraudulent and negligent acts on the part of loan applicants,
our borrowers, our employees and vendors.
In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished
by or on behalf of clients and counterparties, including financial statements, property appraisals, title information, employment and
income documentation, account information and other financial information. We may also rely on representations of clients and
counterparties as to the accuracy and completeness of such information and, with respect to financial statements, on reports of independent
auditors. Any such misrepresentation or incorrect or incomplete information may not be detected prior to funding a loan or during our
ongoing monitoring of outstanding loans. In addition, one or more of our employees or vendors could cause a significant operational
breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our
loan documentation, operations or systems. Any of these developments could have a material adverse effect on our business, financial
condition, results of operations and future prospects.
Our growth and expansion strategy may involve strategic investments or acquisitions, and we may not be able to overcome risks
associated with such transactions.
We are scheduled to close our pending acquisition of TKG in the second quarter of 2016. Additionally, although we plan to continue to
grow our business organically, we may seek opportunities to invest in or acquire investment management businesses that we believe
would complement our existing business model. Our pending TKG acquisition and any potential future investment or acquisition
activities could be material to our business and involve a number of risks, including the following:
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incurring time and expense associated with identifying and evaluating potential investments or acquisitions and negotiating
potential transactions, resulting in our attention being diverted from the operation of our existing business;
the limited experience of our management team in working together on acquisitions and related integration activities;
the time, expense and difficulty of integrating the operations and personnel and standards, procedures and policies of the
combined businesses;
an inability to realize expected synergies or returns on investment;
potential disruption of our ongoing banking business; and
a loss of key employees or key customers following an investment or acquisition.
We may not be successful in overcoming these risks or any other problems encountered in connection with pending or potential investments
or acquisitions. Our inability to overcome these risks could have an adverse effect on our ability to implement our business strategy and
enhance shareholder value, which, in turn, could have a material adverse effect on our business, financial condition, results of operations
and future prospects.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may develop and grow new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully
developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and
resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be
achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive
alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product
or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of
our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business
or new products or services could have a material adverse effect on our business, results of operations and financial condition. All service
offerings, including current offerings and those which may be provided in the future may become more risky due to changes in economic,
competitive and market conditions beyond our control.
The value of our goodwill and other intangible assets may decline in the future.
In connection with our Chartwell acquisition we recognized, and in connection with our pending TKG acquisition we will recognize,
intangible assets including customer relationship intangible assets and goodwill in our consolidated statement of financial condition. We
may not realize the value of these assets. Management performs an annual review of the carrying values of goodwill and indefinite-lived
intangible assets and periodic reviews of the carrying values of all other assets to determine whether events and circumstances indicate
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that an impairment in value may have occurred. A variety of factors could cause the carrying value of an asset to become impaired.
Should a review indicate impairment, a write-down of the carrying value of the asset would occur, resulting in a non-cash charge which
would adversely affect our results of operations for the period.
Unauthorized access, cyber-crime and other threats to data security may require significant resources, harm our reputation, and
adversely affect our business.
We necessarily collect, use and hold personal and financial information concerning individuals and businesses with which we have a
relationship. Threats to data security, including unauthorized access, and cyber-attacks, rapidly emerge and change, exposing us to
additional costs for protection or remediation and competing time constraints to secure our data in accordance with customer expectations
and statutory and regulatory privacy and other requirements. It is difficult or impossible to defend against every risk being posed by
changing technologies, as well as criminal intent on committing cyber-crime. Increasing sophistication of cyber-criminals and terrorists
make keeping up with new threats difficult and could result in a breach. Controls employed by our information technology department
and our other employees and vendors could prove inadequate. We could also experience a breach due to intentional or negligent conduct
on the part of employees or other internal sources, software bugs or other technical malfunctions, or other causes. As a result of any of
these threats, our customer accounts may become vulnerable to account takeover schemes or cyber-fraud. Our systems and those of our
third-party vendors may also become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from
catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.
A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily
operations as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs, and reputational
damage. In addition, our investment management business could be harmed by cyber incidents affecting issuers in which its customers’
assets are invested. Any such breaches of security or cyber incidents could have a material adverse effect on our business, results of
operations, financial condition and future prospects.
Systems and technology.
We utilize software and related technologies throughout our business including proprietary systems and those provided by outside service
providers. Our service providers and customers, and third parties on which such service providers and customers rely, also utilize software
and related technologies in their businesses. Unanticipated issues could occur and it is not possible to predict with certainty all of the
adverse effects that could result from our failure or the failure of a third party to address computer system or software problems. Data
or model imprecision, software or other technology malfunctions, programming inaccuracies and similar or other circumstances or events
may impair the performance of systems and technology. Accordingly, there can be no assurance that potential system interruptions, other
technology-related issues or the cost necessary to rectify the problems would not have a material adverse effect on our business including,
but not limited to, business prospects, results of operations, financial condition and future prospects.
We may take filing positions or follow tax strategies that may be subject to challenge.
The amount of income taxes that we are required to pay on our earnings is based on federal and state legislation and regulations. We
provide for current and deferred taxes in our financial statements based on our results of operations, business activity, legal structure and
interpretation of tax statutes. We may take filing positions or follow tax strategies that are subject to audit and may be subject to challenge.
Our net income may be reduced if a federal, state or local authority assessed charges for taxes that have not been provided for in our
consolidated financial statements. Taxing authorities could change applicable tax laws, challenge filing positions or assess taxes and
interest charges. If taxing authorities take any of these actions, our business, results of operations, financial condition, could be adversely
affected, perhaps materially.
The market in which we operate is susceptible to storms and other natural disasters and adverse weather which could result in a
disruption of our operations and increases in loan losses.
A significant portion of our business is generated from markets that have been, and may continue to be, damaged by major storms and
other natural disasters and adverse weather. Natural disasters can disrupt our operations, cause widespread property damage, and severely
depress the local economies in which we operate. If the economies in our primary markets experience an overall decline as a result of
a natural disaster, adverse weather, or other disaster, demand for loans and our other products and services could be reduced. In addition,
the rates of delinquencies, foreclosures, bankruptcies and losses on loan portfolios may increase substantially, as uninsured property
losses or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans. Moreover, the value of
real estate or other collateral that secures the loans could be materially and adversely affected by a disaster. A disaster could, therefore,
result in decreased revenue and loan losses that have a material adverse effect on our business, financial condition, results of operations
and future prospects.
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Our operations and clients are concentrated in large metropolitan areas in the United States, which could be the target of terrorist
attacks.
A significant portion of our operations and our clients, as well as the properties securing our loans outstanding are located in large
metropolitan areas in the United States. These areas have been and may continue to be the target of terrorist attacks. A successful, major
terrorist attack in one of our primary markets could severely disrupt our operations and the ability of our clients to do business with us,
and cause losses to loans secured by properties in these areas. Such an attack could therefore have a material adverse effect on our
business, results of operations, financial condition and future prospects.
We are subject to environmental liability risk associated with our lending activities.
In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result, we could be
subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties
for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental
contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs
associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a
contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental
contamination emanating from the property. Any significant environmental liabilities could cause a material adverse effect on our
business, financial condition, results of operations and future prospects.
Risks Relating to Regulations
We operate in a highly regulated environment, which could have a material and adverse impact on our operations and activities,
financial condition, results of operations, growth plans and future prospects.
Banking is highly regulated under federal and state law. We are subject to extensive regulation and supervision that governs almost all
aspects of our operations. As a registered bank holding company, we are subject to supervision, regulation and examination by the
Federal Reserve. As a commercial bank chartered under the laws of Pennsylvania, TriState Capital Bank is subject to supervision,
regulation and examination by the Pennsylvania Department of Banking and Securities and the FDIC. Our investment management
business is subject to extensive regulation in the United States. Chartwell, Chartwell TSC and TKG (which we are to acquire in the
second quarter of 2016) are subject to Federal securities laws, principally the Securities Act of 1933, the Investment Company Act, the
Advisers Act, state laws regarding securities fraud and regulations promulgated by various regulatory authorities, including the SEC,
FINRA, applicable state laws and stock exchanges. Our investment management business also may be subject to regulation by the CFTC
and NFA. The investment management business also is affected by the regulations governing banks and other financial institutions.
The primary goals of the bank regulatory scheme are to maintain a safe and sound banking system and to facilitate the conduct of sound
monetary policy. This system is intended primarily for the protection of the FDIC’s Deposit Insurance Fund and bank depositors, rather
than our shareholders and creditors. The banking agencies have broad enforcement power over bank holding companies and banks,
including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative action to correct any violation
or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other
assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and directors, and, with respect
to banks, terminate our charter, terminate our deposit insurance or place the Bank into conservatorship or receivership. In general, these
enforcement actions may be initiated for violations of laws and regulations or unsafe or unsound practices.
The securities industry, including the investment management segment of it, has experienced increased scrutiny from a variety of regulators,
including the SEC, FINRA and state attorneys general. Penalties and fines sought by regulatory authorities have increased substantially
over the last several years. We may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by
these governmental authorities and self-regulatory organizations.
Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of financial services, including,
but not limited to, the authority to fine us and to grant, cancel, restrict or otherwise impose conditions on the right to carry on particular
businesses. We also may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S.
governmental regulatory authorities, FINRA or other self-regulatory organizations that supervise the banks and financial markets.
Compliance with the myriad laws and regulations applicable to our organization can be difficult and costly. In addition, these laws,
regulations and policies are subject to continual review by governmental authorities, and changes to these laws, regulations and policies,
including changes in interpretation or implementation of these laws, regulations and policies, could affect us in substantial and
unpredictable ways and often impose additional compliance costs. Further, any new laws, rules and regulations, such as the Dodd- Frank
Act, could make compliance more difficult or expensive. All of these laws and regulations, and the supervisory framework applicable
to our industry, could have a material adverse impact on our operations and activities, financial condition, results of operations, growth
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plans and future prospects. In addition, substantial legal liability or significant regulatory action against us could have adverse financial
effects on us or cause reputational harm to us, which could harm our business prospects.
The Dodd-Frank Act comprehensively reformed the regulation of financial institutions, products and services. The Dodd-Frank Act
requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and
reports for Congress. While a significant number of regulations have already been promulgated to implement the Dodd-Frank Act, many
of the details and much of the impact of the Dodd-Frank Act may not be known for lengthy periods, which could have a material adverse
effect on the financial services industry, generally and our company in particular. Certain provisions of the Dodd-Frank Act that affect
deposit insurance assessments, the payment of interest on demand deposits and interchange fees could increase the costs associated with
TriState Capital Bank’s deposit-generating activities, as well as place limitations on the revenues that those deposits may generate. In
addition, the Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”). The CFPB has the authority to prescribe
rules for all depository institutions governing the provision of consumer financial products and services, which may result in rules and
regulations that reduce the profitability of such products and services or impose greater costs on us and our subsidiaries.
Federal and state bank regulators periodically examine our business and we may be required to remediate adverse examination
findings.
The Federal Reserve, the FDIC and the Pennsylvania Department of Banking and Securities periodically examine our business, including
our compliance with laws and regulations. If, as a result of an examination, a bank regulatory agency were to determine that our financial
condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become
unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems
appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any
conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase
in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors
and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate TriState
Capital Bank’s charter or deposit insurance and place the Bank into receivership or conservatorship. Any regulatory action against us
could have a material adverse effect on our business, results of operations, financial condition and future prospects.
The Bank’s FDIC deposit insurance premiums and assessments may increase.
The deposits of TriState Capital Bank are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of FDIC
deposit insurance assessments. The Bank’s regular assessments are determined by its risk category, which is based on a combination of
its financial ratios and supervisory ratings, which, among other things, generally demonstrates its regulatory capital levels and level of
supervisory concern. High levels of bank failures since 2007 and increases in the statutory deposit insurance limits have increased costs
to the FDIC in resolving bank failures and have put significant pressure on the Deposit Insurance Fund. In order to maintain a strong
funding position and restore the reserve ratios of the Deposit Insurance Fund, the FDIC increased deposit insurance assessment rates
and charged a special assessment to all FDIC-insured financial institutions. Additionally, in July 2015, the FDIC published notice of
proposed rule-making to modify the FDIC deposit insurance premium assessment methodology for banks under $10 million. In January
2016, the FDIC proposed revised rule-making to address the significant comments that it received to the initial proposal. This rule-
making will undergo additional comment before becoming final. It is unclear when or in what form a final revised methodology will
become effective. Any revised deposit insurance premium assessment methodology resulting from these proposals may result in material
increases to our FDIC deposit insurance premiums. Further increases in assessment rates or special assessments may occur in the future,
especially if there are significant additional financial institution failures. Any material decline in our examination ratings could also
increase our deposit insurance premiums. Any future special assessments, increases in assessment rates or required prepayments in
FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have
a material adverse effect on our business, financial condition, results of operations and future prospects.
Regulatory capital rules.
In December 2010, the Basel Committee released a final framework for a strengthened set of capital requirements, known as Basel III.
In July 2013, final rules implementing the Basel III capital accord were adopted by the federal banking agencies. When fully phased in,
Basel III, which began phasing in on January 1, 2015, will replace the existing regulatory capital rules for the Company and the Bank.
The Basel III final rules required new minimum capital ratio standards, established a new common equity tier 1 to total risk-weighted
assets ratio, subjected banking organizations to certain limitations on capital distributions and discretionary bonus payments and established
a new standardized approach for risk weightings that are on the whole more stringent that the standards in effect prior to Basel III. To
date the overall net impact of applying Basel III regulatory rules to the Company and TriState Capital Bank was an increase to the risk-
based capital ratios effective January 1, 2015 which primarily resulted from reduced risk-weighted capital treatment for certain of the
Bank’s private banking non-purpose margin loans, which are over-collateralized by liquid and marketable securities that are priced and
monitored daily.
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We expect that the Company and the Bank will meet all minimum capital requirements when effective and that the Company and the
Bank would also meet all capital requirements as if fully phased in without material adverse effects on our business. However, if the
capital rules continue to evolve over time or if our application of the capital rules is challenged or reversed, our business, operating
performance or financial prospects may be materially adversely affected.
Newly Proposed Liquidity Requirements.
Historically, the regulation and monitoring of bank holding company and bank liquidity has been addressed as a supervisory matter,
without required formulaic measures. The Basel III liquidity framework requires bank holding companies and banks to measure their
liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and
regulators for management or supervisory purposes, going forward will be required by regulation. One test, referred to as the liquidity
coverage ratio (“LCR”), is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid
assets equal to the entity’s expected net cash outflow for a 30-day time horizon under a liquidity stress scenario. The other test, referred
to as the net stable funding ratio, is designed to promote more medium- and long-term funding of the assets and activities of banking
entities over a one-year time horizon. These requirements will likely encourage banking entities to increase their holdings of U.S. Treasury
securities and other sovereign debt as a component of assets and may increase the use of long-term debt as a funding source. The liquidity
rules released by applicable regulators do not apply to us because we are below $50 billion in assets and because we are not internationally
active. However, it is possible that the federal banking agencies could apply an LCR requirement directly to banks such as our bank in
the future, or that the FDIC could apply an LCR requirement to us as a supervisory matter.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws,
and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations
impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau, the Department
of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an
institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of
sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions
on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s
performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business,
financial condition, results of operations and future prospects.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and
regulations.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties,
to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports when
appropriate. In addition to other bank regulatory agencies, the federal Financial Crimes Enforcement Network of the Department of the
Treasury is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in
coordinated enforcement efforts with the state and federal banking regulators, as well as the U.S. Department of Justice, Consumer
Financial Protection Bureau, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to increased scrutiny
of compliance with the rules enforced by the Office of Foreign Assets Control of the Department of the Treasury regarding, among other
things, the prohibition of transacting business with, and the need to freeze assets of, certain persons and organizations identified as a
threat to the national security, foreign policy or economy of the United States. If our policies, procedures and systems are deemed
deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay
dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including any acquisition
plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious
reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results
of operations and future prospects.
We are a holding company and we depend upon our subsidiaries for liquidity. Applicable laws and regulations, including capital and
liquidity requirements, may restrict our ability to transfer funds from our subsidiaries to us or other subsidiaries.
TriState Capital Holdings, Inc., as the parent company, is a separate and distinct legal entity from our banking and nonbank subsidiaries.
We evaluate and manage liquidity on a legal entity basis. Legal entity liquidity is an important consideration as there are legal and other
limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, including the parent
company. For instance, the parent company depends on distributions and other payments from our banking and nonbank subsidiaries to
fund all payments on our other obligations, including debt obligations. Our bank and investment management subsidiaries are subject
to laws that restrict dividend payments, or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the
parent company or other subsidiaries. In addition, our bank and investment management subsidiaries are subject to restrictions on their
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ability to lend or transact with affiliates and to minimum regulatory capital and liquidity requirements, as well as restrictions on their
ability to use funds deposited with them in bank or brokerage accounts to fund their businesses. These limitations may hinder our ability
to implement our business strategy and enhance shareholder value which, in turn, could have a material adverse effect on our business,
financial condition, results of operations and future prospects.
Risks Relating to an Investment in our Common Stock
Shares of our common stock are not an insured deposit.
Shares of our common stock are not bank deposits and are not insured or guaranteed by the FDIC or any other government agency. An
investment in our common stock has risks, and you may lose your entire investment.
An active, liquid market for our common stock may not be sustained.
Our common stock is listed on Nasdaq, but we may be unable to meet continued listing standards. In addition, an active, liquid trading
market for our common stock may not be sustained. A public trading market having the desired characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace and independent decisions of willing buyers and sellers of our common stock,
over which we have no control. Without an active, liquid trading market for our common stock, shareholders may not be able to sell
their shares at the volume, prices and times desired. Moreover, the lack of an established market could materially and adversely affect
the value of our common stock.
Future sales of our common stock may adversely affect our stock price.
The market price of our common stock may be adversely affected by the sale of a significant quantity of our outstanding common stock
(including any securities convertible into or exercisable or exchangeable for common stock), or the perception that such a sale could
occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to raise additional capital by
selling equity securities in the future at a time and price that we deem appropriate.
The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your
shares at the volume, prices and times desired.
The market price of our common stock may be highly volatile, which may make it difficult to resell shares of our common stock at the
volume, prices and times desired. There are many factors that may impact the market price and trading volume of our common stock,
including, without limitation:
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actual or anticipated fluctuations in our operating results, financial condition or asset quality;
changes in economic or business conditions;
the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve;
publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure
to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts
or ceasing of coverage;
operating and stock price performance of companies that investors deemed comparable to us;
additional or anticipated sales of our common stock or other securities by us or our existing shareholders;
additions or departures of key personnel;
perceptions in the marketplace regarding our competitors and/or us;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving
our competitors or us;
other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products
and services; and
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other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial
services industry.
The stock market and, in particular, the market for financial institution stocks have experienced substantial fluctuations in recent years,
which in many cases have been unrelated to the operating performance and prospects of particular companies. In addition, significant
fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may
materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume,
prices and times desired.
The market price of our common stock could decline significantly due to actual or anticipated issuances or sales of our common
stock in the future.
Actual or anticipated issuances or sales of substantial amounts of our common stock could cause the market price of our common stock
to decline significantly and make it more difficult for us to sell equity or equity-related securities in the future at a time and on terms
that we deem appropriate. The issuance of any shares of our common stock in the future also would, and equity-related securities could,
dilute the percentage ownership interest held by shareholders prior to such issuance. We may issue additional equity securities, or debt
securities convertible into or exercisable or exchangeable for equity securities, from time to time to raise additional capital, support
growth or to make acquisitions. Further, we expect to issue stock options or other stock awards to retain and motivate our employees,
executives and directors. These issuances of securities could dilute the voting and economic interests of our existing shareholders.
Securities analysts may not initiate or continue coverage on our common stock.
The trading market for our common stock depends in part on the research and reports that securities analysts publish about us and our
business. We do not have any control over these securities analysts, and they may not cover our common stock. If securities analysts
do not cover our common stock, the lack of research coverage may adversely affect its market price. To the extent that we are covered
by securities analysts, and our common stock is the subject of an unfavorable report, the price of our common stock may decline. If one
or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which
could cause the price or trading volume of our common stock to decline.
Our current management and board of directors have significant control over our business.
Our directors and executive officers beneficially own a material portion of our outstanding common stock. Consequently, our directors
and executive officers, acting together, may be able to significantly affect the outcome of the election of directors and the potential
outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all of our assets and other
extraordinary corporate matters. The interests of these insiders could conflict with the interest of our shareholders, including you.
The rights of holders of our common stock will be subordinate to the rights of holders of any debt securities that we may issue and
may be subordinate to the rights of holders of any class of preferred stock that we may issue in the future.
Our board of directors has the authority to issue debt securities or an aggregate of up to 150,000 shares of preferred stock on the terms
it determines without shareholder approval. Any debt or shares of preferred stock that we may issue in the future could be senior to our
common stock. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market
conditions and other factors beyond our control, the amount, timing, nature or success of our future capital raising efforts is uncertain.
Thus, holders of our common stock bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings
will negatively affect the market price of our common stock.
Fulfilling our public company financial reporting and other regulatory obligations is expensive and time consuming.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and are required to implement specific corporate governance practices and adhere to a variety of reporting requirements under the
Sarbanes-Oxley Act and the related rules and regulations of the SEC as well as Nasdaq Stock Market Rules. In particular, we are required
to file with the SEC annual, quarterly and current reports with respect to our business and financial condition. Compliance with these
requirements places significant demands on our legal, accounting and finance staff and on our accounting, financial and information
systems and has increased our legal and accounting compliance costs as well as our compensation expense because we have and may
to continue to hire additional accounting, finance, legal and internal audit staff to comply with these reporting requirements. These
expenses may further increase in the future. As a public company we also may need to enhance our investor relations, marketing and
corporate communications functions. These additional efforts may divert management’s attention from other business concerns, which
could have an adverse effect on our business, financial condition, results of operations and future prospects.
We are an “emerging growth company,” and the reduced regulatory and reporting requirements applicable to emerging growth
39
companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). For as long as we continue
to be an emerging growth company we may to take advantage of reduced regulatory and reporting requirements that are otherwise
generally applicable to public companies. These include, without limitation, not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and
exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
We have generally elected to take advantage of these reduced requirements. The JOBS Act also permits an “emerging growth company”
such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public
companies. However, we have irrevocably “opted out” of this provision, and we will comply with new or revised accounting standards
to the same extent that compliance is required for non-emerging growth companies.
We may take advantage of these provisions for up to five years, unless we earlier cease to be an emerging growth company, which would
occur if our annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three year period,
or if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time, in which
case we would no longer be an emerging growth company as of the following December 31. Investors may find our common stock less
attractive to the extent that we rely on the exemptions, which may result in a less active trading market and increased volatility in our
stock price.
We do not intend to, and would face regulatory restrictions on our ability to, pay dividends in the foreseeable future.
We have not paid any dividends on our common stock since inception, and we do not intend to pay dividends for the foreseeable future.
Instead, we anticipate that all of our future earnings will be used for working capital, to support our operations and to finance the growth
and development of our business. In addition, we are subject to certain restrictions on the payment of cash dividends as a result of
banking laws, regulations and policies. Finally, because TriState Capital Bank is our most significant asset, our ability to pay dividends
to our shareholders depends in large part on our receipt of dividends from the Bank, which is also subject to restrictions on dividends
as a result of banking laws, regulations and policies.
Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover more difficult.
Certain provisions of our amended and restated articles of incorporation, our bylaws, as amended, and corporate and federal banking
laws, could make it more difficult for a third party to acquire control of our organization or conduct a proxy contest, even if those events
were perceived by many of our shareholders as beneficial to their interests. These provisions, and the corporate and banking laws and
regulations applicable to us:
•
•
•
•
•
empower our board of directors, without shareholder approval, to issue our preferred stock, the terms of which, including voting
power, are set by our board of directors;
divide our board of directors into four classes serving staggered four-year terms;
eliminate cumulative voting in elections of directors;
require the request of holders of at least 10% of the outstanding shares of our capital stock entitled to vote at a meeting to call
a special shareholders’ meeting;
require at least 60 days’ advance notice of nominations for the election of directors and the presentation of shareholder proposals
at meetings of shareholders; and
•
require prior regulatory application and approval of any transaction involving control of our organization.
These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including circumstances
in which our shareholders might otherwise receive a premium over the market price of our shares.
There are substantial regulatory limitations on changes of control of bank holding companies.
With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert”
from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or
obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies
of our company without prior notice or application to and the approval of the Federal Reserve. Accordingly, prospective investors need
to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. These
40
provisions effectively inhibit certain mergers or other business combinations, which, in turn, could adversely affect the market price of
our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our main office consists of leased office space located at One Oxford Centre, Suite 2700, 301 Grant Street, Pittsburgh, Pennsylvania.
We also lease office space for each of our four representative offices in the metropolitan areas of Philadelphia, Pennsylvania; Cleveland,
Ohio; Edison, New Jersey; and New York, New York and we lease office space for Chartwell Investment Partners, LLC in Berwyn,
Pennsylvania. The leases for our facilities have terms expiring at dates ranging from 2016 to 2022, although certain of the leases contain
options to extend beyond these dates. We believe that our current facilities are adequate for our current level of operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to various litigation matters incidental to the conduct of its business. During the year ended
December 31, 2015, the Company was not a party to any legal proceedings the resolution of which management believes would have a
material adverse effect on the Company’s business, future prospects, financial condition, liquidity, results of operation, cash flows or
capital levels.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
41
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on The Nasdaq Global Select Market under the symbol “TSC”. On January 31, 2016, there were approximately
127 holders of record of our common stock, listed with our registered agent.
No cash dividends have ever been paid by us on our common stock, and we do not anticipate paying any cash dividends in the foreseeable
future. Our principal source of funds to pay cash dividends on our common stock would be cash dividends from our Bank and Chartwell
subsidiaries. The payment of dividends by our bank is subject to certain restrictions imposed by federal and state banking laws, regulations
and authorities.
The following table presents the range of high and low bid prices reported on The Nasdaq Global Select Market for each of the quarters
of 2015 and 2014.
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Stock Performance Graph
Market Price Range
High
Low
$
$
$
$
$
$
$
$
14.44
13.73
13.60
10.87
10.92
14.36
14.91
14.43
$
$
$
$
$
$
$
$
11.53
11.35
10.26
9.01
8.99
8.92
12.66
11.60
The following graph sets forth the cumulative total stockholder return for the Company’s common stock beginning on May 9, 2013, the
date of the Company’s initial public offering, through December 31, 2015, compared to an overall stock market index (Russell 2000
Index) and the Company’s peer group index (Nasdaq Bank Index). The Russell 2000 Index and Nasdaq Bank Index are based on total
returns assuming reinvestment of dividends. The graph assumes an investment of $100 on May 9, 2013. The performance graph represents
past performance and should not be considered to be an indication of future performance.
42
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Recent Sales of Unregistered Securities
None.
43
ITEM 6. SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements and the related notes included elsewhere in this Form 10-K. We have derived the
selected statements of income data for the years ended December 31, 2015, 2014 and 2013, and the selected balance sheet data as of December 31,
2015 and 2014, from our audited consolidated financial statements included elsewhere in this Form 10-K. We have derived the selected statements of
income data for the years ended December 31, 2012 and 2011, and the selected balance sheet data as of December 31, 2013, 2012 and 2011, from our
audited consolidated financial statements not included in this Form 10-K. The performance, asset quality and capital ratios are unaudited and derived
from the audited financial statements as of and for the years presented. Average balances have been computed using daily averages. Our historical
results may not be indicative of our results for any future period.
(Dollars in thousands)
Period-end balance sheet data:
Cash and cash equivalents
Total investment securities
Loans held-for-investment
Allowance for loan losses
Loans held-for-investment, net
Goodwill and other intangibles, net
Other assets
Total assets
Total deposits
Borrowings
Other liabilities
Total liabilities
Preferred stock - Series A and B (CPP)
Preferred stock - Series C (convertible)
Common shareholders' equity
Total shareholders' equity
Total liabilities and shareholders' equity
Income statement data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income:
Investment management fees
Net gain on the sale of investment securities available-for-
sale
Other non-interest income
Total non-interest income
Non-interest expense:
Intangible amortization expense
Acquisition earnout expense
Other non-interest expense
Non-interest expense
Income before tax
Income tax expense (benefit)
Net income
Preferred stock dividends and discount amortization on Series
A and B
Net income available to common shareholders
As of and for the Years Ended December 31,
2015
2014
2013
2012
2011
$
96,676 $
105,710 $
146,558 $
200,080 $
215,609
206,163
227,844
191,187
235,464
163,392
2,841,284
2,400,052
1,860,775
1,641,628
1,406,995
(17,974)
(20,273)
(18,996)
(17,874)
(16,350)
2,823,310
2,379,779
1,841,779
1,623,754
1,390,645
50,816
116,452
52,374
102,831
—
74,328
—
58,108
—
43,949
3,302,863 $
2,846,857 $
2,290,509 $
2,073,129 $
1,833,450
2,689,844 $
2,336,953 $
1,961,705 $
1,823,379 $
1,637,126
255,000
32,042
165,000
39,514
20,000
14,859
20,000
12,026
—
11,872
2,976,886
2,541,467
1,996,564
1,855,405
1,648,998
—
—
325,977
325,977
—
—
305,390
305,390
—
—
293,945
293,945
—
46,011
171,713
217,724
23,708
—
160,744
184,452
3,302,863 $
2,846,857 $
2,290,509 $
2,073,129 $
1,833,450
83,207 $
77,913 $
72,851 $
71,034 $
15,643
67,564
13
67,551
12,251
65,662
10,159
55,503
29,618
25,062
33
6,221
35,872
1,558
—
68,485
70,043
33,380
10,892
1,428
5,231
31,721
1,299
1,614
61,414
64,327
22,897
6,969
11,067
61,784
8,187
53,597
—
797
5,001
5,798
—
—
40,815
40,815
18,580
5,713
13,674
57,360
8,185
49,175
—
1,114
5,085
6,199
—
—
37,865
37,865
17,509
6,837
22,488 $
15,928 $
12,867 $
10,672 $
—
—
—
22,488 $
15,928 $
12,867 $
1,525
9,147 $
44
65,367
17,986
47,381
5,339
42,042
—
1,323
2,585
3,908
—
—
33,994
33,994
11,956
4,738
7,218
1,518
5,700
$
$
$
$
$
$
(Dollars in thousands, except per share data)
2015
2014
2013
2012
2011
As of and for the Years Ended December 31,
Per share and share data:
Earnings per share:
Basic
Diluted
Book value per common share
Book value per share with preferred converted to common (1)
Tangible book value per share with preferred converted to
common (1)
Common shares outstanding, at end of period
Common shares outstanding with preferred converted to
common, at end of period (1)
Average common shares outstanding
Basic
Diluted
Performance ratios:
Return on average assets
Return on average equity
Net interest margin (2)
Bank efficiency ratio (1)
Efficiency ratio (1)
Non-interest expense to average assets
Asset quality:
Non-performing loans
Non-performing assets
Other real estate owned
Non-performing assets to total assets
Allowance for loan losses to loans
Allowance for loan losses to non-performing loans
Net charge-offs (recoveries)
Net charge-offs (recoveries) to average total loans
Revenue:
Total revenue (1)
Pre-tax, pre-provision net revenue (1)
Capital ratios:
Average equity to average assets
Tier 1 leverage ratio
Comment equity tier 1 risk-based capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Assets under management
$
$
$
$
$
$
$
$
$
$
$
0.81
0.80
11.62
11.62
9.81
$
$
$
$
$
0.56
0.55
10.88
10.88
9.02
$
$
$
$
$
0.49
0.48
10.25
10.25
10.25
$
$
$
$
$
0.47
0.47
9.84
9.75
9.75
$
$
$
$
$
0.33
0.33
9.21
9.21
9.21
28,056,195
28,060,888
28,690,279
17,444,730
17,444,730
28,056,195
28,060,888
28,690,279
22,322,779
17,444,730
27,771,345
28,628,631
24,589,811
17,394,491
17,380,185
28,237,453
29,017,906
26,743,023
19,358,624
17,401,404
0.74%
7.13%
2.35%
62.30%
65.65%
2.32%
0.61%
5.25%
2.62%
59.93%
63.96%
2.44%
0.59%
4.84%
2.92%
59.98%
59.84%
1.88%
0.55%
5.24%
3.00%
60.61%
60.64%
1.94%
16,660
18,390
1,730
$
$
$
0.56%
0.63%
107.89%
30,232
31,602
1,370
$
$
$
1.11%
0.84%
67.06%
20,293
21,706
1,413
$
$
$
0.95%
1.02%
93.61%
$
$
$
22,483
22,773
290
1.10%
1.09%
79.50%
2,312
$
8,882
$
7,065
$
6,661
$
0.09%
0.41%
0.41%
0.43%
0.41%
3.97%
2.72%
68.00%
68.03%
1.92%
16,428
16,428
—
0.90%
1.16%
99.53%
6,100
0.46%
103,403
33,360
$
$
95,955
31,628
$
$
66,785
25,970
$
$
62,445
24,580
$
$
49,966
15,972
10.43%
9.05%
12.20%
12.20%
13.88%
11.53%
9.21%
N/A
9.24%
11.02%
12.23%
13.12%
N/A
13.45%
14.34%
10.44%
10.35%
N/A
10.95%
11.88%
10.27%
10.18%
N/A
10.63%
11.60%
$
8,005,000
$
7,714,000
$
— $
— $
—
(1) These measures are not measures recognized under GAAP and are therefore considered to be non-GAAP financial measures. See “Non-GAAP
Financial Measures” for a reconciliation of these measures to their most directly comparable GAAP measures.
(2) Net interest margin is calculated on a fully taxable equivalent basis.
45
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 “common shares outstanding with preferred converted to common,” “book value per share with
preferred converted to common,” “tangible common equity,” “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.
“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 common equity” is defined as common 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 business purchase
combination, has the effect of increasing both equity and assets, while not increasing our tangible equity or tangible assets.
“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 business
purchase 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 the sale 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
gains and losses on the 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, excluding non-recurring acquisition related expenses and intangible amortization
expense, where applicable, divided by our total revenue. We believe this measure, particularly at the Bank, 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.
46
December 31,
(Dollars in thousands, except per share data)
2015
2014
2013
2012
2011
Book value per share with preferred converted to common:
Common shareholders' equity
Preferred stock (convertible)
Total common shareholders' equity and preferred stock,
Series C
$
$
Preferred shares outstanding
Conversion factor
Preferred shares converted to common shares outstanding
325,977
$
305,390
$
293,945
$
171,713
$
160,744
—
—
—
46,011
—
325,977
$
305,390
$
293,945
$
217,724
$
160,744
—
—
—
—
—
—
—
—
—
48,780.488
100
4,878,049
—
—
—
Common shares outstanding
28,056,195
28,060,888
28,690,279
17,444,730
17,444,730
Common shares with preferred shares converted to common
28,056,195
28,060,888
28,690,279
22,322,779
17,444,730
Book value per share with preferred converted to common
$
11.62
$
10.88
$
10.25
$
9.75
$
9.21
Tangible book value per share with preferred converted to
common:
Total common shareholders' equity and preferred stock,
Series C
Less: effects of intangible assets
Tangible common equity
Common shares with preferred shares converted to common
Tangible book value per share with preferred converted to
common
$
$
$
(Dollars in thousands)
Pre-tax, pre-provision net revenue:
Net interest income
Total non-interest income
Less: net gain on the sale of investment securities available-
for-sale
Total revenue
Less: total non-interest expense
Pre-tax, pre-provision net revenue
Efficiency ratio:
Total non-interest expense
Less: non-recurring acquisition related expenses
Less: intangible amortization expense
Total non-interest expense, as adjusted (numerator)
Total revenue (denominator)
Efficiency ratio
$
$
$
$
325,977
50,816
275,161
$
$
305,390
52,374
253,016
$
$
293,945
—
293,945
$
$
217,724
—
217,724
$
$
160,744
—
160,744
28,056,195
28,060,888
28,690,279
22,322,779
17,444,730
9.81
$
9.02
$
10.25
$
9.75
$
9.21
Years Ended December 31,
2015
2014
2013
2012
2011
$
67,564
$
65,662
$
61,784
$
57,360
$
35,872
31,721
5,798
6,199
33
103,403
70,043
1,428
95,955
64,327
797
66,785
40,815
1,114
62,445
37,865
33,360
$
31,628
$
25,970
$
24,580
$
47,381
3,908
1,323
49,966
33,994
15,972
70,043
$
64,327
$
40,815
$
37,865
$
33,994
601
1,558
67,884
103,403
$
$
1,659
1,299
61,369
95,955
854
—
—
—
—
—
$
$
39,961
66,785
$
$
37,865
62,445
$
$
33,994
49,966
65.65%
63.96%
59.84%
60.64%
68.03%
47
BANK SEGMENT
(Dollars in thousands)
Bank pre-tax, pre-provision net revenue:
Net interest income
Total non-interest income
Less: net gain on the sale of investment securities available-
for-sale
Total revenue
Less: total non-interest expense
Pre-tax, pre-provision net revenue
Bank efficiency ratio:
Total non-interest expense
Less: non-recurring acquisition related expenses
Total non-interest expense, as adjusted (numerator)
Total revenue (denominator)
Efficiency ratio
Years Ended December 31,
2015
2014
2013
2012
2011
$
69,510
$
66,669
$
61,592
$
57,360
$
6,262
6,621
5,798
6,199
33
75,739
47,186
1,428
71,862
43,115
797
66,593
40,795
1,114
62,445
37,847
28,553
$
28,747
$
25,798
$
24,598
$
47,186
—
47,186
75,739
$
$
$
43,115
45
43,070
71,862
$
$
$
40,795
854
39,941
66,593
$
$
$
37,847
—
37,847
62,445
$
$
$
$
$
$
$
47,381
3,908
1,323
49,966
33,975
15,991
33,975
—
33,975
49,966
62.30%
59.93%
59.98%
60.61%
68.00%
48
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section presents management’s perspective on our financial condition and results of operations and highlights material changes to
the financial condition and results of operations as of and for the year ended December 31, 2015. The following discussion and analysis
should be read in conjunction with our consolidated financial statements and related notes contained herein.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of section 27A of the Securities Act and section 21E of the Exchange
Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial
performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,”
“predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,”
“projection,” “would” and “outlook,” or the negative version of those words or other comparable of a future or forward-looking nature.
These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our
industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain
and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance
and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected
in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results
expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking
statements, including, but not limited to, the following:
• Deterioration of our asset quality;
• Our ability to prudently manage our growth and execute our strategy;
• Changes in the value of collateral securing our loans;
• Business and economic conditions generally and in the financial services industry, nationally and within our local market area;
• Changes in management personnel;
• Our ability to maintain important deposit customer relationships, our reputation and otherwise avoid liquidity risks;
• Our ability to provide investment management performance competitive with our peers and benchmarks;
• Operational risks associated with our business;
• Volatility and direction of market interest rates;
•
Increased competition in the financial services industry, particularly from regional and national institutions;
• Changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary
and fiscal matters;
•
Further government intervention in the U.S. financial system;
• Natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities,
and other matters beyond our control; and
• Other factors that are discussed in the section entitled “Risk Factors,” in Part I - Item 1A.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included
in this document. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove
to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any
such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake
any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments
or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot
assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
49
General
We are a bank holding company that operates through two reporting segments: Bank and Investment Management. The Bank segment
generates most of its revenue from interest on loans and investments, loan-related fees and deposit-related fees. Its primary source of
funding for loans is deposits. Its largest expenses are interest on these deposits and salaries and related employee benefits. The Investment
Management segment originated through the acquisition of substantially all of the assets of Chartwell Investment Partners, LP which
was consummated on March 5, 2014, and the recent formation of Chartwell TSC Securities Corp., which is applying to be registered as
a broker/dealer with the SEC and FINRA. The Investment Management segment generates most of its revenue from investment
management fees earned on assets under management and its largest expenses are salaries and related employee benefits.
The following discussion and analysis presents our financial condition and results of operations on a consolidated basis, except where
significant segment disclosures are necessary to better explain the operations of each segment and related variances. In particular, the
discussion and analysis of non-interest income and non-interest expense is reported by segment.
We measure our performance primarily through our earnings per common share; total revenue; and pre-tax, pre-provision net revenue.
Other salient metrics include the ratio of allowance for loan losses to loans; net interest margin; the efficiency ratio of the Bank segment;
assets under management; return on average assets; and return on average equity, while maintaining appropriate regulatory leverage and
risk-based capital ratios.
Executive Overview
TriState Capital Holdings, Inc. (“we”, “us”, “our” or the “Company”) is a bank holding company headquartered in Pittsburgh, Pennsylvania.
The Company has three wholly owned subsidiaries: TriState Capital Bank (“the Bank”), a Pennsylvania chartered bank; Chartwell
Investment Partners, LLC (“Chartwell”), a registered investment advisor; and Chartwell TSC Securities Corp. (“CTSC Securities”),
which is applying to be registered as a broker/dealer with the SEC and FINRA. Through our bank subsidiary, we serve middle-market
businesses in our primary markets throughout the states of Pennsylvania, Ohio, New Jersey and New York. We also serve high-net-worth
individuals on a national basis through our private banking channel. We market and distribute our products and services through a scalable
branchless banking model, which creates significant operating leverage throughout our business as we continue to grow. Through our
investment management subsidiary, we provide investment management services to institutional, sub-advisory, managed account and
private clients on a national basis. Our broker/dealer subsidiary, once registered, will support any distribution and marketing efforts for
Chartwell’s proprietary investment products that may require SEC or FINRA licensing. On December 16, 2015, the Company entered
into a definitive asset purchase agreement to acquire The Killen Group, Inc. (“TKG”) in a transaction that is expected to close in the
second quarter of 2016, subject to certain client consents and other customary closing conditions. The privately held investment manager
has assets under management of approximately $2.3 billion as of December 31, 2015.
2015 Compared to 2014 Operating Performance
For the year ended December 31, 2015, our net income was $22.5 million compared to $15.9 million for the same period in 2014, an
increase of $6.6 million, or 41.2%, primarily due to the net impact of (1) a $1.9 million, or 2.9%, increase in our net interest income due
largely to our continued loan growth; (2) a decrease in provision for loan losses of $10.1 million; (3) an increase of $4.2 million in non-
interest income largely related to higher investment management fees with two additional months of Chartwell’s operating results and
higher swap fees offset by lower net gain on the sale of investment securities available-for-sale; (4) an increase of $5.7 million in our
non-interest expense largely related to two additional months of Chartwell expense; and (5) a $3.9 million increase in income taxes.
Our diluted EPS was $0.80 for the year ended December 31, 2015, compared to $0.55 for the same period in 2014. The increase is a
result of an increase of $6.6 million, or 41.2%, in our net income and lower dilutive average shares largely related to the purchase of
treasury stock.
For the year ended December 31, 2015, total revenue increased $7.4 million, or 7.8%, to $103.4 million from $96.0 million for the same
period in 2014, driven by two additional months of Chartwell’s revenue and growth in our loan income and swap fees. Pre-tax, pre-
provision net revenue increased $1.7 million, or 5.5%, to $33.4 million for the year ended December 31, 2015, from $31.6 million for
the same period in 2014, primarily resulting from two additional months of Chartwell’s operating results.
Our net interest margin was 2.35% for the year ended December 31, 2015, as compared to 2.62% for the same period in 2014. The most
significant factor driving net interest margin compression has been our shift toward lower-risk assets, most notably the marketable-
securities-backed private banking margin loan portfolio that the Bank has made its fastest growing channel. In addition, net interest
margin for the year ended December 31, 2015, was impacted by the additional interest expense from our June 2014 subordinated debt
placement.
50
For the year ended December 31, 2015, the Bank’s efficiency ratio was 62.30% as compared to 59.93% for the same period in 2014,
(adjusted for non-recurring acquisition related expenses), primarily as a result of higher compensation expense for the Bank offset partially
by higher total revenue for the year ended December 31, 2015. Our non-interest expense to average assets for the year ended December
31, 2015, was 2.32%, compared to 2.44% for the same period in 2014.
Our return on average assets was 0.74% for the year ended December 31, 2015, as compared to 0.61% for the same period in 2014. Our
return on average equity was 7.13% for the year ended December 31, 2015, as compared to 5.25% for the same period in 2014. The
increase in both ratios is the result of the higher net income for the year ended December 31, 2015, as discussed above.
TriState Capital Holdings’ total risk-based capital ratio increased to 13.88% as of December 31, 2015, from 11.02% as of December 31,
2014. TriState Capital Bank’s total risk-based capital ratio increased to 13.35% as of December 31, 2015, from 10.69% as of December 31,
2014. The increase in the risk-based capital ratios are primarily due to the new Basel III capital rules effective January 1, 2015. The
Company benefits from risk-weighted capital treatment recognizing the lower-risk profile of our private banking margin loans, which
are over-collateralized by cash and marketable securities that are priced and monitored daily. This implementation had the favorable net
effect of making approximately $70 million of regulatory capital available to the Bank in the first quarter of 2015.
Total assets of $3.3 billion as of December 31, 2015, increased $456.0 million, or 16.0%, from December 31, 2014. Loans held-for-
investment grew by $441.2 million to $2.8 billion as of December 31, 2015, an increase of 18.4% from December 31, 2014, primarily
as a result of growth in our private banking and commercial real estate loan portfolios. Total deposits increased $352.9 million, or 15.1%,
to $2.7 billion as of December 31, 2015, from $2.3 billion, as of December 31, 2014.
Non-performing assets to total assets decreased to 0.56% as of December 31, 2015, from 1.11% as of December 31, 2014, due to $13.4
million in reductions related to paydowns, a sale, charge-offs and two payoffs on non-performing loans during the year partially offset
by an addition of a $228,000 non-performing loan. Net charge-offs to average loans for the year ended December 31, 2015, was 0.09%,
as compared to 0.41% for the same period in 2014.
The allowance for loan losses to loans decreased to 0.63% as of December 31, 2015, from 0.84% as of December 31, 2014, which reflects
the reduction in non-performing loans and the lower provision required for private banking loans secured by marketable securities. The
allowance for loan losses to non-performing loans increased to 107.89% as of December 31, 2015, from 67.06% as of December 31,
2014. This change was primarily due to lower non-performing loan balances as of December 31, 2015. The provision for loan losses
was $13,000 for the year ended December 31, 2015, as compared to $10.2 million for the year ended December 31, 2014. The trend of
our recent credit provision reflects the change in composition of our loan portfolio over the past year with a decrease in adverse-rated
credits and a much larger percentage of the portfolio in loans secured by marketable securities.
Our book value per common share increased $0.74, or 6.8%, to $11.62 as of December 31, 2015, from $10.88 as of December 31, 2014,
largely as a result of an increase in our net income.
2014 Compared to 2013 Operating Performance
For the year ended December 31, 2014, our net income was $15.9 million compared to $12.9 million for the same period in 2013, an
increase of $3.1 million, or 23.8%, primarily due to the results of our newly established investment management segment and growth of
our loan portfolio. Specifically the change resulted from (1) a $3.9 million, or 6.3%, increase in our net interest income due largely to
our continued loan growth; (2) an increase in provision for loan losses of $2.0 million; (3) an increase of $25.9 million in non-interest
income largely related to investment management fees, higher net gain on the sale of investment securities available-for-sale, and higher
bank owned life insurance income partially offset by unrealized losses on swaps; (4) an increase of $23.5 million in our non-interest
expense largely related to the addition of Chartwell, including an incremental contingent earnout accrual related to the acquisition due
to Chartwell’s growth in profitability exceeding our estimates, and overall annual cost increases; and (5) a $1.3 million increase in income
taxes. Net income, excluding the fourth quarter earnout expense related to the Chartwell acquisition of $1.6 million, was $17.0 million
for the year ended December 31, 2014.
Our diluted EPS was $0.55 for the year ended December 31, 2014, compared to $0.48 for the same period in 2013. The increase is a
result of an increase of $3.1 million, or 23.8%, in our net income partially offset by the dilutive impact of the issuance and sale of 6,355,000
shares of our common stock in connection with our initial public offering. Diluted EPS, excluding the fourth quarter earnout expense
related to the Chartwell acquisition of $1.6 million, was $0.59 for the year ended December 31, 2014.
Our return on average assets was 0.61% for the year ended December 31, 2014, as compared to 0.59% for the same period in 2013. Our
return on average equity was 5.25%, for the year ended December 31, 2014, as compared to 4.84% for the same period in 2013. The
increase in both ratios is the result of the higher net income for the year ended December 31, 2014, as discussed above.
51
For the year ended December 31, 2014, the Bank’s efficiency ratio was 59.93% as compared to 59.98% for the same period in 2013,
(adjusted for non-recurring acquisition costs), primarily as a result of higher compensation expense for the Bank offset partially by higher
total revenue for the year ended December 31, 2014. Our non-interest expense to average assets for the year ended December 31, 2014,
was 2.44%, compared to 1.88% for the same period in 2013. The increase is due to the addition of Chartwell operating expenses since
the closing of the Chartwell acquisition in March 2014.
For the year ended December 31, 2014, total revenue increased $29.2 million, or 43.7%, to $96.0 million from $66.8 million for the same
period in 2013, largely driven by investment management fees. Pre-tax, pre-provision net revenue increased $5.7 million, or 21.8%, to
$31.6 million for the year ended December 31, 2014, from $26.0 million for the same period in 2013, primarily resulting from growth
of $29.2 million, or 43.7%, in total revenue, partially offset by an increase of $23.5 million, or 57.6%, in non-interest expense.
Our net interest margin was 2.62% for the year ended December 31, 2014, as compared to 2.92% for the same period in 2013. The most
significant factor driving net interest margin compression has been our shift toward lower-risk assets, most notably the marketable-
securities-backed private banking loan portfolio that the Bank has made its fastest growing channel. In addition, net interest margin was
impacted by the interest expense from our June 2014 subordinated debt placement.
Total assets of $2.8 billion as of December 31, 2014, increased $556.3 million, or 24.3%, from December 31, 2013. Loans held-for-
investment grew by $539.3 million to $2.4 billion as of December 31, 2014, an increase of 29.0% from December 31, 2013, primarily
as a result of growth in our commercial real estate and private banking loan portfolios. The private banking portfolio growth includes
approximately $220 million in acquired loans. Total deposits increased $375.2 million, or 19.1%, to $2.3 billion as of December 31,
2014, from $2.0 billion, as of December 31, 2013.
Non-performing assets to total assets increased to 1.11% as of December 31, 2014, from 0.95% as of December 31, 2013, due to $26.9
million in additions to non-performing loans and $17.0 million in reductions to non-performing loans during the year. Net charge-offs
to average loans for the year ended December 31, 2014, was 0.41%, as compared to 0.41% for the same period in 2013.
The allowance for loan losses to loans decreased to 0.84% as of December 31, 2014, from 1.02% as of December 31, 2013, primarily as
a result of the growing private banking portfolio of loans secured by marketable securities, which generally have a lower provision based
on their risk level. The allowance for loan losses to non-performing loans decreased to 67.06% as of December 31, 2014, from 93.61%
as of December 31, 2013. This change was primarily due to a decrease of $2.8 million in specific reserves on four loans that were paid
off or paid down, as such loans had a higher average reserve percentage then the non-performing loans at December 31, 2014. The
provision for loan losses was $10.2 million for the year ended December 31, 2014, as compared to $8.2 million for the year ended
December 31, 2013.
Our book value per common share increased $0.63, or 6.1%, to $10.88 as of December 31, 2014, from $10.25 as of December 31, 2013,
as a result of our net income.
52
Results of Operations
Net Interest Income
Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on
interest-bearing liabilities. Net interest income is affected by changes in the volume of interest-earning assets and interest-bearing
liabilities and changes in interest yields earned and rates paid. Maintaining consistent spreads between earning assets and interest-bearing
liabilities is significant to our financial performance because net interest income comprised 65.3%, 68.4% and 92.5% of total revenue
for the years ended December 31, 2015, 2014 and 2013, respectively.
The table below reflects an analysis of net interest income, on a fully taxable equivalent basis, for the periods indicated. The adjustment
to convert certain income to a fully taxable equivalent basis consists of dividing tax exempt income by one minus the statutory federal
income tax rate of 35.0%.
(Dollars in thousands)
Interest income
Fully taxable equivalent adjustment
Interest income adjusted
Less: interest expense
Net interest income adjusted
Yield on earning assets
Cost of interest-bearing liabilities
Net interest spread
Net interest margin (1)
(1) Net interest margin is calculated on a fully taxable equivalent basis.
Years Ended December 31,
2015
2014
2013
$
$
83,207
$
77,913
$
260
83,467
15,643
235
78,148
12,251
67,824
$
65,897
$
2.89%
0.62%
2.27%
2.35%
3.10%
0.57%
2.53%
2.62%
72,851
228
73,079
11,067
62,012
3.44%
0.62%
2.82%
2.92%
53
The following table provides information regarding the average balances and yields earned on interest-earning assets and the average
balances and rates paid on interest-bearing liabilities for the years ended December 31, 2015, 2014 and 2013. Non-accrual loans are
included in the calculation of the average loan balances, while interest collected on non-accrual loans is recorded as a reduction to principal.
Where applicable, interest income and yield are reflected on a fully taxable equivalent basis, and have been adjusted based on the statutory
federal income tax rate of 35.0%.
Years Ended December 31,
2015
2014
2013
Average
Balance
Interest
Income (1)/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income (1)/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income (1)/
Expense
Average
Yield/
Rate
(Dollars in thousands)
Assets
Interest-earning deposits
$
102,240 $
6,168
363
6
0.36% $
155,241 $
0.10%
7,495
525
4
0.34% $
154,163 $
0.05%
8,896
558
8
0.36%
0.09%
Federal funds sold
Investment securities
available-for-sale
Investment securities held-
to-maturity
Investment securities
trading
Total loans
Total interest-earning
assets
164,701
2,201
1.34%
174,285
2,167
1.24%
208,773
3,269
1.57%
42,117
1,651
3.92%
33,989
1,173
3.45%
14,026
527
3.76%
41
1
2,570,200
79,245
2.44%
3.08%
—
—
—%
3,060
71
2,145,870
74,279
3.46%
1,734,701
68,646
2.32%
3.96%
2,885,467
83,467
2.89%
2,516,880
78,148
3.10%
2,123,619
73,079
3.44%
Other assets
Total assets
139,103
$ 3,024,570
114,936
$ 2,631,816
50,230
$ 2,173,849
Liabilities and Shareholders'
Equity
Interest-bearing deposits:
Interest-bearing
checking accounts
Money market deposit
accounts
Time deposits
(excluding CDARS®)
CDARS® time deposits
Borrowings:
FHLB borrowings
Subordinated notes
payable
Total interest-bearing
liabilities
Noninterest-bearing
deposits
Other liabilities
Shareholders' equity
Total liabilities and
shareholders' equity
Net interest income (1)
Net interest spread
Net interest margin (1)
$
107,292 $
439
0.41% $
68,114 $
229
0.34% $
5,617 $
4
0.07%
1,367,584
5,687
0.42%
1,096,347
4,228
0.39%
931,720
3,756
0.40%
450,874
447,462
4,041
2,721
0.90%
0.61%
469,120
411,393
3,984
2,170
0.85%
0.53%
469,925
366,663
4,602
2,619
120,425
540
0.45%
98,370
373
0.38%
20,000
35,000
2,215
6.33%
20,041
1,267
6.32%
—
86
—
0.98%
0.71%
0.43%
—%
2,528,637
15,643
0.62%
2,163,385
12,251
0.57%
1,793,925
11,067
0.62%
149,567
30,917
315,449
133,733
31,288
303,410
95,462
18,501
265,961
$ 3,024,570
$ 2,631,816
$ 2,173,849
$
67,824
$
65,897
$
62,012
2.27%
2.35%
2.53%
2.62%
2.82%
2.92%
(1) Net interest income and net interest margin are calculated on a fully taxable equivalent basis.
Net Interest Income for the Years Ended December 31, 2015 and 2014. Net interest income, calculated on a fully taxable equivalent
basis, increased $1.9 million, or 2.9%, to $67.8 million for the year ended December 31, 2015, from $65.9 million for the same period
in 2014. The increase in net interest income for the year ended December 31, 2015, was primarily attributable to a $368.6 million, or
14.6%, increase in average interest-earning assets driven largely by loan growth. The increase in net interest income reflects an increase
of $5.3 million, or 6.8%, in interest income, partially offset by an increase of $3.4 million, or 27.7%, in interest expense. Net interest
54
margin decreased to 2.35% for the year ended December 31, 2015, as compared to 2.62% for the same period in 2014 driven by an overall
lower yield from the loan portfolio and higher cost of deposits and borrowings.
The increase in interest income was primarily the result of an increase in average total loans of $424.3 million, or 19.8%, which is our
primary earning asset and the Bank’s core business, as well as a decrease of $53.0 million in average cash balances, partially offset by a
decrease of 38 basis points in yield on our loans. The most significant factor of the declining yield on our loan portfolio has been our
shift toward lower-risk assets, most notably the marketable-securities-backed private banking loan portfolio that the Bank has made its
fastest growing channel. The overall yield on interest-earning assets declined 21 basis points to 2.89% for the year ended December 31,
2015, as compared to 3.10% for the same period in 2014, primarily as a result of the lower yield on loans, driven largely by the increase
in our private banking portfolio balance as a percentage of total loans.
Interest expense on interest-bearing liabilities of $15.6 million, for the year ended December 31, 2015, increased $3.4 million, or 27.7%,
from the same period in 2014 as a result of an increase of $365.3 million, or 16.9%, in average interest-bearing liabilities for the year
ended December 31, 2015, coupled with an increase of five basis points in the average rate paid on our average interest-bearing liabilities
compared to the same period in 2014. The increase in average rate paid was reflective of increases in rates paid in all interest-bearing
deposit categories and FHLB borrowings. The increase in average interest-bearing liabilities was driven primarily by an increase of
$271.2 million, or 24.7%, in average money market deposit accounts and an increase of $15.0 million, or 74.6%, in average subordinated
notes payable.
Given our current balance sheet profile, we believe we are positioned to benefit from ongoing increases in interest rates because
approximately 84.9% of our loans held-for-investment as of December 31, 2015, which are our principal source of revenue, are floating-
rate loans. To the extent interest rates increase, yields on our loans will increase at varying speeds, since approximately 5.9% of our
floating-rate loans had interest rates equal to their floors at December 31, 2015. However, we also expect to continue to experience
pressure on the yield on our earning assets due to: our continued focus on variable rate loans, the growing portion of our loans secured
by marketable securities, maintaining strong asset quality, and market competition. In addition, it is likely that rates paid on deposits
will increase at a slower pace than yields earned on loans.
Net Interest Income for the Years Ended December 31, 2014 and 2013. Net interest income, calculated on a fully taxable equivalent
basis, increased $3.9 million, or 6.3%, to $65.9 million for the year ended December 31, 2014, from $62.0 million for the same period
in 2013. The increase in net interest income for the year ended December 31, 2014, was primarily attributable to a $393.3 million, or
18.5%, increase in average interest-earning assets, partially offset by a decrease in net interest margin of 30 basis points to 2.62%. The
increase in net interest income reflects an increase of $5.1 million, or 6.9%, in interest income, partially offset by an increase of $1.2
million, or 10.7%, in interest expense.
The increase in interest income was primarily the result of an increase in average total loans of $411.2 million, or 23.7%, which is our
primary earning asset and the Bank’s core business, as well as an increase of $20.0 million in average investment securities held-to-
maturity, partially offset by a decrease of $34.5 million in average investment securities available-for-sale and a decrease of 50 basis
points in yield on our loans. The most significant factor of the declining yield on our loan portfolio has been our shift toward lower-risk
assets, most notably the marketable-securities-backed private banking loan portfolio that the Bank has made its fastest growing channel.
The overall yield on interest-earning assets declined 34 basis points to 3.10% for the year ended December 31, 2014, as compared to
3.44% for the same period in 2013, primarily as a result of the lower yield on loans, driven largely by the increase in our private banking
portfolio.
Interest expense on interest-bearing liabilities of $12.3 million, for the year ended December 31, 2014, increased $1.2 million, or 10.7%,
from the same period in 2013 as a result of an increase of $369.5 million, or 20.6%, in average interest-bearing liabilities for the year
ended December 31, 2014, partially offset by a decrease of five basis points in the average rate paid on our average interest-bearing
liabilities compared to the same period in 2013. The decrease in average rate paid was reflective of decreases in rates paid in the three
largest interest-bearing deposit categories, partially offset by the issuance of subordinated debt, as well as a shift in our deposit mix. The
increase in average interest-bearing liabilities was driven primarily by an increase of $164.6 million, or 17.7%, in average money market
deposit accounts, an increase of $78.4 million in average FHLB borrowings, an increase of $62.5 million in interest-bearing checking
accounts and an increase in average CDARS®
time deposits of $44.7 million, or 12.2%.
The following tables analyze the dollar amount of the change in interest income and interest expense with respect to the primary components
of interest-earning assets and interest-bearing liabilities. The tables show the amount of the change in interest income or interest expense
caused by either changes in outstanding balances or changes in interest rates for the periods indicated. The effect of changes in balance
is measured by applying the average rate during the first period to the balance (“volume”) change between the two periods. The effect
of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period.
55
(Dollars in thousands)
Increase (decrease) in:
Interest income:
Interest-earning deposits
Federal funds sold
Investment securities available-for-sale
Investment securities held-to-maturity
Investment securities trading
Total loans
Total increase (decrease) in interest income
Interest expense:
Interest-bearing deposits:
Interest-bearing checking accounts
Money market deposit accounts
Time deposits (excluding CDARS®)
CDARS® time deposits
Borrowings:
FHLB borrowings
Subordinated notes payable
Total increase in interest expense
Years Ended December 31,
2015 over 2014
Yield/Rate
Volume
Change(1)
$
25
3
157
173
—
(8,688)
(8,330)
58
351
215
350
75
1
1,050
$
(187) $
(162)
(1)
(123)
305
1
13,654
13,649
152
1,108
(158)
201
92
947
2,342
2
34
478
1
4,966
5,319
210
1,459
57
551
167
948
3,392
Total increase (decrease) in net interest income
(1) The change in interest income and expense due to change in composition and applicable yields and rates has been allocated to volume and rate
(9,380) $
11,307
1,927
$
$
changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(Dollars in thousands)
Increase (decrease) in:
Interest income:
Interest-earning deposits
Federal funds sold
Investment securities available-for-sale
Investment securities held-to-maturity
Investment securities trading
Total loans
Total increase (decrease) in interest income
Interest expense:
Interest-bearing deposits:
Interest-bearing checking accounts
Money market deposit accounts
Time deposits (excluding CDARS®)
CDARS® time deposits
Borrowings:
FHLB borrowings
Subordinated notes payable
Total increase (decrease) in interest expense
Years Ended December 31,
2014 over 2013
Yield/Rate
Volume
Change(1)
$
(37) $
4
$
(3)
(611)
(46)
—
(9,304)
(10,001)
56
(169)
(610)
(742)
(11)
—
(1,476)
(1)
(491)
692
(71)
14,937
15,070
169
641
(8)
293
298
1,267
2,660
(33)
(4)
(1,102)
646
(71)
5,633
5,069
225
472
(618)
(449)
287
1,267
1,184
Total increase (decrease) in net interest income
(1) The change in interest income and expense due to change in composition and applicable yields and rates has been allocated to volume and rate
(8,525) $
12,410
3,885
$
$
changes in proportion to the relationship of the absolute dollar amounts of the change in each.
56
Provision for Loan Losses
The provision for loan losses represents our determination of the amount necessary to be charged against the current period’s earnings
to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated losses inherent in the loan
portfolio. For additional information regarding our allowance for loan losses, see “Allowance for Loan Losses.”
Provision for Loan Losses for the Years Ended December 31, 2015 and 2014. We recorded a $13,000 and a $10.2 million provision for
loan losses for the years ended December 31, 2015 and 2014, respectively. The provision for the year ended December 31, 2015, was
comprised of a net decrease of $1.3 million in general reserves on commercial and industrial loans largely due to a reserve reversal from
payoffs on two substandard-rated credits and recoveries of $1.0 million offset by a net increase in specific reserves of $2.3 million on
commercial and industrial non-performing loans. The provision for loan losses for the year ended December 31, 2014, was largely driven
by the impact of charge-offs totaling $9.5 million for the year ended December 31, 2014, on six commercial and industrial loans.
Provision for Loan Losses for the Years Ended December 31, 2014 and 2013. We recorded a $10.2 million and an $8.2 million provision
for loan losses for the years ended December 31, 2014 and 2013, respectively. The provision for the year ended December 31, 2014,
was comprised of (a) the impact of $9.5 million in charge-offs related to six non-performing commercial and industrial loans; (b) a net
increase of $245,000 in additional specific reserves on non-performing commercial and industrial loans; and (c) a $1.4 million increase
in commercial and industrial general reserves largely driven by the impact of charge-offs and loans that were downgraded during the
year; partially offset by (d) recoveries of $545,000 on three commercial and industrial loans; and (e) a decrease of $349,000 in the general
reserve of the commercial real estate portfolio due to improved credit quality. There were no charge-offs for the commercial real estate
and private banking portfolios for the year ended December 31, 2014. The provision for loan losses for the year ended December 31,
2013, was largely driven by the impact of charge-offs totaling $7.5 million for the year ended December 31, 2013, on three commercial
and industrial loans, one commercial real estate loan and one private banking loan.
Non-Interest Income
Non-interest income is an important component of our revenue and it is comprised primarily of investment management fees for Chartwell
coupled with fees generated from loan and deposit relationships with our Bank customers, including swap transactions. In addition, from
time to time as opportunities arise, we sell portions of our investment securities available-for-sale portfolio. Gains or losses experienced
on these sales are less predictable than many of the other components of our non-interest income because the amount of realized gains
or losses is impacted by a number of factors, including the nature of the security sold, the purpose of the sale, the interest rate environment
and other market conditions.
The following table presents the components of our non-interest income by operating segment for the years ended December 31, 2015
and 2014:
Year Ended December 31, 2015
Year Ended December 31, 2014
Investment
Parent
Investment
Parent
(Dollars in thousands)
Bank
Management
and Other Consolidated
Bank
Management
and Other Consolidated
Investment management fees
$
— $
29,814 $
(196) $
29,618
$
— $
25,219 $
(157) $
25,062
Service charges
Net gain on the sale of investment
securities available-for-sale
Swap fees
Commitment and other fees
Unrealized loss on swaps
647
33
1,551
2,022
(161)
—
—
—
—
—
—
—
—
—
—
647
604
33
1,551
2,022
(161)
1,428
1,178
2,045
(420)
—
—
—
—
—
—
—
—
—
—
604
1,428
1,178
2,045
(420)
Bank owned life insurance
income
Other income (1)
Total non-interest income
(1) Other income includes such items as FHLB stock dividends, trading income, gain on the sale of loans and other general operating income.
25,257 $
29,806 $
6,262 $
6,621 $
(196) $
(157) $
35,872
1,696
1,441
1,696
345
474
466
(8)
—
—
—
—
—
—
38
$
$
1,441
383
31,721
Non-Interest Income for the Years Ended December 31, 2015 and 2014. Our non-interest income was $35.9 million for the year ended
December 31, 2015, an increase of $4.2 million, or 13.1%, from $31.7 million for the same period in 2014, primarily related to increases
in investment management fees, swap fees, bank owned life insurance, and other income and a decrease on the unrealized loss on swaps
partially offset by lower net gain on the sale of investment securities available-for-sale.
57
Investment Management Segment:
•
Investment management fees were $29.8 million for the year ended December 31, 2015, which represents 12 months of revenue
for Chartwell, as compared to $25.2 million for the year ended December 31, 2014, which represented only 10 months of revenue
for Chartwell. Assets under management of $8.0 billion as of December 31, 2015, increased $291.0 million from December 31,
2014.
Bank Segment:
• Net gain on the sale of investment securities available-for-sale was $33,000 for the year ended December 31, 2015, compared
to $1.4 million for the same period in 2014.
•
Swap fees increased $373,000 for the year ended December 31, 2015, compared to 2014, driven by fluctuations in customer
demand for long-term interest rate protection. The level and frequency of income associated with swap transactions can vary
materially from period to period, based on customers’ expectations of market conditions.
• The unrealized loss on swaps was $259,000 lower for the year ended December 31, 2015, compared to 2014, driven by fluctuations
in interest rates.
• The income on bank owned life insurance increased $255,000 for the year ended December 31, 2015, compared to 2014, as a
result of an increase in our investment in this product.
• Other income increased $129,000 for the year ended December 31, 2015, compared to 2014, primarily due to $216,000 higher
dividends from our FHLB stock as a result of increased FHLB borrowings offset by $87,000 lower gain on the sale of loans.
The following table presents the components of our non-interest income by operating segment for the years ended December 31, 2014
and 2013:
Year Ended December 31, 2014
Year Ended December 31, 2013
Investment
Parent
Investment
Parent
(Dollars in thousands)
Bank
Management
and Other Consolidated
Bank
Management
and Other Consolidated
Investment management fees
$
— $
25,219 $
(157) $
25,062
$
— $
— $
— $
Service charges
Net gain on the sale of investment
securities available-for-sale
Swap fees
Commitment and other fees
Unrealized gain (loss) on swaps
604
1,428
1,178
2,045
(420)
—
—
—
—
—
—
—
—
—
—
604
482
1,428
1,178
2,045
(420)
797
1,056
2,060
210
—
—
—
—
—
—
—
—
—
—
—
482
797
1,056
2,060
210
Bank owned life insurance
income
Other income (1)
Total non-interest income
(1) Other income includes such items as FHLB stock dividends, trading income, gain on the sale of loans and other general operating income.
25,257 $
6,621 $
5,798 $
(157) $
31,721
1,441
1,441
— $
— $
996
345
383
197
—
—
—
38
—
—
—
—
$
$
996
197
5,798
Non-Interest Income for the Years Ended December 31, 2014 and 2013. Our non-interest income was $31.7 million for the year ended
December 31, 2014, an increase of $25.9 million, or 447.1%, from $5.8 million for the same period in 2013, primarily related to increases
in investment management fees, net gain on the sale of investment securities available-for-sale and bank owned life insurance income
partially offset by increases in unrealized loss on swaps. The Investment Management segment only impacted investment management
fees in the current period and all other components of non-interest income are comparable between periods for the Bank segment.
Investment Management Segment:
•
Investment management fees were $25.2 million for the year ended December 31, 2014, which represents 10 months of revenue
for Chartwell, based on assets under management of $7.7 billion as of December 31, 2014.
Bank Segment:
•
Service charges were $122,000 higher for the year ended December 31, 2014, compared to 2013, due to increase in the number
of customers and customer volumes.
58
• Net gain on the sale of investment securities available-for-sale was $631,000 higher for the year ended December 31, 2014,
compared to 2013.
•
Swap fees were $122,000 more for the year ended December 31, 2014, compared to 2013, driven by fluctuations in customer
demand for long-term interest rate protection. The level and frequency of income associated with swap transactions can vary
materially from period to period, based on customers’ expectations of market conditions.
• Unrealized loss on swaps was $630,000 lower for the year ended December 31, 2014, compared to gains in 2013, driven by
fluctuations in interest rates.
• Bank owned life insurance was $445,000 higher for the year ended December 31, 2014, compared to 2013, as a result of an
increase in our investment in this product.
• Other income was $148,000 more for the year ended December 31, 2014, compared to 2013, primarily due to $153,000 higher
dividends from our FHLB stock as a result of increased FHLB borrowings and $87,000 higher gain on the sale of loans, offset
by $120,000 lower trading income on our trading investment securities.
Non-Interest Expense
Our non-interest expense represents the operating cost of maintaining and growing our business. The largest portion of non-interest
expense for each segment is compensation and employee benefits, which include employee payroll expense as well as the cost of incentive
compensation, benefit plans, health insurance and payroll taxes, all of which are impacted by the growth in our employee base, coupled
with increases in the level of compensation and benefits of our existing employees.
The following table presents the components of our non-interest expense by operating segment for the years ended December 31, 2015
and 2014:
Year Ended December 31, 2015
Year Ended December 31, 2014
Investment
Parent
Investment
Parent
(Dollars in thousands)
Bank
Management
and Other Consolidated
Bank
Management
and Other Consolidated
Compensation and employee
benefits
Premises and occupancy costs
Professional fees
FDIC insurance expense
General insurance expense
State capital shares tax
Travel and entertainment expense
Data processing expense
Charitable contributions
Intangible amortization expense
Acquisition earnout expense
Other operating expenses (1)
Total non-interest expense
Full-time equivalent employees (2)
$
29,237 $
16,899 $
— $
46,136
$
25,807 $
15,241 $
— $
41,048
3,774
3,027
1,988
871
1,081
1,902
1,073
975
—
—
3,258
775
914
—
195
—
859
—
46
1,558
—
1,715
—
(202)
—
—
—
—
—
—
—
—
98
4,549
3,739
1,988
1,066
1,081
2,761
1,073
1,021
1,558
—
5,071
3,312
3,234
1,928
1,001
1,043
1,829
922
1,102
—
—
2,937
619
306
—
164
—
575
—
49
1,299
1,614
1,384
—
(109)
—
—
—
—
—
—
—
—
70
3,931
3,431
1,928
1,165
1,043
2,404
922
1,151
1,299
1,614
4,391
$
47,186 $
22,961 $
(104) $
70,043
$
43,115 $
21,251 $
(39) $
64,327
139
53
—
192
133
49
—
182
(1) Other operating expenses include such items as investor relations, investment management fees, telephone, marketing, loan-related expenses,
employee-related expenses and other general operating expenses.
(2) Full-time equivalent employees shown are as of the end of the period presented.
Non-Interest Expense for the Years Ended December 31, 2015 and 2014. Our non-interest expense for the year ended December 31,
2015, increased $5.7 million, or 8.9%, as compared to the same period in 2014, of which $4.1 million relates to the increase in expenses
of the Bank segment and $1.7 million relates to the Investment Management segment, which commenced activity on March 5, 2014.
The significant changes in each segment’s expenses are described below.
59
Investment Management Segment:
•
For the year ended December 31, 2014, non-interest expense for the Investment Management segment included the $1.6 million
acquisition earnout expense related to a one-time charge which was accrued and expensed in the fourth quarter of 2014 based
upon the 2014 results for Chartwell. For additional information, refer to Note 2, Business Combinations, to our consolidated
financial statements.
• Non-interest expense, excluding the earnout expense, increased by $3.3 million for the year ended December 31, 2015, to $23.0
million which represented 12 months of Chartwell’s expenses as compared to $19.6 million in 2014, excluding the earnout,
which represented only 10 months of expenses.
Compensation expenses for the year ended December 31, 2015, are lower by approximately $1.4 million as compared
to the same period in 2014 on an annualized basis, due to lower management fees driven by market depreciation.
The increase in professional fees for the year ended December 31, 2015, are due to $601,000 in non-recurring acquisition
related expenses associated with the TKG transaction.
Bank Segment:
• Compensation and employee benefits for the year ended December 31, 2015, increased by $3.4 million, compared to the same
period in 2014, primarily due to higher incentive compensation expenses as a result of higher net income for the Bank segment
as compared to 2014. In addition, the year ended December 31, 2015, had an increase in the number of full-time equivalent
employees, increases in the overall annual wage and benefits costs of our existing employees and an increase in stock-based
compensation expenses.
•
•
Premise and occupancy costs increased $462,000 for the year ended December 31, 2015, compared to the same period in 2014,
primarily due to increase in rent expense and depreciation related to the expansion of the Pittsburgh office and the new lease
for the New York City office.
Professional fees decreased $207,000 for the year ended December 31, 2015, as compared to the same period in 2014, due to
lower legal and compliance fees.
• Data processing expense increased by $151,000 for the year ended December 31, 2015, as compared to the same period in 2014,
largely due to increased processing fees related to increased customer levels.
• Other operating expenses for the year ended December 31, 2015, increased by $321,000 compared to the same period in 2014,
primarily related to $113,000 of higher marketing expenses and $313,000 of higher costs related to servicing our private banking
margin loans offset by $118,000 of lower loan-related expenses.
60
The following table presents the components of our non-interest expense by operating segment years ended December 31, 2014 and
2013:
Year Ended December 31, 2014
Year Ended December 31, 2013
Investment
Parent
Investment
Parent
(Dollars in thousands)
Bank
Management
and Other Consolidated
Bank
Management
and Other Consolidated
Compensation and employee
benefits
Premises and occupancy costs
Professional fees
FDIC insurance expense
General insurance expense
State capital shares tax
Travel and entertainment expense
Data processing expense
Charitable contributions
Intangible amortization expense
Acquisition earnout expense
Other operating expenses (1)
Total non-interest expense
Full-time equivalent employees (2)
$
25,807 $
15,241 $
— $
41,048
$
24,556 $
— $
— $
24,556
3,312
3,234
1,928
1,001
1,043
1,829
922
1,102
—
—
2,937
619
306
—
164
—
575
—
49
1,299
1,614
1,384
—
(109)
—
—
—
—
—
—
—
—
70
3,931
3,431
1,928
1,165
1,043
2,404
922
1,151
1,299
1,614
4,391
3,190
4,098
1,463
840
1,124
1,551
793
855
—
—
2,325
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
20
$
43,115 $
21,251 $
(39) $
64,327
$
40,795 $
133
49
—
182
129
— $
—
20 $
—
3,190
4,098
1,463
840
1,124
1,551
793
855
—
—
2,345
40,815
129
(1) Other operating expenses include such items as investor relations, telephone, marketing, loan-related expenses, employee-related expenses and
other general operating expenses.
(2) Full-time equivalent employees shown are as of the end of the period presented.
Non-Interest Expense for the Years Ended December 31, 2014 and 2013. Our non-interest expense for the year ended December 31,
2014, increased $23.5 million, or 57.6%, as compared to the same period in 2013, of which $2.3 million relates to the increase in expenses
of the Bank segment and $21.3 million relates to the Investment Management segment. The changes in each segment’s expenses are
described below.
Investment Management Segment:
• The investment management segment commenced activity on March 5, 2014. Therefore the expenses shown in the table above
represents the first 10 months of expenses for Chartwell.
• The $1.6 million earnout expense related to a one-time charge which was accrued and expensed in the fourth quarter of 2014
based upon the 2014 results for Chartwell. For additional information, refer to Note 2, Business Combinations, to our consolidated
financial statements.
Bank Segment:
• Compensation and employee benefits for the year ended December 31, 2014, increased by $1.3 million from 2013 primarily
due to an increase in the number of full-time equivalent employees and the overall increased wage and benefits costs of our
existing employees offset by lower incentive compensation costs.
•
•
Professional fees for the year ended December 31, 2014, decreased $864,000 from 2013, largely due to non-recurring costs
associated with the Chartwell acquisition in 2013.
FDIC insurance expense increased $465,000 for the year ended December 31, 2014, from 2013, due to overall increases in
average deposit and asset levels at the Bank.
• General insurance for the year ended December 31, 2014, increased $161,000 from 2013, due to higher insurance premiums
subsequent to becoming a publicly traded entity and expanded coverage.
• Travel and entertainment expenses for the year ended December 31, 2014, increased by $278,000 from 2013, due to an increase
in the number of relationship managers and increased client outreach and origination activity, including travel related costs for
marketing Chartwell products to bank intermediary partners.
61
• Charitable contributions increased $247,000 for the year ended December 31, 2014, from 2013, due to increased levels of
participation in community programs.
• Other operating expenses for the year ended December 31, 2014, increased by $612,000 from 2013, primarily as a result of an
increase of $165,000 in investor relations costs related to being a public company, $253,000 higher company meeting expenses
due to timing of such meetings as compared to the prior year, $92,000 higher marketing expenses and $68,000 higher provision
expense for increased unfunded commitments.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets
and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities with regard to a change in tax rates
is recognized in income in the period that includes the enactment date. We evaluate whether it is more likely than not that we will be
able to realize the benefit of identified deferred tax assets.
Income Taxes for the Years Ended December 31, 2015 and 2014. For the year ended December 31, 2015, we recognized income tax
expense of $10.9 million, or 32.6% of income before tax, as compared to income tax expense of $7.0 million, or 30.4% of income before
tax, for the same period in 2014. Our effective tax rate of 32.6% for the year ended December 31, 2015, increased as compared to the
prior year as a result of higher income related to the Investment Management segment which carries a higher effective income tax rate.
Income Taxes for the Years Ended December 31, 2014 and 2013. For the year ended December 31, 2014, we recognized income tax
expense of $7.0 million, or 30.4% of income before tax, as compared to income tax expense of $5.7 million, or 30.7% of income before
tax, for the same period in 2013. Our effective tax rates for the years ended December 31, 2014 and 2013, were impacted by higher tax
exempt interest income, increased levels of bank owned life insurance premiums and investment tax credits earned. In addition, the year
ended December 31, 2014, included higher income tax related to the Investment Management segment.
Financial Condition
Our total assets as of December 31, 2015, totaled $3.3 billion which was an increase of $456.0 million, or 16.0%, from December 31,
2014, and was primarily due to growth in our loan portfolio. Our loan portfolio increased $441.2 million, or 18.4%, to $2.8 billion, as
of December 31, 2015, from $2.4 billion, as of December 31, 2014. Total investment securities increased $9.4 million, or 4.6%, to $215.6
million, as of December 31, 2015, from $206.2 million, as of December 31, 2014, as a result of the net activity of purchases, sales and
repayments of certain securities. Cash and cash equivalents decreased $9.0 million, to $96.7 million, as of December 31, 2015, from
$105.7 million, as of December 31, 2014. Our total deposits increased $352.9 million, or 15.1%, to $2.7 billion as of December 31, 2015,
to fund loan growth. Borrowings increased $90.0 million, or 54.5%, to $255.0 million as of December 31, 2015, compared to $165.0
million as of December 31, 2014. Our shareholders’ equity increased $20.6 million to $326.0 million as of December 31, 2015, compared
to $305.4 million as of December 31, 2014. This increase was primarily the result of $22.5 million in net income and the impact of $1.9
million in stock-based compensation, partially offset by the purchase of $3.2 million in treasury stock and a decrease of $816,000 in other
comprehensive income (loss), which represents the change in the unrealized loss on our investment portfolio (net of deferred taxes).
Our total assets as of December 31, 2014, totaled $2.8 billion which was an increase of $556.3 million, or 24.3%, from December 31,
2013, was primarily due to growth in our loan portfolio. Our loan portfolio increased $539.3 million, or 29.0%, to $2.4 billion, as of
December 31, 2014, from $1.9 billion, as of December 31, 2013. Total investment securities decreased $21.7 million, or 9.5%, to $206.2
million, as of December 31, 2014, from $227.8 million, as of December 31, 2013. Cash and cash equivalents decreased $40.8 million,
to $105.7 million, as of December 31, 2014, from $146.6 million, as of December 31, 2013. Our total deposits increased $375.2 million,
or 19.1%, to $2.3 billion as of December 31, 2014. Our shareholders’ equity increased $11.4 million to $305.4 million as of December
31, 2014, compared to $293.9 million as of December 31, 2013. This increase was primarily the result of $15.9 million in net income
and an increase of $1.1 million in other comprehensive income (loss), which represents the decrease in the unrealized loss on our investment
portfolio, partially offset by the purchase of $6.7 million in treasury stock.
Loans
The Bank’s primary source of income is interest on loans. Our loan portfolio consists primarily of loans to our private banking clients,
commercial and industrial loans, and real estate loans secured by commercial real estate properties. The loan portfolio represents our
largest earning asset.
62
The following table presents the composition of our loan portfolio as of the dates indicated:
(Dollars in thousands)
Private banking loans
Middle-market banking loans:
Commercial and industrial
Commercial real estate
Total middle-market banking loans
Loans held-for-investment
2015
2014
2013
2012
2011
$
1,344,864 $
989,302 $
569,346 $
435,882 $
285,521
December 31,
634,232
862,188
677,493
733,257
739,041
552,388
752,047
453,699
643,942
477,532
1,496,420
1,410,750
1,291,429
1,205,746
1,121,474
$
2,841,284 $
2,400,052 $
1,860,775 $
1,641,628 $
1,406,995
Loans held-for-investment. Loans held-for-investment increased by $441.2 million, or 18.4%, to $2.8 billion as of December 31, 2015,
as compared to December 31, 2014. Our growth for the year ended December 31, 2015, was comprised of an increase in private banking
loans of $355.6 million, or 35.9%, an increase in commercial real estate loans of $128.9 million, or 17.6%, and a decrease in commercial
and industrial loans of $43.3 million, or 6.4%.
Loans held-for-investment increased by $539.3 million, or 29.0%, to $2.4 billion as of December 31, 2014, as compared to December
31, 2013. Our growth for the year ended December 31, 2014, was comprised of an increase in private banking loans of $420.0 million,
or 73.8%, a decrease in commercial and industrial loans of $61.5 million, or 8.3%, and an increase in commercial real estate loans of
$180.9 million, or 32.7%.
Primary Loan Categories
Private Banking Loans. Our private banking loans include personal and commercial loans sourced through our private banking channel,
which operates on a national basis. These loans primarily consist of loans made to high-net-worth individuals, trusts and businesses that
may be secured by cash, marketable securities, residential property or other financial assets. The primary source of repayment for these
loans is the income and assets of the borrower. We also have a limited number of unsecured loans and lines of credit in our private
banking loan portfolio.
As of December 31, 2015, private banking loans were approximately $1.3 billion, or 47.3% of loans held-for-investment, of which $1.2
billion, or 87.8%, were secured by cash and marketable securities. As of December 31, 2014, private banking loans were approximately
$989.3 million, or 41.2% of loans held-for-investment, of which $803.5 million, or 81.2%, were secured by cash and marketable securities.
The growth in loans secured by cash and marketable securities is expected to increase as a result of our strategy to focus on this portion
of our private banking business as we believe these loans tend to have a lower risk profile. On a daily basis, we price and monitor the
collateral of these margin loans secured by cash and marketable securities which further reduces the risk profile of the private banking
portfolio. Our private banking lines of credit are typically due on demand or if they have stated maturities, the term is predominately
less than one year.
Loans sourced through our private banking channel also include loans for commercial and business purposes, a majority of which are
secured by cash and marketable securities. The table below includes all loans made through our private banking channel, by collateral
type, as of the dates indicated.
(Dollars in thousands)
Private banking loans:
Secured by cash and marketable securities
Secured by real estate
Other
Total private banking loans
December 31,
2015
2014
2013
$
$
1,180,717 $
803,453 $
134,785
29,362
161,568
24,281
1,344,864 $
989,302 $
349,766
186,297
33,283
569,346
Middle-Market Banking: Commercial and Industrial Loans. Our commercial and industrial loan portfolio primarily includes loans made
to service companies or manufacturers generally for the purpose of production, operating capacity, accounts receivable, inventory,
equipment financing, acquisitions and recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment
for these loans.
As of December 31, 2015, our commercial and industrial loans comprised $634.2 million, or 22.4% of loans held-for-investment, compared
to $677.5 million, or 28.2%, as of December 31, 2014.
63
Middle-Market Banking: Commercial Real Estate Loans. Our commercial real estate loan portfolio includes loans secured by commercial
purpose real estate, including both owner occupied properties and investment properties for various purposes including office, retail,
industrial, multifamily and hospitality. Also included are commercial construction loans to finance the construction or renovation of
structures as well as to finance the acquisition and development of raw land for various purposes. The cash flow from income producing
properties or the sale of property from construction and development loans are the primary sources of repayment for these loans.
Commercial real estate loans as of December 31, 2015, totaled $862.2 million, or 30.3% of loans held-for-investment, as compared to
$733.3 million, or 30.6%, as of December 31, 2014. As of December 31, 2015, $650.0 million of total commercial real estate loans had
a floating rate and $212.2 million had a fixed rate, as compared to $512.5 million and $220.8 million, respectively, as of December 31,
2014.
Loan Maturities and Interest Rate Sensitivity
The following table presents the contractual maturity ranges and the amount of such loans with fixed and adjustable rates in each maturity
range as of the date indicated.
(Dollars in thousands)
Loan maturity:
Private banking
Commercial and industrial
Commercial real estate
Loans held-for-investment
Interest rate sensitivity:
Fixed interest rates
Floating or adjustable interest rates
Loans held-for-investment
Large Credit Relationships
December 31, 2015
One Year
or Less
One to
Five Years
Greater Than
Five Years
Total
$
1,168,783 $
127,540 $
48,541 $
1,344,864
144,436
150,106
444,890
474,108
44,906
237,974
634,232
862,188
1,463,325 $
1,046,538 $
331,421 $
2,841,284
104,180 $
204,883 $
118,832 $
427,895
1,359,145
841,655
212,589
2,413,389
1,463,325 $
1,046,538 $
331,421 $
2,841,284
$
$
$
We originate and maintain large credit relationships with numerous customers in the ordinary course of our business. We have established
an informal limit on loans that is significantly lower than our legal lending limit of approximately $46.6 million as of December 31, 2015.
Our present informal lending limit is $10.0 million based upon our total credit exposure to any one borrowing relationship. However,
exceptions to this limit may be made in the case of particularly strong credits and strong collateral support. As of December 31, 2015,
our average commercial loan size was approximately $3.3 million and average private banking loan size was $569,000.
The following table summarizes the aggregate committed and outstanding balances of our larger credit relationships as of December 31,
2015 and December 31, 2014.
(Dollars in thousands)
Large credit relationships:
>$25 million
>$20 million to $25 million
>$15 million to $20 million
>$10 million to $15 million
December 31, 2015
December 31, 2014
Number of
Relationships
Commitment
(based on
availability)
Outstanding
Balance
Number of
Relationships
Commitment
(based on
availability)
Outstanding
Balance
1
6
5
29
$
$
$
$
40,958 $
139,583 $
82,823 $
367,392 $
18,569
106,760
74,955
270,707
—
1
5
31
$
$
$
$
— $
21,000 $
86,780 $
—
21,000
63,069
389,378 $
298,820
Approximately $327.2 million and $181.2 million of commitments to large credit relationships were fully secured by cash and marketable
securities as of December 31, 2015 and December 31, 2014, respectively.
Loan Pricing
We generally extend variable-rate loans on which the interest rate fluctuations are based upon a predetermined indicator, such as the
LIBOR or United States prime rate. Our use of variable-rate loans is designed to mitigate our interest rate risk to the extent that the rates
that we charge on our variable-rate loans will rise or fall in tandem with rates that we must pay to acquire deposits and vice versa. As of
64
December 31, 2015, approximately 84.9% of our loans had variable rates of which approximately 5.9% also had interest rates equal to
their floors, which helps to preserve our interest rate spread.
Interest Reserve Loans
As of December 31, 2015, loans with interest reserves totaled $117.4 million, which represented 4.1% of loans held-for-investment, as
compared to $73.9 million, or 3.1%, as of December 31, 2014, due to the 17.6% growth in the commercial real estate portfolio. Certain
loans reserve a portion of the proceeds to be used to pay interest due on the loan. These loans with interest reserves are common for
construction and land development loans. The use of interest reserves is based on the feasibility of the project, the creditworthiness of
the borrower and guarantors, and the loan to value coverage of the collateral. The interest reserve may be used by the borrower, when
certain financial conditions are met, to draw loan funds to pay interest charges on the outstanding balance of the loan. When drawn, the
interest is capitalized and added to the loan balance, subject to conditions specified during the initial underwriting and at the time the
credit is approved. We have effective and ongoing procedures and controls for monitoring compliance with loan covenants, for advancing
funds and determining default conditions. In addition, most of our construction lending is performed within our geographic footprint
and our lenders are familiar with trends in the local real estate market.
Allowance for Loan Losses
Our allowance for loan losses represents our estimate of probable loan losses inherent in the loan portfolio at a specific point in time.
This estimate includes losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the
remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions charged to income and recoveries
of losses previously incurred. Reductions to the allowance occur as loans are charged off or when the credit history of any of the three
loan portfolios improves. Management evaluates the adequacy of the allowance quarterly. This evaluation is subjective and requires
material estimates that may change over time. In addition, management evaluates the allowance for loan losses overall methodology and
estimates used in the calculation on an annual basis.
The components of the allowance for loan losses represent estimates based upon ASC Topic 450, Contingencies, and ASC Topic 310,
Receivables. ASC Topic 450 applies to homogeneous loan pools such as consumer installment, residential mortgages and consumer lines
of credit, as well as commercial loans that are not individually evaluated for impairment under ASC Topic 310. ASC Topic 310 is applied
to commercial and consumer loans that are individually evaluated for impairment.
Under ASC Topic 310, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid
according to its original contractual terms, including both principal and interest or if a loan is designated as a troubled debt restructuring
(“TDR”). Management performs individual assessments of impaired loans to determine the existence of loss exposure and, where
applicable, based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent.
In estimating probable loan loss under ASC Topic 450 we consider numerous factors, including historical charge-offs and subsequent
recoveries. We also consider, but are not limited to, qualitative factors that influence our credit quality, such as delinquency and non-
performing loan trends, changes in loan underwriting guidelines and credit policies, as well as the results of internal loan reviews. Finally,
we consider the impact of changes in current local and regional economic conditions in the markets that we serve. Assessment of relevant
economic factors indicates that some of our primary markets historically tend to lag the national economy, with local economies in those
primary markets also improving or weakening, as the case may be, but at a more measured rate than the national trends.
We base the computation of the allowance for loan losses under ASC Topic 450 on two factors: the primary factor and the secondary
factor. The primary factor is based on the inherent risk identified within each of the Company’s three loan portfolios based on the historical
loss experience of each loan portfolio and the loss emergence period. Management has developed a methodology that is applied to each
of our three primary loan portfolios, consisting of commercial and industrial, commercial real estate and private banking. As the loan
loss history, mix, and risk rating of each loan portfolio change, the primary factor adjusts accordingly. The allowance for loan losses
related to the primary factor is based on our estimates as to probable losses for each loan portfolio. The secondary factor is intended to
capture risks related to events and circumstances that management believes have an impact the performance of the loan portfolio. Although
this factor is more subjective in nature, the methodology focuses on internal and external trends in pre-specified categories (risk factors)
and applies a quantitative percentage which drives the secondary factor. We have identified nine risk factors and each risk factor is
assigned a reserve level, based on management’s judgment, as to the probable impact on each loan portfolio and is monitored on a quarterly
basis. As the trend in each risk factor changes, a corresponding change occurs in the reserve associated with each respective risk factor,
such that the secondary factor remains current to changes in each loan portfolio. Potential problem loans are identified and monitored
through frequent, formal review processes. Updates are presented to our board of directors as to the status of loan quality at least quarterly.
65
The following table summarizes the allowance for loan losses, as of the dates indicated:
(Dollars in thousands)
General reserves
Specific reserves
Total allowance for loan losses
Allowance for loan losses to loans
2015
2014
2013
2012
2011
$
$
13,429
4,545
17,974
$
$
0.63%
14,690
5,583
20,273
$
$
0.84%
13,524
5,472
18,996
$
$
1.02%
13,440
4,434
17,874
$
$
1.09%
13,820
2,530
16,350
1.16%
December 31,
As of December 31, 2015, we had specific reserves totaling $4.5 million, related to three commercial and industrial loans and two private
banking loans, with an aggregated total outstanding balance of $12.5 million. All of these loans were on non-accrual status as of
December 31, 2015.
As of December 31, 2014, we had specific reserves totaling $5.6 million related to six commercial and industrial loans and one private
banking loan, with an aggregated total outstanding balance of $25.1 million. All of these loans were on non-accrual status as of
December 31, 2014.
The following tables summarize allowance for loan losses by loan category and percentage of loans, as of the dates indicated:
(Dollars in thousands)
Commercial and industrial
Commercial real estate
Private banking
December 31, 2015
December 31, 2014
December 31, 2013
Percent
of
Reserve
Percent
of
Loans
Percent
of
Reserve
Percent
of
Loans
Reserve
Percent
of
Reserve
Percent
of
Loans
Reserve
61.6%
29.7%
8.7%
22.4% $ 13,501
30.3%
47.3%
4,755
2,017
66.6%
23.5%
9.9%
28.2% $ 11,881
30.6%
41.2%
5,104
2,011
62.5%
26.9%
10.6%
39.7%
29.7%
30.6%
Reserve
$ 11,064
5,344
1,566
Total allowance for loan losses
$ 17,974
100.0% 100.0% $ 20,273
100.0% 100.0% $ 18,996
100.0% 100.0%
(Dollars in thousands)
Commercial and industrial
Commercial real estate
Private banking
Total allowance for loan losses
December 31, 2012
December 31, 2011
Percent
of
Reserve
Percent
of
Loans
Percent
of
Reserve
Percent
of
Loans
Reserve
55.7%
28.6%
15.7%
45.8% $
8,568
27.6%
26.6%
6,439
1,343
52.4%
39.4%
8.2%
45.8%
33.9%
20.3%
Reserve
$
9,950
5,120
2,804
$ 17,874
100.0% 100.0% $ 16,350
100.0% 100.0%
Allowance for Loan Losses as of December 31, 2015 and 2014. Our allowance for loan losses decreased to $18.0 million, or 0.63% of
loans, as of December 31, 2015, as compared to $20.3 million, or 0.84% of loans, as of December 31, 2014. Our allowance for loan
losses related to commercial and industrial loans decreased $2.4 million, to $11.1 million as of December 31, 2015, as compared to $13.5
million as of December 31, 2014. This decrease was attributable to a decrease of $1.3 million in general reserve related primarily to
payoffs from two substandard-rated loans, overall decreases in the commercial and industrial loan balances, and a decrease of $1.1 million
to specific reserves comprised of net additions of $2.3 million on existing non-performing loans offset by charge-offs of $3.4 million.
Our allowance for loan losses related to commercial real estate loans increased $589,000, to $5.3 million as of December 31, 2015, as
compared to $4.8 million as of December 31, 2014. Our allowance for loan losses related to private banking loans decreased $451,000,
to $1.6 million as of December 31, 2015, as compared to $2.0 million as of December 31, 2014. During the year ended December 31,
2015, management made enhancements to the look-back period and loss emergence period used in the allowance for loan losses calculation
to account for changes in the Company’s portfolio and related historical loss experience. The shift in the allowance for loan losses by
portfolio is a result of these enhancements and is primarily due to the lower risk profile of the margin loans within the private banking
portfolio and the lengthening of the loss emergence period for the commercial portfolios.
Allowance for Loan Losses as of December 31, 2014 and 2013. Our allowance for loan losses increased to $20.3 million, or 0.84% of
loans, as of December 31, 2014, as compared to $19.0 million, or 1.02% of loans, as of December 31, 2013. The increase in the total
reserve was primarily attributable to the increases in general and specific reserves for the commercial and industrial loan portfolio and
an increase in the general reserve for the private banking loan portfolio, offset by a decrease in the general reserve for the commercial
real estate loan portfolio and a decrease in the specific reserve for the private banking loan portfolio.
66
Our allowance for loan losses related to commercial and industrial loans increased $1.6 million, to $13.5 million as of December 31,
2014, as compared to $11.9 million as of December 31, 2013. This increase was primarily attributable to an increase in the general
reserve of $1.4 million related to the impact of charge-offs for the year ended December 31, 2014, and loans that were downgraded during
the year, coupled with an increase of $3.0 million in specific reserves on four loans offset by a decrease of $2.8 million in specific reserves
on four loans that were paid off or paid down. Our allowance for loan losses related to commercial real estate loans decreased $349,000,
to $4.8 million as of December 31, 2014, as compared to $5.1 million as of December 31, 2013. This decrease to the commercial real
estate general reserve was primarily attributable to the overall improved credit history of this portfolio partially offset by growth in this
loan portfolio. Our allowance for loan losses related to private banking loans increased $6,000, to $2.0 million as of December 31, 2014,
as compared to December 31, 2013, due to an increase in general reserves related to loan growth in this portfolio offset by a decrease in
a specific reserve on a loan that was paid down.
Net Charge-Offs
Our charge-off policy for commercial and private banking loans requires that loans and other obligations that are not collectible be
promptly charged off in the month the loss becomes probable, regardless of the delinquency status of the loan. We recognize a partial
charge-off when we have determined that the value of the collateral is less than the remaining ledger balance at the time of the evaluation.
A loan or obligation is not required to be charged off, regardless of delinquency status, if (1) we have determined there exists sufficient
collateral to protect the remaining loan balance and (2) there exists a strategy to liquidate the collateral. We may also consider a number
of other factors to determine when a charge-off is appropriate, including:
•
•
•
the status of a bankruptcy proceeding;
the value of collateral and probability of successful liquidation; and
the status of adverse proceedings or litigation that may result in collection.
The following table provides an analysis of the allowance for loan losses and net charge-offs for the years indicated:
(Dollars in thousands)
Beginning balance
Charge-offs:
Commercial and industrial
Commercial real estate
Private banking
Total charge-offs
Recoveries:
Commercial and industrial
Commercial real estate
Private banking
Total recoveries
Net charge-offs
Provision for loan losses
Ending balance
Years Ended December 31,
2015
2014
2013
2012
2011
$
20,273
$
18,996
$
17,874
$
16,350
$
17,111
(3,353)
(9,521)
—
—
—
—
(3,353)
(9,521)
1,028
—
13
1,041
(2,312)
13
545
—
94
639
(8,882)
10,159
(5,508)
(1,936)
(13)
(7,457)
114
278
—
392
(7,065)
8,187
(3,000)
(2,868)
(999)
(6,867)
206
—
—
206
(6,661)
8,185
$
17,974
$
20,273
$
18,996
$
17,874
$
(1,886)
(4,888)
—
(6,774)
556
118
—
674
(6,100)
5,339
16,350
0.46%
0.40%
268.03%
87.52%
Net loan charge-offs to average total loans
Provision for loan losses to average total loans
Allowance for loan losses to net loan charge-offs
Provision for loan losses to net loan charge-offs
0.09%
—%
777.42%
0.56%
0.41%
0.47%
228.25%
114.38%
0.41%
0.47%
268.87%
115.88%
0.43%
0.53%
268.34%
122.88%
Net Charge-Offs for the Year Ended December 31, 2015. Our net loan charge-offs of $2.3 million, or 0.09% of average loans, for the
year ended December 31, 2015, were comprised of charge-offs of $3.4 million on one commercial and industrial loan, partially offset by
recoveries of $1.0 million on four commercial and industrial loans and $13,000 on one private banking loan.
Net Charge-Offs for the Year Ended December 31, 2014. Our net loan charge-offs of $8.9 million, or 0.41% of average loans, for the
year ended December 31, 2014, were comprised of charge-offs of $9.5 million on six commercial and industrial loans, partially offset
by recoveries of $545,000 on three commercial and industrial loans and $94,000 on one private banking loan.
67
Net Charge-Offs for the Year Ended December 31, 2013. Our net loan charge-offs totaled $7.1 million, or 0.41% of average loans, for
the year ended December 31, 2013, were comprised of charge-offs of $5.5 million on three commercial and industrial loans, $1.9 million
on one commercial real estate loan, and $13,000 on one private banking loan, partially offset by recoveries of $114,000 on three commercial
and industrial loans and $278,000 on three commercial real estate loans.
For additional information on the changes in the allowance for loan losses by category for the years ended December 31, 2015, 2014 and
2013, refer to Note 5, Allowance for Loan Losses, to our consolidated financial statements.
Non-Performing Assets
Non-performing assets consist of non-performing loans and other real estate owned (“OREO”). Non-performing loans consist of loans
that are on non-accrual status. OREO is real property acquired through foreclosure on the collateral underlying defaulted loans and
including in-substance foreclosures. We initially record OREO at the lower of the related loan balance or fair value, less estimated costs
to sell the assets. We account for TDRs in accordance with ASC 310, Receivables.
Our policy is to place loans in all categories on non-accrual status when collection of interest or principal is doubtful, or when interest
or principal payments are 90 days or more past due. There were no loans 90 days or more past due and still accruing interest as of
December 31, 2015, 2014 and 2013, and there was no interest income recognized on these loans, while on non-accrual, for the years
ended December 31, 2015, 2014 and 2013. As of December 31, 2015, non-performing loans were $16.7 million, or 0.59% of total loans,
compared to $30.2 million, or 1.26% of total loans, and $20.3 million, or 1.09% of total loans, as of December 31, 2014 and 2013,
respectively. We had specific reserves of $4.5 million, $5.6 million and $5.5 million as of December 31, 2015, 2014 and 2013, respectively
on these non-performing loans. The net loan balance of our non-performing loans was 38.0%, 51.3% and 41.5% of the original loan
balance after payments, charge-offs and specific reserves as of December 31, 2015, 2014 and 2013, respectively.
For additional information on our non-performing loans for December 31, 2015, 2014 and 2013, refer to Note 5, Allowance for Loan
Losses, to our consolidated financial statements.
Once the determination is made that a foreclosure is necessary, the loan is reclassified as “in-substance foreclosure” until a sale date and
title to the property is finalized. Once we own the property, it is maintained, marketed, rented and sold to repay the original loan.
Historically, foreclosure trends in our loan portfolio have been low due to the seasoning of our portfolio. Any loans that are modified or
extended are reviewed for potential classification as a TDR loan. For borrowers that are experiencing financial difficulty, we complete
a process that outlines the terms of the modification, the reasons for the proposed modification and documents the current status of the
borrower.
We had non-performing assets of $18.4 million, or 0.56% of total assets, as of December 31, 2015, as compared to $31.6 million, or
1.11% of total assets, as of December 31, 2014. The decrease in non-performing assets was primarily the result of $13.4 million in
reductions and $228,000 in additions to non-performing assets in 2015. This decrease was considered within the assessment of the
determination of the allowance for loan losses. As of December 31, 2015, we had three OREO properties totaling $1.7 million.
We had non-performing assets of $31.6 million, or 1.11% of total assets, as of December 31, 2014, as compared to $21.7 million, or
0.95% of total assets, as of December 31, 2013. The increase in non-performing assets was the result of $26.9 million in additions to
non-performing assets and $17.0 million in reductions to non-performing assets in 2014. This increase was considered within the
assessment of the determination of the allowance for loan losses. As of December 31, 2014, we had two OREO properties which totaled
$1.4 million.
68
The following table summarizes our non-performing assets as of the dates indicated:
(Dollars in thousands)
Non-performing loans:
Commercial and industrial
Commercial real estate
Private banking
Total non-performing loans
Other real estate owned
Total non-performing assets
Non-performing troubled debt restructured loans (1)
Performing troubled debt restructured loans
Non-performing loans to total loans
Allowance for loan losses to non-performing loans
Non-performing assets to total assets
(1)
Included in total non-performing loans.
Potential Problem Loans
2015
2014
2013
2012
2011
December 31,
$
$
$
$
$
11,800
$
24,665
$
15,676
$
14,732
$
$
$
$
$
2,912
1,948
16,660
1,730
18,390
12,894
510
0.59%
107.89%
0.56%
$
$
$
$
3,498
2,069
30,232
1,370
31,602
14,107
528
1.26%
67.06%
1.11%
$
$
$
$
3,498
1,119
20,293
1,413
21,706
13,021
527
1.09%
93.61%
0.95%
$
$
$
$
6,804
947
22,483
290
22,773
4,210
253
1.37%
79.50%
1.10%
2,215
13,900
313
16,428
—
16,428
12,335
680
1.17%
99.53%
0.90%
Potential problem loans are those loans that are not categorized as non-performing loans, but where current information indicates that
the borrower may not be able to comply with repayment terms. Among other factors, we monitor past due status as an indicator of credit
deterioration and potential problem loans. A loan is considered past due when the contractual principal or interest due in accordance with
the terms of the loan agreement remains unpaid after the due date of the scheduled payment. To the extent that loans become past due,
we assess the potential for loss on such loans as we would with other problem loans and consider the effect of any potential loss in
determining any provision for probable loan losses. We also assess alternatives to maximize collection of any past due loans, including
and without limitation, restructuring loan terms, requiring additional loan guarantee(s) or collateral, or other planned action.
For additional information on the age analysis of past due loans segregated by class of loan for December 31, 2015 and 2014, refer to
Note 5, Allowance for Loan Losses, to our consolidated financial statements.
On a monthly basis, we monitor various credit quality indicators for our loan portfolio, including delinquency, non-performing status,
changes in risk ratings, changes in the underlying performance of the borrowers and other relevant factors.
We also monitor the loan portfolio through an internal risk rating system on a periodic basis. Loan risk ratings are assigned based upon
the creditworthiness of the borrower. Loan risk ratings are reviewed on an ongoing basis according to internal policies. Loans within
the pass rating are viewed to have a lower risk of loss than loans that are risk rated as special mention, substandard and doubtful, which
are viewed to have an increasing risk of loss. Our internal risk ratings are consistent with regulatory guidance.
For additional information on the definitions of our internal risk rating and the recorded investment in loans by credit quality indicator
for December 31, 2015 and 2014, refer to Note 5, Allowance for Loan Losses, to our consolidated financial statements.
Investment Securities
We utilize investment activities to enhance net interest income while supporting interest rate risk management and liquidity management.
Our securities portfolio consists of available-for-sale securities, held-to-maturity securities and, from time to time, securities held for
trading purposes. Securities purchased with the intent to sell under trading activity are recorded at fair value and changes to fair value
are recognized in the consolidated statement of income. Securities categorized as available-for-sale are recorded at fair value and changes
in the fair value of these securities are recognized as a component of total shareholders’ equity, within accumulated other comprehensive
income (loss), net of deferred taxes. Securities categorized as held-to-maturity are debt securities that the Company intends to hold until
maturity and are recorded at amortized cost.
On a quarterly basis, we determine the fair market value of our investment securities based on information provided by multiple external
sources. In addition, on a quarterly basis, we conduct an internal evaluation of changes in the fair market value of our investment securities
to gain a level of comfort with the market value information received from the external sources.
69
Securities, like loans, are subject to interest rate and credit risk. In addition, by their nature, securities classified as available-for-sale are
also subject to fair value risks that could negatively affect the level of liquidity available to us, as well as shareholders’ equity. The Bank
has engaged Chartwell to provide securities portfolio advisory services, subject to the investment parameters set forth in our investment
policy.
As of December 31, 2015 and December 31, 2014, we reported securities in available-for-sale and held-to-maturity categories. In general,
fair value is based upon quoted market prices of identical assets, when available. Where sufficient data is not available to produce a fair
valuation, fair value is based on broker quotes for similar assets. Quarterly, we validate the prices received from these third parties by
comparing them to prices provided by a different independent pricing service. We have also reviewed the valuation methodologies
provided to us by our pricing services. Broker quotes may be adjusted to ensure that financial instruments are recorded at fair value.
Adjustments may include unobservable parameters, among other things.
We perform a quarterly review of our investment securities to identify those that may indicate other-than-temporary impairment (“OTTI”).
Our policy for OTTI is based upon a number of factors, including but not limited to, the length of time and extent to which the estimated
fair value has been less than cost, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations,
the likelihood of the investment security’s ability to recover any decline in its estimated fair value and whether we intend to sell the
investment security or if it is more likely than not that we will be required to sell the investment security prior to its recovery. If the
financial markets experience deterioration, charges to income could occur in future periods as a result of OTTI determinations.
Our available-for-sale securities portfolio consists of U.S. government agency obligations, mortgage-backed securities collateralized loan
obligations, corporate bonds and single-issuer trust preferred securities, all with varying contractual maturities, and certain equity
securities. Our held-to-maturity portfolio consists of certain municipal bonds, agency obligations and corporate bonds while our trading
portfolio, when active, consists of U.S. Treasury Notes, also with varying contractual maturities. However, these maturities do not
necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated
maturities. The effective duration of our securities portfolio as of December 31, 2015, was approximately 1.8, where duration is defined
as the approximate percentage change in price for a 100 basis point change in rates. No investment in any of these securities exceeds
any applicable limitation imposed by law or regulation. Our Asset/Liability Management Committee (“ALCO”) reviews the investment
portfolio on an ongoing basis to ensure that the investments conform to our investment policy.
Available-for-Sale Investment Securities. We held $168.3 million and $166.6 million in investment securities available-for-sale as of
December 31, 2015 and December 31, 2014, respectively. The increase of $1.7 million was primarily attributable to the net activity of
purchases of $36.7 million, repayments of $21.3 million and sales of $11.8 million of certain securities during the year ended December
31, 2015.
On a fair value basis, 74.3% of our available-for-sale investment securities as of December 31, 2015, were floating-rate securities for
which yields increase or decrease based on changes in market interest rates. As of December 31, 2014, floating-rate securities comprised
74.6% of our available-for-sale investment securities.
On a fair value basis, 49.2% of our available-for-sale investment securities as of December 31, 2015, were agency securities, which tend
to have a lower risk profile, while the remainder of the portfolio was comprised of certain corporate bonds, single-issuer trust preferred
securities, non-agency commercial mortgage-backed securities and collateralized loan obligations, and certain equity securities. As of
December 31, 2014, agency securities comprised 59.1% of our available-for-sale investment securities.
Held-to-Maturity Investment Securities. We held $47.3 million and $39.6 million in investment securities held-to-maturity as of
December 31, 2015 and December 31, 2014, respectively. The increase of $7.7 million was primarily attributable to the net activity of
purchases of $14.4 million and repayments of $6.5 million during the year ended December 31, 2015. As part of our asset and liability
management strategy, we determined that we have the intent and ability to hold these bonds until maturity, and these securities were
reported at amortized cost, as of December 31, 2015.
Trading Investment Securities. We held no investment securities trading as of December 31, 2015 and December 31, 2014. From time
to time, we may identify opportunities in the marketplace to generate supplemental income from trading activity, principally based on
the volatility of U.S. Treasury Notes with maturities up to ten years. The level and frequency of income generated from these transactions
can vary materially based upon market conditions. During the year ended December 31, 2015, there was one purchase and subsequent
sale of a U.S. Treasury security of $5.0 million.
70
The following tables summarize the amortized cost and fair value of investment securities available-for-sale and held-to-maturity, as of
the dates indicated:
Total
$
217,627 $
1,287 $
2,496 $
216,418
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Non-agency collateralized loan obligations
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
Equity securities
Total investment securities available-for-sale
Investment securities held-to-maturity:
Corporate bonds
Agency debentures
Municipal bonds
Total investment securities held-to-maturity
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
Equity securities
Total investment securities available-for-sale
Investment securities held-to-maturity:
Corporate bonds
Agency debentures
Municipal bonds
Total investment securities held-to-maturity
December 31, 2015
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Amortized
Cost
Estimated
Fair Value
$
43,952 $
18 $
237 $
17,579
5,756
11,843
49,544
28,586
4,719
8,358
170,337
19,448
2,453
25,389
47,290
—
—
—
92
270
13
—
393
498
19
377
894
17,446
11,617
56,984
32,564
8,678
8,110
167,232
14,452
5,000
20,139
39,591
—
—
127
502
59
—
691
335
1
201
537
2,411
168,319
84
—
1
85
19,862
2,472
25,765
48,099
978
13
132
265
187
—
599
645
32
248
186
—
72
43,733
16,601
5,743
11,711
49,371
28,669
4,732
7,759
31,668
16,801
11,585
56,863
32,880
8,737
8,038
1,351
166,572
—
—
15
15
14,787
5,001
20,325
40,113
December 31, 2014
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Amortized
Cost
Estimated
Fair Value
$
31,833 $
3 $
168 $
Total
$
206,823 $
1,228 $
1,366 $
206,685
71
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
December 31, 2013
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Amortized
Cost
Estimated
Fair Value
$
56,630 $
241 $
17,316
7,740
81,635
36,948
4,638
—
16
703
300
—
483 $
1,692
62
387
937
25
56,388
15,624
7,694
81,951
36,311
4,613
Total investment securities available-for-sale
$
204,907 $
1,260 $
3,586 $
202,581
Investment securities held-to-maturity:
Corporate bonds
Municipal bonds
Total investment securities held-to-maturity
5,000
20,263
25,263
120
—
120
—
926
926
5,120
19,337
24,457
Total
$
230,170 $
1,380 $
4,512 $
227,038
The change in the fair values of our municipal bonds, agency collateralized mortgage obligations and agency mortgage-backed securities
are primarily the result of interest rate fluctuations. To assess for impairment on municipal bonds, corporate bonds, single-issuer trust
preferred securities, non-agency mortgage-backed securities, non-agency collateralized loan obligations, and certain equity securities,
management evaluates the underlying issuer’s financial performance and related credit rating information through a review of publicly
available financial statements and other publicly available information. This review did not identify any issues related to the ultimate
repayment of principal and interest on these securities. In addition, the Company has the ability and intent to hold the securities in an
unrealized loss position until recovery of their amortized cost. Based on this, the Company considers all of the unrealized losses to be
temporary impairment losses.
The following table sets forth the fair value, contractual maturities and approximated weighted average yield, calculated on a fully taxable
equivalent basis, based on estimated annual income divided by the average amortized cost of our available-for-sale and held-to-maturity
debt securities portfolios as of December 31, 2015. Contractual maturities may differ from expected maturities because issuers and/or
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, which would also impact the
corresponding yield.
72
Less Than
One Year
One to
Five Years
Five to
10 Years
Greater Than
10 Years
Total
December 31, 2015
(Dollars in thousands)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Investment securities available-
for-sale:
Corporate bonds
$
7,044
0.80% $ 36,689
1.70% $
—
—
—
—
—
—
—%
—%
—%
—%
—%
—%
—
—
—
—
—
—
—%
—%
—
—
—
—% $
—
—% $ 43,733
—%
16,601
2.19%
16,601
1.56%
2.19%
—%
5,743
1.07%
5,743
1.07%
—%
4,900
1.89%
6,811
2.13%
11,711
2.03%
—%
1,398
0.76%
47,973
0.66%
49,371
0.67%
—%
—%
—
—%
28,669
1.76%
4,732
2.04%
—
—%
28,669
4,732
1.76%
2.04%
Trust preferred securities
Non-agency mortgage-
backed securities
Non-agency collateralized
loan obligation
Agency collateralized
mortgage obligations
Agency mortgage-backed
securities
Agency debentures
Total debt securities available-
for-sale
7,044
36,689
11,030
105,797
160,560
Weighted average yield
0.80%
1.70%
1.81%
1.33%
1.42%
Investment securities held-to-
maturity:
Corporate bonds
Agency debentures
Municipal bonds
Total debt securities held-to-
maturity
Weighted average yield
—
—
—
—
—%
—%
—%
—%
5,438
6.38%
14,424
—
—%
2,472
7,141
2.09%
17,146
5.31%
3.03%
2.80%
—
—
—%
—%
1,478
3.58%
12,579
34,042
1,478
3.86%
3.89%
3.58%
19,862
2,472
25,765
48,099
Total debt securities
$
7,044
$ 49,268
$ 45,072
$ 107,275
$ 208,659
Weighted average yield
0.80%
2.23%
3.37%
1.35%
5.58%
3.03%
2.64%
3.87%
1.98%
The table above excludes equity securities because they have an indefinite maturity. For additional information regarding our investment
securities portfolios, refer to Note 3, Investment Securities, to our consolidated financial statements.
Deposits
Deposits are our primary source of funds to support our earning assets, and we source deposits through multiple channels. We have
focused on creating and growing diversified, stable, and low all-in cost deposit channels without operating through a traditional branch
network. These sources primarily include deposits from high-net-worth individuals, family offices, trust companies, wealth management
firms, middle-market businesses and their executives, and other financial institutions. We compete for deposits by offering a range of
products and services to our customers, at competitive rates. We believe that our deposit base is stable, diversified and provides a low
all-in cost. We further believe we have the ability to attract new deposits that will contribute funding our projected loan growth.
As of December 31, 2015, we consider nearly 80.0% of our total deposits to be relationship-based deposits. Some of our relationship-
based deposits, including reciprocal time deposits placed through Promontory’s CDARS® service and demand deposits placed through
Promontory’s ICS® service, have been classified for regulatory purposes as brokered deposits.
73
The table below depicts average balances of and rates paid on our deposit portfolio broken out by major deposit category, for the years
ended December 31, 2015, 2014 and 2013.
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Average
Amount
Average Rate
Paid
Average
Amount
Average Rate
Paid
Average
Amount
Average Rate
Paid
Interest-bearing checking accounts
$
107,292
0.41% $
68,114
0.34% $
Money market deposit accounts
Time deposits (excluding CDARS®)
CDARS® time deposits
Total average interest-bearing deposits
Noninterest-bearing deposits
Total average deposits
1,367,584
450,874
447,462
2,373,212
149,567
0.42%
0.90%
0.61%
0.54%
—
1,096,347
469,120
411,393
2,044,974
133,733
0.39%
0.85%
0.53%
0.52%
—
$
2,522,779
0.51% $
2,178,707
0.49% $
1,869,387
5,617
931,720
469,925
366,663
1,773,925
95,462
0.07%
0.40%
0.98%
0.71%
0.62%
—
0.59%
Average Deposits for the Years Ended December 31, 2015 and 2014. For the year ended December 31, 2015, our average total deposits
were $2.5 billion, representing an increase of $344.1 million, or 15.8%, from the same period in 2014. The deposit growth was primarily
driven by increases in noninterest and interest-bearing checking accounts, money market deposit accounts and CDARS® time deposits,
partially offset by a decrease in time deposits. Our average cost of interest-bearing deposits of 0.54%, for the year ended December 31,
2015, increased from 0.52%, for the same period in 2014, as average rates paid were higher in each deposit category and the average
maturity of time deposits was extended. Average money market deposits increased to 57.6% of total average interest-bearing deposits,
for the year ended December 31, 2015, from 53.6% for the same period in 2014. Average time deposits decreased to 19.0% of total
average interest-bearing deposits for the year ended December 31, 2015, compared to 22.9% for the same period in 2014. Average
CDARS® time deposits decreased to 18.9% of total average interest-bearing deposits for the year ended December 31, 2015, compared
to 20.1% for the same period in 2014. Average noninterest-bearing deposits increased $15.8 million, or 11.8%, from $133.7 million for
the year ended December 31, 2014, to $149.6 million, for the same period in 2015, and the average cost of deposits increased two basis
points to 0.51% for the year ended December 31, 2015, from 0.49% for the year ended December 31, 2014.
Average Deposits for the Years Ended December 31, 2014 and 2013. For the year ended December 31, 2014, our average total deposits
were $2.2 billion, representing an increase of $309.3 million, or 16.5%, from the same period in 2013. The deposit growth was primarily
driven by increases in money market deposit accounts, interest-bearing checking accounts, CDARS®
time deposits and noninterest-
bearing deposits. Our average cost of interest-bearing deposits of 0.52%, for the year ended December 31, 2014, decreased from 0.62%,
for the same period in 2013, as a result of lower rates paid on deposits across the three largest deposit categories. Additionally, our mix
of average interest-bearing deposits improved as a result of a higher level of lower cost deposits, as average money market deposits
increased to 53.6% of total average interest-bearing deposits, for the year ended December 31, 2014, from 52.5% for the same period in
2013. Average time deposits and average CDARS®
time deposits decreased to 22.9% and 20.1%, respectively, of total average interest-
bearing deposits for the year ended December 31, 2014, compared to 26.5% and 20.7%, respectively, for the same period in 2013. The
increase in our deposit mix comprised of lower rate deposits is the result of management’s strategy to focus on growth of lower cost
deposits while maintaining stability in our deposit base. The increase of $38.3 million, or 40.1%, in average noninterest-bearing deposits,
from $95.5 million for the year ended December 31, 2013, to $133.7 million, for the same period in 2014, drove the average cost of
deposits down to 0.49% for the year ended December 31, 2014, from 0.59% for the year ended December 31, 2013.
Certificates of Deposits and Other Time Deposits
Maturities of time deposits of $100,000 or more outstanding are summarized below, as of the date indicated.
(Dollars in thousands)
Months to maturity:
Three months or less
Over three to six months
Over six to 12 months
Over 12 months
Total
74
December 31,
2015
$
$
278,807
142,269
151,327
264,385
836,788
Borrowings
Deposits are the primary source of funds for our lending and investment activities, as well as general business purposes. As an alternative
source of liquidity, we may obtain advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”), sell investment securities subject
to our obligation to repurchase them, purchase Federal funds or engage in overnight borrowings from the FHLB or our correspondent
banks.
The following table presents certain information with respect to our borrowings, as of December 31, 2015 and December 31, 2014.
(Dollars in thousands)
Amount
Rate
December 31, 2015
Maximum
Balance
at Any
Month End
Average
Balance
During
Year
Original
Term
Amount
Rate
December 31, 2014
Maximum
Balance
at Any
Month End
Average
Balance
During
Year
Original
Term
Short-term FHLB
borrowings
Long-term FHLB
borrowings:
Issued 9/25/2012
Issued 4/7/2014
Issued 4/7/2014
Issued 4/7/2014
Issued 5/5/2014
Issued 7/29/2015
Issued 7/29/2015
Subordinated notes
payable
$ 170,000 0.51% $
170,000 $
62,137
1-9 days
$ 30,000 0.27% $
60,000 $
11,959
1-9 days
— —%
— 0.34%
— 0.38%
— 0.44%
— 0.33%
25,000 0.61%
25,000 0.72%
—
25,000
25,000
25,000
25,000
25,000
25,000
—
— 0.42%
6,576 12 months
25,000 0.34%
10,822 14 months
25,000 0.38%
17,123 17 months
25,000 0.44%
2,397
9 months
25,000 0.33%
10,685 12 months
10,685 15 months
— —%
— —%
20,000
25,000
25,000
25,000
25,000
—
—
14,630
2 years
18,425 12 months
18,425 14 months
18,425 17 months
16,506
9 months
—
—
35,000 5.75%
35,000
35,000
5 years
35,000 5.75%
35,000
20,041
5 years
Total borrowings
$ 255,000 1.13% $
355,000 $ 155,425
$165,000 1.49% $
215,000 $ 118,411
In June 2014, we completed a private placement of subordinated notes payable, raising $35.0 million. The subordinated notes have a
term of 5 years at a fixed-rate of 5.75%. The proceeds qualified as Tier 2 capital for the holding company, under federal regulatory capital
rules.
Liquidity
We evaluate liquidity both at the holding company level and at the Bank level. As of December 31, 2015, the Bank and Chartwell
subsidiaries represent our only material assets. Our primary sources of funds at the parent company level are cash on hand, dividends
paid to us from the Bank and Chartwell subsidiaries and the net proceeds from the issuance of our debt or equity securities. As of
December 31, 2015, our primary liquidity needs at the parent company level were the semi-annual interest payments on the subordinated
notes payable and funding of the pending TKG acquisition, expected to close in the second quarter of 2016. All other liquidity needs
were minimal and related solely to reimbursing the Bank for management, accounting and financial reporting services provided by bank
personnel. For the year ended December 31, 2015, the parent company paid approximately $2.2 million related to interest payments on
the subordinated notes and $17.2 million related to the earn-out consideration for the Chartwell acquisition. For the year ended December
31, 2014, the parent company paid approximately $45 million related to the Chartwell acquisition. We believe that our cash on hand at
the parent company level coupled with the dividend paying capacity of the Bank and Chartwell, were adequate to fund any foreseeable
parent company obligations as of December 31, 2015. In addition, the holding company established an unsecured line of credit of $25.0
million, effective December 29, 2015, with Texas Capital Bank. As of December 31, 2015, the full amount of this established line was
available.
Our goal in liquidity management at the Bank level is to satisfy the cash flow requirements of depositors and borrowers, as well as our
operating cash needs. These requirements include the payment of deposits on demand at their contractual maturity, the repayment of
borrowings as they mature, the payment of our ordinary business obligations, the ability to fund new and existing loans and other funding
commitments, and the ability to take advantage of new business opportunities. Our ALCO has established an asset/liability management
policy designed to achieve and maintain earnings performance consistent with long-term goals while maintaining acceptable levels of
interest rate risk, well capitalized regulatory status and adequate levels of liquidity. The ALCO has also established a contingency funding
plan to address liquidity crisis conditions. The ALCO is designated as the body responsible for monitoring and implementation of these
policies. The ALCO, which includes members of executive management, reviews liquidity on a frequent basis and approves significant
changes in strategies that affect balance sheet or cash flow positions.
75
Our principal sources of asset liquidity are cash and cash due from banks, interest-earning deposits with banks, federal funds sold,
unpledged securities available-for-sale, loan repayments (scheduled and unscheduled) and earnings. Liability liquidity sources include
a stable deposit base, the ability to renew maturing certificates of deposit, borrowing availability at the FHLB of Pittsburgh, unsecured
lines with other financial institutions, access to the brokered deposit market including CDARS®, and the ability to raise debt and equity.
Customer deposits are an important source of liquidity which depends on the confidence of those customers in us, supported by our capital
position and the protection provided by FDIC insurance.
We measure and monitor liquidity on an ongoing basis, which allows us to more effectively understand and react to trends in our balance
sheet. In addition, the ALCO uses a variety of methods to monitor our liquidity position, including a liquidity gap, which measures
potential sources and uses of funds over future periods. Policy guidelines have been established for a variety of liquidity-related
performance metrics, such as net loans to deposits, brokered funding composition, cash to total loans and duration of time deposits, among
others, all of which are utilized in measuring and managing our liquidity position. The ALCO also performs contingency funding and
capital stress analyses at least semi-annually to determine our ability to meet potential liquidity and capital needs under various stress
scenarios.
We believe that our liquidity position continues to be strong as evidenced by our ability to generate strong growth in deposits. As a result,
we are less reliant on borrowings as evidenced by our ratio of total deposits to total assets of 81.4%, 82.1% and 85.6% as of December 31,
2015, 2014 and 2013, respectively. As of December 31, 2015, we had available liquidity of $524.4 million, or 15.9% of total assets.
These sources consisted of liquid assets (cash and cash equivalents, and investment securities available-for-sale or trading and not pledged
under the FHLB borrowing capacity), totaling $225.4 million, or 6.8% of total assets, coupled with secondary sources of liquidity (the
ability to borrow from the FHLB and correspondent bank lines) totaling $299.1 million, or 9.1% of total assets. Available cash excludes
pledged accounts for derivative and letter of credit transactions and the reserve balance requirement at the Federal Reserve.
The following table shows our available liquidity, by source, as of the dates indicated:
(Dollars in thousands)
Available cash
Unpledged investment securities available-for-sale
Net borrowing capacity
Total liquidity
December 31,
2015
2014
2013
$
$
63,401 $
77,215 $
161,951
299,057
158,361
364,205
524,409 $
599,781 $
136,540
175,294
389,575
701,409
For the year ended December 31, 2015, we generated $31.7 million in cash from operating activities, compared to $28.3 million for the
same period in 2014. This increase in cash flow was primarily the result of net income of $22.5 million for the year ended December
31, 2015, and changes in working capital items largely related to timing.
Investing activities resulted in a net cash outflow of $465.1 million, for the year ended December 31, 2015, as compared to a net cash
outflow of $581.9 million for the same period in 2014. The outflows for the year ended December 31, 2015, were primarily due to the
net loan growth of $448.2 million and $51.1 million for the purchase of investment securities, partially offset by proceeds from the sale
of investment securities available-for-sale totaling $11.8 million and principal repayments and maturities of investments securities of
$27.8 million. The outflows for the year ended December 31, 2014, included $42.9 million for the Chartwell acquisition net of cash,
$348.1 million in net loan growth, the purchase of $219.5 million in loans and the purchase of investment securities of $77.3 million
partially offset by proceeds from the sale of investment securities available-for-sale totaling $69.6 million and principal repayments and
maturities of investments securities of $31.2 million.
Financing activities resulted in a net inflow of $424.4 million for the year ended December 31, 2015, compared to a net inflow of $512.7
million for the same period in 2014, primarily as a result of an increase in FHLB advances of $90.0 million and the net growth in deposits
of $352.9 million for the year ended December 31, 2015, compared to net growth of $375.2 million in deposits, increased FHLB borrowings
of $110.0 million and net proceeds from the issuance of $34.0 million in subordinated notes payable for the year ended December 31,
2014.
We continue to evaluate the potential impact on liquidity management by regulatory proposals, including those being established under
the Dodd-Frank Act, as government regulators continue the final rule-making process.
Capital Resources
The access to and cost of funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay
dividends, the level of deposit insurance costs and the level and nature of regulatory oversight depend, in part, on our capital position.
76
The assessment of capital adequacy depends on a number of factors, including asset quality, liquidity, earnings performance, changing
competitive conditions and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities,
to provide stability to current operations and to promote public confidence.
Shareholders’ Equity. Shareholders’ equity increased to $326.0 million as of December 31, 2015, compared to $305.4 million as of
December 31, 2014. The $20.6 million increase during the year ended December 31, 2015, was attributable to net income of $22.5
million, the impact of $1.9 million in stock-based compensation and $353,000 stock options exercised, partially offset by the repurchase
of $3.2 million in treasury stock, a decrease of $816,000 in accumulated other comprehensive income (loss) and $229,000 in redemption
of stock options.
Shareholders’ equity increased to $305.4 million as of December 31, 2014, compared to $293.9 million as of December 31, 2013. The
$11.4 million increase during the year ended December 31, 2014, was attributable to net income of $15.9 million, the impact of $896,000
in stock-based compensation, $250,000 stock options exercised and an increase of $1.1 million in accumulated other comprehensive
income (loss), partially offset by the repurchase of $6.7 million in treasury stock.
In January 2016, the company’s Board of Directors approved a share repurchase program of up to $10 million, authorizing TriState Capital
Holdings to repurchase up to 1,000,000 shares of its common stock. The program authorizes repurchases totaling up to approximately
3.6% of the Company’s 28,056,195 common shares outstanding at December 31, 2015. Under the authorization, purchases may be made
at the discretion of management from time to time in the open market or through negotiated transactions.
Regulatory Capital. As of December 31, 2015 and 2014, TriState Capital Holdings, Inc. and TriState Capital Bank were in compliance
with all applicable regulatory capital requirements, and TriState Capital Bank was categorized as well capitalized for purposes of the
FDIC’s prompt corrective action regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels
may decrease. However, we expect to monitor our capital in order to remain categorized as well capitalized under the applicable regulatory
guidelines and in compliance with all regulatory capital standards applicable to us.
In December 2010, the Basel Committee released a final framework for a strengthened set of capital requirements, known as Basel III.
In July 2013, final rules implementing the Basel III capital accord were adopted by the federal banking agencies. When fully phased in,
Basel III, which began phasing in on January 1, 2015, will replace the existing regulatory capital rules for the Company and the Bank.
The Basel III final rules required new minimum capital ratio standards, established a new common equity tier 1 to total risk-weighted
assets ratio, subjected banking organizations to certain limitations on capital distributions and discretionary bonus payments and established
a new standardized approach for risk weightings. The overall net impact of applying Basel III regulatory rules to the Company and the
Bank was an increase to the risk-based capital ratios effective January 1, 2015. This increase resulted primarily from the reduced risk-
weighted capital treatment for certain of the Bank’s private banking non-purpose margin loans, which are over-collateralized by liquid
and marketable securities that are priced and monitored daily.
The following tables present the actual capital amounts and regulatory capital ratios for the Company and the Bank as of the dates
indicated:
(Dollars in thousands)
Total risk-based capital ratio
Company
Bank
Tier 1 risk-based capital ratio
Company
Bank
Common equity tier 1 risk-based capital ratio
Company
Bank
Tier 1 leverage ratio
Company
Bank
December 31, 2015
For Capital Adequacy
Purposes
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
$
$
$
$
$
$
$
326,378
310,624
287,072
292,234
287,072
292,234
287,072
292,234
13.88% $
188,176
8.00%
N/A
13.35% $
186,077
8.00% $
232,596
N/A
10.00%
12.20% $
141,132
6.00%
N/A
12.56% $
139,558
6.00% $
186,077
12.20% $
105,849
4.50%
N/A
12.56% $
104,668
4.50% $
151,187
9.05% $
126,932
4.00%
N/A
9.29% $
125,870
4.00% $
157,338
N/A
8.00%
N/A
6.50%
N/A
5.00%
77
(Dollars in thousands)
Total risk-based capital ratio
Company
Bank
Tier 1 risk-based capital ratio
Company
Bank
Tier 1 leverage ratio
Company
Bank
(Dollars in thousands)
Total risk-based capital ratio
Company
Bank
Tier 1 risk-based capital ratio
Company
Bank
Tier 1 leverage ratio
Company
Bank
December 31, 2014
For Capital Adequacy
Purposes
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
302,217
291,388
253,389
270,560
253,389
270,560
11.02% $
219,458
8.00%
N/A
10.69% $
218,013
8.00% $
272,516
9.24% $
109,729
4.00%
N/A
9.93% $
109,007
4.00% $
163,510
9.21% $
110,088
4.00%
N/A
9.88% $
109,498
4.00% $
136,872
N/A
10.00%
N/A
6.00%
N/A
5.00%
December 31, 2013
For Capital Adequacy
Purposes
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
314,899
248,019
295,438
228,558
295,438
228,558
14.34% $
175,700
8.00%
N/A
11.29% $
175,700
8.00% $
219,625
13.45% $
10.41% $
87,850
87,850
4.00%
N/A
4.00% $
131,775
13.12% $
180,138
8.00%
N/A
10.15% $
180,140
8.00% $
180,140
N/A
10.00%
N/A
6.00%
N/A
8.00%
$
$
$
$
$
$
$
$
$
$
$
$
Contractual Obligations and Commitments
The following table presents significant fixed and determinable contractual obligations of principal, interest and expenses that may require
future cash payments as of the date indicated.
(Dollars in thousands)
Deposits without a stated maturity
Certificates and other time deposits
Borrowings
Interest payments on time deposits and borrowings
December 31, 2015
One Year
or Less
One to
Three Years
Three to
Five Years
Greater Than
Five Years
Total
$
1,760,175 $
— $
645,004
220,000
6,282
284,665
—
5,517
— $
—
35,000
2,013
— $
1,760,175
—
—
—
929,669
255,000
13,812
Operating leases
The Killen Group acquisition (1)
Total contractual obligations
(1) On December 16, 2015, the Company entered into a definitive asset purchase agreement to acquire The Killen Group, Inc. in a transaction that is
expected to close in the second quarter of 2016, subject to certain client consents and other customary closing conditions. The transaction value
is estimated to be between $30 million and $35 million which includes an initial purchase price of $15 million and an earnout based on
December 31, 2016, annual run rate EBITDA (earnings before interest, taxes, depreciation and amortization).
2,648,445 $
313,642 $
3,003,327
40,382 $
15,000
35,000
20,000
858 $
3,460
1,984
3,369
9,671
858
—
—
$
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various transactions that are not included in our consolidated balance sheets in accordance
with GAAP. These transactions include commitments to extend credit in the ordinary course of business to approved customers.
78
Generally, loan commitments have been granted on a temporary basis for working capital or commercial real estate financing requirements
or may be reflective of loans in various stages of funding. These commitments are recorded on our financial statements as they are
funded. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Loan
commitments include unused commitments for open end lines secured by one to four family residential properties and commercial
properties, commitments to fund loans secured by commercial real estate, construction loans, business lines of credit and other unused
commitments.
Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third party.
In the event the customer does not perform in accordance with the terms of the agreement with the third party, we would be required to
fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual
amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer.
We minimize our exposure to loss under loan commitments and standby letters of credit by subjecting them to credit approval and
monitoring procedures. The effect on our revenues, expenses, cash flows and liquidity of the unused portions of these commitments
cannot be reasonably predicted because while the borrower has the ability to draw upon these commitments at any time, these commitments
often expire without being drawn upon. There is no guarantee that the lines of credit will be used. The following table is a summary of
the total notional amount of unused loan commitments and standby letters of credit outstanding as of the date indicated.
(Dollars in thousands)
Unused loan commitments (based on availability)
Standby letters of credit
Total off-balance sheet arrangements
One Year
or Less
One to
Three Years
Three to
Five Years
Greater Than
Five Years
Total
$
$
855,211 $
194,731 $
92,128 $
36,276 $
1,178,346
36,813
31,117
21,827
107
89,864
892,024 $
225,848 $
113,955 $
36,383 $
1,268,210
December 31, 2015
Market Risk
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices.
Our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the level of both
income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing
liabilities, other than those which have a short term to maturity. Because of the nature of our operations, we are not subject to foreign
exchange or commodity price risk. From time to time we do hold market risk sensitive instruments for trading purposes. The summary
information provided in this section should be read in conjunction with our consolidated financial statements and related notes.
Interest rate risk is comprised of re-pricing risk, basis risk, yield curve risk and option risk. Re-pricing risk arises from differences in the
cash flow or re-pricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different
market rate indexes, which do not always change by the same amount or at the same time. Yield curve risk arises when asset and liability
portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Option
risk arises from embedded options within asset and liability products as certain borrowers have the option to prepay their loans when
rates fall, while certain depositors can redeem their certificates when rates rise.
Our ALCO actively measures and manages interest rate risk. The ALCO is responsible for the formulation and implementation of
strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position. This involves devising
policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital.
We utilize an asset/liability model to measure and manage interest rate risk. The specific measurement tools used by management on at
least a quarterly basis include net interest income simulation, economic value of equity and gap analysis. All are static measures that do
not incorporate assumptions regarding future business. All are also measures of interest rate sensitivity used to help us develop strategies
for managing exposure to interest rate risk rather than projecting future earnings.
In our view, all three measures also have specific benefits and shortcomings. Net interest income (“NII”) simulation explicitly measures
exposure to earnings from changes in market rates of interest but does not provide a long-term view. Economic value of equity (“EVE”)
helps identify changes in optionality and price over a longer term horizon but its liquidation perspective does not convey the earnings-
based measures that are typically the focus of managing and valuing a going concern. Gap analysis compares the difference between the
amount of interest-earning assets and interest-bearing liabilities subject to re-pricing over a period of time but only captures a single rate
environment. Reviewing these various measures collectively helps management obtain a comprehensive view of our interest risk rate
profile.
79
The following NII simulation and EVE metrics were calculated using rate shocks which represent immediate rate changes that move all
market rates by the same amount instantaneously. The variance percentages represent the change between the NII simulation and EVE
calculated under the particular rate scenario versus the NII simulation and EVE calculated assuming market rates as of the dates indicated.
(Dollars in thousands)
Net interest income:
+300
+200
+100
–100
Economic value of equity:
+300
+200
+100
–100
December 31, 2015
December 31, 2014
Amount Change
from
Base Case
Percent Change
from
Base Case
ALCO
Guidelines
Amount Change
from
Base Case
Percent Change
from
Base Case
$
$
$
$
$
$
$
$
14,120
9,306
4,454
140
(11,238)
(9,625)
(3,655)
502
19.25 %
12.69 %
6.07 %
0.19 %
(3.56)%
(3.05)%
(1.16)%
0.16 %
-20.00% $
-15.00% $
-10.00% $
-10.00% $
+/-30.00% $
+/-20.00% $
+/-10.00% $
+/-10.00% $
10,185
6,529
2,833
2,986
(19,523)
(13,107)
(6,926)
4,766
15.18 %
9.73 %
4.22 %
4.45 %
(6.48)%
(4.35)%
(2.30)%
1.58 %
Given the relatively low current interest rate environment, it is our strategy to continue to manage an asset sensitive interest rate risk
position in our net interest income measure. Therefore, rising rates are expected to have a positive effect on net interest income versus
net interest income if rates remain unchanged. The results of the EVE calculation, while demonstrating liability sensitivity, indicate a
relatively low level of interest rate risk.
80
(Dollars in thousands)
Assets:
Interest-earning
deposits
The following gap analysis presents the amounts of interest-earning assets and interest-bearing liabilities that are subject to re-pricing
within the periods indicated.
Interest Rate Sensitivity Period
December 31, 2015
Less Than
90 Days
91 to 180
Days
181 to 365
Days
One to Three
Years
Three to Five
Years
Greater
Than Five
Years
Non-Sensitive
Total
Balance
$
91,097
$
Federal funds sold
5,285
— $
—
— $
—
— $
—
— $
— $
—
—
— $
—
91,097
5,285
Total investment
securities
Total loans
Other assets
Total assets
Liabilities:
113,717
2,420,912
—
9,725
31,716
—
7,736
56,299
—
23,259
209,863
—
33,933
97,797
—
29,196
7,535
—
(1,957)
17,162
149,588
215,609
2,841,284
149,588
$
2,631,011
$
41,441
$
64,035
$
233,122
$
131,730
$
36,731
$
164,793
$ 3,302,863
Transaction accounts $
1,600,316
$
— $
— $
— $
— $
— $
159,859
$ 1,760,175
Time deposits
Borrowings
Other liabilities
318,789
170,000
—
150,873
—
—
175,342
50,000
—
284,665
—
—
Total liabilities
2,089,105
150,873
225,342
284,665
—
—
—
—
$
$
$
Equity
Total liabilities and
equity
Interest rate sensitivity
gap
Cumulative interest rate
sensitivity gap
Cumulative interest rate
sensitive assets to rate
sensitive liabilities
Cumulative gap to total
assets
2,089,105
$
150,873
$
225,342
$
284,665
$
35,000
541,906
$ (109,432) $ (161,307) $
(51,543) $
96,730
541,906
$
432,474
$
271,167
$
219,624
$
316,354
$ 353,085
125.9%
119.3%
111.0%
108.0%
111.4%
112.7%
111.0%
16.4%
13.1%
8.2%
6.6%
9.6%
10.7%
—
35,000
—
35,000
—
—
—
—
—
—
—
—
32,042
191,901
325,977
929,669
255,000
32,042
2,976,886
325,977
— $
517,878
$ 3,302,863
36,731
$
(353,085)
$
$
The cumulative twelve-month ratio of interest rate sensitive assets to interest rate sensitive liabilities increased to 111.0% as of
December 31, 2015, as compared to 105.5% as of December 31, 2014.
Various loans across our portfolio have floating-rate index floors. As of December 31, 2015, there was $121.2 million in loans with a
maturity greater than one year and an index floor rate greater than the current index rate. Of this amount, $101.7 million have an index
floor rate less than 100 basis points above the current index rate. These loans are allocated to the less than 90 days bucket in our gap
analysis since we believe they would behave more like floating-rate loans given a 100 basis point upward shock in interest rates. The
remaining $19.5 million have an index floor rate greater than 100 basis points above the current index rate. These loans are allocated to
the one to three years bucket in our gap analysis since we believe they would behave more like fixed-rate loans given a 100 basis point
upward shock in interest rates.
Additionally, in all of these analyses (NII, EVE and gap), we use what we believe is a conservative treatment of non-maturity, interest-
bearing deposits. In our gap analysis, the allocation of non-maturity, interest-bearing deposits is fully reflected in the less than 90 days
maturity category. The allocation of non-maturity, noninterest-bearing deposits is fully reflected in the non-sensitive category. In taking
this approach, we provide ourselves with no benefit to either NII or EVE from a potential time-lag in the rate increase of our non-maturity,
interest-bearing deposits.
Impact of Inflation
Our financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measure of
financial position and operating results in terms of historic dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
81
Inflation generally increases the costs of funds and operating overhead, and to the extent loans and other assets bear variable rates, the
yields on such assets. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates generally have a more significant effect on the performance of a financial institution than the effects
of general levels of inflation. In addition, inflation affects a financial institution’s cost of goods and services purchased, the cost of salaries
and benefits, occupancy expense and similar items. Inflation and related increases in interest rates generally decrease the market value
of investments and loans held and may adversely affect liquidity, earnings and shareholders’ equity.
Application of Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which
have been prepared in accordance with GAAP and with general practices within the financial services industry. The preparation of
financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain
assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of related revenues and expenses. Although
our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual
conditions could be worse than anticipated in those estimates, which could materially affect the financial results of our operations and
financial condition.
Our most significant accounting policies are presented in Part II, Item 8, Note 1, Summary of Significant Accounting Policies, in this
Report. These policies, along with the disclosures presented in the Notes to Consolidated Financial Statements, provide information on
how significant assets and liabilities are valued in the Consolidated Financial Statements and how those values are determined.
Certain accounting policies inherently are based to a greater extent on estimates, assumptions and judgments of management and, as
such, have a greater possibility of producing results that could be materially different than originally reported. Management views critical
accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions and where
changes in those estimates and assumptions could have a significant impact on our consolidated financial statements. Management
currently views the following accounting policies and estimates as critical accounting policies: investment securities, allowance for loan
losses, goodwill and other intangible assets, income taxes, and fair value measurement.
Investment Securities. The Company’s investments are classified as either: (1) held-to-maturity – debt securities that the Company
intends to hold until maturity and are reported at amortized cost; (2) trading securities – debt and certain equity securities bought and
held principally for the purpose of selling them in the near term and reported at fair value, with unrealized gains and losses included in
earnings; or (3) available-for-sale – debt and certain equity securities not classified as either held-to-maturity or trading securities and
reported at fair value, with changes in fair value reported as a component of accumulated other comprehensive income (loss).
The cost of securities sold is determined on a specific identification basis. Amortization of premiums and accretion of discounts are
recorded as interest income from investments over the life of the security utilizing the level yield method. We evaluate impaired investment
securities quarterly to determine if impairments are temporary or other-than-temporary. For impaired debt and equity securities,
management first determines whether it intends to sell or if it is more-likely than not that it will be required to sell the impaired securities.
This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio
management. If the Company intends to sell a security with a fair value below amortized cost or if it is more-likely than not that it will
be required to sell such a security before recovery, an other-than-temporary impairment (“OTTI”) charge is recorded through current
period earnings for the full decline in fair value below amortized cost. For debt and equity securities that the Company does not intend
to sell or it is more likely than not that it will not be required to sell before recovery, an OTTI charge is recorded through current period
earnings for the amount of the valuation decline below amortized cost that is attributable to credit losses. The remaining difference
between the security’s fair value and amortized cost (that is, the decline in fair value not attributable to credit losses) is recognized in
other comprehensive income (loss), in the consolidated statements of comprehensive income as well as the shareholders’ equity section
of the consolidated statements of financial condition, on an after-tax basis.
Allowance for Loan Losses. The allowance for loan losses is established through provisions for loan losses that are charged to operations.
Loans are charged against the allowance for loan losses when management believes that the principal is uncollectible. If, at a later time,
amounts are recovered with respect to loans previously charged off, the recovered amount is credited to the allowance for loan losses.
The allowance is appropriate, in management’s judgment, to cover probable losses inherent in the loan portfolio as of December 31, 2015
and 2014. Management’s judgment takes into consideration general economic conditions, diversification and seasoning of the loan
portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. Although management
believes it has used the best information available to it in making such determinations, and that the present allowance for loan losses is
adequate, future adjustments to the allowance may be necessary, and net income may be adversely affected if circumstances differ
substantially from the assumptions used in determining the level of the allowance. In addition, as an integral part of their periodic
82
examination, certain regulatory agencies review the adequacy of the Bank’s allowance for loan losses and may direct the Bank to make
additions to the allowance based on their judgments about information available to them at the time of their examination.
The components of the allowance for loan losses represent estimates based upon Accounting Standards Codification (“ASC”) Topic 450,
Contingencies, and ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as consumer installment,
residential mortgages, consumer lines of credit and commercial loans that are not individually evaluated for impairment under ASC Topic
310. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment.
Under ASC Topic 310, a loan is impaired, based upon current information and events, in management’s opinion, when it is probable that
the loan will not be repaid according to its original contractual terms, including both principal and interest, or if a loan is designated as
a TDR. Management performs individual assessments of impaired loans to determine the existence of loss exposure based upon a
discounted cash flows method or where a loan is collateral dependent, based upon the fair value of the collateral less estimated selling
costs.
In estimating probable loan loss under ASC Topic 450 management considers numerous factors, including historical charge-offs and
subsequent recoveries. Management also considers, but is not limited to, qualitative factors that influence our credit quality, such as
delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, as well as the results of internal
loan reviews. Finally, management considers the impact of changes in current local and regional economic conditions in the markets
that we serve. Assessment of relevant economic factors indicates that some of the Company’s primary markets historically tend to lag
the national economy, with local economies in our primary market areas also improving or weakening, as the case may be, but at a more
measured rate than the national trends.
Management bases the computation of the allowance for loan losses under ASC Topic 450 on two factors: the primary factor and the
secondary factor. The primary factor is based on the inherent risk identified by management within each of the Company’s three loan
portfolios based on the historical loss experience of each loan portfolio and the loss emergence period. Management has developed a
methodology that is applied to each of the three primary loan portfolios, consisting of commercial and industrial, commercial real estate
and private banking. As the loan loss history, mix, and risk ratings of each loan portfolio change, the primary factor adjusts accordingly.
The allowance for loan losses related to the primary factor is based on our estimates as to probable losses for each loan portfolio. The
secondary factor is intended to capture risks related to events and circumstances that management believes have an impact on the
performance of the loan portfolio. Although this factor is more subjective in nature, the methodology focuses on internal and external
trends in pre-specified categories (risk factors) and applies a quantitative percentage which drives the secondary factor. There are nine
risk factors and each risk factor is assigned a reserve level based on management’s judgment as to the probable impact of each risk factor
on each loan portfolio and is monitored on a quarterly basis. As the trend in any risk factor changes, a corresponding change occurs in
the reserve associated with each respective risk factor, such that the secondary factor remains current to changes in each loan portfolio.
The Company also maintains a reserve for losses on unfunded commitments. This reserve is reflected as a component of other liabilities
and, in management’s judgment, is sufficient to cover probable losses inherent in the commitments. Management tracks the level and
trends in unused commitments and takes into consideration the same factors as those considered for purposes of the allowance for loan
losses on outstanding loans.
Goodwill and Other Intangible Assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets
acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because
of contractual or other legal rights. Other intangible assets that have finite lives, such as trade name, client relationships and non-compete
agreements are amortized over their estimated useful lives and subject to periodic impairment testing. The other intangible assets are
amortized on a straight-line basis over their estimated useful lives which range from four to twenty years. Goodwill and other intangible
assets are subject to impairment testing at the reporting unit level, which is conducted at least annually.
Income Taxes. The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities with regard to a
change in tax rates is recognized in income in the period that includes the enactment date. Management assesses all available evidence
to determine the amount of deferred tax assets that are more-likely-than-not to be realized. The available evidence used in connection
with the assessments includes taxable income in prior periods, projected taxable income, potential tax planning strategies and projected
reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo significant change. Changes to the
evidence used in the assessments could have a material adverse effect on the Company’s results of operations in the period in which they
occur. It is the Company’s policy to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense
in the consolidated statements of income.
83
Fair Value Measurement. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability
in a principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the
measurement date, using assumptions market participants would use when pricing an asset or liability. An orderly transaction assumes
exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or
distressed sale. Fair value measurement and disclosure guidance provides a three-level hierarchy that prioritizes the inputs of valuation
techniques used to measure fair value into three broad categories:
• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2 – Observable inputs such as quoted prices for similar assets and liabilities in active markets, quoted prices for similar
assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data.
• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use
significant unobservable inputs.
Fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances,
on a non-recurring basis.
Implications of and Elections under the JOBS Act. Pursuant to the JOBS Act, an emerging growth company can elect to opt in to any
new or revised accounting standards that may be issued by the FASB or the SEC otherwise applicable to non-emerging growth companies.
We have elected to opt in to such standards, which election is irrevocable.
We are taking advantage of other reduced regulatory and reporting requirements that are available to us so long as we qualify as an
emerging growth company under the JOBS act including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and
exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
Recent Accounting Pronouncements and Developments
Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, which is included in Part
II, Item 8 of this Report, discusses new accounting pronouncements that we adopted and the expected impact of accounting pronouncements
recently issued or proposed, but not yet required to be adopted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are presented under the caption “Market Risk” in Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
84
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data
86
87
88
89
90
91
93
135
85
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
TriState Capital Holdings, Inc.:
We have audited the accompanying consolidated statements of financial condition of TriState Capital Holdings, Inc. and subsidiaries as
of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
TriState Capital Holdings, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
February 15, 2016
86
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
ASSETS
Cash
Interest-earning deposits with other institutions
Federal funds sold
Cash and cash equivalents
Investment securities available-for-sale, at fair value (cost: $170,337 and $167,232, respectively)
Investment securities held-to-maturity, at cost (fair value: $48,099 and $40,113, respectively)
Total investment securities
Loans held-for-investment
Allowance for loan losses
Loans held-for-investment, net
Accrued interest receivable
Investment management fees receivable
Federal Home Loan Bank stock
Goodwill and other intangibles, net
Office properties and equipment, net
Bank owned life insurance
Deferred tax asset, net
Prepaid expenses and other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits
Borrowings
Accrued interest payable on deposits and borrowings
Accrued acquisition earnout liability
Other accrued expenses and other liabilities
Total liabilities
Shareholders’ Equity:
December 31,
2015
December 31,
2014
$
294 $
91,097
5,285
96,676
168,319
47,290
215,609
2,841,284
(17,974)
2,823,310
7,056
6,191
9,802
50,816
3,839
60,019
12,186
17,359
411
99,551
5,748
105,710
166,572
39,591
206,163
2,400,052
(20,273)
2,379,779
6,279
6,818
5,730
52,374
4,128
53,323
11,874
14,679
$
$
3,302,863 $
2,846,857
2,689,844 $
255,000
1,762
—
30,280
2,336,953
165,000
1,735
17,236
20,543
2,976,886
2,541,467
Preferred stock, no par value; Shares authorized - 150,000, Shares issued - none
—
—
Common stock, no par value; Shares authorized - 45,000,000;
Shares issued - 29,056,195 and 28,739,779, respectively;
Shares outstanding - 28,056,195 and 28,060,888, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net
Treasury stock (1,000,000 and 678,891 shares, respectively)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
281,412
280,895
10,809
45,103
(1,443)
(9,904)
325,977
$
3,302,863 $
9,253
22,615
(627)
(6,746)
305,390
2,846,857
87
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Interest income:
Loans
Investments
Interest-earning deposits
Total interest income
Interest expense:
Deposits
Borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income:
Investment management fees
Service charges
Net gain on the sale of investment securities available-for-sale
Swap fees
Commitment and other fees
Unrealized gain (loss) on swaps
Bank owned life insurance income
Other income
Total non-interest income
Non-interest expense:
Compensation and employee benefits
Premises and occupancy costs
Professional fees
FDIC insurance expense
General bank insurance expense
State capital shares tax
Travel and entertainment expense
Data processing expense
Charitable contributions
Intangible amortization expense
Acquisition earnout expense
Other operating expenses
Total non-interest expense
Income before tax
Income tax expense
Net income
Earnings per common share:
Basic
Diluted
See accompanying notes to consolidated financial statements.
88
Years Ended December 31,
2015
2014
2013
$
79,205 $
74,237 $
3,633
369
83,207
12,888
2,755
15,643
67,564
13
67,551
3,147
529
77,913
10,611
1,640
12,251
65,662
10,159
55,503
29,618
25,062
647
33
1,551
2,022
(161)
1,696
466
604
1,428
1,178
2,045
(420)
1,441
383
35,872
31,721
68,602
3,683
566
72,851
10,981
86
11,067
61,784
8,187
53,597
—
482
797
1,056
2,060
210
996
197
5,798
46,136
41,048
24,556
4,549
3,739
1,988
1,066
1,081
2,761
1,073
1,021
1,558
—
5,071
70,043
33,380
10,892
3,931
3,431
1,928
1,165
1,043
2,404
922
1,151
1,299
1,614
4,391
64,327
22,897
6,969
$
$
$
22,488 $
15,928 $
0.81 $
0.80 $
0.56 $
0.55 $
3,190
4,098
1,463
840
1,124
1,551
793
855
—
—
2,345
40,815
18,580
5,713
12,867
0.49
0.48
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive income (loss):
Change in unrealized holding gains (losses), net of tax expense (benefit) of
($472), $1,121 and ($1,616), respectively
Reclassification adjustment for gains included in net income, net of tax expense
of $12, $511 and $285, respectively
Other comprehensive income (loss)
Total comprehensive income
See accompanying notes to consolidated financial statements.
Years Ended December 31,
2015
2014
2013
$
22,488 $
15,928 $
12,867
(795)
(21)
(816)
2,034
(917)
1,117
$
21,672 $
17,045 $
(2,903)
(512)
(3,415)
9,452
89
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands)
Preferred
Stock
(Series C)
Common
Stock
Additional
Paid-in-
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss),
net
Treasury
Stock
Total
Shareholders'
Equity
Balance, December 31, 2012
$
46,011 $
168,351 $
7,871 $
(6,180) $
1,671 $
— $
217,724
Net income
Other comprehensive income (loss)
Issuance of common stock (net of
offering costs and discounts of $7,093)
Conversion of preferred stock to
common stock
Exercise of stock options
Stock-based compensation
—
—
—
—
—
65,990
(46,011)
46,011
—
—
179
—
—
—
—
—
(54)
654
12,867
—
—
—
—
—
—
(3,415)
—
—
—
—
—
—
—
—
—
—
12,867
(3,415)
65,990
—
125
654
Balance, December 31, 2013
$
— $
280,531 $
8,471 $
6,687 $
(1,744) $
— $
293,945
Net income
Other comprehensive income (loss)
Exercise of stock options
Purchase of treasury stock
Stock-based compensation
—
—
—
—
—
—
—
364
—
—
—
—
(114)
—
896
15,928
—
—
—
—
—
1,117
—
—
—
—
—
—
(6,746)
—
15,928
1,117
250
(6,746)
896
Balance, December 31, 2014
$
— $
280,895 $
9,253 $
22,615 $
(627) $
(6,746) $
305,390
Net income
Other comprehensive income (loss)
Exercise of stock options
Purchase of treasury stock
Redemption of stock options
Stock-based compensation
—
—
—
—
—
—
—
—
517
—
—
—
—
—
(164)
—
(229)
1,949
22,488
—
—
—
—
—
—
(816)
—
—
—
—
—
—
—
(3,158)
—
—
22,488
(816)
353
(3,158)
(229)
1,949
Balance, December 31, 2015
$
— $
281,412 $
10,809 $
45,103 $
(1,443) $
(9,904) $
325,977
See accompanying notes to consolidated financial statements.
90
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31,
2014
2013
2015
$
22,488 $
15,928 $
12,867
Depreciation and intangible amortization expense
Amortization of deferred financing costs
Provision for loan losses
Net decrease in prepaid FDIC insurance expense
Stock-based compensation expense
Net gain on the sale of investment securities available-for-sale
Income from investment securities trading
Purchase of investment securities trading
Proceeds from the sale of investment securities trading
Net amortization of premiums and discounts
Decrease (increase) in investment management fees receivable
Increase in accrued interest receivable
Increase (decrease) in accrued interest payable
Bank owned life insurance income
Increase in accrued acquisition earnout
Increase (decrease) in income taxes payable
Decrease (increase) in prepaid income taxes
Deferred tax benefit (provision)
Increase in accounts payable and other accrued expenses
Payment of contingent consideration impacting operations
Other, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchase of investment securities available-for-sale
Purchase of investment securities held-to-maturity
Proceeds from the sale of investment securities available-for-sale
Principal repayments and maturities of investment securities available-for-sale
Principal repayments and maturities of investment securities held-to-maturity
Purchase of bank owned life insurance
Net redemption (purchase) of Federal Home Loan Bank stock
Net increase in loans
Purchase of loans held-for-investment
Proceeds from loan sales
Additions to office properties and equipment
Acquisition, net of acquired cash
Net cash used in investing activities
Cash Flows from Financing Activities:
Net increase in deposit accounts
Net increase in Federal Home Loan Bank advances
Net proceeds from issuance of subordinated notes payable
Net proceeds from issuance of common stock
Net proceeds from exercise of stock options
Redemption of stock options
Payment of contingent consideration
Purchase of treasury stock
Net cash provided by financing activities
Net change in cash and cash equivalents during the period
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
$
91
2,882
203
13
—
1,949
(33)
(20)
(4,963)
4,983
752
627
(777)
27
(1,696)
—
353
762
172
7,263
(1,771)
(1,524)
31,690
(36,732)
(14,357)
11,792
21,292
6,540
(5,000)
(4,072)
(448,236)
—
4,692
(1,035)
—
(465,116)
352,891
90,000
—
—
353
(229)
(15,465)
(3,158)
424,392
(9,034)
105,710
96,676 $
2,506
118
10,159
—
896
(1,428)
—
—
—
1,337
(1,514)
(99)
1,214
(1,441)
1,614
(160)
(2,514)
(1,076)
2,149
—
659
28,348
(52,799)
(24,454)
69,555
21,198
10,000
(10,000)
(3,394)
(348,057)
(219,547)
19,445
(971)
(42,912)
(581,936)
375,248
110,000
33,988
—
250
—
—
(6,746)
512,740
(40,848)
146,558
105,710 $
1,058
—
8,187
7,843
654
(797)
(120)
(77,244)
77,378
2,186
—
(840)
(288)
(996)
—
54
—
(1,853)
6,167
—
(1,704)
32,552
(154,951)
(5,000)
68,230
48,345
—
(20,000)
90
(187,991)
(41,146)
2,925
(1,017)
—
(290,515)
138,326
—
—
65,990
125
—
—
—
204,441
(53,522)
200,080
146,558
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest
Income taxes
Acquisition of non-cash assets and liabilities:
Assets acquired
Liabilities assumed
Other non-cash activity:
Loan foreclosures and repossessions
Contingent consideration
Transfer of investment securities available-for-sale to held-to-maturity
Conversion of preferred stock to common stock
See accompanying notes to consolidated financial statements.
Years Ended December 31,
2014
2013
2015
$
$
$
$
$
$
$
$
15,413 $
9,393 $
— $
— $
360 $
— $
— $
— $
10,918 $
10,722 $
6,351 $
1,647 $
— $
17,236 $
— $
— $
11,355
7,504
—
—
1,122
—
20,335
46,011
92
TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATION
TriState Capital Holdings, Inc. (“we”, “us”, “our” or the “Company”) is a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended. The Company has three wholly-owned subsidiaries: TriState Capital Bank (the “Bank”),
a Pennsylvania-chartered state bank; Chartwell Investment Partners, LLC (“Chartwell”), a registered investment advisor; and
Chartwell TSC Securities Corp. (“CTSC Securities”), which is applying to be registered as a broker/dealer with the Securities and
Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”). Chartwell was established through the
acquisition of substantially all the assets of Chartwell Investment Partners, LP, which was effective March 5, 2014. Chartwell was
converted from a C corporation to a limited liability corporation (“LLC”), effective June 30, 2015.
The Bank was established to serve the commercial banking and private banking needs of middle-market businesses and high-net-
worth individuals. Chartwell provides investment management services to institutional, sub-advisory, and separately managed
account clients. CTSC Securities was capitalized in May 2014, to be registered with a primary business of facilitating distribution
and marketing efforts for the proprietary investment products provided by Chartwell, including shares of mutual funds advised and/
or administered by Chartwell and private funds advised and/or administered by Chartwell.
Regulatory approval was received and the Bank commenced operations on January 22, 2007. The Company and the Bank are subject
to regulatory examination by the Federal Deposit Insurance Corporation (“FDIC”), the Pennsylvania Department of Banking and
Securities, and the Federal Reserve. Chartwell is a registered investment advisor regulated by the SEC. CTSC Securities, once
registered, will be a broker/dealer regulated by the SEC and FINRA.
The Bank conducts business through its main office located in Pittsburgh, Pennsylvania, as well as its four additional representative
offices in Cleveland, Ohio; Philadelphia, Pennsylvania; Edison, New Jersey; and New York, New York. Chartwell conducts business
through its office located in Berwyn, Pennsylvania, and CTSC Securities will conduct business through its office located in Pittsburgh,
Pennsylvania.
On May 14, 2013, the Company completed the issuance and sale of 6,355,000 shares of its common stock, no par value, in its initial
public offering of Common Stock, including 855,000 shares sold pursuant to the exercise in full by its underwriters of their option
to purchase additional shares from the Company, at a price to the public of $11.50 per share. The shares were offered pursuant to
the Company’s Registration Statement on Form S-1. The Company received net proceeds of $66.0 million from the initial public
offering, after deducting underwriting discounts and commissions and direct offering expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities,
disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of related revenue
and expense during the reporting period. Although our current estimates contemplate current conditions and how we expect them
to change in the future, it is reasonably possible that actual conditions could be worse than those anticipated in the estimates, which
could materially affect the financial results of our operations and financial condition.
The material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan
losses, evaluation of goodwill and other intangible assets for impairment, and deferred income taxes and its related recoverability,
which are discussed later in this section.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, the Bank, Chartwell
(since the acquisition on March 5, 2014) and CTSC Securities (since its initial capitalization in May 2014), after elimination of inter-
company accounts and transactions. The accounts of the Bank, in turn, include its wholly-owned subsidiary, Meadowood Asset
Management, LLC, after elimination of inter-company accounts and transactions. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) and disclosures, considered necessary for the fair presentation of the accompanying
consolidated financial statements, have been included.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company has defined cash and cash equivalents as cash, interest-earning deposits with
other institutions, federal funds sold, and short-term investments which have an original maturity of 90 days or less.
93
INVESTMENT SECURITIES
The Company’s investments are classified as either: (1) held-to-maturity – debt securities that the Company intends to hold until
maturity and are reported at amortized cost; (2) trading securities – debt and certain equity securities bought and held principally for
the purpose of selling them in the near term and reported at fair value, with unrealized gains and losses included in earnings; or (3)
available-for-sale – debt and certain equity securities not classified as either held-to-maturity or trading securities and reported at
fair value, with changes in fair value reported as a component of accumulated other comprehensive income (loss).
The cost of securities sold is determined on a specific identification basis. Amortization of premiums and accretion of discounts are
recorded as interest income from investments over the life of the security utilizing the level yield method. We evaluate impaired
investment securities quarterly to determine if impairments are temporary or other-than-temporary. For impaired debt and equity
securities, management first determines whether it intends to sell or if it is more-likely than not that it will be required to sell the
impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements
and securities portfolio management. If the Company intends to sell a security with a fair value below amortized cost or if it is more-
likely than not that it will be required to sell such a security before recovery, an other-than-temporary impairment (“OTTI”) charge
is recorded through current period earnings for the full decline in fair value below amortized cost. For debt and equity securities
that the Company does not intend to sell or it is more likely than not that it will not be required to sell before recovery, an OTTI
charge is recorded through current period earnings for the amount of the valuation decline below amortized cost that is attributable
to credit losses. The remaining difference between the security’s fair value and amortized cost (that is, the decline in fair value not
attributable to credit losses) is recognized in other comprehensive income (loss), in the consolidated statements of comprehensive
income as well as the shareholders’ equity section of the consolidated statements of financial condition, on an after-tax basis.
LOANS
Loans and leases held-for-investment are stated at unpaid principal balances, net of deferred loan fees and costs. Loans held-for-
sale are stated at the lower of cost or fair value. Interest income on loans is accrued at the contractual rate on the principal amount
outstanding and includes the amortization of deferred loan fees and costs. Deferred loan fees and costs are amortized to interest
income over the life of the loan, taking into consideration scheduled payments and prepayments.
The Company considers a loan to be a Troubled Debt Restructuring (“TDR”) when there is a concession made to a financially troubled
borrower without adequate consideration provided to the Company. Once a loan is deemed to be a TDR, the Company considers
whether the loan should be placed in non-accrual status. In assessing accrual status, the Company considers the likelihood that
repayment and performance according to modified terms will be achieved, as well as the borrower’s historical payment performance.
A loan is designated and reported as TDR until such loan is either paid-off or sold, unless the restructuring agreement specifies an
interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable
risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement.
The recognition of interest income on a loan is discontinued when, in management’s opinion, it is probable the borrower is unable
to meet payments as they become due or when the loan becomes 90 days past due, whichever occurs first. All unpaid accrued interest
on such loans is reversed. Such interest ultimately collected is applied to reduce principal if there is doubt about the collectability
of principal. If a borrower brings a loan current for which accrued interest has been reversed, then the recognition of interest income
on the loan is resumed, once the loan has been current for a period of six consecutive months or greater.
The Company is a party to financial instruments with off-balance sheet risk (commitments to extend credit) in the normal course of
business to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other
termination clauses (i.e. demand loans) and may require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the unfunded commitment amount does not necessarily represent future cash requirements. The Company
evaluates each customer’s credit worthiness on a case-by-case basis using the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the
Company upon extension of a commitment, is based on management’s credit evaluation of the borrower.
OTHER REAL ESTATE OWNED
Real estate, other than bank premises, is recorded at the lower of the related loan balance or fair value less estimated selling costs at
the time of acquisition. Fair value is determined based on an independent appraisal. Expenses related to holding the property are
charged against earnings in the current period. Depreciation is not recorded on the other real estate owned (“OREO”) properties.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through provisions for loan losses that are charged to operations. Loans are charged
against the allowance for loan losses when management believes that the principal is uncollectible. If, at a later time, amounts are
recovered with respect to loans previously charged off, the recovered amount is credited to the allowance for loan losses.
94
The allowance is appropriate, in management’s judgment, to cover probable losses inherent in the loan portfolio as of December 31,
2015 and 2014. Management’s judgment takes into consideration general economic conditions, diversification and seasoning of the
loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. Although
management believes it has used the best information available to it in making such determinations, and that the present allowance
for loan losses is adequate, future adjustments to the allowance may be necessary, and net income may be adversely affected if
circumstances differ substantially from the assumptions used in determining the level of the allowance. In addition, as an integral
part of their periodic examination, certain regulatory agencies review the adequacy of the Bank’s allowance for loan losses and may
direct the Bank to make additions to the allowance based on their judgments about information available to them at the time of their
examination.
The components of the allowance for loan losses represent estimates based upon Accounting Standards Codification (“ASC”) Topic
450, Contingencies, and ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as consumer
installment, residential mortgages, consumer lines of credit and commercial loans that are not individually evaluated for impairment
under ASC Topic 310. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment.
Under ASC Topic 310, a loan is impaired, based upon current information and events, in management’s opinion, when it is probable
that the loan will not be repaid according to its original contractual terms, including both principal and interest, or if a loan is designated
as a TDR. Management performs individual assessments of impaired loans to determine the existence of loss exposure based upon
a discounted cash flows method or where a loan is collateral dependent, based upon the fair value of the collateral less estimated
selling costs.
In estimating probable loan loss under ASC Topic 450 management considers numerous factors, including historical charge-offs and
subsequent recoveries. Management also considers, but is not limited to, qualitative factors that influence our credit quality, such
as delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, as well as the results
of internal loan reviews. Finally, management considers the impact of changes in current local and regional economic conditions in
the markets that we serve. Assessment of relevant economic factors indicates that some of the Company’s primary markets historically
tend to lag the national economy, with local economies in our primary market areas also improving or weakening, as the case may
be, but at a more measured rate than the national trends.
Management bases the computation of the allowance for loan losses under ASC Topic 450 on two factors: the primary factor and
the secondary factor. The primary factor is based on the inherent risk identified by management within each of the Company’s three
loan portfolios based on the historical loss experience of each loan portfolio and the loss emergence period. Management has
developed a methodology that is applied to each of the three primary loan portfolios, consisting of commercial and industrial,
commercial real estate and private banking. As the loan loss history, mix, and risk ratings of each loan portfolio change, the primary
factor adjusts accordingly. The allowance for loan losses related to the primary factor is based on our estimates as to probable losses
for each loan portfolio. The secondary factor is intended to capture risks related to events and circumstances that management
believes have an impact on the performance of the loan portfolio. Although this factor is more subjective in nature, the methodology
focuses on internal and external trends in pre-specified categories (risk factors) and applies a quantitative percentage which drives
the secondary factor. There are nine risk factors and each risk factor is assigned a reserve level based on management’s judgment
as to the probable impact of each risk factor on each loan portfolio and is monitored on a quarterly basis. As the trend in any risk
factor changes, a corresponding change occurs in the reserve associated with each respective risk factor, such that the secondary
factor remains current to changes in each loan portfolio.
The Company also maintains a reserve for losses on unfunded commitments. This reserve is reflected as a component of other
liabilities and, in management’s judgment, is sufficient to cover probable losses inherent in the commitments. Management tracks
the level and trends in unused commitments and takes into consideration the same factors as those considered for purposes of the
allowance for loan losses on outstanding loans.
INVESTMENT MANAGEMENT FEES
The Company recognizes investment management fee revenue when the advisory services are performed. Fees are based on assets
under management and are calculated pursuant to individual client contracts. Investment management fees are generally paid on a
quarterly basis. In a limited number of cases, the Company may earn a performance fee based on investment performance achieved
versus a stated benchmark. Performance fees are included in investment management fee revenue in the consolidated statements of
income.
Investment management fees receivable represent amounts due for contractual investment management services provided to the
Company’s clients, primarily institutional investors, mutual funds and individual investors. Management performs credit evaluations
of its customers’ financial condition when it is deemed to be necessary, and does not require collateral. The Company provides an
allowance for uncollectible accounts based on specifically identified receivables. Investment management fees receivable are
considered delinquent when payment is not received within contractual terms and are charged off against the allowance for
95
uncollectible accounts when management determines that recovery is unlikely and the Company ceases its collection efforts. There
was no bad debt expense recorded for the year ended December 31, 2015, and there was no allowance for uncollectible accounts
recorded as of December 31, 2015.
FEDERAL HOME LOAN BANK STOCK
The Company is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). Member institutions are required to invest in
FHLB stock. The stock is carried at cost, which approximates its liquidation value, and it is evaluated for impairment based on the
ultimate recoverability of the par value. The following matters are considered by management when evaluating the FHLB stock for
impairment: the ability of the FHLB to make payments required by law or regulation and the level of such payments in relation to
the operating performance of the FHLB; the impact of legislative and regulatory changes on the institution and its customer base;
and the Company’s intent and ability to hold its FHLB stock for the foreseeable future. Management believes the Company’s holdings
in the FHLB stock are recoverable at par value, as of December 31, 2015. Cash and stock dividends are reported as non-interest
income, in the consolidated statements of income.
BUSINESS COMBINATIONS
The Company accounts for business combinations using the acquisition method of accounting. Under this method of accounting,
the acquired company’s net assets are recorded at fair value as of the date of acquisition, and the results of operations of the acquired
company are combined with our results from that date forward. Acquisition costs are expensed when incurred. The difference
between the purchase price and the fair value of the net assets acquired (including identified intangibles) is recorded as goodwill.
The change in the initial estimate of any contingent earnout amounts is reflected in the consolidated statements of income.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets
represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal
rights. Other intangible assets that have finite lives, such as trade name, client relationships and non-compete agreements are amortized
over their estimated useful lives and subject to periodic impairment testing. The other intangible assets are amortized on a straight-
line basis over their estimated useful lives which range from four to twenty years. Goodwill and other intangible assets are subject
to impairment testing at the reporting unit level, which is conducted at least annually.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets, except for leasehold improvements which are amortized over the terms
of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Estimated useful lives are dependent
upon the nature and condition of the asset and range from three to ten years. Repairs and maintenance are charged to expense as
incurred, while improvements which extend the useful life are capitalized and depreciated to operating expense over the estimated
remaining life of the asset. When the Bank receives an allowance for improvements to be made to one of its leased offices, we record
the allowance as a deferred liability and recognize it as a reduction to rent expense over the life of the related lease.
BANK OWNED LIFE INSURANCE
Bank owned life insurance (“BOLI”) policies on certain officers and employees are recorded at net cash surrender value on the
consolidated statements of financial condition. Upon termination of the BOLI policy the Company receives the cash surrender value.
BOLI benefits are payable to the Company upon death of the insured. Changes in net cash surrender value are recognized as non-
interest income in the consolidated statements of income.
DEPOSITS
Deposits are stated at principal outstanding and interest on deposits is accrued and charged to expense daily and is paid or credited
in accordance with the terms of the respective accounts.
BORROWINGS
The Company records FHLB advances and subordinated notes payable at their principal amount. Interest expense is recognized
based on the coupon rate of the obligations. Costs associated with the acquisition of subordinated notes payable are amortized over
the expected term of the borrowing.
EARNINGS PER COMMON SHARE
We compute earnings per common share (“EPS”) in accordance with the two-class method, which requires that any Series C convertible
preferred stock outstanding be treated as participating securities in the computation of EPS. The two-class method is an earnings
allocation that determines EPS for each class of common stock and participating security. The Company’s basic EPS is computed
by dividing net income allocable to common shareholders by the weighted average number of its common shares outstanding for
the period, excluding non-vested restricted shares. The Company’s diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of
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common stock that then shared in our earnings. Diluted EPS reflects the potential dilution of upon the exercise of stock options and
vesting of restricted share awards granted utilizing the treasury stock method.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities with regard to
a change in tax rates is recognized in income in the period that includes the enactment date. Management assesses all available
evidence to determine the amount of deferred tax assets that are more-likely-than-not to be realized. The available evidence used
in connection with the assessments includes taxable income in prior periods, projected taxable income, potential tax planning strategies
and projected reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo significant change.
Changes to the evidence used in the assessments could have a material adverse effect on the Company’s results of operations in the
period in which they occur. It is the Company’s policy to recognize interest and penalties, if any, related to unrecognized tax benefits
in income tax expense in the consolidated statements of income.
FAIR VALUE MEASUREMENT
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in a principal or most
advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date, using
assumptions market participants would use when pricing an asset or liability. An orderly transaction assumes exposure to the market
for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Fair
value measurement and disclosure guidance provides a three-level hierarchy that prioritizes the inputs of valuation techniques used
to measure fair value into three broad categories:
• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2 – Observable inputs such as quoted prices for similar assets and liabilities in active markets, quoted prices for similar
assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data.
• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use
significant unobservable inputs.
Fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances,
on a non-recurring basis.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation awards based on estimated fair values, for all share-based awards, including
stock options and restricted shares, made to employees and directors.
The Company accounts for stock-based employee compensation in accordance with the fair value recognition provisions of ASC
718, Compensation – Stock Compensation. As a result, compensation cost for all share-based payments is based on the grant-date
fair value estimated in accordance with ASC 718. The value of the portion of the award that is ultimately expected to vest is included
in stock-based employee compensation cost in the consolidated statements of income and recorded as a component of additional
paid-in capital, for equity-based awards. Compensation expense for all awards is recognized on a straight-line basis over the requisite
service period for the entire grant.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains and the non-credit component of losses on the Company’s investment securities available-for-sale are
included in accumulated other comprehensive income (loss), net of applicable income taxes. Also included in accumulated other
comprehensive income (loss) is the remaining unamortized balance of the unrealized holding gains (non-credit losses), net of
applicable income taxes, that existed on the transfer date for investment securities reclassified into the held-to-maturity category
from the available-for-sale category.
TREASURY STOCK
The repurchase of the Company’s common stock is recorded at cost. At the time of reissuance, the treasury stock account is reduced
using the average cost method. Gains and losses on the reissuance of common stock are recorded in additional paid-in capital, to
the extent additional paid-in capital from previous net gains on treasury share transactions exists. Any deficiency is charged to
retained earnings.
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RECENT ACCOUNTING DEVELOPMENTS
In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments - Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which will significantly change the income
statement impact of equity investments, and the recognition of changes in fair value of financial liabilities when the fair value option
is elected. The ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December
15, 2017. All other entities must apply the new requirements for annual periods in fiscal years beginning after December 15, 2018,
and interim periods in fiscal years beginning after December 15, 2019. We are currently evaluating the impact this standard will
have on our results of operations and financial position.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for
Measurement Period Adjustments.” This ASU will eliminate the requirement for an acquirer to retrospectively adjust the financial
statements for measurement-period adjustments that occur in periods after a business combination is consummated. The ASU is
effective for public business entities for annual periods, including interim periods within those annual periods, beginning after
December 15, 2015. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2016, and interim
periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU 2015-16 is not
expected to have a material impact on the Company’s consolidated financial statements.
In June 2015, the FASB issued ASU 2015-10, “Technical Correction and Improvements” which, among other things, corrects the
initial codification of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (as Amended by FASB Statement No. 166, Accounting for Transfers of Financial Assets).” The initial codification
inadvertently added the word “public” to paragraph 860-10-50-7, which was not in the original guidance. The ASU also clarifies
that the requirement relates to “involvement by others”. This amendment in ASU 2015-10 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim
period. The adoption of ASU 2015-10 is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent).” This ASU will eliminate the requirement to categorize investments
in the fair value hierarchy if their fair value is measured at net asset value (NAV) per share (or its equivalent) using the practical
expedient in the FASB’s fair value measurement guidance. Reporting entities are required to adopt the ASU retrospectively. The
effective date for public business entities is fiscal years beginning after December 15, 2015, and interim periods within those fiscal
years. Early adoption is permitted for all entities. The adoption of ASU 2015-07 is not expected to have a material impact on the
Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of
Debt Issuance Costs.” This AUS requires that debt issuance costs related to a recognized debt liability be presented in the balance
sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and
measurement guidance for debt issuance costs are not affected by the amendments in this update. For public business entities, the
amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. Early adoption of the amendments in this update is permitted for financial statements that
have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of
each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon
transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures
include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period
information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (that is, debt
issuance cost asset and the debt liability). The adoption of ASU 2015-03 is not expected to have a material impact on the Company’s
consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.”
This ASU changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities,
(b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests
in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates
the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar
entities. The new guidance excludes money market funds that are required to comply with Rule 2a-7 of the Investment Company
Act of 1940 and similar entities from the U.S. GAAP consolidation requirements. The new consolidation guidance is effective for
public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. At the effective date, all
previous consolidation analyses that the guidance affects must be reconsidered. This includes the consolidation analyses for all VIEs
and for all limited partnerships and similar entities that previously were consolidated by the general partner even though the entities
were not VIEs. Early adoption is permitted, including early adoption in an interim period. If a reporting enterprise chooses to early
adopt in an interim period, adjustments resulting from the revised consolidation analyses must be reflected as of the beginning of
98
the fiscal year that includes that interim period. The adoption of ASU 2015-02 is not expected to have a material impact on the
Company’s consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20):
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates the concept
of extraordinary items from U.S. GAAP as part of its simplification initiative. The ASU does not affect disclosure guidance for
events or transactions that are unusual in nature or infrequent in their occurrence. The ASU is effective for interim and annual periods
in fiscal years beginning after December 15, 2015. The ASU allows prospective or retrospective application. Early adoption is
permitted if applied from the beginning of the fiscal year of adoption. The effective date is the same for both public entities and all
other entities. The adoption of ASU 2015-01 is not expected to have a material impact on the Company’s consolidated financial
statements.
In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815),” which will require an entity to determine
the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument issued
in the form of a share, including the embedded derivative feature that is being evaluated for separate accounting from the host contract
when evaluating whether the host contract is more akin to debt or equity. In evaluating the stated and implied substantive terms and
features, the existence or omission of any single term or feature does not necessarily determine the economic characteristics and
risks of the host contract. Although an individual term or feature may weigh more heavily in the evaluation on the basis of facts and
circumstances, an entity should use judgment based on an evaluation of all the relevant terms and features. This update is effective
for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The
effects of initially adopting the amendments should be applied on a modified retrospective basis to existing hybrid financial instruments
issued in the form of a share as of the beginning of the fiscal year for which the amendment is effective. Retrospective application
is permitted to all relevant prior periods. Early adoption, including adoption in an interim period, is permitted. If an entity early
adopts the amendments in an interim period, any adjustments shall be reflected as of the beginning of the fiscal year that includes
that interim period. The adoption of ASU 2014-16 is not expected to have a material impact on the Company’s consolidated financial
statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU describes how an entity’s
management should assess whether there are conditions and events that raise substantial doubt about an entity’s ability to continue
as a going concern within one year after the date that the financial statements are issued. Management should consider both quantitative
and qualitative factors in making its assessment. If after considering management’s plans, substantial doubt about an entity’s going
concern is alleviated, an entity shall disclose information in the footnotes that enables the users of the financial statements to understand
the events that raised the going concern and how management’s plan alleviated this concern. If after considering management’s
plans, substantial doubt about an entity’s going concern is not alleviated, the entity shall disclose in the footnotes indicating that a
substantial doubt about the entity’s going concern exists within one year of the date of the issued financial statements. Additionally,
the entity shall disclose the events that led to this going concern and management’s plans to mitigate them. The new standard applies
to all entities for the first annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early
application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on the Company’s consolidated
financial statements.
In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide
That a Performing Target Could Be Achieved after the Requisite Service Period.” This ASU requires a reporting entity to treat a
performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. A
reporting entity should apply FASB ASC Topic 718, Compensation-Stock Compensation, to awards with performance conditions
that affect vesting. This update is effective for annual periods, and interim periods within those annual periods, beginning after
December 15, 2015, for all entities. Early adoption is permitted. ASU 2014-12 may be adopted either prospectively for share-based
payment awards granted or modified on or after the effective date, or retrospectively, using a modified retrospective approach. The
modified retrospective approach would apply to share-based payment awards outstanding as of the beginning of the earliest annual
period presented in the financial statements on adoption, and to all new or modified awards thereafter. The adoption of ASU 2014-12
is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU implements
a common revenue standard that clarifies the principles for recognizing revenue. The core principle of this update is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 establishes a five-step model which
entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. Per ASU 2015-14, this
update is effective for annual periods and interim periods within fiscal years beginning after December 15, 2017, for public business
entities, certain employee benefit plans, and certain not-for-profit entities applying U.S. GAAP. Earlier application is permitted only
99
as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
We are currently evaluating the impact this standard will have on our results of operations and financial position.
RECLASSIFICATION
Certain items previously reported have been reclassified to conform with the current year’s reporting presentation and are considered
immaterial.
[2] BUSINESS COMBINATIONS
On December 16, 2015, TriState Capital Holdings, Inc. entered into a definitive asset purchase agreement to acquire The Killen Group,
Inc. in a transaction that is expected to close in the second quarter of 2016, subject to certain client consents and other customary closing
conditions. The privately held investment manager has assets under management of approximately $2.3 billion as of December 31, 2015.
The transaction value is estimated to be between $30 million and $35 million which includes an initial purchase price of $15 million and
an earnout based on December 31, 2016, annual run rate EBITDA (earnings before interest, taxes, depreciation and amortization).
On March 5, 2014, TriState Capital Holdings, Inc. through its wholly-owned subsidiary, Chartwell Investment Partners, LLC, completed
the acquisition of substantially all of the assets of Chartwell Investment Partners, LP (the “Chartwell acquisition”), an investment
management firm with over 150 institutional clients and approximately $7.5 billion in assets under management as of December 31,
2013. Under the terms of the Asset Purchase Agreement substantially all of the assets of Chartwell Investment Partners, LP were acquired
for a purchase price consisting of approximately $45 million paid in cash at closing and an estimated earnout arrangement at closing of
approximately $15 million to be determined based on the growth in EBITDA of Chartwell in 2014. The earnout was calculated based
on a multiple of six times the increase in Chartwell’s annual EBITDA for the year ended December 31, 2014. Based upon the 2014
results for Chartwell a $1.6 million increase to the earnout was accrued and expensed in the fourth quarter of 2014. In the second quarter
of 2015, the earnout of $17.2 million was paid out. Up to 60 percent of the earnout could have been paid in common stock of the Company
at its option; however the entire earnout was paid in cash. The foregoing summary of the Asset Purchase Agreement and the transactions
contemplated by it does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Asset Purchase
Agreement, which was included as Exhibit 2.1 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 3, 2014, the terms of which Agreement are incorporated herein by reference.
The following table summarizes total consideration paid, assets acquired and liabilities assumed for the Chartwell acquisition at closing:
(Dollars in thousands)
Consideration paid:
Cash
Estimated earnout, at closing
Fair value of total consideration, at closing
Fair value of assets acquired:
Cash and cash equivalents
Investment management fees receivable
Office properties and equipment
Deferred tax asset
Other assets
Total assets acquired
Fair value of liabilities assumed:
Other liabilities
Total liabilities assumed
Fair value net identifiable assets acquired
Long-lived amortizable intangible assets acquired
Goodwill
Total net assets purchased
Chartwell
44,223
15,465
59,688
1,311
5,304
90
813
144
7,662
1,647
1,647
6,015
19,510
34,163
59,688
$
$
$
$
In April 2014, the Company and Chartwell Investment Partners, LP settled one of the three escrow reserves resulting in a $777,000
reduction to the purchase price and a corresponding reduction to goodwill.
The fair value of total consideration at December 31, 2014, was $61.5 million, including the increase in the earnout as discussed above.
100
In connection with the Chartwell acquisition, total acquisition-related transaction costs incurred by the Company was approximately
$45,000 and $854,000 during the years ended December 31, 2014 and 2013, respectively, which were primarily comprised of legal,
advisory and other costs.
The goodwill, which is not amortized for book purposes, was assigned to our Investment Management segment and is deductible for tax
purposes.
The following table presents unaudited pro forma financial information which combines the historical consolidated statements of income
of the Company and Chartwell Investment Partners, LP to give effect to the acquisition as if it had occurred on January 1, 2013, for the
periods indicated.
(Dollars in thousands)
Total revenue
Net income
Earnings per common share:
Basic
Diluted
Pro Forma
(unaudited)
Years Ended December 31,
2014
2013
$
$
$
$
100,857 $
16,568 $
0.58 $
0.57 $
92,592
15,196
0.58
0.57
Total revenue is defined as net interest income and non-interest income, excluding gains and losses on the sale of investment securities
available-for-sale. Pro forma adjustments include intangible amortization expense and income tax expense.
[3] INVESTMENT SECURITIES
Investment securities available-for-sale and held-to-maturity are comprised of the following:
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Non-agency collateralized loan obligations
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
Equity securities
Total investment securities available-for-sale
Investment securities held-to-maturity:
Corporate bonds
Agency debentures
Municipal bonds
Total investment securities held-to-maturity
Total
December 31, 2015
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Amortized
Cost
Estimated
Fair Value
$
43,952 $
18 $
237 $
17,579
5,756
11,843
49,544
28,586
4,719
8,358
170,337
19,448
2,453
25,389
47,290
—
—
—
92
270
13
—
393
498
19
377
894
978
13
132
265
187
—
599
43,733
16,601
5,743
11,711
49,371
28,669
4,732
7,759
2,411
168,319
84
—
1
85
19,862
2,472
25,765
48,099
$
217,627 $
1,287 $
2,496 $
216,418
101
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
Equity securities
Total investment securities available-for-sale
Investment securities held-to-maturity:
Corporate bonds
Agency debentures
Municipal bonds
Total investment securities held-to-maturity
Total
December 31, 2014
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Amortized
Cost
Estimated
Fair Value
$
31,833 $
3 $
168 $
17,446
11,617
56,984
32,564
8,678
8,110
167,232
14,452
5,000
20,139
39,591
—
—
127
502
59
—
691
335
1
201
537
645
32
248
186
—
72
31,668
16,801
11,585
56,863
32,880
8,737
8,038
1,351
166,572
—
—
15
15
14,787
5,001
20,325
40,113
$
206,823 $
1,228 $
1,366 $
206,685
The equity securities noted above consist of short-duration, high-yield-bond mutual funds.
Income on investment securities included $3.0 million in taxable interest income, $409,000 in non-taxable interest income and $249,000
in dividend income for the year ended December 31, 2015, as compared to taxable interest income of $2.7 million, non-taxable interest
income of $359,000 and dividend income of $110,000 for the year ended December 31, 2014. There was taxable interest income of $3.3
million, non-taxable interest income of $341,000 and no dividend income on investment securities during the year ended December 31,
2013.
As of December 31, 2015, the contractual maturities of the debt securities are:
(Dollars in thousands)
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Total debt securities
December 31, 2015
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
$
$
7,058 $
7,044
$
— $
36,894
11,111
106,916
36,689
11,030
105,797
12,078
33,787
1,425
161,979 $
160,560
$
47,290 $
—
12,579
34,042
1,478
48,099
Included in the $105.8 million fair value of debt securities available-for-sale with a contractual maturity due after ten years as of
December 31, 2015, were $93.5 million or 88.4% in floating-rate securities. Included in the $33.8 million amortized cost of debt securities
held-to-maturity with a contractual maturity due from five to ten years as of December 31, 2015, were $8.0 million that have call provisions
in one to five years that would either mature, if called, or become floating-rate securities after the call date.
Prepayments may shorten the contractual lives of the collateralized mortgage obligations, mortgage-backed securities and collateralized
loan obligations.
Proceeds from the sale of investment securities available-for-sale during the years ended December 31, 2015, 2014 and 2013, were $11.8
million, $69.6 million and $68.2 million, respectively. Gross gains of $50,000, $1.4 million and $822,000 were realized on these sales
and reclassified out of accumulated other comprehensive income (loss) during the years ended December 31, 2015, 2014 and 2013,
respectively. There were $17,000, $1,000 and $25,000 of gross losses realized on the sale of securities and reclassified out of accumulated
other comprehensive income (loss) during each of the years ended December 31, 2015, 2014 and 2013 respectively.
Investment securities available-for-sale of $6.4 million, as of December 31, 2015, were held in safekeeping at the FHLB and were included
in the calculation of borrowing capacity.
102
The following tables show the fair value and gross unrealized losses on temporarily impaired investment securities available-for-sale and
held-to-maturity, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized
loss position as of December 31, 2015 and December 31, 2014, respectively:
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Non-agency collateralized loan obligations
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Equity securities
Total investment securities available-for-sale
Investment securities held-to-maturity:
Corporate bonds
Municipal bonds
Total investment securities held-to-maturity
December 31, 2015
Less than 12 Months
12 Months or More
Total
Fair value
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Unrealized
losses
$
6,460 $
82
$
30,042 $
$
23,582 $
8,076
—
9,859
25,566
1,469
—
68,552
9,863
571
10,434
155
471
—
132
151
15
—
924
84
1
85
8,526
5,743
—
11,836
10,811
7,759
51,135
—
—
—
507
13
—
114
172
599
16,602
5,743
9,859
37,402
12,280
7,759
237
978
13
132
265
187
599
1,487
119,687
2,411
—
—
—
9,863
571
10,434
84
1
85
Total temporarily impaired securities
$
78,986 $
1,009
$
51,135 $
1,487
$
130,121 $
2,496
(Dollars in thousands)
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Equity securities
December 31, 2014
Less than 12 Months
12 Months or More
Total
Fair value
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Unrealized
losses
$
26,723 $
12,601
11,585
9,317
—
8,038
145
376
32
45
—
72
$
2,263 $
23
$
28,986 $
4,200
—
30,327
12,073
—
269
—
203
186
—
16,801
11,585
39,644
12,073
8,038
168
645
32
248
186
72
Total investment securities available-for-sale
$
68,264 $
670
$
48,863 $
681
$
117,127 $
1,351
Investment securities held-to-maturity:
Municipal bonds
Total investment securities held-to-maturity
2,857
2,857
2
2
1,446
1,446
13
13
4,303
4,303
15
15
Total temporarily impaired securities
$
71,121 $
672
$
50,309 $
694
$
121,430 $
1,366
The change in the fair values of our municipal bonds, agency collateralized mortgage obligations and agency mortgage-backed securities
are primarily the result of interest rate fluctuations. To assess for impairment on its municipal bonds, corporate bonds, single-issuer trust
preferred securities, non-agency mortgage-backed securities, non-agency collateralized loan obligations and certain equity securities,
management evaluates the underlying issuer’s financial performance and the related credit rating information through a review of publicly
available financial statements and other publicly available information. This review did not identify any issues related to the ultimate
repayment of principal and interest on these securities. In addition, the Company has the ability and intent to hold the securities in an
unrealized loss position until recovery of their amortized cost. Based on this, the Company considers all of the unrealized losses to be
temporary impairment losses. Within the available-for-sale portfolio, there were 36 positions, aggregating to $2.4 million in unrealized
losses that were temporarily impaired as of December 31, 2015, of which there were 14 positions in an unrealized loss position for more
than twelve months totaling $1.5 million. As of December 31, 2014, there were 27 positions, aggregating to $1.4 million in unrealized
losses that were temporarily impaired, of which there were nine positions in an unrealized loss position for more than twelve months
totaling $681,000. Within the held-to-maturity portfolio, there were six positions, aggregating to $85,000 in unrealized losses that were
temporarily impaired as of December 31, 2015, of which there were no positions in an unrealized loss position for more than twelve
103
months. As of December 31, 2014, there were 5 positions, aggregating to $15,000 in unrealized losses that were temporarily impaired
within the held-to-maturity portfolio, of which there were two positions in an unrealized loss position for more than twelve months totaling
$13,000.
There were no investment securities classified as trading securities outstanding as of December 31, 2015 and December 31, 2014.
Proceeds from the sale of investment securities trading, comprised of U.S. Treasury Notes, during the years ended December 31, 2015,
2014 and 2013, were $5.0 million, $0 and $77.4 million, respectively. Income on investment securities trading during the years ended
December 31, 2015, 2014 and 2013, was $20,000, $0 and $120,000, respectively.
[4] LOANS
We generate loans through our middle-market and private banking channels. These channels provide risk diversification and offer
significant growth opportunities. The middle-market banking channel consists of our commercial and industrial (“C&I”) and commercial
real estate (“CRE”) loan portfolios that serve middle-market businesses and real estate developers. The private banking channel includes
loans secured by cash, marketable securities and other asset-based loans to executives, high-net-worth individuals, trusts and businesses,
many of whom we source through referral relationships with independent broker/dealers, wealth managers, family offices, trust companies
and other financial intermediaries.
Loans held-for-investment was comprised of the following:
(Dollars in thousands)
Loans held-for-investment, before deferred fees
Less: net deferred loan (fees) costs
Loans held-for-investment, net of deferred fees
Less: allowance for loan losses
Loans held-for-investment, net
(Dollars in thousands)
Loans held-for-investment, before deferred fees
Less: net deferred loan (fees) costs
Loans held-for-investment, net of deferred fees
Less: allowance for loan losses
Loans held-for-investment, net
December 31, 2015
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
634,857 $
864,863 $
1,341,988 $
2,841,708
(625)
634,232
(11,064)
(2,675)
862,188
(5,344)
2,876
1,344,864
(1,566)
(424)
2,841,284
(17,974)
623,168 $
856,844 $
1,343,298 $
2,823,310
December 31, 2014
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
679,274 $
735,531 $
986,898 $
2,401,703
(1,781)
677,493
(13,501)
(2,274)
733,257
(4,755)
2,404
989,302
(2,017)
(1,651)
2,400,052
(20,273)
663,992 $
728,502 $
987,285 $
2,379,779
$
$
$
$
The Company’s customers have unused loan commitments. Often these commitments are not fully utilized and therefore the total amount
does not necessarily represent future cash requirements. The amount of unfunded commitments, including standby letters of credit, as
of December 31, 2015 and December 31, 2014, was $1.3 billion and $973.4 million, respectively. The interest rate for each commitment
is based on the prevailing market conditions at the time of funding. The lending commitment maturities as of December 31, 2015, were
as follows: $892.0 million in one year or less; $225.8 million in one to three years; and $150.3 million in greater than three years. The
reserve for losses on unfunded commitments was $546,000 and $555,000, as of December 31, 2015 and December 31, 2014, respectively,
which includes reserves for probable losses on unfunded loan commitments, including standby letters of credit, and also risk participations.
On April 11, 2014, we acquired a loan portfolio totaling $219.7 million (including fees and interest receivable) of loans secured by cash
and marketable securities that are included within our private banking loans.
As of December 31, 2015 and December 31, 2014, the Company had loans in the process of origination totaling approximately $31.1
million and $18.7 million, respectively, which extend over varying periods of time with the majority being disbursed within a 30 to 60
day period.
The Company issues standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments
issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of
104
the customer to perform according to the terms of the underlying contract with the third party. The Company would be required to perform
under the standby letters of credit when drawn upon by the guaranteed party in the case of non-performance by the Company’s customer.
Collateral may be obtained based on management’s credit assessment of the customer. The amount of unfunded commitments related
to standby letters of credit as of December 31, 2015 and December 31, 2014, included in the total listed above, was $89.9 million and
$89.3 million, respectively, of which a portion is collateralized. Should the Company be obligated to perform under the standby letters
of credit the Company will seek recourse from the customer for reimbursement of amounts paid. As of December 31, 2015 and
December 31, 2014, $36.8 million and $26.6 million, respectively, (in the aggregate) in standby letters of credit will expire within one
year, while the remaining standby letters of credit will expire in periods greater than one year. During the year ended December 31, 2015,
there were two draws on standby letters of credit totaling $146,000, which were immediately repaid by the borrower or converted to an
outstanding loan based on the contractual terms and subsequently repaid. During the year ended December 31, 2014, there was one
standby letter of credit drawn for $100,000 which was immediately repaid by the borrower. Most of these commitments are expected to
expire without being drawn upon and the total amount does not necessarily represent future cash requirements. The probable liability
for losses on standby letters of credit was included in the reserve for losses on unfunded commitments.
The Company has entered into risk participation agreements with financial institution counterparties for interest rate swaps related to
loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution counterparties
should the customers fail to perform on their interest rate derivative contracts. The potential liability for outstanding obligations was
included in the reserve for losses on unfunded commitments.
As of December 31, 2015 and December 31, 2014, 65.3% and 71.3%, respectively, of the loan portfolio was comprised of loans to
customers within the Company’s primary market areas of Pennsylvania, Ohio, New Jersey, New York and contiguous states. As a result,
the loan portfolio is subject to the general economic conditions within those areas. The Company evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained by the Company upon extension of credit is based on
management’s credit evaluation of the borrower. The Company does not believe it has significant concentrations of credit risk to any
one group of borrowers given its underwriting and collateral requirements.
The Company’s loan portfolio is comprised of amortizing loans, where scheduled principal and interest payments are applied as appropriate,
as well as interest-only loans. As of December 31, 2015 and December 31, 2014, interest-only loans represented 67.7% and 63.9% of
the loans held-for-investment, respectively. Of the total interest-only loans as of December 31, 2015, 72.9% were lines of credit, 5.7%
were construction loans and the remaining 21.4% were closed-end term loans which will either convert to an amortizing loan with required
principal and interest payments or require a balloon payment of the total principal at maturity. Of the total interest-only loans as of
December 31, 2014, 67.7% were lines of credit, 4.1% were construction loans and the remaining 28.2% were closed-end term loans
which will either convert to an amortizing loan with required principal and interest payments or require a balloon payment of the total
principal at maturity.
There were $1.1 billion in loans that are due on demand with no stated maturity and $1.7 billion in loans with stated maturities which
have an expected average remaining maturity of approximately four years as of December 31, 2015, compared to $774.7 million in loans
that are due on demand with no stated maturity and $1.6 billion in loans with stated maturities which have an expected average remaining
maturity of approximately four years as of December 31, 2014. 84.9% and 82.8% of the portfolio was comprised of variable rate loans
as of December 31, 2015 and December 31, 2014, respectively. Further, 5.9% of variable rate loans had interest rates equal to their floors,
with an average interest rate of 4.59% as of December 31, 2015, compared to 12.4% of variable rate loans had interest rates equal to their
floors, with an average interest rate of 4.83% as of December 31, 2014.
[5] ALLOWANCE FOR LOAN LOSSES
Our allowance for loan losses represents our estimate of probable loan losses inherent in the loan portfolio at a specific point in time.
This estimate includes losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the
remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions charged to income and recoveries
of losses previously incurred. Reductions to the allowance occur as loans are charged off or when the credit history of any of the three
loan portfolios improves. Management evaluates the adequacy of the allowance at least quarterly, and in doing so relies on various factors
including, but not limited to, assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying
collateral coverage and current economic conditions. This evaluation is subjective and requires material estimates that may change over
time. In addition, management evaluates the overall methodology for the allowance for loan losses on an annual basis. During the year
ended December 31, 2015, management made enhancements to the look-back period and loss emergence period used in the allowance
for loan losses calculation to account for changes in the Company’s portfolio and related historical loss experience. The calculation of
the allowance for loan losses takes into consideration the inherent risk identified within each of the Company’s three primary loan
portfolios, commercial and industrial, commercial real estate and private banking. In addition, management takes into account the
historical loss experience of each loan portfolio, to ensure that the resultant allowance for loan losses is sufficient to cover probable losses
inherent in such loan portfolios. Refer to Note 1, Summary of Significant Accounting Policies, for more details on the Company’s
allowance for loan losses policy.
105
The following discusses key characteristics and risks within each primary loan portfolio:
Middle-Market Banking: Commercial and Industrial Loans. This loan portfolio primarily includes loans made to service companies
or manufacturers generally for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing,
acquisitions and recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment for these loans, except
for certain commercial loans that are secured by cash and marketable securities.
The industry of the borrower is an important indicator of risk, but there are also more specific risks depending on the condition of the
local/regional economy. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to
satisfy the outstanding debt. Any C&I loans collateralized by cash and marketable securities are treated the same as private banking
loans for purposes of the allowance for loan loss calculation. In addition, shared national credit loans which also involve a private equity
sponsor are combined as a homogeneous group and evaluated separately based on the historical loss trend of such loans.
Middle-Market Banking: Commercial Real Estate Loans. This loan portfolio includes loans secured by commercial purpose real estate,
including both owner occupied properties and investment properties for various purposes including office, retail, industrial, multifamily
and hospitality. Individual project cash flows as well as global cash flows from the developer are the primary sources of repayment for
these loans. Also included are commercial construction loans to finance the construction or renovation of structures as well as to finance
the acquisition and development of raw land for various purposes. The increased level of risk of these loans is generally confined to the
construction period. If there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its
own to service the debt or have sufficient value in a liquidation to cover the outstanding principal.
The underlying purpose/collateral of the loans is an important indicator of risk for this loan portfolio. Additional risks exist and are
dependent on several factors such as the condition of the local/regional economy, whether or not the project is owner occupied, and the
type of project and the experience and resources of the developer.
Private Banking Loans. Our private banking lending activities are conducted on a national basis. This loan portfolio primarily includes
loans made to high-net-worth individuals, trusts and businesses that may be secured by cash, marketable securities, residential property
or other financial assets, as well as unsecured loans and lines of credit. The primary sources of repayment for these loans are the income
and/or assets of the borrower.
The underlying collateral is the most important indicator of risk for this loan portfolio. The overall lower risk profile of this portfolio is
driven by loans secured by cash and marketable securities, which was 87.8% and 81.2% of total private banking loans as of December 31,
2015 and 2014, respectively.
Management further assesses risk within each loan portfolio using key inherent risk differentiators. The components of the allowance
for loan losses represent estimates based upon ASC Topic 450, Contingencies, and ASC Topic 310, Receivables. ASC Topic 450 applies
to homogeneous loan pools such as consumer installment, residential mortgages and consumer lines of credit, as well as commercial
loans that are not individually evaluated for impairment under ASC Topic 310. Impaired loans are individually evaluated for impairment
under ASC Topic 310.
On a monthly basis, management monitors various credit quality indicators for both the commercial and consumer loan portfolios,
including delinquency, non-performing status, changes in risk ratings, changes in the underlying performance of the borrowers and other
relevant factors. On a daily basis, the Company prices and monitors the collateral of margin loans secured by cash and marketable
securities within the private banking portfolio which further reduces the risk profile of that portfolio. Refer to Note 1, Summary of
Significant Accounting Policies, for the Company’s policy for determining past due status of loans.
Management continually monitors the loan portfolio through its internal risk rating system. Loan risk ratings are assigned based upon
the creditworthiness of the borrower and, for our loans secured by marketable securities, the quality of the collateral. Loan risk ratings
are reviewed on an ongoing basis according to internal policies. Loans within the pass rating are believed to have a lower risk of loss
than loans risk rated as special mention, substandard and doubtful, which are believed to have an increasing risk of loss.
The Company’s risk ratings are consistent with regulatory guidance and are as follows:
Non-Rated – Loans to individuals and trusts are not individually risk rated, unless they are fully secured by liquid assets or cash, or have
an exposure of $250,000 or greater and have certain actionable covenants, such as a liquidity covenant or a financial reporting covenant.
In addition, commercial loans with an exposure of less than $500,000 are not required to be individually risk rated. Any loan, regardless
of size, is risk rated if it is secured by marketable securities or if it becomes a criticized loan. The majority of the private banking loans
that are not risk rated are residential mortgages and home equity loans. We monitor the performance of non-rated loans through ongoing
reviews of payment delinquencies. These loans comprised 3.0% and 4.3% of loans held-for-investment, as of December 31, 2015 and
106
2014, respectively. For loans that are not risk-rated, the most important indicators of risk are the existence of collateral, the type of
collateral, and for consumer real estate loans, whether the Bank has a first or second lien position.
Pass – The loan is currently performing in accordance with its contractual terms.
Special Mention – A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these
potential weaknesses may result in deterioration of the repayment prospects or in our credit position at some future date. Economic and
market conditions, beyond the customer’s control, may in the future necessitate this classification.
Substandard – A substandard loan is not adequately protected by the net worth and/or paying capacity of the obligor or by the collateral
pledged, if any. Substandard loans have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. These loans
are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – A doubtful loan has all the weaknesses inherent in a loan categorized as substandard with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and
improbable.
The following tables present the recorded investment in loans by credit quality indicator:
(Dollars in thousands)
Non-rated
Pass
Special mention
Substandard
Doubtful
December 31, 2015
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
$
2,017 $
— $
83,513 $
85,530
583,544
31,863
15,835
973
858,396
1,259,300
2,701,240
880
2,912
—
—
2,051
—
32,743
20,798
973
Loans held-for-investment
$
634,232 $
862,188 $
1,344,864 $
2,841,284
(Dollars in thousands)
Non-rated
Pass
Special mention
Substandard
Doubtful
December 31, 2014
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
$
129 $
— $
104,228 $
104,357
617,396
26,105
28,916
4,947
729,066
881,235
2,227,697
693
3,498
—
1,667
2,172
—
28,465
34,586
4,947
Loans held-for-investment
$
677,493 $
733,257 $
989,302 $
2,400,052
Changes in the allowance for loan losses were as follows for the years ended December 31, 2015, 2014 and 2013:
(Dollars in thousands)
Balance, beginning of period
Provision (credit) for loan losses
Charge-offs
Recoveries
Balance, end of period
Year Ended December 31, 2015
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
$
$
13,501 $
4,755 $
(112)
(3,353)
1,028
589
—
—
2,017 $
(464)
—
13
11,064 $
5,344 $
1,566 $
20,273
13
(3,353)
1,041
17,974
107
(Dollars in thousands)
Balance, beginning of period
Provision (credit) for loan losses
Charge-offs
Recoveries
Balance, end of period
(Dollars in thousands)
Balance, beginning of period
Provision (credit) for loan losses
Charge-offs
Recoveries
Balance, end of period
Year Ended December 31, 2014
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
11,881 $
10,596
(9,521)
545
5,104 $
(349)
—
—
2,011 $
(88)
—
94
13,501 $
4,755 $
2,017 $
18,996
10,159
(9,521)
639
20,273
Year Ended December 31, 2013
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
9,950 $
5,120 $
2,804 $
7,325
(5,508)
114
1,642
(1,936)
278
(780)
(13)
—
11,881 $
5,104 $
2,011 $
17,874
8,187
(7,457)
392
18,996
$
$
$
$
Charge-offs of $3.4 million for the year ended December 31, 2015, included one C&I loan, which were partially offset by recoveries of
$1.0 million on four C&I loans and one private banking loan. Charge-offs of $9.5 million for the year ended December 31, 2014, included
six C&I loans, which were partially offset by recoveries of $639,000 on three C&I loans and one private banking loan. Charge-offs of
$7.5 million for the year ended December 31, 2013, included three C&I loans, one CRE loan and one private banking loan, which were
partially offset by recoveries of $392,000 on three C&I loans and three CRE loans.
The following tables present the age analysis of past due loans segregated by class of loan:
(Dollars in thousands)
Commercial and industrial
Commercial real estate
Private banking
Loans held-for-investment
(Dollars in thousands)
Commercial and industrial
Commercial real estate
Private banking
Loans held-for-investment
30-59 Days
Past Due
60-89 Days
Past Due
December 31, 2015
Loans Past
Due 90 Days
or More
Total
Past Due
Current
Total
— $
—
—
— $
— $
—
—
976 $
976 $
633,256 $
2,912
1,431
2,912
1,431
859,276
1,343,433
634,232
862,188
1,344,864
— $
5,319 $
5,319 $
2,835,965 $
2,841,284
30-59 Days
Past Due
60-89 Days
Past Due
December 31, 2014
Loans Past
Due 90 Days
or More
Total
Past Due
Current
Total
547 $
524 $
263 $
1,334 $
676,159 $
—
—
—
1,775
3,498
109
3,498
1,884
729,759
987,418
677,493
733,257
989,302
547 $
2,299 $
3,870 $
6,716 $
2,393,336 $
2,400,052
$
$
$
$
Non-Performing and Impaired Loans
Management monitors the delinquency status of the loan portfolio on a monthly basis. Loans were considered non-performing when
interest and principal were 90 days or more past due or management has determined that it is probable the borrower is unable to meet
payments as they become due. The risk of loss is generally highest for non-performing loans.
Management determines loans to be impaired when, based upon current information and events, it is probable that the loan will not be
repaid according to the original contractual terms of the loan agreement, including both principal and interest, or if a loan is designated
as a TDR. Refer to Note 1, Summary of Significant Accounting Policies, for the Company’s policy on evaluating loans for impairment
and interest income.
108
The following tables present the Company’s investment in loans considered to be impaired and related information on those impaired
loans:
(Dollars in thousands)
With a related allowance recorded:
Commercial and industrial
Commercial real estate
Private banking
Total with a related allowance recorded
Without a related allowance recorded:
Commercial and industrial
Commercial real estate
Private banking
Total without a related allowance recorded
Total:
Commercial and industrial
Commercial real estate
Private banking
Total
(Dollars in thousands)
With a related allowance recorded:
Commercial and industrial
Commercial real estate
Private banking
Total with a related allowance recorded
Without a related allowance recorded:
Commercial and industrial
Commercial real estate
Private banking
Total without a related allowance recorded
Total:
Commercial and industrial
Commercial real estate
Private banking
Total
As of and for the Year Ended December 31, 2015
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest Income
Recognized
$
11,797 $
19,204 $
3,800 $
15,331 $
—
745
—
864
12,542
20,068
513
2,912
1,203
4,628
12,310
2,912
1,948
1,789
9,067
1,448
12,304
20,993
9,067
2,312
—
745
4,545
—
—
—
—
3,800
—
745
—
824
16,155
838
3,108
1,202
5,148
16,169
3,108
2,026
$
17,170 $
32,372 $
4,545 $
21,303 $
—
—
—
—
29
—
—
29
29
—
—
29
As of and for the Year Ended December 31, 2014
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest Income
Recognized
$
24,402 $
34,459 $
4,902 $
27,014 $
—
681
—
767
25,083
35,226
791
3,498
1,388
5,677
25,193
3,498
2,069
2,013
9,705
1,632
13,350
36,472
9,705
2,399
—
681
5,583
—
—
—
—
4,902
—
681
—
746
27,760
953
3,498
1,444
5,895
27,967
3,498
2,190
$
30,760 $
48,576 $
5,583 $
33,655 $
—
—
—
—
27
—
—
27
27
—
—
27
109
(Dollars in thousands)
With a related allowance recorded:
Commercial and industrial
Commercial real estate
Private banking
Total with a related allowance recorded
Without a related allowance recorded:
Commercial and industrial
Commercial real estate
Private banking
Total without a related allowance recorded
Total:
Commercial and industrial
Commercial real estate
Private banking
Total
As of and for the Year Ended December 31, 2013
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest Income
Recognized
$
15,157 $
23,126 $
4,658 $
13,261 $
—
814
—
869
15,971
23,995
1,046
3,498
305
4,849
16,203
3,498
1,119
2,264
9,705
295
12,264
25,390
9,705
1,164
—
814
5,472
—
—
—
—
4,658
—
814
—
874
14,135
1,473
4,170
25
5,668
14,734
4,170
899
$
20,820 $
36,259 $
5,472 $
19,803 $
—
—
—
—
6
—
—
6
6
—
—
6
Impaired loans as of December 31, 2015 and December 31, 2014, were $17.2 million and $30.8 million, respectively. There was no
interest income recognized while these loans were on non-accrual status for the years ended December 31, 2015, 2014 and 2013. As of
December 31, 2015 and December 31, 2014, there were no loans 90 days or more past due and still accruing interest income.
Impaired loans were evaluated using a discounted cash flow method or based on the fair value of the collateral less estimated selling
costs. Based on those evaluations, as of December 31, 2015, there were specific reserves totaling $4.5 million, which were included in
the $18.0 million allowance for loan losses. Also included in impaired loans were three C&I loans, one CRE loan and two private banking
loans with a combined balance of $4.6 million as of December 31, 2015, with no corresponding specific reserve since these loans had a
net realizable value which management believes will be recovered from the borrower.
As of December 31, 2014, there were specific reserves totaling $5.6 million, which were included in the $20.3 million allowance for loan
losses. Also included in impaired loans were two C&I loans, two CRE loans and three private banking loans with a combined balance
of $5.7 million as of December 31, 2014, with no corresponding specific reserve since these loans had a net realizable value which
management believes will be recovered from the borrower.
The following tables present the allowance for loan losses and recorded investment in loans by class:
(Dollars in thousands)
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total allowance for loan losses
Loans held-for-investment:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans held-for-investment
December 31, 2015
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
3,800 $
7,264
11,064 $
— $
5,344
5,344 $
745 $
821
1,566 $
4,545
13,429
17,974
12,310 $
2,912 $
1,948 $
17,170
621,922
859,276
1,342,916
2,824,114
634,232 $
862,188 $
1,344,864 $
2,841,284
$
$
$
$
110
(Dollars in thousands)
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total allowance for loan losses
Loans held-for-investment:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans held-for-investment
Troubled Debt Restructuring
December 31, 2014
Commercial
and
Industrial
Commercial
Real Estate
Private
Banking
Total
$
$
$
$
4,902 $
8,599
13,501 $
— $
4,755
4,755 $
681 $
1,336
2,017 $
5,583
14,690
20,273
25,193 $
3,498 $
2,069 $
30,760
652,300
729,759
987,233
2,369,292
677,493 $
733,257 $
989,302 $
2,400,052
The following table provides additional information on the Company’s loans designated as troubled debt restructurings:
(Dollars in thousands)
Aggregate recorded investment of impaired loans with terms modified through a troubled debt restructuring:
Accruing interest
Non-accrual
Total troubled debt restructurings
December 31,
2015
December 31,
2014
$
$
510 $
12,894
13,404 $
528
14,107
14,635
Of the non-accrual loans as of December 31, 2015, five C&I loans and one residential mortgage loan were designated by the Company
as TDRs. There was also one C&I loan that was still accruing interest and designated by the Company as a performing TDR as of
December 31, 2015. The aggregate recorded investment of these loans was $13.4 million. There were unused commitments of $1.7
million on these loans as of December 31, 2015, of which $39,000 was related to an accruing TDR.
Of the non-accrual loans as of December 31, 2014, three C&I loans, one CRE loan and two residential mortgage loans were designated
by the Company as TDRs. There was also one C&I loan that was still accruing interest and designated by the Company as a performing
TDR as of December 31, 2014. The aggregate recorded investment of these loans was $14.6 million. There were unused commitments
of $175,000 on these loans as of December 31, 2014, of which $54,000 was related to an accruing TDR.
The modifications made to restructured loans typically consist of an extension or reduction of the payment terms, or the deferral of
principal payments. There was one loan for $973,000 that was modified as a TDR within twelve months of the corresponding balance
sheet date with a payment default during the year ended December 31, 2015. This loan was already on non-accrual status and adequately
reserved as of December 31, 2015. There were no payment defaults, during the years ended December 31, 2014 and 2013, for loans
modified as TDRs within twelve months of the corresponding balance sheet dates.
The financial effects of our modifications made during the years ended December 31, 2015, 2014 and 2013, were as follows:
(Dollars in thousands)
Commercial and industrial:
Change in interest terms
Extended term and deferred principal
Deferred principal
Total
Year Ended December 31, 2015
Recorded
Investment at
the time of
Modification
Current
Recorded
Investment
Allowance for
Loan Losses at
the time of
Modification
Current
Allowance for
Loan Losses
$
$
4,064 $
433
6,849
— $
400 $
—
973
433
1,500
11,346 $
973 $
2,333 $
—
—
172
172
Count
1
1
2
4
111
(Dollars in thousands)
Commercial and industrial:
Extended term, advanced additional funds, forgave
principal
Private Banking:
Extended term, reduced interest rate
Total
(Dollars in thousands)
Commercial and industrial:
Extended term
Advanced additional funds
Private Banking:
Forgave principal
Total
Other Real Estate Owned
Year Ended December 31, 2014
Recorded
Investment at
the time of
Modification
Current
Recorded
Investment
Allowance for
Loan Losses at
the time of
Modification
Current
Allowance for
Loan Losses
Count
1
1
2
Count
1
2
1
4
$
$
$
$
5,218 $
4,620 $
1,968 $
1,120
1,266
6,484 $
1,094
5,714 $
100
2,068 $
—
1,120
Year Ended December 31, 2013
Recorded
Investment at
the time of
Modification
Current
Recorded
Investment
Allowance for
Loan Losses at
the time of
Modification
Current
Allowance for
Loan Losses
2,691 $
6,957
2,347 $
8,120
1,100 $
2,000
210
197
—
9,858 $
10,664 $
3,100 $
1,100
1,357
—
2,457
During the year ended December 31, 2015, we acquired a property related to an impaired loan for $360,000 based on the appraised value,
less estimated selling costs. For the years ended December 31, 2015 and December 31, 2014, the balance of the other real estate owned
portfolio was $1.7 million and $1.4 million, respectively. There were two residential mortgage loans totaling $1.2 million that were in
the process of foreclosure as of December 31, 2015, and no residential mortgage loans in the process of foreclosure as of December 31,
2014.
[6] FEDERAL HOME LOAN BANK STOCK
The Company is a member of the FHLB system. As a member of the FHLB Pittsburgh, the Company must maintain a minimum investment
in the capital stock of the FHLB in an amount equal to 4.00% of its outstanding advances, if any, and 0.10% of its membership asset
value, as defined, with the FHLB. The FHLB has the ability to change the calculation of the required stock investment at any time. The
Company held stock totaling $9.8 million and $5.7 million at December 31, 2015 and 2014, respectively. At December 31, 2015, $9.4
million of stock was required based on the Bank’s membership asset value, as defined, of approximately $601.5 million and $220.0
million in outstanding advances. The Company received dividends from its holdings in FHLB capital stock of $389,000, $172,000 and
$19,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
[7] GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill of $34.2 million was recorded
during the year ended December 31, 2014, for the Chartwell acquisition. In April 2014, the Company and Chartwell Investment Partners,
LP settled one of the three escrow reserves resulting in a $777,000 reduction to the purchase price and a corresponding reduction to
goodwill. Refer to Note 2, Business Combinations, for further details on this acquisition.
The following table presents the change in goodwill for the years ended December 31, 2015 and 2014:
(Dollars in thousands)
Balance at beginning of period
Additions
Balance at end of period
2015
2014
34,163 $
—
34,163 $
—
34,163
34,163
$
$
112
The Company determined the amount of identifiable intangible assets based upon an independent valuation. The following table presents
the change in intangible assets for the years ended December 31:
(Dollars in thousands)
Gross carrying amount at beginning of period
Additions
Accumulated amortization
Balance at end of period
2015
2014
18,211 $
—
(1,558)
16,653 $
—
19,510
(1,299)
18,211
$
$
The following table presents the ending balance of intangible assets as of the dates presented and original, estimated useful life by class:
(Dollars in thousands)
Trade name
Client Relationships:
Sub-advisory client list
Separate managed accounts client list
Other institutional client list
Non-compete agreements
Total intangible assets
December 31, 2015
December 31, 2014
Weighted Average
Estimated
Useful Life
(months)
$
$
1,081 $
9,679
894
4,958
41
16,653 $
1,140
10,509
1,004
5,499
59
18,211
240
162
120
132
48
155
Intangible amortization expense on finite-lived intangible assets totaled $1.6 million and $1.3 million for the year ended December 31,
2015 and 2014. There was no intangible amortization expense for the year ended December 31, 2013.
The following is a summary of the expected intangible amortization expense for finite-lived intangibles assets, assuming no new additions,
for each of the five years following December 31, 2015:
(Dollars in thousands)
Amount
2016
2017
2018
2019
2020
Thereafter
Total
[8] OFFICE PROPERTIES AND EQUIPMENT
Following is a summary of office properties and equipment by major classification:
(Dollars in thousands)
Furniture, fixtures and equipment
Leasehold improvements
Total, at cost
Less: accumulated depreciation
Net office properties and equipment
$
$
1,558
1,558
1,543
1,540
1,540
8,914
16,653
December 31,
2015
2014
$
$
7,890 $
3,953
11,843
(8,004)
3,839 $
7,208
3,600
10,808
(6,680)
4,128
The Company rents office space in its six office locations which are accounted for as operating leases. The remaining lease terms have
expirations from 2016 to 2022 and provide for one or more renewal options. All of the leases provide for annual rent escalations and
payment of certain operating expenses applicable to the leased space. The Company records rent expense on a straight-line basis over
the term of the lease. Rent expense was $2.3 million, $1.9 million and $1.5 million for the years ended December 31, 2015, 2014 and
2013, respectively. Depreciation expense was $1.3 million, $1.2 million and $1.1 million for the years ended December 31, 2015, 2014
and 2013, respectively.
113
At December 31, 2015, future minimum lease payments were as follows:
(Dollars in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
December 31,
2015
$
$
1,984
1,782
1,678
1,694
1,675
858
9,671
In April 2015, the Company entered into a lease for new space for the New Jersey office for a period of 62 months, beginning September
19, 2015, which coincided with the expiration of the original lease for that office.
In August 2014, the Company entered into a lease amendment for additional space for the Pittsburgh office for a period of 74 months,
beginning January 1, 2015. In March 2014, the operating lease for the New York office location was renewed for a period of 90 months.
In conjunction with the initial operating lease for the Pittsburgh location, the Bank received an allowance for leasehold improvements
of $1.1 million. The allowance is being recognized as a reduction to rent expense over the life of the lease. The amount remaining as
of December 31, 2015, of the total unrecognized allowance for leasehold improvements was $271,000. Rent expense is recorded on a
straight-line basis over the term of the lease and the net deferred rent as of December 31, 2015, was $937,000.
[9] DEPOSITS
(Dollars in thousands)
Demand and savings accounts:
Noninterest-bearing checking accounts
Interest-bearing checking accounts
Money market deposit accounts
Total demand and savings accounts
Time deposits
Total deposit balance
Interest Rate
Range as of
Weighted Average
Interest Rate as of
Balance as of
December 31,
2015
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
—
0.05 to 0.50%
0.05 to 1.50%
—
0.42%
0.50%
0.42%
0.39%
— $
159,859 $
136,037
1,464,279
1,760,175
929,669
177,606
75,679
1,244,921
1,498,206
838,747
$
2,689,844 $
2,336,953
0.05 to 1.39%
0.78%
0.69%
Average rate paid on interest-bearing accounts
0.60%
0.51%
As of December 31, 2015 and December 31, 2014, the Bank had total brokered deposits of $1.1 billion and $882.6 million, respectively.
The amount for brokered deposits includes reciprocal Certificate of Deposit Account Registry Service® (“CDARS®”) and reciprocal
Insured Cash Sweep® (“ICS®”) accounts totaling $496.5 million and $419.1 million as of December 31, 2015 and December 31, 2014,
respectively.
As of December 31, 2015 and December 31, 2014, time deposits with balances of $100,000 or more, excluding brokered certificates of
deposit, amounted to $409.2 million and $376.6 million, respectively. Time deposits with balances of $250,000 or more, excluding
brokered certificates of deposit, amounted to $142.7 million and $81.5 million as of December 31, 2015 and December 31, 2014,
respectively.
114
The contractual maturity of time deposits, including brokered deposits, is as follows:
(Dollars in thousands)
12 months or less
12 months to 24 months
24 months to 36 months
36 months to 48 months
48 months to 60 months
Over 60 months
Total
Interest expense on deposits is as follows:
(Dollars in thousands)
Interest-bearing checking accounts
Money market deposit accounts
Time deposits
Total interest expense on deposits
[10] BORROWINGS
December 31,
2015
December 31,
2014
$
645,004 $
219,333
65,332
—
—
—
722,752
111,865
4,130
—
—
—
$
929,669 $
838,747
Years Ended December 31,
2015
2014
2013
$
$
439 $
229 $
5,687
6,762
4,228
6,154
12,888 $
10,611 $
4
3,756
7,221
10,981
As of December 31, 2015 and December 31, 2014, borrowings were comprised of the following:
(Dollars in thousands)
FHLB borrowing:
Issued 12/31/2015
Issued 7/29/2015
Issued 7/29/2015
Issued 12/31/2014
Issued 5/5/2014
Issued 4/7/2014
Issued 4/7/2014
Issued 4/7/2014
Subordinated notes payable
Total
December 31, 2015
December 31, 2014
Interest Rate
Ending
Balance
Maturity
Date
Interest Rate
Ending
Balance
Maturity
Date
0.51%
0.61%
0.72%
170,000
25,000
25,000
1/4/2016
8/4/2016
11/3/2016
—
—
—
—
—
5.75%
35,000
7/1/2019
—
—
—
30,000
25,000
25,000
25,000
25,000
35,000
1/2/2015
2/5/2015
4/7/2015
6/8/2015
9/8/2015
7/1/2019
0.27%
0.33%
0.34%
0.38%
0.44%
5.75%
$
255,000
$
165,000
In June 2014, we completed a private placement of subordinated notes payable, raising $35.0 million. The subordinated notes have a
term of 5 years at a fixed-rate of 5.75%. The proceeds qualified as Tier 2 capital for the holding company, under federal regulatory capital
rules.
The Bank’s FHLB borrowing capacity is based on the collateral value of certain securities held in safekeeping at the FHLB and loans
pledged to the FHLB. The Bank submits a quarterly Qualified Collateral Report (“QCR”) to the FHLB to update the value of the loans
pledged. As of December 31, 2015, the Bank’s borrowing capacity is based on the information provided in the September 30, 2015,
QCR filing. As of December 31, 2015, the Bank had securities held in safekeeping at the FHLB with a fair value of $6.4 million, combined
with pledged loans of $654.7 million, for a borrowing capacity of $464.1 million, of which $220.0 million was outstanding in advances,
as reflected in the table above. As of December 31, 2014, there was $130.0 million outstanding in advances from the FHLB. When the
Bank borrows from the FHLB, interest is charged at the FHLB’s posted rates at the time of the borrowing.
The Bank maintains an unsecured line of credit of $10.0 million with M&T Bank and an unsecured line of credit of $20.0 million with
Texas Capital Bank. As of December 31, 2015, the full amount of these established lines were available to the Bank.
115
The Holding Company established an unsecured line of credit of $25.0 million, effective December 29, 2015, with Texas Capital Bank.
As of December 31, 2015, the full amount of this established line was available.
[11] INCOME TAXES
The income tax provision reconciled to taxes computed at the statutory federal rate is as follows:
(Dollars in thousands)
Tax provision at statutory rate
Meals and entertainment
Dues and subscriptions
Keyman life insurance
Bank owned life insurance
State tax expense, net of federal benefit
Adjustments to prior year tax
Tax exempt income, net of disallowed interest
Unrecognized tax benefits
Investment tax credit
Other
Income tax provision
Years Ended December 31,
2015
2014
2013
$
11,683 $
8,014 $
6,503
103
116
—
(593)
951
(60)
(160)
—
(1,198)
50
84
123
12
(504)
407
(51)
(145)
11
(1,022)
40
57
102
25
(348)
134
12
(109)
110
(909)
136
$
10,892 $
6,969 $
5,713
The investment tax credit in the table above relates to transactions for the financing of solar energy facilities, which included five
transactions in 2015, four in 2014 and three in 2013. These transactions provided federal and state tax credits for the 2015, 2014 and
2013 tax years. The financing is accounted for as a direct financing lease included within the C&I loan portfolio.
The income tax provision consists of:
(Dollars in thousands)
Current income tax provision - federal
Current income tax provision (benefit) - state
Deferred tax provision (benefit) - federal
Deferred tax (benefit) - state
Income tax provision
Years Ended December 31,
2015
2014
2013
$
$
9,917 $
7,549 $
803
225
(53)
496
(735)
(341)
10,892 $
6,969 $
7,823
(257)
(1,804)
(49)
5,713
116
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of
December 31, 2015 and 2014, are as follows:
(Dollars in thousands)
Deferred tax assets:
Net operating loss - state
Start-up expenses
Stock compensation
Compensation related accruals
Leasehold improvement
Allowance for loan loss
Long-term lease
Reserve for unfunded commitments
Supplemental executive retirement plan
Transaction costs
Intangibles
Earnout liability non-purchase accounting
Unrealized loss on investments
Other
Gross deferred tax assets
Deferred tax liabilities:
Office properties and equipment
Deferred loan costs
Goodwill
State capital shares tax liability
Gross deferred tax liability
Net deferred tax asset
December 31,
2015
2014
$
6 $
163
2,709
5,145
100
6,639
346
202
770
277
183
653
846
417
73
190
2,606
2,897
133
7,419
261
203
473
295
81
671
362
198
18,456
15,862
(2,585)
(2,192)
(1,169)
(324)
(6,270)
$
12,186 $
(1,772)
(1,578)
(393)
(245)
(3,988)
11,874
Management believes that, as of December 31, 2015, it is more likely than not that the net deferred tax asset will be fully realized upon
the generation of future taxable income.
The change in the net deferred tax asset for the years ended December 31, 2015 and 2014, is detailed as follows:
(Dollars in thousands)
Deferred tax benefit (expense)
Deferred tax - other comprehensive income (loss)
Deferred tax asset established related to acquisitions
Change in net deferred tax asset
December 31,
2015
2014
$
$
(172) $
484
—
312 $
1,076
(610)
813
1,279
We consider uncertain tax positions that the Company has taken or expects to take on a tax return. We recognize interest accrued and
penalties (if any) related to unrecognized tax benefits in income tax expense. Federal tax years 2013 through 2015 remain subject to
examination, as of December 31, 2015, while tax years 2012 through 2015 remain subject to examination by state taxing jurisdictions.
No federal or state income tax return examinations are currently in progress.
117
A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits is as follows:
(Dollars in thousands)
Beginning of year balance
Increases in prior period tax positions
Decreases in prior period tax positions
Increases in current period tax positions
Settlements
End of year balance
December 31,
2015
2014
2013
— $
110 $
142
—
211
—
353 $
11
—
—
(121)
— $
—
110
—
—
—
110
$
$
The total estimated unrecognized tax benefit that, if recognized, would affect the Company’s effective tax rate was approximately $230,000,
$0 and $110,000 as of December 31, 2015, 2014 and 2013, respectively. The impact of interest and penalties was immaterial to the
Company’s financial statements for the years ended December 31, 2015, 2014 and 2013. The Company does not expect changes in its
unrecognized tax benefits in the next twelve months to have a material impact on its financial statements.
[12] REGULATORY CAPITAL
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that,
if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum
amounts and ratios (set forth in the tables below) of Common Equity Tier 1 (“CET 1”), Tier 1 and Total risk-based capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As of December 31,
2015, TriState Capital Holdings, Inc. and TriState Capital Bank exceeded all capital adequacy requirements to which they are subject.
Financial depository institutions are categorized as well capitalized if they meet minimum Total risk-based, Tier 1 risk-based, CEIT 1
risk-based and Tier 1 leverage ratios (Tier 1 capital to average assets) as set forth in the tables below. Based upon the information in the
most recently filed Call Report, the Bank exceeded the capital ratios necessary to be well capitalized under the regulatory framework for
prompt corrective action. There have been no conditions or events since the filing of the most recent Call Report that management
believes have changed the Bank’s capital, as presented below.
In December 2010, the Basel Committee released a final framework for a strengthened set of capital requirements, known as Basel III.
In July 2013, final rules implementing the Basel III capital accord were adopted by the federal banking agencies. When fully phased in,
Basel III, which began phasing in on January 1, 2015, will replace the existing regulatory capital rules for the Company and the Bank.
The Basel III final rules required new minimum capital ratio standards, established a new common equity tier 1 to total risk-weighted
assets ratio, subjected banking organizations to certain limitations on capital distributions and discretionary bonus payments and established
a new standardized approach for risk weightings. The overall net impact of applying Basel III regulatory rules to the Company and the
Bank was an increase to the risk-based capital ratios effective January 1, 2015. This increase resulted primarily from the reduced risk-
weighted capital treatment for certain of the Bank’s private banking non-purpose margin loans, which are over-collateralized by liquid
and marketable securities that are priced and monitored daily.
118
The following tables set forth certain information concerning the Company’s and the Bank’s regulatory capital as of December 31, 2015
and December 31, 2014:
(Dollars in thousands)
Total risk-based capital ratio
Company
Bank
Tier 1 risk-based capital ratio
Company
Bank
Common equity tier 1 risk-based capital ratio
Company
Bank
Tier 1 leverage ratio
Company
Bank
(Dollars in thousands)
Total risk-based capital ratio
Company
Bank
Tier 1 risk-based capital ratio
Company
Bank
Tier 1 leverage ratio
Company
Bank
December 31, 2015
For Capital Adequacy
Purposes
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
326,378
310,624
287,072
292,234
287,072
292,234
287,072
292,234
13.88% $
188,176
8.00%
N/A
13.35% $
186,077
8.00% $
232,596
N/A
10.00%
12.20% $
141,132
6.00%
N/A
12.56% $
139,558
6.00% $
186,077
12.20% $
105,849
4.50%
N/A
12.56% $
104,668
4.50% $
151,187
9.05% $
126,932
4.00%
N/A
9.29% $
125,870
4.00% $
157,338
N/A
8.00%
N/A
6.50%
N/A
5.00%
December 31, 2014
For Capital Adequacy
Purposes
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
302,217
291,388
253,389
270,560
253,389
270,560
11.02% $
219,458
8.00%
N/A
10.69% $
218,013
8.00% $
272,516
9.24% $
109,729
4.00%
N/A
9.93% $
109,007
4.00% $
163,510
9.21% $
110,088
4.00%
N/A
9.88% $
109,498
4.00% $
136,872
N/A
10.00%
N/A
6.00%
N/A
5.00%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
As part of its operating and financial strategies, the Company has not paid dividends to its holders of its common shares since its inception
in 2007.
[13] EMPLOYEE BENEFIT PLANS
The Company participates in a qualified 401(k) defined contribution plan under which eligible employees may contribute a percentage
of their salary, at their discretion. During the years ended December 31, 2015, 2014 and 2013, the Company automatically contributed
three percent of the employee’s base salary to the individual’s 401(k) plan, subject to IRS limitations. Full-time employees and certain
part-time employees are eligible to participate upon the first month following their first day of employment or having attained age 21,
whichever is later. The Company’s contribution expense was $683,000, $600,000 and $396,000 for the years ended December 31, 2015,
2014 and 2013, respectively, including incidental administrative fees paid to a third party administrator of the plan.
On February 28, 2013, the Company entered into a supplemental executive retirement plan (“SERP”) for the Chairman and Chief Executive
Officer. The benefits will be earned over a five year period with the projected payments for this SERP of $25,000 per month for 180
months commencing the later of retirement or 60 months. For the years ended December 31, 2015, 2014 and 2013, the Company recorded
expense related to SERP of $791,000, $657,000 and $637,000, respectively, utilizing a discount rate of 2.98%, 3.56% and 2.99%,
respectively. The recorded liability related to the SERP plan was $2.1 million and $1.3 million as of December 31, 2015 and December 31,
2014, respectively.
119
[14] STOCK TRANSACTIONS
On May 14, 2013, the Company completed the issuance and sale of 6,355,000 shares of its common stock, no par value, in its initial
public offering of Common Stock, including 855,000 shares sold pursuant to the exercise in full by its underwriters of their option to
purchase additional shares from the Company, at a price to the public of $11.50 per share. The shares were offered pursuant to the
Company’s Registration Statement on Form S-1. The Company received net proceeds of $66.0 million from the initial public offering,
after deducting underwriting discounts and commissions and direct offering expenses.
On August 10, 2012, the Company issued an aggregate of 48,780.488 shares of its Series C preferred stock at a price of $1,025.00 per
share, purchased by LM III TriState Holdings LLC (69.1607%) and LM III-A TriState Holdings LLC (30.8393%) (combined the “Lovell
Minnick funds”) which are investment funds managed by Lovell Minnick Partners LLC. Net proceeds totaled $46.0 million, net of
offering costs of $4.0 million. The Series C preferred stock was convertible into shares of the Company’s common stock, with a conversion
ratio of 100 shares of common stock for each share of Series C preferred stock (subject to adjustment in certain events, including
combinations or divisions of common stock), by the holder at any time provided that, upon conversion, the holders of the Series C
preferred stock will not own or control in the aggregate more than 24.9% of our voting securities. Series C preferred shareholders were
entitled to participate in dividends with common shareholders on an “as if converted” basis. In connection with the closing of the initial
public offering, on May 14, 2013, the Company converted all of its 48,780.488 outstanding shares of Series C preferred stock to shares
of common stock, resulting in the issuance of 4,878,049 shares of common stock upon conversion.
In October 2014, the Board of Directors authorized the repurchase of up to $10 million, or up to 1,000,000 shares, of the Company’s
common stock through December 31, 2015. The Company repurchased a total of 678,891 shares for approximately $6.7 million during
the year ended December 31, 2014, at an average cost of $9.94 per share. The Company repurchased a total of 321,109 shares for
approximately $3.2 million during the year ended December 31, 2015, at an average cost of $9.84 per share. In the aggregate, the
Company repurchased 1,000,000 shares for approximately $9.9 million at an average cost of $9.90 per share and are held as treasury
stock.
The table below shows the changes in the common and preferred shares during the periods indicated.
Balance, December 31, 2012
Issuance of common stock
Conversion of preferred stock to common stock
Exercise of stock options
Balance, December 31, 2013
Issuance of restricted common stock
Exercise of stock options
Purchase of treasury stock
Balance, December 31, 2014
Issuance of restricted common stock
Forfeitures of restricted common stock
Exercise of stock options
Purchase of treasury stock
Balance, December 31, 2015
Number of
Common Shares
Outstanding
Number of
Preferred Shares
Outstanding
(Series C)
17,444,730
6,355,000
4,878,049
12,500
28,690,279
27,000
22,500
(678,891)
28,060,888
282,916
(4,000)
37,500
(321,109)
28,056,195
48,780
—
(48,780)
—
—
—
—
—
—
—
—
—
—
—
120
[15] EARNINGS PER COMMON SHARE
The computation of basic and diluted earnings per common share for the periods presented is as follows:
(Dollars in thousands, except per share data)
Net income available to common shareholders
Less: earnings allocated to participating stock
Net income available to common shareholders, after
required adjustments for the calculation of basic EPS
Basic shares
Preferred shares - dilutive
Non-vested restricted shares - dilutive
Stock options - dilutive
Diluted shares
Earnings per common share:
Basic
Diluted
Years Ended December 31,
2015
2014
2013
22,488 $
15,928 $
—
—
22,488 $
15,928 $
27,771,345
28,628,631
—
56,364
409,744
28,237,453
—
82
389,193
29,017,906
12,867
867
12,000
24,589,811
1,777,481
1,807
373,924
26,743,023
0.81 $
0.80 $
0.56 $
0.55 $
0.49
0.48
$
$
$
$
Years Ended December 31,
2015
2014
2013
721,893
779,732
590,500
Anti-dilutive shares (1)
(1)
Included stock options and non-vested restricted shares not considered for the calculation of diluted EPS as their inclusion would have been
anti-dilutive.
[16] STOCK-BASED COMPENSATION PROGRAMS
The Company’s 2006 Stock Option Plan (the “2006 Plan”) provided for the granting of incentive and non-qualifying stock options to the
Company’s key employees, key contractors and outside directors at the discretion of the Board of Directors. The Omnibus Incentive
Plan (the “Omnibus Plan”), which was approved by TriState Capital’s shareholders on May 20, 2014, provides for the granting of incentive
and non-qualifying stock options, stock appreciation rights, restricted shares, restricted stock units, dividend equivalent rights and other
equity-based or equity-related awards to the Company’s key employees, key contractors and outside directors at the discretion of the
Board of Directors. The Omnibus Plan, upon its approval, replaced the 2006 Plan. The total number of shares of common stock that
may be granted under the Omnibus Plan is the number of authorized shares of common stock of TriState Capital remaining available
under the 2006 Plan as of the date of shareholder approval, plus any shares of common stock issued pursuant to the 2006 Plan that were
forfeited, redeemed, expired or otherwise terminated. The shares reserved for grants under the 2006 Plan shall no longer be available
for grants under that plan, but shall instead be reserved for grants under the Omnibus Plan.
The total common shares, authorized by shareholders of the Company, relating to stock-based awards which may be issued upon the
grant or exercise of stock-based awards was 4,000,000, as of December 31, 2015, under both the 2006 Plan and the Omnibus Plan
(combined the “Plans”). As of December 31, 2015, the Company has issued non-qualifying stock options and restricted shares and the
aggregate awards outstanding were 2,865,309 under both of the Plans. As of December 31, 2015, there were 1,062,191 additional awards
available for the Company to grant under the Omnibus Plan.
The Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the options vest in
increments over the requisite service period. Options issued under the Plans typically vest either 50 percent after two and one-half years
following the award date and the remaining 50 percent five years following the award date; or 100 percent after five years following the
award date. Restricted shares under the Omnibus Plan typically vest 100 percent after three years following the award date. The Company
recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for
the entire grant. The Company’s compensation expense for all awards was $1.9 million, $896,000 and $654,000 for the years ended
December 31, 2015, 2014 and 2013, respectively.
In October 2015, the Company’s Board of Directors approved a stock option redemption program to allow for outstanding and vested
stock option awards granted in 2007 to be redeemed by the option holder at the closing day’s stock price less the option exercise price.
This program was available for option holders to participate from November 2 through December 31, 2015. During the year ended
December 31, 2015, there were 77,000 options redeemed for $229,000, which was recorded as a reduction to additional paid-in capital.
121
Stock Options
The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model and the weighted
average assumptions in the following table. Expected term was calculated utilizing the simplified method because the Company has
limited historical exercise behavior. Since the Company is newly publicly traded and there is not enough trading history, expected
volatility is computed based on median historical volatility of similar entities with publicly traded shares. The risk-free rate for the
expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The computation assumes that there
will be no dividends paid to common shareholders during the contractual life of the options.
Valuation Assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
Stock option activity during the periods indicated is as follows:
Balance, December 31, 2012
Granted
Exercised
Forfeited
Expired
Balance, December 31, 2013
Granted
Exercised
Forfeited
Expired
Balance, December 31, 2014
Granted
Exercised
Forfeited
Redeemed
Expired
Balance, December 31, 2015
Exercisable as of December 31, 2013
Exercisable as of December 31, 2014
Exercisable as of December 31, 2015
2015
December 31,
2014
2013
0.0%
45.4%
6.9
1.6%
0.0%
35.3%
6.9
2.3%
0.0%
37.3%
6.9
1.9%
Number of Options
Weighted Average
Exercise Price
2,193,000 $
119,000
12,500
33,000
—
2,266,500 $
309,732
22,500
44,000
—
2,509,732 $
205,661
37,500
41,500
77,000
—
2,559,393 $
1,625,000 $
1,693,500 $
1,789,750 $
9.97
11.56
10.00
11.16
—
10.03
12.04
11.11
9.66
—
10.28
10.39
9.41
10.75
10.00
—
10.30
10.08
10.04
9.99
Weighted Average
Remaining
Contractual Term
(years)
5.69
4.94
4.52
3.98
3.56
2.75
2.28
The weighted average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013, was $4.98,
$4.90 and $4.80, respectively. The weighted average grant date fair value of options exercised during the years ended December 31,
2015, 2014 and 2013 was $4.38, $5.08 and $4.30 respectively.
122
A summary of the status of the Company’s non-vested options as of and changes during the years ended December 31, 2015, 2014 and
2013, is presented below:
Non-vested options:
Balance, December 31, 2012
Granted
Vested
Forfeited
Balance, December 31, 2013
Granted
Vested
Forfeited
Balance, December 31, 2014
Granted
Vested
Forfeited
Balance, December 31, 2015
Number of Options
Weighted Average
Grant-Date
Fair Value
674,500 $
119,000
119,000
33,000
641,500 $
309,732
91,000
44,000
816,232 $
205,661
210,750
41,500
769,643 $
4.88
4.80
4.60
5.40
4.89
4.90
5.12
4.84
4.87
4.98
5.91
4.85
4.93
As of December 31, 2015, there was $2.6 million of total unrecognized compensation cost related to non-vested options granted under
the Plans and the unrecognized compensation cost is expected to be recognized over a weighted average period of 3.1 years.
Restricted Shares
A summary of the status of the Company’s non-vested restricted shares as of and changes during the years ended December 31, 2015,
2014 and 2013, is presented below:
Non-vested restricted shares:
Balance, December 31, 2012
Granted
Vested
Forfeited
Balance, December 31, 2013
Granted
Vested
Forfeited
Balance, December 31, 2014
Granted
Vested
Forfeited
Balance, December 31, 2015
Number of Shares
Weighted Average
Grant-Date
Fair Value
— $
—
—
—
— $
27,000
—
—
27,000 $
282,916
—
4,000
305,916 $
—
—
—
—
—
10.66
—
—
10.66
10.54
—
10.57
10.55
As of December 31, 2015, there was $2.3 million of total unrecognized compensation cost related to non-vested restricted shares granted
under the Plans and the unrecognized compensation cost is expected to be recognized over a weighted average period of 2.2 years.
[17] DERIVATIVES AND HEDGING ACTIVITY
RISK MANAGEMENT OBJECTIVE OF USING DERIVATIVES
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally
manages its exposures to a wide variety of business and operational risks through management of its core business activities. The
Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and
duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative
123
financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known
and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments
are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts related to
certain of the Company’s fixed-rate loan assets. The Company also has derivatives that are a result of a service the Company provides
to certain qualifying customers while at the same time the Company enters into an offsetting derivative transaction in order to
eliminate its interest rate risk exposure resulting from such transactions.
FAIR VALUES OF DERIVATIVE INSTRUMENTS ON THE STATEMENTS OF FINANCIAL CONDITION
The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the
consolidated statements of financial condition as of December 31, 2015 and December 31, 2014:
(Dollars in thousands)
Derivatives designated as hedging instruments:
Interest rate products
Derivatives not designated as hedging instruments:
Interest rate products
(Dollars in thousands)
Derivatives designated as hedging instruments:
Interest rate products
Derivatives not designated as hedging instruments:
Interest rate products
Asset Derivatives
Liability Derivatives
as of December 31, 2015
as of December 31, 2015
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other assets
Other assets
$
$
— Other liabilities
8,662 Other liabilities
$
$
229
9,363
Asset Derivatives
Liability Derivatives
as of December 31, 2014
as of December 31, 2014
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other assets
Other assets
$
$
— Other liabilities
6,327 Other liabilities
$
$
442
6,849
FAIR VALUE HEDGES OF INTEREST RATE RISK
The Company is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in benchmark interest
rates, which relate predominantly to LIBOR. Interest rate swaps designated as fair value hedges involve the receipt of variable rate
payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the
exchange of the underlying notional amount. As of December 31, 2015, the Company had four interest rate swaps, with a notional
amount of $3.2 million that were designated as fair value hedges of interest rate risk associated with the Company’s fixed-rate loan
assets. The notional amounts for the derivatives express the face amount of the positions, however, credit risk was considered
insignificant for the years ended December 31, 2015 and 2014. There were no counterparty default losses on derivatives for the
years ended December 31, 2015 and 2014.
For the four derivatives that were designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings by applying the “fair value long
haul” method. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the
related derivatives. During the year ended December 31, 2015, the Company recognized a net gain of $3,000 in non-interest income
related to hedge ineffectiveness as compared to net gains of $10,000 and $14,000 during the years ended December 31, 2014 and
2013, respectively. The Company also recognized a decrease to interest income of $294,000 for the year ended December 31, 2015,
related to the Company’s fair value hedges, which includes net settlements on the derivatives, and any amortization adjustment of
the basis in the hedged items as compared to a decrease to interest income of $321,000 and $434,000 during the years ended
December 31, 2014 and 2013, respectively.
NON-DESIGNATED HEDGES
The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative
and result from a service the Company provides to certain customers. The Company executes interest rate derivatives with its
commercial banking customers to facilitate their respective risk management strategies. Those derivatives are simultaneously and
economically hedged by offsetting derivatives that the Company executes with a third party, such that the Company eliminates its
interest rate exposure resulting from such transactions. Changes in the fair value of derivatives not designated in hedging relationships
are recorded directly in earnings. As of December 31, 2015, the Company had 140 derivative transactions with an aggregate notional
amount of $537.9 million related to this program. During the year ended December 31, 2015, the Company recognized a net loss
124
of $174,000 related to changes in fair value of the derivatives not designated in hedging relationships, as compared to a net loss of
$423,000 and a net gain of $154,000 during the years ended December 31, 2014 and 2013, respectively.
EFFECT OF DERIVATIVE INSTRUMENTS IN THE STATEMENTS OF INCOME
The tables below present the effect of the Company’s derivative financial instruments in the consolidated statements of income for
the periods presented:
(Dollars in thousands)
Derivatives designated as hedging
instruments:
Interest rate products
Total
Location of Gain (Loss)
Recognized in
Income on Derivative
Interest income
Non-interest income
Derivatives not designated as hedging
instruments:
Location of Gain (Loss)
Recognized in
Income on Derivative
Interest rate products
Non-interest income
Total
Years Ended December 31,
2015
2014
2013
Amount of Gain (Loss)
Recognized in Income on Derivative
(294) $
3
(291) $
(321) $
10
(311) $
Amount of Gain (Loss)
Recognized in Income on Derivative
(174) $
(174) $
(423) $
(423) $
(434)
14
(420)
154
154
$
$
$
$
CREDIT-RISK-RELATED CONTINGENT FEATURES
The Company has agreements with each of its derivative counterparties that contain a provision where, if the Company defaults on
any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the
Company could also be declared in default on its derivative obligations.
The Company has agreements with certain of its derivative counterparties that contain a provision where, if either the Company or
the counterparty fails to maintain its status as a well/adequately capitalized institution, then the Company or the counterparty could
be required to terminate any outstanding derivative positions and settle its obligations under the agreement.
As of December 31, 2015, the termination value of derivatives, including accrued interest, in a net liability position related to these
agreements was $9.5 million. As of December 31, 2015, the Company has minimum collateral posting thresholds with certain of
its derivative counterparties and has posted collateral of $11.1 million. If the Company had breached any of these provisions as of
December 31, 2015, it could have been required to settle its obligations under the agreements at their termination value.
[18] DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments are based on the present value of expected future cash flows, quoted market prices of similar
financial instruments, if available, and other valuation techniques. These valuations are significantly affected by discount rates, cash
flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent
markets and are not intended to reflect the proceeds that may be realized in an immediate settlement of instruments. Accordingly, the
aggregate fair value amounts presented below do not represent the underlying value of the Company.
FAIR VALUE MEASUREMENTS
In accordance with U.S. GAAP the Company must account for certain financial assets and liabilities at fair value on a recurring and
non-recurring basis. The Company utilizes a three-level fair value hierarchy of valuation techniques to estimate the fair value of its
financial assets and liabilities based on whether the inputs to those valuation techniques are observable or unobservable. The fair
value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement
fall within multiple levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement
is used.
Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques:
• Level 1 – Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical
assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active
exchange-traded equity securities.
125
• Level 2 – Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which
values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs
are corroborated by market data, for example, matrix pricing.
• Level 3 – Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are
both unobservable and significant to the overall fair value measurement. Level 3 inputs include assumptions of a source
independent of the reporting entity or the reporting entity’s own assumptions that are supported by little or no market activity
or observable inputs.
The Company is responsible for the valuation process and as part of this process may use data from outside sources in establishing
fair value. The Company performs due diligence to understand the inputs used or how the data was calculated or derived. The
Company corroborates the reasonableness of external inputs in the valuation process.
RECURRING FAIR VALUE MEASUREMENTS
The following tables represent assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and December 31,
2014:
(Dollars in thousands)
Financial assets:
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Non-agency collateralized loan obligations
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
Equity securities
Interest rate swaps
Total financial assets
Financial liabilities:
Interest rate swaps
Total financial liabilities
December 31, 2015
Level 1
Level 2
Level 3
Total Assets /
Liabilities
at Fair Value
$
— $
43,733 $
— $
—
—
—
—
—
—
7,759
—
7,759
16,601
5,743
11,711
49,371
28,669
4,732
—
8,662
169,222
—
—
—
—
—
—
—
—
—
43,733
16,601
5,743
11,711
49,371
28,669
4,732
7,759
8,662
176,981
$
—
— $
9,592
9,592 $
—
— $
9,592
9,592
126
(Dollars in thousands)
Financial assets:
Investment securities available-for-sale:
Corporate bonds
Trust preferred securities
Non-agency mortgage-backed securities
Agency collateralized mortgage obligations
Agency mortgage-backed securities
Agency debentures
Equity securities
Interest rate swaps
Total financial assets
Financial liabilities:
Interest rate swaps
Total financial liabilities
INVESTMENT SECURITIES
December 31, 2014
Level 1
Level 2
Level 3
Total Assets /
Liabilities
at Fair Value
$
— $
31,668 $
— $
—
—
—
—
—
8,038
—
8,038
16,801
11,585
56,863
32,880
8,737
—
6,327
164,861
—
—
—
—
—
—
—
—
31,668
16,801
11,585
56,863
32,880
8,737
8,038
6,327
172,899
$
—
— $
7,291
7,291 $
—
— $
7,291
7,291
Generally, investment securities are valued using pricing for similar securities, recently executed transactions, and other pricing
models utilizing observable inputs. The valuations for debt and equity securities are classified as either Level 1 or Level 2. U.S.
Treasury Notes and equity securities (including mutual funds) are classified as Level 1 because these securities are in actively traded
markets. Investment securities within Level 2 include corporate bonds, single-issuer trust preferred securities, non-agency mortgage-
backed securities and collateralized loan obligations, collateralized mortgage obligations and mortgage-backed securities issued by
U.S. government agencies and U.S. government agency debentures.
INTEREST RATE SWAPS
The fair value is estimated using inputs that are observable or that can be corroborated by observable market data and, therefore, are
classified as Level 2. These fair value estimations include primarily market observable inputs such as the forward LIBOR swap
curve.
NON-RECURRING FAIR VALUE MEASUREMENTS
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured
at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of
impairment.
The following tables represent the balances of assets measured at fair value on a non-recurring basis as of December 31, 2015 and
December 31, 2014:
(Dollars in thousands)
Loans measured for impairment, net
Other real estate owned
Total assets
(Dollars in thousands)
Loans measured for impairment, net
Other real estate owned
Total assets
December 31, 2015
Level 1
Level 2
Level 3
Total Assets
at Fair Value
— $
—
— $
— $
—
— $
12,625 $
1,730
14,355 $
12,625
1,730
14,355
December 31, 2014
Level 1
Level 2
Level 3
Total Assets
at Fair Value
— $
—
— $
— $
—
— $
25,177 $
1,370
26,547 $
25,177
1,370
26,547
$
$
$
$
127
As of December 31, 2015, the Company recorded $4.5 million of specific reserves to the allowance for loan losses as a result of adjusting
the fair value of the collateral for certain collateral dependent impaired loans to $5.4 million, and as a result of adjusting the value based
upon the discounted cash flow to $7.2 million, as of December 31, 2015.
As of December 31, 2014, the Company recorded $5.6 million of specific allowance for loan losses as a result of adjusting the fair value
of the collateral for certain collateral dependent impaired loans to $7.6 million, and as a result of adjusting the value based upon the
discounted cash flow to $17.6 million as of December 31, 2014.
The Company obtains updated appraisals for collateral dependent impaired loans and other real estate owned on an annual basis, unless
circumstances require a more frequent appraisal.
IMPAIRED LOANS
A loan is considered impaired when management determines it is probable that all of the principal and interest due under the original
terms of the loan may not be collected or if a loan is designated as a TDR. Impairment is measured based on a discounted cash flow
method or the fair value of the underlying collateral less estimated selling costs. Our policy is to obtain appraisals on collateral
supporting impaired loans on an annual basis, unless circumstances dictate a shorter time frame. Appraisals are reduced by estimated
costs to sell the collateral, and, under certain circumstances, additional factors that may arise and which may cause us to believe our
recovered value may be less than the independent appraised value. Accordingly, impaired loans are classified as Level 3. The
Company measures impairment on all loans for which it has established specific reserves as part of the allowance for loan losses.
OTHER REAL ESTATE OWNED
Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are
recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair
value being determined by appraisal. Our policy is to obtain appraisals on collateral supporting OREO on an annual basis, unless
circumstances dictate a shorter time frame. Appraisals are reduced by estimated costs to sell the collateral, and, under certain
circumstances, additional factors that may arise and which may cause us to believe our recovered value may be less than the independent
appraised value. Accordingly, real estate owned is classified as Level 3.
LEVEL 3 VALUATION
The following tables present additional quantitative information about assets measured at fair value on a recurring and non-recurring
basis and for which we have utilized Level 3 inputs to determine fair value as of December 31, 2015 and December 31, 2014:
(Dollars in thousands)
Loans measured for impairment, net
Loans measured for impairment, net
December 31, 2015
Fair Value
Valuation
Techniques (1)
Significant
Unobservable
Inputs
Weighted
Average
Discount Rate
5,428
Appraisal value or
Liquidation analysis
7,197
Discounted cash
flow
Discount due
to salability
conditions
Discount due to
restructured nature
of operations
$
$
14%
7%
Other real estate owned
10%
(1) Fair value is generally determined through independent appraisals or liquidation analysis of the underlying collateral, which may include level 3
1,730 Appraisal value
$
Discount due to
salability conditions
inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.
128
(Dollars in thousands)
Loans measured for impairment, net
Loans measured for impairment, net
December 31, 2014
Fair Value
Valuation
Techniques (1)
Significant
Unobservable
Inputs
Weighted
Average
Discount Rate
$
$
7,559
Appraisal value or
Market multiple
17,618
Discounted cash
flow
Discount due
to salability
conditions
Discount due to
restructured nature
of operations
10%
10%
Other real estate owned
10%
(1) Fair value is generally determined through independent appraisals or market multiple of the underlying collateral, which may include level 3 inputs
1,370 Appraisal value
$
Discount due to
salability conditions
that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.
FAIR VALUE OF FINANCIAL INSTRUMENTS
A summary of the carrying amounts and estimated fair values of financial instruments is as follows:
(Dollars in thousands)
Financial assets:
Cash and cash equivalents
Investment securities available-for-sale: debt
Investment securities available-for-sale: equity
Investment securities held-to-maturity
Loans held-for-investment, net
Accrued interest receivable
Investment management fees receivable
Federal Home Loan Bank stock
Bank owned life insurance
Interest rate swaps
Other real estate owned
Financial liabilities:
Deposits
Borrowings
Interest rate swaps
December 31, 2015
December 31, 2014
Fair Value
Level
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
1
2
1
2
3
2
2
2
2
2
3
2
2
2
$
96,676 $
96,676
$
105,710 $
160,560
7,759
47,290
160,560
7,759
48,099
158,534
8,038
39,591
105,710
158,534
8,038
40,113
2,823,310
2,813,278
2,379,779
2,376,075
7,056
6,191
9,802
60,019
8,662
1,730
7,056
6,191
9,802
60,019
8,662
1,730
6,279
6,818
5,730
53,323
6,327
1,370
6,279
6,818
5,730
53,323
6,327
1,370
$
2,689,844 $
2,690,693
$
2,336,953 $
2,337,734
255,000
9,592
255,179
9,592
165,000
7,291
165,163
7,291
During the years ended December 31, 2015, 2014 and 2013, there were no transfers between fair value Levels 1, 2 or 3.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of December 31,
2015 and December 31, 2014:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value.
INVESTMENT SECURITIES
The fair values of investment securities available-for-sale, held-to-maturity and trading are based on quoted market prices for the
same or similar securities, recently executed transactions and pricing models.
LOANS HELD-FOR-INVESTMENT
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities. Fair value as determined here does not represent an
exit price. Impaired loans are generally valued at the fair value of the associated collateral.
129
ACCRUED INTEREST RECEIVABLE
The carrying amount approximates fair value.
INVESTMENT MANAGEMENT FEES RECEIVABLE
The carrying amount approximates fair value.
FEDERAL HOME LOAN BANK STOCK
The carrying value of our FHLB stock, which is a marketable equity investment, approximates fair value.
BANK OWNED LIFE INSURANCE
The fair value of general account bank owned life insurance is based on the insurance contract net cash surrender value.
OTHER REAL ESTATE OWNED
Real estate owned is recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition
costs, with the fair value being determined by appraisal.
DEPOSITS
The fair value of demand deposits is the amount payable on demand as of the reporting date, i.e., their carrying amounts. The fair
value of fixed maturity certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities.
BORROWINGS
The fair value of our borrowings is calculated by discounting scheduled cash flows through the estimated maturity using period end
market rates for borrowings of similar remaining maturities.
INTEREST RATE SWAPS
The fair value of interest rate swaps are estimated through the assistance of an independent third party and compared to the fair value
determined by the swap counterparty to establish reasonableness.
OFF-BALANCE SHEET INSTRUMENTS
Fair values for the Company’s off-balance sheet instruments, which consist of lending commitments, standby letters of credit and
risk participation agreements related to interest rate swap agreements, are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Management believes
that the fair value of these off-balance sheet instruments is not significant.
[19] CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table shows the changes in accumulated other comprehensive income (loss), for the periods presented:
(Dollars in thousands)
Balance, beginning of period
$
Change in unrealized holding gains (losses)
Gains reclassified from other comprehensive income (loss) (1)
Net other comprehensive income (loss)
Years Ended December 31,
2015
2014
2013
Unrealized Gains
and Losses on
Investment Securities
Unrealized Gains
and Losses on
Investment Securities
Unrealized Gains
and Losses on
Investment Securities
(627) $
(795)
(21)
(816)
(1,744) $
2,034
(917)
1,117
1,671
(2,903)
(512)
(3,415)
Balance, end of period
(1,744)
(1) Consists of net realized gains on sales of investment securities available-for-sale of $33,000, $1.4 million and $797,000, net of income tax expense
(1,443) $
(627) $
$
of $12,000, $511,000 and $285,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
[20] RELATED PARTY TRANSACTIONS
Certain directors and executive officers have loan and deposit accounts with the Bank. Such loans and deposits were made in the ordinary
course of business on substantially the same terms, including interest rates, as those prevailing at the time for comparable transactions
with outsiders. As of December 31, 2015, the Bank had loans outstanding to directors totaling $3.0 million, which consisted of three
loans. As of December 31, 2015, the Bank had deposits outstanding from directors and their related interests totaling $5.9 million.
130
During the years ended December 31, 2015, 2014 and 2013, the Bank obtained services from affiliated companies of certain directors
and executive officers in the normal course of business as outlined below.
(Dollars in thousands)
Years Ended December 31,
Related Party
Affiliation
Nature of Transaction
2015
2014
2013
Mikell Schenck Associates
Owned by spouse of a
director/executive officer
Interior design services
Ascent Data Corporation
Owned by a director
Systems consulting
Voyager Jet Center
Owned by a director
Aircraft charter
Total
[21] CONTINGENT LIABILITIES
$
$
— $
—
73
73 $
— $
32
158
190 $
22
17
117
156
The Company is not subject to any asserted claims nor is it aware of any unasserted claims. In the opinion of management, there are no
potential claims that would have a material adverse effect on the Company’s financial position, liquidity or results of operations.
[22] CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition of the Company as of December 31, 2015 and 2014, and the related condensed
statements of income and cash flows for the years ended December 31, 2015, 2014 and 2013, should be read in conjunction with our
Consolidated Financial Statements and related notes:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
ASSETS
Cash and cash equivalents
Investment securities available-for-sale
Investment in subsidiaries
Prepaid expenses and other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Borrowings
Other accrued expenses and other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
Interest income
Dividends received from subsidiaries
Total interest and dividend income
Interest expense
Net interest income
Non-interest income
Non-interest expense
Income before income taxes and undisbursed income of subsidiaries
Income tax expense (benefit)
Income before undisbursed income of subsidiaries
Undisbursed income of subsidiaries
Net income
December 31,
2015
2014
$
$
$
$
4,936 $
7,759
348,966
772
362,433 $
35,000 $
1,456
325,977
362,433 $
19,235
8,038
312,811
1,373
341,457
35,000
1,067
305,390
341,457
Years Ended December 31,
2015
2014
2013
$
268 $
259 $
2,510
2,778
2,215
563
—
92
471
67
404
$
22,084
22,488 $
131
2,480
2,739
1,266
1,473
—
119
1,354
(467)
1,821
14,107
15,928 $
192
—
192
—
192
—
20
172
54
118
12,749
12,867
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Undisbursed income of subsidiaries
Amortization of deferred financing costs
Increase (decrease) in accrued interest payable
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchase of investment securities available-for-sale
Net payments for investments in subsidiaries
Net cash used in investing activities
Cash Flows from Financing Activities:
Net proceeds from issuance of subordinated notes payable
Net proceeds from issuance of common stock
Net proceeds from exercise of stock options
Redemption of stock options
Purchase of treasury stock
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
[23] SEGMENTS
Years Ended December 31,
2015
2014
2013
$
22,488 $
15,928 $
12,867
(22,084)
(14,107)
(12,749)
203
(143)
587
532
1,583
(248)
(12,600)
(12,848)
—
—
353
(229)
(3,158)
(3,034)
(14,299)
19,235
118
1,149
(453)
(123)
2,512
(8,110)
(69,580)
(77,690)
33,988
—
250
—
(6,746)
27,492
(47,686)
66,921
$
4,936 $
19,235 $
—
—
14
41
173
—
—
—
—
65,990
125
—
—
66,115
66,288
633
66,921
Since the Chartwell acquisition on March 5, 2014, the Company operates two reportable segments: Bank and Investment Management.
• The Bank segment provides commercial banking and private banking services to middle-market businesses and high-net-worth
individuals through the TriState Capital Bank subsidiary.
• The Investment Management segment provides advisory and sub-advisory investment management services to primarily
institutional plan sponsors through the Chartwell Investment Partners, LLC subsidiary and also supports distribution and
marketing efforts for Chartwell’s proprietary investment products through the Chartwell TSC Securities Corp. subsidiary.
The following tables provide financial information for the two segments of the Company as of and for the periods indicated. The
information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general
operating expenses of the Company, which includes the parent company activity as well as eliminations and adjustments which are
necessary for purposes of reconciliation to the consolidated amounts.
(Dollars in thousands)
Assets:
Bank
Investment management
Parent and other
Total assets
December 31,
2015
December 31,
2014
$
$
3,236,756 $
2,776,421
65,516
591
62,489
7,947
3,302,863 $
2,846,857
132
(Dollars in thousands)
Income statement data:
Interest income
Interest expense
Net interest income (loss)
Provision for loan losses
Net interest income (loss) after provision for loan losses
Non-interest income:
Investment management fees
Net gain on the sale of investment securities available-for-
sale
Other non-interest income
Total non-interest income
Non-interest expense:
Intangible amortization expense
Other non-interest expense
Total non-interest expense
Income (loss) before tax
Income tax expense
Net income (loss)
(Dollars in thousands)
Income statement data:
Interest income
Interest expense
Net interest income (loss)
Provision for loan losses
Net interest income (loss) after provision for loan losses
Non-interest income:
Investment management fees
Net gain on the sale of investment securities available-for-
sale
Other non-interest income
Total non-interest income
Non-interest expense:
Intangible amortization expense
Acquisition earnout expense
Other non-interest expense
Total non-interest expense
Income (loss) before tax
Income tax expense (benefit)
Net income (loss)
$
$
Year Ended December 31, 2015
Investment
Management
Parent
and Other
Bank
Consolidated
$
82,958 $
— $
249 $
13,448
69,510
13
69,497
—
33
6,229
6,262
—
47,186
47,186
28,573
8,347
—
—
—
—
29,814
—
(8)
29,806
1,558
21,403
22,961
6,845
2,477
20,226 $
4,368 $
2,195
(1,946)
—
(1,946)
(196)
—
—
(196)
—
(104)
(104)
(2,038)
68
(2,106) $
Year Ended December 31, 2014
Investment
Management
Parent
and Other
Bank
Consolidated
77,803 $
— $
110 $
11,134
66,669
10,159
56,510
—
1,428
5,193
6,621
—
—
43,115
43,115
20,016
5,909
—
—
—
—
25,219
—
38
25,257
1,299
1,614
18,338
21,251
4,006
1,527
$
14,107 $
2,479 $
1,117
(1,007)
—
(1,007)
(157)
—
—
(157)
—
—
(39)
(39)
(1,125)
(467)
(658) $
133
83,207
15,643
67,564
13
67,551
29,618
33
6,221
35,872
1,558
68,485
70,043
33,380
10,892
22,488
77,913
12,251
65,662
10,159
55,503
25,062
1,428
5,231
31,721
1,299
1,614
61,414
64,327
22,897
6,969
15,928
[24] SUBSEQUENT EVENTS
In January 2016, the company’s Board of Directors approved a share repurchase program of up to $10 million, authorizing TriState Capital
Holdings to repurchase up to 1,000,000 shares of its common stock. The program authorizes repurchases totaling up to approximately
3.6% of the Company’s 28,056,195 common shares outstanding at December 31, 2015. Under the authorization, purchases may be made
at the discretion of management from time to time in the open market or through negotiated transactions.
134
The tables below summarize our unaudited quarterly financial information for the years ended December 31, 2015 and 2014:
SELECTED QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share data)
Income statement data:
Interest income
Interest expense
Net interest income
Provision (credit) for loan losses
Net interest income after provision for loan losses
Non-interest income:
Investment management fees
Net gain on sale of investment securities available-for-sale
Other non-interest income
Total non-interest income
Non-interest expense:
Intangible amortization expense
Other non-interest expense
Total non-interest expense
Income before tax
Income tax expense
Net income
Earnings per common share:
Basic
Diluted
2015
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
21,846 $
20,940 $
20,426 $
(unaudited)
4,312
17,534
244
17,290
7,429
16
1,674
9,119
389
17,669
18,058
8,351
2,765
3,984
16,956
(1,341)
18,297
7,020
—
1,044
8,064
390
16,911
17,301
9,060
2,942
3,808
16,618
185
16,433
7,514
—
2,117
9,631
390
17,192
17,582
8,482
2,754
5,586 $
6,118 $
5,728 $
19,995
3,539
16,456
925
15,531
7,655
17
1,386
9,058
389
16,713
17,102
7,487
2,431
5,056
0.20 $
0.20 $
0.22 $
0.22 $
0.21 $
0.20 $
0.18
0.18
$
$
$
135
(Dollars in thousands, except per share data)
Income statement data:
Interest income
Interest expense
Net interest income
Provision (credit) for loan losses
Net interest income after provision for loan losses
Non-interest income:
Net gain on sale of investment securities available-for-sale
Other non-interest income
Total non-interest income
Non-interest expense:
Intangible amortization expense
Acquisition earnout expense
Other non-interest expense
Total non-interest expense
Income before tax
Income tax expense
Net income
Earnings per common share:
Basic
Diluted
2014
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
20,933 $
19,681 $
18,991 $
(unaudited)
3,417
17,516
(209)
17,725
—
1,149
8,830
390
1,614
17,374
19,378
7,177
2,085
3,435
16,246
651
15,595
—
1,872
9,290
389
—
16,284
16,673
8,212
2,506
2,953
16,038
9,109
6,929
414
1,198
9,121
390
—
15,094
15,484
566
52
$
$
$
5,092 $
5,706 $
514 $
0.18 $
0.18 $
0.20 $
0.20 $
0.02 $
0.02 $
18,308
2,446
15,862
608
15,254
1,014
1,012
4,480
130
—
12,662
12,792
6,942
2,326
4,616
0.16
0.16
136
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2015. The Company’s disclosure controls and procedures
are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s
rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s
Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective
as of December 31, 2015.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Management assessed the Company’s system of internal control over financial reporting
as of December 31, 2015, in relation to criteria for effective internal control over financial reporting as described in “Internal Control
Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013.
Based on this assessment, management concludes that, as of December 31, 2015, the Company’s system of internal control over financial
reporting is effective and meets the criteria of the “Internal Control Integrated Framework (2013).”
As an emerging growth company, this Annual Report on Form 10-K does not include an attestation report of our registered public
accounting firm, pursuant to the JOBS Act.
Changes in Internal Control over Financial Reporting
On May 14, 2013, COSO issued an updated version of its Internal Control - Integrated Framework, referred to as the 2013 COSO
Framework, and has indicated that after December 15, 2014, the 1992 Framework will be considered superseded. Management’s
assessment of the overall effectiveness of our internal controls over financial reporting for the year ending December 31, 2015, was based
on the 2013 COSO Framework. The change from the 1992 Framework to the 2013 COSO Framework was not significant to the overall
control structure over financial reporting.
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the year ended December 31, 2015, that have materially affected or are reasonably likely to materially
affect the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
137
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of stockholders to be held
May 17, 2016, which proxy materials will be filed with the SEC no later than April 30, 2016, and are incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of stockholders to be held
May 17, 2016, which proxy materials will be filed with the SEC no later than April 30, 2016, and are incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of stockholders to be held
May 17, 2016, which proxy materials will be filed with the SEC no later than April 30, 2016, and are incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of stockholders to be held
May 17, 2016, which proxy materials will be filed with the SEC no later than April 30, 2016, and are incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of stockholders to be held
May 17, 2016, which proxy materials will be filed with the SEC no later than April 30, 2016, and are incorporated by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
FINANCIAL STATEMENTS
PART IV
The consolidated financial statements required in response to this item are incorporated by reference to Part II - Item 8 of this
Report.
(b)
EXHIBITS
The exhibits filed or incorporated by reference as a part of this report are incorporated by reference to the Exhibit Index following
the signature page of this Report.
(c)
SCHEDULES
No financial statement schedules are being filed because of the absence of conditions under which they are required or because
the required information is included in the consolidated financial statements and related notes thereto.
138
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
TRISTATE CAPITAL HOLDINGS, INC.
Date: February 15, 2016
By:
/s/ James F. Getz
James F. Getz
Chairman, President and Chief Executive Officer
Date: February 15, 2016
By:
/s/ Mark L. Sullivan
Mark L. Sullivan
Vice Chairman and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: February 15, 2016
By:
/s/ James F. Getz
James F. Getz
Chairman, President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 15, 2016
By:
/s/ Mark L. Sullivan
Mark L. Sullivan
Vice Chairman, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
Date: February 15, 2016
By:
/s/ David L. Bonvenuto*
David L. Bonvenuto
Director
Date: February 15, 2016
By:
/s/ Anthony J. Buzzelli*
Anthony J. Buzzelli
Director
Date: February 15, 2016
By:
/s/ Helen Hanna Casey*
Helen Hanna Casey
Director
Date: February 15, 2016
By:
/s/ E.H. (Gene) Dewhurst*
E.H. (Gene) Dewhurst
Director
Date: February 15, 2016
By:
/s/ James J. Dolan*
James J. Dolan
Director
Date: February 15, 2016
By:
/s/ James E. Minnick*
James E. Minnick
Director
139
Date: February 15, 2016
By:
/s/ A. William Schenck, III*
A. William Schenck, III
Vice Chairman and Director
Date: February 15, 2016
By:
/s/ Richard B. Seidel*
Richard B. Seidel
Director
Date: February 15, 2016
By:
/s/ John B. Yasinsky*
John B. Yasinsky
Director
Date: February 15, 2016
By:
/s/ Richard A. Zappala*
Richard A. Zappala
Director
* By:
/s/ James F. Getz
James F. Getz, Attorney-in-Fact
140
Exhibit
No.
Description
EXHIBIT INDEX
2.1
2.2
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
TriState Capital Holdings, Inc. asset purchase agreement to acquire Chartwell Investment Partners, L.P. dated January 3, 2014,
which is incorporated by reference to our Annual Report on Form 10-K filed with the SEC on March 3, 2014.
TriState Capital Holdings, Inc. asset purchase agreement to acquire The Killen Group, Inc. dated December 16, 2015, filed
herewith.
Amended and Restated Articles of Incorporation, which is incorporated by reference to our Registration Statement on Form S-1/
A (File No. 333-187681) filed with the SEC on April 16, 2013.
Bylaws, as amended, which is incorporated by reference to our Registration Statement on Form S-1/A (File No. 333-187681)
filed with the SEC on April 16, 2013.
Specimen common stock certificate, which is incorporated by reference to our Registration Statement on Form S-1/A (File No.
333-187681) filed with the SEC on April 16, 2013.
TriState Capital Holdings, Inc. 2006 Stock Option Plan (“2006 Stock Option Plan”), which is incorporated by reference to our
Registration Statement on Form S-1 (File No. 333-187681) filed with the SEC on April 2, 2013.
Form of Nonqualified Stock Option Award Agreement under 2006 Stock Option Plan, which is incorporated by reference to our
Registration Statement on Form S-1 (File No. 333-187681) filed with the SEC on April 2, 2013.
Restricted Stock Award Agreement dated January 24, 2011 between TriState Capital Holdings, Inc. and James F. Getz, which
is incorporated by reference to our Registration Statement on Form S-1 (File No. 333-187681) filed with the SEC on April 2,
2013.
Agreement of Lease dated August 29, 2006 between Oxford Development Company/Grant Street, Landlord, and TriState Capital
Holdings, Inc., Tenant, and amendment thereto dated September 13, 2010, which is incorporated by reference to our Registration
Statement on Form S-1 (File No. 333-187681) filed with the SEC on April 2, 2013.
Preferred Stock Purchase Agreement dated April 24, 2012 by and among TriState Capital Holdings, Inc., LM III TriState Holdings
LLC and LM III-A TriState Holdings LLC, which is incorporated by reference to our Registration Statement on Form S-1 (File
No. 333-187681) filed with the SEC on April 2, 2013.
Amendment No. 1 to the Preferred Stock Purchase Agreement dated August 10, 2012 by and among TriState Capital Holdings,
Inc., LM III TriState Holdings LLC and LM III-A TriState Holdings LLC, which is incorporated by reference to our Registration
Statement on Form S-1 (File No. 333-187681) filed with the SEC on April 2, 2013.
Agreement Regarding Perpetual Convertible Preferred Stock, Series C dated as of March 8, 2013 by and among TriState Capital
Holdings, Inc., LM III TriState Holdings LLC and LM III-A TriState Holdings LLC, which is incorporated by reference to our
Registration Statement on Form S-1 (File No. 333-187681) filed with the SEC on April 2, 2013.
Registration Rights Agreement dated August 10, 2012 by and among TriState Capital Holdings, Inc., LM III TriState Holdings
LLC and LM III-A TriState Holdings LLC, which is incorporated by reference to our Registration Statement on Form S-1 (File
No. 333-187681) filed with the SEC on April 2, 2013.
TriState Capital Bank Supplemental Executive Retirement Agreement dated February 28, 2013, by and among TriState Capital
Holdings, Inc., TriState Capital Bank and James F. Getz, which is incorporated by reference to our Registration Statement on
Form S-1 (File No. 333-187681) filed with the SEC on April 2, 2013.
10.10 TriState Capital Holdings, Inc. 2014 Omnibus Incentive Plan, which is incorporated by reference to our Definitive Proxy
Statement on Form DEF 14A filed with the SEC on April 15, 2014.
10.11 TriState Capital Holdings, Inc. Short-Term Incentive Plan, which is incorporated by reference to our Definitive Proxy Statement
on Form DEF 14A filed with the SEC on April 15, 2014.
21
Subsidiaries of TriState Capital Holdings, Inc., filed herewith.
23.2
Consent of KPMG LLP, Independent Registered Public Accounting Firm, filed herewith.
24
31.1
31.2
32
101
Power of Attorney, filed herewith.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith.
The following materials from TriState Capital Holdings, Inc.’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2015, formatted in XBRL: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements
of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in
Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements,
furnished herewith.
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TriState Capital Holdings, Inc.
One Oxford Centre, Suite 2700
301 Grant Street
Pittsburgh, PA 15219