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, 2017 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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, 2017, 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 $555,632,356. As of January 31, 2018, there were 28,911,526 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 no later than April 30, 2018, for the annual shareholders meeting to be held on or around May 17, 2018, 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 23 42 42 42 42 42 44 48 80 81 133 133 133 134 134 134 134 134 135 138 136 3 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”), a registered broker/dealer. 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 primarily to institutional investors, mutual funds and individual investors on a national basis. Our broker/dealer subsidiary supports the marketing efforts for Chartwell’s proprietary investment products. We operate two reportable segments: Bank and Investment Management. • The Bank segment provides commercial banking products and services to middle-market businesses and private banking products and services to high-net-worth individuals through our TriState Capital Bank subsidiary. Total assets of the Bank were $4.69 billion as of December 31, 2017. • The Investment Management segment provides investment management services primarily to institutional investors, mutual funds and individual investors through Chartwell and also supports marketing efforts for Chartwell’s proprietary investment products through CTSC Securities. Assets under management for this segment were $8.31 billion as of December 31, 2017. For additional financial information by segment, 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 net interest income 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 and exceeding benchmark investment performance. Disciplined Risk Management. We place a strong 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 recent acquisitions. Also, in our banking business, this has included our focus on growing loans originated through our private banking channel. We believe these loans have lower credit risk because they are typically secured by readily liquid collateral, such as marketable securities, and/or are personally guaranteed by high-net-worth borrowers. In addition, we mitigate risk associated with these loans through active daily monitoring of the collateral, utilizing our proprietary technology. 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 commercial and private banking presidents as well as our regional banking presidents have an average of more than 30 years of banking experience and our middle-market and private banking relationship managers have an average of nearly 25 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 4 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 positions 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. Our middle-market banking channel primarily targets 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 most 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 165 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 cash and marketable securities. As shown in the following table, we have continued to achieve loan growth through both of our banking channels. As of December 31, 2017, loans sourced through our middle-market banking channel were $1.92 billion, or 45.9% of our loans held-for-investment. As of December 31, 2017, loans sourced through our private banking channel were $2.27 billion, or 54.1% of our loans held-for-investment, of which $2.14 billion, or 94.6%, were secured by cash and marketable securities. We expect continued strong loan and deposit growth in this channel, in part, because we added 23 new loan referral relationships during the year ended December 31, 2017 for a total of 165 referral relationships at the end of 2017. We have also experienced continued growth in the number of customers resulting from our existing referral relationships. (Dollars in thousands) Middle-market banking offices: Western Pennsylvania Eastern Pennsylvania Ohio New Jersey New York Total middle-market banking loans Total private banking loans Loans held-for-investment December 31, 2017 Change from 2016 2017 2016 Amount Percent $ 540,999 $ 480,271 $ 432,306 314,092 338,897 292,213 1,918,507 2,265,737 314,454 283,473 343,413 243,515 1,665,126 1,735,928 $ 4,184,244 $ 3,401,054 $ 60,728 117,852 30,619 (4,516) 48,698 253,381 529,809 783,190 12.6 % 37.5 % 10.8 % (1.3)% 20.0 % 15.2 % 30.5 % 23.0 % Deposit Funding Strategy. Since inception, we have focused on creating and growing a branchless, diversified, stable, and low all-in cost deposit channels, both in our primary markets and across the United States. As of December 31, 2017, we consider approximately 89% 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 measure and incentivize 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 continue adding such professionals 5 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 growth of cost-effective deposits. Investment Management Strategy. We will continue to execute on our investment management strategy of selectively acquiring other investment management firms that complement Chartwell’s business, as evidenced by The Killen Group (“TKG”) acquisition in 2016. We believe that this segment has and 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 through the financial intermediaries with which our banking business has worked and developed. Our Markets For our middle-market banking business, 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). 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, 2017, 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 12.0% of the national total as of that date, according to Dun and Bradstreet. According to SNL Financial, the 2017 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). Through our distribution channels, we pursue and create deposit relationships, including treasury management relationships, with customers in our primary markets and throughout the United States. 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 $1.5 trillion as of December 31, 2017, 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, 2017, were as follows: institutional and sub-advisory (63%) and broker/dealers and registered investment advisors (37%). 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, 2017, assets under management in the institutional and sub-advisory market included $2.15 billion in equity products and $3.06 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, 2017, assets under management in the broker/dealer and independent registered investment advisor market included $1.89 billion in equity products and $1.21 billion 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 industrial loans, commercial real estate loans, personal loans, asset-based 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 liquidity and treasury management services include 6 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. 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. 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. 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. The following table presents the composition of our loan portfolio as of December 31, 2017. (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, 2017 Percent of Loans $ 2,265,737 54.1% 667,684 1,250,823 1,918,507 4,184,244 $ 16.0% 29.9% 45.9% 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 borrowers. Since a majority of our private banking loans are secured by cash and marketable securities, 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 technology. Our private banking lines of credit predominantly are due on demand or have terms of 365 days or less. 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. The table below includes all loans made through our private banking channel by collateral type as of the date indicated. (Dollars in thousands) Private banking loans: Secured by cash and marketable securities Secured by real estate Other Total private banking loans December 31, 2017 Percent of Private Banking Loans Percent of Loans $ $ 2,142,384 93,169 30,184 2,265,737 94.6% 4.1% 1.3% 100.0% 51.2% 2.2% 0.7% 54.1% Commercial and Industrial Loans. Our commercial and industrial loan portfolio primarily includes loans made to service companies or manufacturers generally for the purposes of financing production, operating capacity, accounts receivable, inventory, equipment, acquisitions and recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment for these loans. The 7 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. The table below shows the composition of our commercial and industrial loan portfolio by borrower industry as of December 31, 2017. (Dollars in thousands) Industry: Service Manufacturing Real estate, rental and leasing Wholesale Trade Information Construction Retail Trade Transportation and warehousing Mining All others December 31, 2017 Percent of Commercial and Industrial Loans Percent of Loans $ 247,838 113,951 105,706 33,205 29,980 25,393 16,298 14,944 11,769 68,600 37.1% 17.1% 15.8% 5.0% 4.5% 3.8% 2.4% 2.2% 1.8% 10.3% 100.0% 5.9% 2.7% 2.5% 0.8% 0.7% 0.6% 0.4% 0.4% 0.3% 1.7% 16.0% Total commercial and industrial loans $ 667,684 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 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. Our commercial real estate loans are primarily 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, 2017. (Dollars in thousands) Commercial real estate loans: Income-producing property loans Owner-occupied loans Multifamily/apartment loans Construction loans Land development loans Total commercial real estate loans December 31, 2017 Percent of Commercial Real Estate Loans Percent of Loans $ 708,692 144,707 318,293 73,482 5,649 $ 1,250,823 56.7% 11.6% 25.4% 5.9% 0.4% 100.0% 16.9% 3.5% 7.6% 1.8% 0.1% 29.9% 8 Loan Underwriting Our focus on maintaining strong asset quality is pervasive throughout all aspects of our lending activities, and it is 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 and Chief Executive Officer, 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, Senior Credit Officer, President of Commercial Banking, President of Private Banking and all of our regional presidents. Applications for prospective loans that are accepted are 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, Chief Financial Officer, our two Vice Chairmen, Chief Credit Officer, Senior Credit Officer, Bank President and Chief Executive Officer, 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 targets and maximums based on a percentage of total loan commitments and as a multiple of total risk-based capital. 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 a preferred lending limit that is significantly 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. Still, we are focused more on growing our direct loans than SNC loans. As of December 31, 2017, we had $314.4 million of SNC loans compared to $344.0 million as of December 31, 2016. Effective January 1, 2018, the bank regulatory agencies revised the SNC definition to increase the loan size to $100 million or more and that are still shared by three or more financial institutions. Under this new definition we expect our SNC portfolio to be reduced by approximately one-third. Loan Portfolio Concentrations Geographic criteria. We focus on developing client relationships with companies that have headquarters and/or significant operations within our primary markets. 9 The table below shows the composition of our commercial loan portfolios based upon the states where our borrowers are located. Loans to borrowers located in our four primary market states make up 85.1% of our total commercial loans outstanding as of December 31, 2017. 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 90.5% of our commercial loan portfolio. (Dollars in thousands) Geographic region: Pennsylvania Ohio New Jersey New York Contiguous states Other states Total commercial loans December 31, 2017 Percent of Total Commercial Loans $ 626,823 340,756 314,138 350,672 103,323 182,795 32.7% 17.7% 16.4% 18.3% 5.4% 9.5% $ 1,918,507 100.0% 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. Deposits An important aspect of our business franchise is the ability to gather deposits and establish and grow meaningful relationships related to liquidity and treasury management customers. 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, 2017, non-brokered deposits represented approximately 73.2% 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 our CDARS® and ICS® reciprocal depositors. 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, 2017 Change from 2016 2017 2016 Amount Percent Noninterest-bearing checking accounts $ 248,092 $ 230,226 $ Interest-bearing checking accounts Money market deposit accounts Certificates of deposit Total non-brokered deposits Brokered deposits: Interest-bearing checking accounts Money market deposit accounts Certificates of deposit Total brokered deposits Total deposits 435,611 1,792,936 442,752 2,919,391 19,730 496,853 551,637 199,641 1,356,653 443,293 2,229,813 19,343 582,054 455,569 1,068,220 1,056,966 $ 3,987,611 $ 3,286,779 $ Non-brokered deposits to total deposits 73.2% 67.8% 17,866 235,970 436,283 (541) 689,578 387 (85,201) 96,068 11,254 700,832 7.8 % 118.2 % 32.2 % (0.1)% 30.9 % 2.0 % (14.6)% 21.1 % 1.1 % 21.3 % 10 Investment Management Products Chartwell Investment Partners manages $8.31 billion in a variety of equity and fixed income investment styles, for over 190 institutional investors, mutual funds and individual investors as of December 31, 2017. A description of each investment style is provided below. Equity Investment Strategies: • 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, similar to Chartwell’s Small Cap Value strategy. 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 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. • Mid Cap Growth: Our Mid Cap Growth portfolio invests in a select set of mid-cap growth oriented companies, similar to Chartwell’s Small Cap Growth strategy. • SMID Cap Growth: For clients in our SMID Cap Growth portfolio we invest in a select set of growth oriented companies with small to mid-market caps focused on securities held in Chartwell’s Small Cap Growth and Mid Cap Growth portfolios. • U.S. Small Cap: The U.S. Small Cap portfolio integrates the efforts of our Small Cap Value and Small Cap Growth investment teams. 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 Chartwell’s 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 disciplined call overwriting strategy. We join these two investment disciplines in an effort to create a lower volatility total return solution for clients. • Micro Cap Value: Chartwell’s Micro Cap Value strategy offers investors a diversified portfolio of small-cap stocks selected in accordance with the Chartwell’s value style. Fixed Income Investment Strategies: • 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. Our goal is to reduce risk and volatility exposures through credit research; therefore, 11 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. 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. Balanced Investment Strategies: • Conservative Allocation: The Conservative Allocation strategy is managed utilizing Chartwell’s value-oriented security selection process and includes the Berwyn Income Fund as one of its main products. While the majority of funds managed under this strategy are invested in bonds, it may invest up to 30% of its assets in dividend-paying common stocks. The fund’s balanced, income-oriented approach we believe may afford a greater level of price stability than an all equity portfolio. Our total assets under management of $8.31 billion increased $254.0 million, or 3.2%, as of December 31, 2017, from $8.06 billion as of December 31, 2016. We reported new business and new flows from existing accounts of $1.45 billion and market appreciation of $603.0 million, partially offset by outflows of $1.80 billion during the year ended December 31, 2017. The following table shows the changes of our assets under management by investment style for the year ended December 31, 2017. (Dollars in thousands) Equity investment styles Fixed income investment styles Balanced investment styles Year Ended December 31, 2017 Beginning Balance Inflows (1) Outflows (2) Market Appreciation Ending Balance $ 3,664,000 $ 466,000 $ (1,051,000) $ 432,000 $ 3,511,000 2,553,000 1,838,000 647,000 340,000 (247,000) (504,000) 96,000 75,000 3,049,000 1,749,000 Total assets under management (1) Inflows consist of new business as well as contributions from existing accounts. (2) Outflows consist of business lost as well as distributions from existing accounts. 8,055,000 $ $ 1,453,000 $ (1,802,000) $ 603,000 $ 8,309,000 Competition 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 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 as 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. 12 Our competition in making commercial loans comes principally from national, regional and large community banks and insurance companies. Many large national and regional commercial banks have a significant number of branch offices in the areas in which we operate. Competition for our private banking loans is more limited than for commercial loans due largely to our niche offering of margin loans backed by marketable securities which represent 51% of our entire loan portfolio. Aggressive pricing policies and terms of our competitors on middle-market and private banking loans 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. Employees As of December 31, 2017, we had approximately 230 full-time equivalent employees (167 in our banking business and 63 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. 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 Securities and Exchange Commission (“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 CTSC Securities 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, Financial Industry Regulatory Authority (“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 13 and the financial services industry. We have complied with the portion of rules that have been finalized and are 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 (“CFPB”); 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”; 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, 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 and results of operations. 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 required full conformance in July 2017. 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. February 3, 2017, Executive Order On February 3, 2017, President Trump signed an executive order calling for his administration to review existing U.S. financial laws and regulations, including the Dodd-Frank Act, in order to determine their consistency with a set of “core principles” of financial policy. The core financial principles identified in the executive order include the following: empowering Americans to make independent financial 14 decisions and informed choices in the marketplace, save for retirement, and build individual wealth; preventing taxpayer-funded bailouts; fostering economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry; enabling American companies to be competitive with foreign firms in domestic and foreign markets; advancing American interests in international financial regulatory negotiations and meetings; and restoring public accountability within Federal financial regulatory agencies and “rationalizing” the Federal financial regulatory framework. Although the order does not specifically identify any existing laws or regulations that the administration considers to be inconsistent with the core principles, areas that the mandated agency report may ultimately identify for reform include the Volcker Rule; any “fiduciary” standard applicable to investment advisers and broker-dealers; and the powers, structure and funding arrangements of the Financial Stability Oversight Council, the Office of Financial Research, the prudential bank regulators, the SEC, CFTC, and CFPB. While some changes can be implemented by the regulatory agencies themselves, implementing much of the anticipated agenda of changes would require legislation from Congress. There have been and continue to be efforts in Congress to substantially revise the Dodd-Frank Act although no legislation has been enacted. Those efforts may result in the repeal and/or substantial revision of portions of the act. In conjunction with the executive order, President Trump also issued a memorandum to the Department of Labor (“DOL”) on the fiduciary rule, delaying the rule’s effectiveness and requiring further analysis. In November 2017, DOL announced an 18-month extension, until July 1, 2019, of the date when the rule becomes effective to allow DOL to complete its analysis. If this analysis concludes that the rule will harm investors, disrupt the retirement services industry, increase litigation (and therefore the price of retirement services), be undermined as the result of certain exemptions, or violate any statute (including the Administrative Procedure Act) or that the rule is inconsistent with Administration policy, then DOL must propose rescission of or revisions to the rule. 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 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. Basel III has replaced 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. 15 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 risk-based capital ratios 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 is to 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 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 CET 1 risk-based capital ratio of 7.0%; • minimum tier 1 risk-based capital ratio of 8.5%; and • 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. 16 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, 2017, 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: • • • • • • • 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 CET 1 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. 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. 17 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. 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 18 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 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. In the third quarter of 2016, the FDIC published the final rule to modify the FDIC deposit insurance premium assessment methodology for banks under $10 billion. Further increases in assessment rates or special assessments may occur in the future, especially if there are significant additional financial institution failures. 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 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 operates four representative offices, with one each located in the states of Pennsylvania, Ohio, New Jersey and New York. 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 19 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. 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. In 2015, the FDIC approved our updated CRA strategic plan for the years 2015 through 2017. In January 2018, the FDIC approved our updated strategic plan to cover the years 2018 through 2020. TriState Capital Bank received an “outstanding” CRA rating in its last CRA examination in 2015. 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. 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) 20 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 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. 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. 21 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, 2017, our Registration Statements on Forms S-1 and S-3, 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. 22 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 48. Risks Relating to our Business Developments in the business, economic, and geopolitical environment could negatively impact our business. Our business can be adversely affected by the general environment – economic, corporate, securities market, regulatory, and geopolitical developments all play a role in our lending and investment management activity, interest rates and overall investor engagement, and are outside of our control. Among other things, deterioration in the credit markets and decreases in securities valuation or in property valuations nationally or in our primary markets could negatively impact our results of operations and capital resources. 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 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. 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 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, 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 23 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. As of December 31, 2017, we had outstanding commercial and industrial loans of $667.7 million, or 16.0% of our loans held-for-investment. 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 U.S. Our businesses and operations are, in turn, sensitive to these same general economic conditions. If the U.S. experiences a deterioration of economic conditions, or other significant volatility in 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 and the withdrawal of the United Kingdom from the European Union and concerns regarding potential hostilities with North Korea, could affect the stability of global financial markets, which could negatively affect U.S. economic conditions. Weak economic conditions are characterized by deflation, fluctuations in debt and equity capital markets, lack of liquidity and depressed prices in the secondary market for loans, increased delinquencies on loans, real estate price declines, and lower commercial activity. All of these factors are detrimental to the business and/or financial position of our customers as well as the value of the collateral supporting our loans 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, 2017, we had outstanding loans secured by non-owner-occupied commercial properties of $1.11 billion, or 26.4%, 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. 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. A sharp or prolonged decline in the value of the collateral that secures these loans could materially adversely affect the growth prospects or loan performance in this segment of our loan portfolio and, as a result, could materially adversely affect our business. As of December 31, 2017, we had outstanding marketable-securities-backed private banking loans of $2.14 billion, or 51.2% of our loans held-for-investment. A prolonged downturn in the real estate market, especially in our primary markets, could result in losses and adversely affect our profitability. A material portion of our loans are secured by 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. A general decline in real estate values, particularly in our primary market areas, 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 amount 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. 24 Our commercial 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, 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, and low energy prices have adversely impacted and may continue to adversely impact shale gas exploration and production, negatively impacting those economies. 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. A material portion of our loan portfolio is comprised of participation transaction interests, which could have an adverse effect on our ability to monitor and/or manage 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 (“SNCs”) in which other lenders serve as the agent 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 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. As of December 31, 2017, $314.4 million, or 7.5% of our loans held-for-investment, consisted of SNC loans in which we were not the lead bank. Effective January 1, 2018, the bank regulatory agencies revised the SNC definition to increase the loan size to $100 million or more and that are still shared by three or more financial institutions. Under this new definition we expect our SNC portfolio to be reduced by approximately one-third. Our loan portfolio contains large loans, and deterioration in the financial condition of the borrowers 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. 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 established a preferred lending limit that is significantly lower than our legal lending limit. 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. 25 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. 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. In addition to our competition with other banks for deposits, 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 fund new loan balances, 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. 26 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. 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 significant 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 currently attempt to manage interest rate risk is by maintaining an asset sensitive balance sheet combined with some level of 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 the London Interbank Offered Rate (“LIBOR”). A decline in 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. 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 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. The phasing out and ultimate replacement of LIBOR with an alternative reference rate and changes in the manner of calculating other reference rates may adversely impact the value of loans and other financial instruments we hold that are linked to LIBOR or other reference rates in ways that are difficult to predict and could adversely impact our financial condition or results of operations. Because of concerns raised about the accuracy of the calculation of LIBOR, it is contemplated that LIBOR will be replaced with an alternative reference rate by the end of 2021 that will be calculated in a different manner than LIBOR. Similar changes have occurred or may occur with respect to other reference rates. It is not currently possible to determine whether, or to what extent, any such changes would impact the value of any loans, derivatives and other financial obligations or extensions of credit we hold or that are due to us, that are linked to LIBOR or other reference rates, or whether, or to what extent, such changes would impact our financial condition or results of operations. 27 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. A material portion of our earnings is derived from Chartwell, our investment management business. 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 in general, 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. 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. Our investment management business may be negatively impacted by our investment performance. 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. 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 failure or negative performance of products offered by other investment management companies may adversely impact our investment management business regardless of that business’ performance. Many competitors offer similar products to those offered by Chartwell and the failure or negative performance of competitors’ products could lead to a loss of confidence in similar Chartwell products, regardless of the performance of such products. Any loss of confidence in a product type could lead to withdrawals, redemptions and liquidity issues in such products, which may cause the assets under management, revenue and earnings of our investment management business to decline. 28 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. Our ability to compete successfully will depend on a number of factors, including, among other things: • • • • • 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 banking or 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 29 insolvency, or a combination of these or other factors. 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. During the past decade there has at times been concern about the fiscal position of the U.S. federal government, as illustrated by a 2011 downgrade by certain rating agencies of the credit rating of the government. In addition to causing economic and financial market disruptions, any future downgrade of the credit rating of the United States, 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 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. 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, if circumstances differ substantially from the assumptions used in determining the policies, we may be required to adjust them, which could lead for example to loan losses that are significantly higher than the reserve provided, an increase in our accrued tax liability, or we may 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, 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 certain of our fixed-rate loan assets or certain of our variable-rate borrowings. 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 30 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 a decrease in 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 loan and account servicing, 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 or financial damages from customer businesses, 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 the 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. 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 clients, 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. 31 Our growth and expansion strategy may involve strategic investments or acquisitions, and we may not be able to overcome risks associated with such transactions. Although we plan to continue to grow our business organically, we may seek opportunities to invest in or acquire investment management businesses or other businesses that we believe would complement our existing business model. Any potential future investment or acquisition activities could be material to our business and involve a number of risks, including the following: • • • • • • 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 certain acquisitions and related integration activities that could be undertaken; 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, grow and/or acquire 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 acquisitions we have generally recognized 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 intangible assets to determine whether events and circumstances indicate 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. In addition, we provide our clients with the ability to bank remotely, including online over the Internet. The secure transmission of confidential information over the Internet is a critical element of remote banking. 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, statutory and regulatory privacy, and other requirements. It is difficult or impossible to defend against every risk being posed by changing technologies, criminals’, terrorists’ or 32 foreign governments or their agents’ intent on committing cyber-crime and who are constantly developing new threats that despite our best efforts could result in a data breach. For example, the use of schemes such as “phishing” to gain access to non-public personal information, often from customer themselves or ransomware attacks that seek to deny access to data and possibly shut down systems. In a ransomware attack, system data is encrypted or access is otherwise denied, accompanied by a demand for ransom to restore access to the data. These risks may increase in the future as we continue to increase our Internet-based product offerings and expand our internal usage of web-based products and applications. We could also experience a breach due to intentional or negligent conduct on the part of employees or other internal sources (for example, the inadvertent release of confidential or non-public personal information), software bugs or other technical malfunctions, or other causes. As a result of any of these threats, our customer accounts and the personal and financial information of our customers may become vulnerable to account takeover schemes, identity theft or cyber-fraud. In addition, our customers use their own devices, such as computer and tablets, to do business with us and may provide their information (including passwords) to a third party in connection with obtaining services from the third party. Our ability to assure safety and security is limited in these instances. 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 or the security of our third party vendors that results in unauthorized access to our data, including personal and financial information of our customers, 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 regulatory scrutiny, and reputational damage. Maintaining our security measures to seek to protect against the latest types of threats may also create risks associated with implementing new systems and integrating them with existing ones. In addition, our investment management business could be harmed by cyber incidents affecting issuers in which its customers’ assets are invested and our private banking business could be harmed by such incidents affecting the issuers of marketable securities that secure its loans. 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. Beyond breaches of our security or the security of our third party vendors, as a result of financial entities and technology systems becoming more interdependent and complex, a cyber incident, information breach or loss, or technology failure that compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. For example, security breaches such as the Equifax incident made public in September 2017 may result in our customers requesting to freeze their credit accounts, which may impact the speed at which we can open or our ability to open new accounts or generate new loans. We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. We also may incur costs as a result of data or security breaches of third parties with whom we do not have a significant direct relationship. For example, various retailers and companies processing payments on their behalf have reported that they were victims of cyberattacks in which large amounts of their customers’ data, including debit and credit card information, was obtained. In these situations we may incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers. We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition. We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with non-affiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with non-affiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information comply with all applicable laws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our clients, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under personal information laws and regulations. Concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues. Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us 33 to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our operations and financial condition. We continually encounter technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology- driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Although we are committed to keeping pace with technological advances and to invest in new technology, our competitors may, through the use of new technologies that we have not implemented, be able to offer additional or superior products to those that we will be able to provide, which would put us at a competitive disadvantage. We also may not be able to effectively implement new technology-driven products and services, be successful in marketing such products and services to our customers or replace technologies that are obsolete or out of date with new technologies. In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may cause service interruptions, transaction processing errors and system conversion delays, may cause us to fail to comply with applicable laws, and may cause us to incur additional expenses, which may be substantial. Failure to successfully keep pace with technological change affecting the financial services industry and avoid interruptions, errors and delays could have a material adverse effect on our business, financial condition or results of operations. Problems with systems and technologies of third party vendors. 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 whom 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 markets in which we operate are 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. 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, 34 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. Our risk management measures may not be successful. The management of risk is an integral part of all our activities. Managing risk effectively is fundamental to the delivery of our strategic priorities. While we are subject to a number of legal and regulatory actions and investigations, our risk management framework has been designed to provide robust controls and ongoing monitoring of our principal risks. Risks have the potential to affect the results of our operations or financial condition. Specifically, risk equates to the adverse effect on profitability or financial condition arising from different sources of uncertainty including retail and wholesale credit risk, market risk, interest rate risk, operational risk including legal, financial crime compliance, regulatory compliance, accounting, tax, fiduciary, information security, security fraud, people, systems, political contingency, projects, and operations risks, liquidity and funding risk, reputational risk, strategic risk, model risk, sustainability risk, and pension obligation risk. To manage risk, we employ a risk management framework at all levels and across all risk types. The framework fosters the continuous monitoring of the risk environment and an integrated evaluation of risks and their interactions. It also strives to ensure that we have a robust and consistent approach to risk management across all of our activities. While our risk management framework employs a broad and diversified set of risk monitoring and risk mitigation techniques, such techniques and the judgments that accompany their application cannot anticipate every unfavorable event or the specifics and timing of every outcome. Failure to manage risks appropriately could have a material adverse effect on our business, prospects, financial condition and results of operations. 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 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 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. In addition, to the safety and soundness focus, though, there are significant banking regulations relating to other aspects of our business, including borrower protection and community development. With respect to our community development obligations under the CRA, we have an approved CRA strategic plan for the years 2015 through 2017. In January 2018, the FDIC approved our updated strategic plan to cover the years 2018 through 2020. While we currently believe we will succeed in obtaining approval for our strategic plan commencing in 2021, we cannot guaranty that we will obtain such an approval, in which case we would be subject to the CRA for 35 traditional large banks, which could have material adverse effects on our business, financial of operation, financial condition and future prospects. For additional information, see “Supervision and Regulation-Community Reinvestment Act.” 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 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 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. On June 8, 2017, the U.S. House of Representatives passed the Financial Choice Act of 2017. The Act scales back or eliminates post- financial crisis banking rules, including restructuring and renaming the Consumer Financial Protection Bureau, eliminating the Department of Labor’s fiduciary rule and exempting some financial institutions that meet capital and liquidity requirements from many of Dodd- Frank’s restrictions. The next step is for the bill to be taken up by the Senate. It is not clear what the impact from any such changes would be on our business or the markets and industries in which we compete. There is no guaranty that any changes from this Act, if passed, would be positive for us, and any such changes could have a material adverse impact on our business and our prospects. 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 36 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. In the third quarter of 2016, the FDIC published the final rule to modify the FDIC deposit insurance premium assessment methodology for banks under $10 billion. Further increases in assessment rates or special assessments may occur in the future, especially if there are significant additional financial institution failures. We are subject to 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. Basel III, which began phasing in on January 1, 2015, has replaced 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. Basel III will be fully phased in by 2019. The overall net impact of applying Basel III regulatory rules to the Company and TriState Capital Bank was beneficial and resulted in 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 collateralized by liquid and marketable securities that are monitored daily. We expect that the Company and the Bank will meet all minimum capital requirements 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. We are subject to 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 37 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 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: • • • 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; 38 • • • • • • • • 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 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 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, as well as their related parties, and executive officers beneficially own a material portion of our outstanding common stock (~24%). 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. We also have issued subordinated debt which as of December 31, 2017, had an outstanding 39 balance of $35.0 million. 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 may negatively affect the market price of our common stock. We are an “emerging growth company,” and the reduced regulatory and reporting requirements applicable to emerging growth 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”). We will cease to be an emerging growth company as of December 31, 2018. As an emerging growth company we have been permitted 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. 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. 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 requires us to incur significant legal and accounting compliance costs as well as compensation expense for additional accounting, finance, legal and internal audit staff to comply with these reporting requirements. Our compliance efforts and these expenses are anticipated to increase in the future, particularly as we cease as of the end of 2018 to be an emerging growth company under the JOBS Act. These 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 have not paid dividends and are subject to regulatory restrictions on our ability to pay dividends in the foreseeable future. We have not paid any dividends on our common stock since inception. Instead, we have utilized our earnings 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. Even if we decide to pay dividends in the future (and we have not made such a decision), we would also have to comply with these regulatory restrictions. 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; 40 • require at least 60 days’ advance notice of nominations by shareholders 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 provisions effectively inhibit certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock. 41 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 bank 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 2020 to 2024, 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, 2017, the Company was not a party to any legal proceedings that 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. 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, 2018, there were approximately 145 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. 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 2017 and 2016. 2017 Fourth Quarter Third Quarter Second Quarter First Quarter 2016 Fourth Quarter Third Quarter Second Quarter First Quarter Market Price Range High Low $ $ $ $ $ $ $ $ 25.00 25.75 26.30 24.90 22.60 16.28 14.00 13.85 $ $ $ $ $ $ $ $ 21.90 20.30 22.30 19.65 15.46 13.02 11.65 10.77 42 Stock Performance Graph 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, 2017, 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. Purchases of Equity Securities by the Issuer and Affiliated Purchasers The table below sets forth information regarding the Company’s purchases of its common stock during its fiscal quarter ended December 31, 2017: October 1, 2017 - October 31, 2017 November 1, 2017 - November 30, 2017 December 1, 2017 - December 31, 2017 Total Total Number of Shares Purchased Weighted Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs* Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs* 19,700 56,685 18,700 95,085 $ $ 22.77 22.95 24.00 23.12 19,700 56,685 18,700 95,085 $ $ 1,749,901 448,782 — — * In January 2017, the Company announced that its Board of Directors had approved a share repurchase program authorizing the Company to repurchase up to $5 million of its common stock from time to time on the open market or in privately negotiated transactions. In January 2018, the Company announced that its Board of Directors had approved an additional share repurchase program of up to $5 million. Under this authorization, purchases of shares may be made at the discretion of management from time to time in the open market or through negotiated transactions. That program is not included in the approximate dollar value of shares that may yet be purchased in the above table. 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, 2017, 2016 and 2015, and the selected balance sheet data as of December 31, 2017 and 2016, 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, 2014 and 2013, and the selected balance sheet data as of December 31, 2015, 2014 and 2013, 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 Deposits Borrowings, net Other liabilities Total liabilities Total shareholders' equity Total liabilities and shareholders' equity 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 the sale and call of investment securities Other non-interest income Total non-interest income Non-interest expense: Intangible amortization expense Change in fair value of acquisition earn out Other non-interest expense Non-interest expense Income before tax Income tax expense Net income As of and for the Years Ended December 31, 2017 2016 2015 2014 2013 $ 156,153 $ 103,994 $ 96,676 $ 105,710 $ 220,552 238,473 225,411 211,893 146,558 230,180 4,184,244 3,401,054 2,841,284 2,400,052 1,860,775 (14,417) (18,762) (17,974) (20,273) (18,996) 4,169,827 3,382,292 2,823,310 2,379,779 1,841,779 65,358 166,007 67,209 138,489 50,816 105,958 52,374 96,207 — 71,992 4,777,897 $ 3,930,457 $ 3,302,171 $ 2,845,963 $ 2,290,509 3,987,611 $ 3,286,779 $ 2,689,844 $ 2,336,953 $ 1,961,705 335,913 65,302 239,510 52,361 254,308 32,042 164,106 39,514 20,000 14,859 4,388,826 3,578,650 2,976,194 2,540,573 1,996,564 389,071 351,807 325,977 305,390 293,945 4,777,897 $ 3,930,457 $ 3,302,171 $ 2,845,963 $ 2,290,509 $ $ $ $ 72,870 11,067 61,803 8,187 53,616 — 797 4,982 5,779 — — 40,815 40,815 18,580 5,713 12,867 134,295 $ 98,312 $ 83,596 $ 78,085 $ 42,942 91,353 (623) 91,976 37,100 310 9,556 46,966 1,851 — 89,621 91,472 47,470 9,482 23,499 74,813 838 73,975 37,035 77 9,396 46,508 1,753 (3,687) 80,728 78,794 41,689 13,048 15,643 67,953 13 67,940 29,618 33 5,832 35,483 1,558 — 68,485 70,043 33,380 10,892 12,251 65,834 10,159 55,675 25,062 1,428 5,059 31,549 1,299 1,614 61,414 64,327 22,897 6,969 $ 37,988 $ 28,641 $ 22,488 $ 15,928 $ 44 (Dollars in thousands, except per share data) 2017 2016 2015 2014 2013 As of and for the Years Ended December 31, Per share and share data: Earnings per common share: Basic Diluted Book value per common share Tangible book value per common share (1) Common shares outstanding, at end of period Weighted average common shares outstanding: Basic Diluted Performance ratios: Return on average assets Return on average equity Net interest margin (2) Total revenue (1) 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 Non-performing loans to total loans Allowance for loan losses to loans Net charge-offs Net charge-offs to average total loans Capital ratios: Average equity to average assets Tier 1 leverage ratio Common equity tier 1 risk-based capital ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Investment Management Segment: Assets under management Adjusted EBITDA (1) $ $ $ $ 1.38 1.32 13.61 11.32 $ $ $ $ 1.04 1.01 12.38 10.02 $ $ $ $ 0.81 0.80 11.62 9.81 $ $ $ $ 0.56 0.55 10.88 9.02 $ $ $ $ 0.49 0.48 10.25 10.25 28,591,101 28,415,654 28,056,195 28,060,888 28,690,279 27,550,833 27,593,725 27,771,345 28,628,631 24,589,811 28,711,322 28,359,152 28,237,453 29,017,906 26,743,023 0.89% 10.30% 2.25% 0.81% 8.48% 2.23% 0.74% 7.13% 2.36% 0.61% 5.25% 2.62% 0.59% 4.84% 2.92% $ 138,009 $ 121,244 $ 103,403 $ 95,955 $ 66,785 57.39% 64.94% 2.15% 3,183 6,759 3,576 $ $ $ 0.14% 0.08% 0.34% $ $ $ 61.17% 66.29% 2.23% 62.30% 65.65% 2.32% 59.93% 63.96% 2.44% 59.98% 59.84% 1.88% 17,790 21,968 4,178 $ $ $ 16,660 18,390 1,730 $ $ $ 30,232 31,602 1,370 $ $ $ 20,293 21,706 1,413 0.56% 0.52% 0.55% 0.56% 0.59% 0.63% 1.11% 1.26% 0.84% $ 3,722 $ 0.10% 8.65% 7.25% 11.14% 11.14% 11.72% 50 $ —% 2,312 $ 8,882 $ 0.09% 0.41% 9.56% 7.90% 11.49% 11.49% 12.66% 10.43% 9.05% 12.20% 12.20% 13.88% 11.53% 9.21% N/A 9.24% 11.02% 0.95% 1.09% 1.02% 93.61% 7,065 0.41% 12.23% 13.12% N/A 13.45% 14.34% $ $ 8,309,000 7,421 $ $ 8,055,000 9,873 $ $ 8,005,000 9,082 $ $ 7,714,000 6,952 $ $ — — (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 Allowance for loan losses to non-performing loans 452.94% 105.46% 107.89% 67.06% Non-GAAP Financial Measures The information set forth above contains certain financial information determined by methods other than in accordance with GAAP. These non-GAAP financial measures are “tangible common equity,” “tangible book value per common share,” “total revenue,” “efficiency ratio,” “EBITDA” and “adjusted EBITDA.” Although we believe these non-GAAP financial measures provide a greater understanding of our business, these measures are not necessarily comparable to similar measures that may be presented by other companies. “Tangible common equity” is defined as common shareholders’ equity reduced by intangible assets, including goodwill. 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 common share” is defined as book value, excluding the impact of intangible assets, including goodwill, divided by common shares outstanding. 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. “Total revenue” is defined as net interest income and non-interest income, excluding gains and losses on the sale and call of investment securities. 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 items that are unrelated to our core business. “Efficiency ratio” is defined as non-interest expense, excluding acquisition related items 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. “EBITDA” and “adjusted EBITDA” are defined as net income before interest expense, income taxes, depreciation and amortization adjusted for acquisition related items. We use adjusted EBITDA particularly to assess the strength of our investment management business. We believe this measure is important because it allows management and investors to better assess our investment management performance in relation to our core operating earnings, excluding certain non-cash items and the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business. The following tables present the financial measures calculated and presented in accordance with GAAP that are most directly comparable to the non-GAAP financial measures and a reconciliation of the differences between the GAAP financial measures and the non-GAAP financial measures. (Dollars in thousands, except per share data) 2017 2016 2015 2014 2013 December 31, Tangible book value per common share: Total shareholders' equity Less: intangible assets Tangible common equity Common shares outstanding Tangible book value per common share $ $ $ 389,071 $ 351,807 $ 325,977 $ 305,390 $ 293,945 65,358 67,209 50,816 52,374 — 323,713 $ 284,598 $ 275,161 $ 253,016 $ 293,945 28,591,101 28,415,654 28,056,195 28,060,888 28,690,279 11.32 $ 10.02 $ 9.81 $ 9.02 $ 10.25 46 (Dollars in thousands) Total revenue: Net interest income Total non-interest income Less: net gain on the sale and call of investment securities Total revenue Efficiency ratio: Total non-interest expense Plus: change in fair value of acquisition earn out Less: acquisition related items Less: intangible amortization expense Total non-interest expense, as adjusted (numerator) Total revenue (denominator) Efficiency ratio BANK SEGMENT (Dollars in thousands) Bank total revenue: Net interest income Total non-interest income Less: net gain on the sale and call of investment securities Bank total revenue Bank efficiency ratio: Total non-interest expense Less: acquisition related items Total non-interest expense, as adjusted (numerator) Total revenue (denominator) Bank efficiency ratio INVESTMENT MANAGEMENT SEGMENT (Dollars in thousands) Investment Management EBITDA: Net income Interest expense Income taxes expense Depreciation expense Intangible amortization expense EBITDA Change in fair value of acquisition earn out Acquisition related items Adjusted EBITDA Years Ended December 31, 2017 2016 2015 2014 2013 91,353 $ 74,813 $ 67,953 $ 65,834 $ 61,803 46,966 310 46,508 77 35,483 33 31,549 1,428 5,779 797 138,009 $ 121,244 $ 103,403 $ 95,955 $ 66,785 91,472 $ 78,794 $ 70,043 $ 64,327 $ 40,815 — — 1,851 89,621 138,009 3,687 352 1,753 $ $ 80,376 121,244 $ $ — 601 1,558 67,884 103,403 $ $ (1,614) 45 1,299 61,369 95,955 — 854 — $ $ 39,961 66,785 64.94% 66.29% 65.65% 63.96% 59.84% Years Ended December 31, 2017 2016 2015 2014 2013 93,380 $ 76,727 $ 69,899 $ 66,841 $ 61,611 9,864 310 9,470 77 5,873 33 6,449 1,428 5,779 797 102,934 $ 86,120 $ 75,739 $ 71,862 $ 66,593 59,073 — 59,073 102,934 $ $ $ 52,676 — 52,676 86,120 $ $ $ 47,186 — 47,186 75,739 $ $ $ 43,115 45 43,070 71,862 $ $ $ 40,795 854 39,941 66,593 57.39% 61.17% 62.30% 59.93% 59.98% $ $ $ $ $ $ $ $ $ $ Years Ended December 31, 2017 2016 2015 2014 2013 $ 4,551 $ 6,933 $ 4,368 $ 2,479 $ — 522 497 1,851 7,421 — — — 4,357 165 1,753 13,208 (3,687) 352 — 2,477 78 1,558 8,481 — 601 — 1,527 33 1,299 5,338 1,614 — $ 7,421 $ 9,873 $ 9,082 $ 6,952 $ — — — — — — — — — 47 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, 2017. 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, including cyber-security related risks; • 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, cyber-attacks, 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. 48 General We are a bank holding company that operates through two reportable segments: Bank and Investment Management. Through our TriState Capital Bank subsidiary the Bank segment provides commercial banking services to middle-market businesses and private banking services to high-net-worth individuals. The Bank segment generates most of its revenue from interest on loans and investments, loan related fees including swap fees, and liquidity and treasury management 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. Through our Chartwell Investment Partners, LLC subsidiary the Investment Management segment provides advisory and sub-advisory investment management services primarily to institutional investors, mutual funds and individual investors. It also supports marketing efforts for Chartwell’s proprietary investment products through our Chartwell TSC Securities Corp. subsidiary. The Investment Management segment generates 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 net income, earnings per share and total 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; adjusted EBITDA of the Investment Management segment; return on average assets; return on average equity; and 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”), an SEC registered investment advisor; and Chartwell TSC Securities Corp. (“CTSC Securities”), a registered 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 primarily to institutional investors, mutual funds and individual investors on a national basis. Assets under management were $8.31 billion as of December 31, 2017. Our broker/dealer subsidiary supports marketing efforts for Chartwell’s proprietary investment products that require SEC or FINRA licensing. 2017 Compared to 2016 Operating Performance For the year ended December 31, 2017, our net income was $38.0 million compared to $28.6 million for the same period in 2016, an increase of $9.3 million, or 32.6%. This increase was primarily due to the net impact of (1) a $16.5 million, or 22.1%, increase in our net interest income due largely to our continued loan growth; (2) a decrease in provision for loan losses of $1.5 million; (3) an increase of $458,000 in non-interest income largely related to higher swap revenue; and (4) a $3.6 million decrease in income taxes largely due to the enactment of the Tax Cuts and Jobs Act in December 2017; partially offset by (5) an increase of $12.7 million in our non-interest expense largely due to a full year of expenses related to the TKG acquisition as well as higher compensation and FDIC insurance expenses; Our diluted EPS was $1.32 for the year ended December 31, 2017, compared to $1.01 for the same period in 2016. The increase is a result of an increase of $9.3 million, or 32.6%, in our net income in 2017 which included a $2.4 million, or $0.08 per diluted share, one- time tax adjustment as a result of the enactment of the Tax Cuts and Jobs Act in December 2017. For the year ended December 31, 2017, total revenue increased $16.8 million, or 13.8%, to $138.0 million from $121.2 million for the same period in 2016, driven by higher net interest income and swap fees. Our net interest margin was 2.25% for the year ended December 31, 2017, as compared to 2.23% for the same period in 2016. The increase in net interest margin for the year ended December 31, 2017, was driven by an increase in the yield on loans offset by an increase in the cost of funds. For the year ended December 31, 2017, the Bank’s efficiency ratio was 57.39%, as compared to 61.17% for the same period in 2016, primarily as a result of higher total revenue partially offset by higher compensation and FDIC insurance expenses for the Bank during the year ended December 31, 2017. Our non-interest expense to average assets for the year ended December 31, 2017, was 2.15%, compared to 2.23% for the same period in 2016. 49 Our return on average assets was 0.89% for the year ended December 31, 2017, as compared to 0.81% for the same period in 2016. Our return on average equity was 10.30% for the year ended December 31, 2017, as compared to 8.48% for the same period in 2016. The increase in these ratios is due to continued growth in earnings. Total assets of $4.78 billion as of December 31, 2017, increased $847.4 million, or 21.6%, from December 31, 2016. Loans held-for- investment grew by $783.2 million to $4.18 billion as of December 31, 2017, an increase of 23.0% from December 31, 2016, as a result of growth in both our commercial and private banking loan portfolios. Total deposits increased $700.8 million, or 21.3%, to $3.99 billion as of December 31, 2017, from $3.29 billion, as of December 31, 2016. Adverse-rated credits to total loans declined to 0.71% at December 31, 2017, from 1.25% at December 31, 2016. The allowance for loan losses to loans decreased to 0.34% as of December 31, 2017, from 0.55% as of December 31, 2016. The trend of our allowance for loan losses reflects the change in composition of our loan portfolio over recent years with a continued 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 $1.23, or 9.9%, to $13.61 as of December 31, 2017, from $12.38 as of December 31, 2016, largely as a result of an increase in our net income, partially offset by the issuance of restricted stock and the purchase of treasury shares during year ended December 31, 2017. 2016 Compared to 2015 Operating Performance For the year ended December 31, 2016, our net income was $28.6 million compared to $22.5 million for the same period in 2015, an increase of $6.2 million, or 27.4%. This increase was primarily due to the net impact of (1) a $6.9 million, or 10.1%, increase in our net interest income due largely to our continued loan growth; and (2) an increase of $11.0 million in non-interest income largely related to higher investment management fees due to the TKG acquisition and higher swap revenue; partially offset by (3) an increase in provision for loan losses of $825,000; (4) an increase of $8.8 million in our non-interest expense largely related to the TKG acquisition as well as higher compensation and FDIC insurance expenses; and (5) a $2.2 million increase in income taxes due to higher pre-tax income. Our diluted EPS was $1.01 for the year ended December 31, 2016, compared to $0.80 for the same period in 2015. The increase is a result of an increase of $6.2 million, or 27.4%, in our net income. For the year ended December 31, 2016, total revenue increased $17.8 million, or 17.3%, to $121.2 million from $103.4 million for the same period in 2015, driven by higher net interest income for the Bank, higher investment management fees and higher swap fees. Our net interest margin was 2.23% for the year ended December 31, 2016, as compared to 2.36% for the same period in 2015. The most significant factor driving net interest margin compression was our shift toward lower-risk assets, notably the marketable-securities-backed private banking margin loan portfolio, as well as an increase in the cost of funds. For the year ended December 31, 2016, the Bank’s efficiency ratio was 61.17%, as compared to 62.30% for the same period in 2015, primarily as a result of higher total revenue partially offset by higher compensation and FDIC insurance expenses for the Bank during the year ended December 31, 2016. Our non-interest expense to average assets for the year ended December 31, 2016, was 2.23%, compared to 2.32% for the same period in 2015. Our return on average assets was 0.81% for the year ended December 31, 2016, as compared to 0.74% for the same period in 2015. Our return on average equity was 8.48% for the year ended December 31, 2016, as compared to 7.13% for the same period in 2015. The increase in these ratios is due to growth in earnings from both the banking and investment management segments. Total assets of $3.93 billion as of December 31, 2016, increased $628.3 million, or 19.0%, from December 31, 2015. Loans held-for- investment grew by $559.8 million to $3.40 billion as of December 31, 2016, an increase of 19.7% from December 31, 2015, as a result of growth in our commercial and private banking loan portfolios. Total deposits increased $596.9 million, or 22.2%, to $3.29 billion as of December 31, 2016, from $2.69 billion, as of December 31, 2015. Adverse-rated credits to total loans declined to 1.25% at December 31, 2016, from 1.92% at December 31, 2015. The allowance for loan losses to loans decreased to 0.55% as of December 31, 2016, from 0.63% as of December 31, 2015. The trend of our allowance for loan losses reflects the change in composition of our loan portfolio over recent years 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 $0.76, or 6.5%, to $12.38 as of December 31, 2016, from $11.62 as of December 31, 2015, largely as a result of an increase in our net income, partially offset by the issuance of restricted stock and the cancellation of stock options during year ended December 31, 2016. 50 Results of Operations Net Interest Income Net interest income represents the difference between the interest received 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 interest rates paid. Maintaining consistent spreads between earning assets and interest-bearing liabilities is significant to our financial performance because net interest income comprised 66.2%, 61.7% and 65.7% of total revenue for the years ended December 31, 2017, 2016 and 2015, 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, 2017 2016 2015 $ $ 134,295 $ 98,312 $ 241 134,536 42,942 264 98,576 23,499 91,594 $ 75,077 $ 3.30% 1.18% 2.12% 2.25% 2.92% 0.79% 2.13% 2.23% 83,596 260 83,856 15,643 68,213 2.90% 0.62% 2.28% 2.36% 51 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, 2017, 2016 and 2015. Non-accrual loans are included in the calculation of the average loan balances, while interest payments collected on non-accrual loans are 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, 2017 2016 2015 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 $ 126,888 $ 1,466 1.16% $ 110,455 $ 6,923 68 0.98% 6,116 595 22 0.54% $ 102,240 $ 0.36% 6,168 363 6 0.36% 0.10% Federal funds sold Investment securities available-for-sale Investment securities held- to-maturity Investment securities trading FHLB stock Total loans Total interest-earning assets 153,274 3,388 2.21% 180,460 3,234 1.79% 164,701 2,201 1.34% 58,635 2,463 4.20% 48,357 1,958 4.05% 42,117 1,651 3.92% 188 13,286 4 603 3,711,701 126,544 2.13% 4.54% 3.41% — 10,363 — 494 3,014,645 92,273 —% 4.77% 3.06% 41 5,796 1 389 2,570,200 79,245 2.44% 6.71% 3.08% 4,070,895 134,536 3.30% 3,370,396 98,576 2.92% 2,891,263 83,856 2.90% Other assets Total assets 193,532 $ 4,264,427 161,054 $ 3,531,450 132,506 $ 3,023,769 Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-bearing checking accounts Money market deposit accounts Certificates of deposit Borrowings: $ 336,337 $ 3,706 1.10% $ 171,431 $ 813 0.47% $ 107,292 $ 439 0.41% 1,999,399 967,503 22,350 11,429 1.12% 1.18% 1,676,455 874,615 11,376 7,618 0.68% 0.87% 1,367,584 898,336 5,687 6,762 0.42% 0.75% FHLB borrowings 295,315 3,152 1.07% 228,934 1,477 0.65% 120,425 540 0.45% Line of credit borrowings Subordinated notes payable, net 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) 2,214 90 4.07% — — —% — — —% 34,605 2,215 6.40% 34,402 2,215 6.44% 34,199 2,215 6.48% 3,635,373 42,942 1.18% 2,985,837 23,499 0.79% 2,527,836 15,643 0.62% 210,860 49,279 368,915 170,573 37,441 337,599 149,567 30,917 315,449 $ 4,264,427 $ 3,531,450 $ 3,023,769 $ 91,594 $ 75,077 $ 68,213 2.12% 2.25% 2.13% 2.23% 2.28% 2.36% (1) Interest income and net interest margin are calculated on a fully taxable equivalent basis. Net Interest Income for the Years Ended December 31, 2017 and 2016. Net interest income, calculated on a fully taxable equivalent basis, increased $16.5 million, or 22.0%, to $91.6 million for the year ended December 31, 2017, from $75.1 million for the same period in 2016. The increase in net interest income for the year ended December 31, 2017, was primarily attributable to a $700.5 million, or 52 20.8%, increase in average interest-earning assets driven primarily by loan growth. The increase in net interest income reflects an increase of $36.0 million, or 36.5%, in interest income, partially offset by an increase of $19.4 million, or 82.7%, in interest expense. Net interest margin increased to 2.25% for the year ended December 31, 2017, as compared to 2.23% for the same period in 2016, driven primarily by a higher yield on the loan portfolio, partially offset by higher interest expense associated with the higher volumes and costs of deposits and FHLB borrowings. The increase in interest income on interest-earning assets was primarily the result of an increase in average total loans of $697.1 million, or 23.1%, which is our primary earning asset and the Bank’s core business, and an increase of 35 basis points in yield on our loans. The most significant factors driving the yield on our loan portfolio was the effect of the Federal Reserve’s increases in the target federal funds rate on our floating-rate loans, partially offset by the shift toward lower-risk marketable-securities-backed private banking loans. The overall yield on interest-earning assets increased 38 basis points to 3.30% for the year ended December 31, 2017, as compared to 2.92% for the same period in 2016, primarily from higher loan yields. The increase in interest expense on interest-bearing liabilities was primarily the result of an increase of 39 basis points in the average rate paid on our average interest-bearing liabilities, as well as an increase of $649.5 million, or 21.8%, in average interest-bearing liabilities for the year ended December 31, 2017, compared to the same period in 2016. The increase in average rate paid was reflective of increases in rates paid in all interest-bearing deposit categories and FHLB borrowings driven largely by the effect of the Federal Reserve’s increases in the target federal funds rate. The increase in average interest-bearing liabilities was driven primarily by an increase of $322.9 million in average money market deposit accounts, an increase of $164.9 million in average interest-bearing checking accounts, an increase of $92.9 million in average certificates of deposit and an increase of $66.4 million in average FHLB borrowings. Net Interest Income for the Years Ended December 31, 2016 and 2015. Net interest income, calculated on a fully taxable equivalent basis, increased $6.9 million, or 10.1%, to $75.1 million for the year ended December 31, 2016, from $68.2 million for the same period in 2015. The increase in net interest income for the year ended December 31, 2016, was primarily attributable to a $479.1 million, or 16.6%, increase in average interest-earning assets driven largely by loan growth. The increase in net interest income reflects an increase of $14.7 million, or 17.6%, in interest income, partially offset by an increase of $7.9 million, or 50.2%, in interest expense. Net interest margin decreased to 2.23% for the year ended December 31, 2016, as compared to 2.36% for the same period in 2015, driven primarily by an overall lower yield on the loan portfolio and higher interest expense associated with the higher deposit volumes and associated costs of deposits as well as increased FHLB borrowings. The increase in interest income was primarily the result of an increase in average total loans of $444.4 million, or 17.3%, which is our primary earning asset and the Bank’s core business, as well as higher average balances and yields on investment securities, partially offset by a decrease of two basis points in yield on our loans. The most significant factors driving the yield on our loan portfolio has been our shift toward lower-risk marketable-securities-backed private banking loans, which was partially offset by the effect on our floating-rate loans due to the Federal Reserve’s increase in the target federal funds rate in December 2015. The overall yield on interest-earning assets increased two basis points to 2.92% for the year ended December 31, 2016, as compared to 2.90% for the same period in 2015. Interest expense on interest-bearing liabilities of $23.5 million, for the year ended December 31, 2016, increased $7.9 million, or 50.2%, from the same period in 2015 as a result of an increase of $458.0 million, or 18.1%, in average interest-bearing liabilities for the year ended December 31, 2016, coupled with an increase of 17 basis points in the average rate paid on our average interest-bearing liabilities compared to the same period in 2015. 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 $308.9 million, or 22.6%, in average money market deposit accounts and an increase of $108.5 million in average FHLB borrowings. 53 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. (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 FHLB stock Total loans Total increase in interest income Interest expense: Interest-bearing deposits: Interest-bearing checking accounts Money market deposit accounts Certificates of deposit Borrowings: FHLB borrowings Line of credit borrowings Subordinated notes payable, net Total increase in interest expense Years Ended December 31, 2017 over 2016 Yield/Rate Volume Change(1) $ 771 $ 100 $ 43 688 80 — (23) 11,509 13,068 1,679 8,471 2,943 1,163 — (9) 14,247 3 (534) 425 4 132 22,762 22,892 1,214 2,503 868 512 90 9 5,196 871 46 154 505 4 109 34,271 35,960 2,893 10,974 3,811 1,675 90 — 19,443 Total increase (decrease) in net interest income (1) The change in interest income and expense due to changes in both composition and applicable yields/rates has been allocated to volume and rate (1,179) $ 17,696 16,517 $ $ changes in proportion to the relationship of the absolute dollar amounts of the change in each. 54 (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 FHLB stock Total loans Total increase in interest income Interest expense: Interest-bearing deposits: Interest-bearing checking accounts Money market deposit accounts Certificates of deposit Borrowings: FHLB borrowings Subordinated notes payable, net Total increase in interest expense Years Ended December 31, 2016 over 2015 Yield/Rate Volume Change(1) $ 201 $ 16 805 52 — (138) (788) 148 77 4,183 1,036 305 (16) 5,585 $ 31 — 228 255 (1) 243 13,816 14,572 297 1,506 (180) 632 16 2,271 232 16 1,033 307 (1) 105 13,028 14,720 374 5,689 856 937 — 7,856 Total increase (decrease) in net interest income (1) The change in interest income and expense due to changes in both composition and applicable yields/rates has been allocated to volume and rate (5,437) $ 12,301 6,864 $ $ changes in proportion to the relationship of the absolute dollar amounts of the change in each. Provision for Loan Losses The provision for loan losses represents our determination of the amount necessary to be recorded 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.” We recorded a credit to provision for loan losses of $623,000 for the year ended December 31, 2017, compared to provision for loan losses of $838,000 and $13,000 for the years ended December 31, 2016 and 2015, respectively. The credit to provision for loan losses for the year ended December 31, 2017, was comprised of a net decrease of $130,000 in specific reserves on non-performing loans and recoveries of $580,000, partially offset by a net increase of $87,000 in general reserves. The provision for loan losses for the year ended December 31, 2016, was comprised of a net increase of $6.9 million in specific reserves primarily on three commercial and industrial non-performing loans, of which $4.3 million was charged-off, partially offset by recoveries of $4.2 million and an overall improvement in adverse-rated credits. The provision for loan losses 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. Non-Interest Income Non-interest income is an important component of our revenue and it is comprised primarily of investment management fees from Chartwell coupled with fees generated from loan and deposit relationships from our Bank customers, including swap transactions. The information provided under the caption “Parent and Other” represents general operating activity of the Company not considered to be a reportable segment, which includes the parent company activity as well as eliminations and adjustments that are necessary for purposes of reconciliation to the consolidated amounts. 55 The following table presents the components of our non-interest income by operating segment for the years ended December 31, 2017 and 2016: Year Ended December 31, 2017 Year Ended December 31, 2016 Investment Parent Investment Parent (Dollars in thousands) Bank Management and Other Consolidated Bank Management and Other Consolidated Investment management fees $ — $ 37,309 $ (209) $ 37,100 $ — $ 37,258 $ (223) $ 37,035 Service charges Net gain on the sale and call of investment securities Swap fees Commitment and other fees Unrealized net gain on swaps Bank owned life insurance income Other income 399 310 5,353 1,462 195 1,778 367 — — — — — — 2 — — — — — — — 399 504 310 5,353 1,462 195 1,778 369 77 4,384 2,029 570 1,796 110 — — — — — — 3 — — — — — — — 504 77 4,384 2,029 570 1,796 113 Total non-interest income $ 9,864 $ 37,311 $ (209) $ 46,966 $ 9,470 $ 37,261 $ (223) $ 46,508 Non-Interest Income for the Years Ended December 31, 2017 and 2016. Our non-interest income was $47.0 million for the year ended December 31, 2017, an increase of $458,000, or 1.0%, from $46.5 million for 2016, primarily related to increases in swap fees partially offset by the decreases in commitment and other fees. Bank Segment: • Swap fees increased $969,000 for the year ended December 31, 2017, compared to 2016, driven by increases 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 and term loan originations. • Commitment and other fees were $567,000 lower for the year ended December 31, 2017, compared to 2016, driven largely by lower letter of credit fee income. Investment Management Segment: • Investment management fees increased $51,000 for the year ended December 31, 2017, as compared to 2016, driven primarily by the additional four months of revenue provided by the operations of The Killen Group, Inc. (“TKG”), which was acquired at the end of April 2016, partially offset by the loss of a sub-advisory relationship in December 2016. For additional information on assets under management, refer to Item 1, Business - Investment Management Products. The following table presents the components of our non-interest income by operating segment for the years ended December 31, 2016 and 2015: Year Ended December 31, 2016 Year Ended December 31, 2015 Investment Parent Investment Parent (Dollars in thousands) Bank Management and Other Consolidated Bank Management and Other Consolidated Investment management fees $ — $ 37,258 $ (223) $ 37,035 $ — $ 29,814 $ (196) $ 29,618 Service charges Net gain on the sale and call of investment securities Swap fees Commitment and other fees Unrealized net gain (loss) on swaps Bank owned life insurance income Other income 504 77 4,384 2,029 570 1,796 110 — — — — — — 3 — — — — — — — 504 647 77 4,384 2,029 33 1,551 2,022 570 (161) 1,796 113 1,696 85 — — — — — — (8) — — — — — — — 647 33 1,551 2,022 (161) 1,696 77 Total non-interest income $ 9,470 $ 37,261 $ (223) $ 46,508 $ 5,873 $ 29,806 $ (196) $ 35,483 56 Non-Interest Income for the Years Ended December 31, 2016 and 2015. Our non-interest income was $46.5 million for the year ended December 31, 2016, an increase of $11.0 million, or 31.1%, from $35.5 million for 2015, primarily related to increases in investment management fees, swap fees and unrealized net gain on swaps. Bank Segment: • Swap fees increased $2.8 million for the year ended December 31, 2016, compared to 2015, driven by increases in customer demand for long-term interest rate protection. • The unrealized net gain on swaps was $731,000 higher for the year ended December 31, 2016, compared to 2015, driven by fluctuations in interest rates. Investment Management Segment: • Investment management fees increased $7.4 million for the year ended December 31, 2016, as compared to 2015, driven primarily by the additional eight months of revenue provided by the operations of TKG, which was acquired at the end of April 2016. Assets under management of $8.06 billion as of December 31, 2016, increased $50.0 million from December 31, 2015, primarily due to the TKG acquisition offset by the previously disclosed conclusion of a sub-advisory relationship announced in the fourth quarter of 2016. 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 information provided under the caption “Parent and Other” represents general operating activity of the Company not considered to be a reportable segment, which includes the parent company activity as well as eliminations and adjustments that are necessary for purposes of reconciliation to the consolidated amounts. The following table presents the components of our non-interest expense by operating segment for the years ended December 31, 2017 and 2016: Year Ended December 31, 2017 Year Ended December 31, 2016 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 Change in fair value of acquisition earn out Other operating expenses (1) Total non-interest expense Full-time equivalent employees (2) $ 36,415 $ 25,334 $ (2,433) $ 59,316 $ 32,247 $ 22,275 $ — $ 54,522 3,850 3,199 4,238 738 1,546 2,212 582 1,027 — — 5,266 1,171 903 — 309 — (11) (229) — — — 1,160 (254) — 30 1,851 — 1,480 — — — — 3,088 5,010 3,873 4,238 1,047 1,546 3,118 582 1,057 1,851 — 9,834 3,859 2,928 3,058 745 1,394 2,233 1,153 957 — — 4,102 1,006 1,060 — 292 — 829 — 39 1,753 (3,687) 2,404 — (138) — — — — — — — — 285 $ 59,073 $ 32,238 $ 161 $ 91,472 $ 52,676 $ 25,971 $ 147 $ 167 63 — 230 156 68 — 4,865 3,850 3,058 1,037 1,394 3,062 1,153 996 1,753 (3,687) 6,791 78,794 224 (1) Other operating expenses largely include items such as organizational dues and subscriptions, sub-advisory fees, telephone, marketing, 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, 2017 and 2016. Our non-interest expense for the year ended December 31, 2017, increased $12.7 million, or 16.1%, as compared to 2016, of which $6.4 million relates to the increase in expenses of the Bank 57 segment and $6.3 million relates to the increase in expenses of the Investment Management segment. The significant changes in each segment’s expenses are described below. Bank Segment: • Compensation and employee benefits of the Bank segment for the year ended December 31, 2017, increased by $4.2 million, compared to 2016, primarily due to an increase in the number of full-time equivalent employees, increases in the overall annual wage and benefits costs of our existing employees, and increases in incentive and stock-based compensation expenses. • FDIC insurance expense for the year ended December 31, 2017, increased by $1.2 million, compared to 2016, due to a change in the FDIC assessment methodology effective in the third quarter of 2016, and the increase in the Bank’s assets. • Other operating expenses for the year ended December 31, 2017, increased by $1.2 million compared to 2016, primarily related to $590,000 of one-time higher marketing expenses largely related to the Company’s 10-year anniversary customer appreciation celebrations, $244,000 of higher costs related to information services associated with our private banking loans, and $229,000 of higher company meeting expenses. Investment Management Segment: • There was a decrease to the fair value of the TKG acquisition earn out of $3.7 million for the year ended December 31, 2016, based on management’s final determination of the annualized run-rate EBITDA of TKG at December 31, 2016. For additional information, refer to Note 2, Business Combinations, to our consolidated financial statements. • Excluding the earnout adjustment, Chartwell’s non-interest expenses for the year ended December 31, 2017, increased by $2.6 million, compared to the same period in 2016, primarily due to four months of additional expenses contributed by the operations of TKG, which was acquired at the end of April 2016. The following table presents the components of our non-interest expense by operating segment for the years ended December 31, 2016 and 2015: Year Ended December 31, 2016 Year Ended December 31, 2015 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 Change in fair value of acquisition earn out Other operating expenses (1) Total non-interest expense Full-time equivalent employees (2) $ 32,247 $ 22,275 $ — $ 54,522 $ 29,237 $ 16,899 $ — $ 46,136 3,859 2,928 3,058 745 1,394 2,233 1,153 957 — — 4,102 1,006 1,060 — 292 — 829 — 39 1,753 (3,687) 2,404 — (138) — — — — — — — — 285 4,865 3,850 3,058 1,037 1,394 3,062 1,153 996 1,753 (3,687) 6,791 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 $ 52,676 $ 25,971 $ 147 $ 78,794 $ 47,186 $ 22,961 $ (104) $ 156 68 — 224 139 53 — 4,549 3,739 1,988 1,066 1,081 2,761 1,073 1,021 1,558 — 5,071 70,043 192 (1) Other operating expenses largely include items such as organizational dues and subscriptions, sub-advisory fees, telephone, marketing, 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, 2016 and 2015. Our non-interest expense for the year ended December 31, 2016, increased $8.8 million, or 12.5%, as compared to 2015, of which $5.5 million relates to the increase in expenses of the Bank segment and $3.0 million relates to the increase in expenses of the Investment Management segment. The significant changes in each segment’s expenses are described below. 58 Bank Segment: • Compensation and employee benefits of the Bank segment for the year ended December 31, 2016, increased by $3.0 million, compared to 2015, primarily due to an increase in the number of full-time equivalent employees, increases in the overall annual wage and benefits costs of our existing employees, and increases in incentive and stock-based compensation expenses. • FDIC insurance expense for the year ended December 31, 2016, increased by $1.1 million, compared to 2015, due to the increase in assets and to the change in the FDIC assessment methodology effective in the third quarter of 2016. • Other operating expenses for the year ended December 31, 2016, increased by $844,000 compared to 2015, primarily related to $223,000 of higher marketing expenses, $341,000 of higher costs related to servicing our private banking margin loans, and $113,000 of higher provision for unfunded commitments. Investment Management Segment: • There was a decrease to the fair value of the TKG acquisition earn out of $3.7 million for the year ended December 31, 2016, based on management’s final determination of the annualized run-rate EBITDA of TKG at December 31, 2016. For additional information, refer to Note 2, Business Combinations, to our consolidated financial statements. • Excluding the earn out adjustment, Chartwell’s non-interest expenses for the year ended December 31, 2016, increased by $6.7 million, compared to the same period in 2015, primarily due to $4.9 million of eight months of additional expenses contributed by the operations of TKG, which was acquired at the end of April 2016. In addition, Chartwell’s compensation expenses were higher by $1.7 million for the year ended December 31, 2016, primarily due to 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 expense. 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, 2017 and 2016. For the year ended December 31, 2017, we recognized income tax expense of $9.5 million, or 20.0% of income before tax, as compared to income tax expense of $13.0 million, or 31.3% of income before tax, for the same period in 2016. In December 2017, H.R.1 (“Tax Cuts and Jobs Act”) was signed into law which lowers the maximum corporate tax rate from 35% to 21%. Due to this enactment, income tax provision for the year ended December 31, 2017, was impacted by a $2.4 million one-time benefit on the re-measurement of the Company’s deferred tax liability. The adjustment was largely related to the acceleration of an incentive compensation deduction for tax purposes and favorable depreciation treatment associated with renewable energy credits. Income Taxes for the Years Ended December 31, 2016 and 2015. For the year ended December 31, 2016, we recognized income tax expense of $13.0 million, or 31.3% of income before tax, as compared to income tax expense of $10.9 million, or 32.6% of income before tax, for the same period in 2015. Our effective tax rate of 31.3% for the year ended December 31, 2016, decreased as compared to the prior year due to a higher level of tax credits recognized in 2016 versus 2015. Financial Condition Our total assets as of December 31, 2017, totaled $4.78 billion, an increase of $847.4 million, or 21.6%, from December 31, 2016, which was primarily driven by growth in our loan portfolio. Our loan portfolio increased $783.2 million, or 23.0%, to $4.18 billion, as of December 31, 2017, from $3.40 billion, as of December 31, 2016. Total investment securities decreased $17.9 million, or 7.5%, to $220.6 million, as of December 31, 2017, from $238.5 million, as of December 31, 2016, as a result of the net activity of calls, sales, maturities and purchases of certain securities. Cash and cash equivalents increased $52.2 million, to $156.2 million, as of December 31, 2017, from $104.0 million, as of December 31, 2016. As of December 31, 2017, our total deposits of $3.99 billion increased $700.8 million, or 21.3%, from December 31, 2016, to fund loan growth. Net borrowings increased $96.4 million, or 40.3%, to $335.9 million as of December 31, 2017, compared to $239.5 million as of December 31, 2016. Our shareholders’ equity increased $37.3 million to $389.1 million as of December 31, 2017, compared to $351.8 million as of December 31, 2016. This increase was primarily the result of $38.0 59 million in net income, the impact of $5.9 million in stock-based compensation and $1.7 million in stock option exercises, partially offset the purchase of $8.7 million in treasury stock. Our total assets as of December 31, 2016, totaled $3.93 billion, an increase of $628.3 million, or 19.0%, from December 31, 2015, which was primarily driven by growth in our loan portfolio. Our loan portfolio increased $559.8 million, or 19.7%, to $3.40 billion, as of December 31, 2016, from $2.84 billion, as of December 31, 2015. Total investment securities increased $13.1 million, or 5.8%, to $238.5 million, as of December 31, 2016, from $225.4 million, as of December 31, 2015, as a result of the net activity of purchases, sales and repayments of certain securities. Cash and cash equivalents increased $7.3 million, to $104.0 million, as of December 31, 2016, from $96.7 million, as of December 31, 2015. As of December 31, 2016, our total deposits of $3.29 billion increased $596.9 million, or 22.2%, from December 31, 2015, to fund loan growth. Net borrowings decreased $14.8 million, or 5.8%, to $239.5 million as of December 31, 2016, compared to $254.3 million as of December 31, 2015. Our shareholders’ equity increased $25.8 million to $351.8 million as of December 31, 2016, compared to $326.0 million as of December 31, 2015. This increase was primarily the result of $28.6 million in net income, the impact of $3.6 million in stock-based compensation, $2.7 million in stock option exercises and an increase of $2.3 million in other comprehensive income (loss), partially offset by the cancellation of stock options of $6.2 million and the purchase of $5.1 million in treasury stock. Loans The Bank’s primary source of income 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. The loan portfolio represents our largest earning asset. As of December 31, 2017, 90.9% of our loans had a floating rate. 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 2017 2016 2015 2014 2013 $ 2,265,737 $ 1,735,928 $ 1,344,864 $ 989,302 $ 569,346 December 31, 667,684 1,250,823 1,918,507 587,423 1,077,703 1,665,126 634,232 862,188 677,493 733,257 739,041 552,388 1,496,420 1,410,750 1,291,429 $ 4,184,244 $ 3,401,054 $ 2,841,284 $ 2,400,052 $ 1,860,775 Loans held-for-investment. Loans held-for-investment increased by $783.2 million, or 23.0%, to $4.18 billion as of December 31, 2017, as compared to December 31, 2016. Our growth for the year ended December 31, 2017, was comprised of an increase in private banking loans of $529.8 million, or 30.5%; an increase in commercial real estate loans of $173.1 million, or 16.1%; and an increase in commercial and industrial loans of $80.3 million, or 13.7%. Loans held-for-investment increased by $559.8 million, or 19.7%, to $3.40 billion as of December 31, 2016, as compared to December 31, 2015. Our growth for the year ended December 31, 2016, was comprised of an increase in private banking loans of $391.1 million, or 29.1%; an increase in commercial real estate loans of $215.5 million, or 25.0%; and a decrease in commercial and industrial loans of $46.8 million, or 7.4%. Primary Loan Categories Private Banking Loans. Our private banking loans include personal and commercial loans that are sourced through our private banking channel, including referral relationships with financial intermediaries, 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, 2017, private banking loans were approximately $2.27 billion, or 54.1% of loans held-for-investment, of which $2.14 billion, or 94.6%, were secured by cash and marketable securities. As of December 31, 2016, private banking loans were approximately $1.74 billion, or 51.0% of loans held-for-investment, of which $1.58 billion, or 91.3%, were secured by cash and marketable securities. Our private banking lines of credit are typically due on demand. The growth in loans secured by cash and marketable securities is expected to increase as a result of our focus on this portion of our private banking business as we believe we have strong competitive advantages in this line of business. These loans tend to have a lower risk profile and are an efficient use of capital because they typically are zero percent risk-weighted for regulatory capital purposes. On a daily basis, we monitor the collateral of these loans secured by cash 60 and marketable securities which further reduces the risk profile of the private banking portfolio. Since inception, we have had no charge- offs related to our loans secured by cash and marketable securities. Loans sourced through our private banking channel also include loans that are classified for regulatory purposes as commercial, most 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, 2017 2016 2015 $ $ 2,142,384 $ 1,584,373 $ 1,180,717 93,169 30,184 110,476 41,079 134,785 29,362 2,265,737 $ 1,735,928 $ 1,344,864 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 purposes of financing production, operating capacity, accounts receivable, inventory, equipment, 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. As of December 31, 2017, our commercial and industrial loans comprised $667.7 million, or 16.0% of loans held-for-investment, compared to $587.4 million, or 17.3%, as of December 31, 2016. 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, industrial, multifamily, retail, hospitality, healthcare and self-storage. 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. Individual project cash flows, global cash flows and liquidity from the developer, or the sale of the property are the primary sources of repayment for commercial real estate loans secured by investment properties. The primary source of repayment for commercial real estate loans secured by owner-occupied properties is cash flow from the borrower’s operations. Commercial real estate loans as of December 31, 2017, totaled $1.25 billion, or 29.9% of loans held-for-investment, as compared to $1.08 billion, or 31.7%, as of December 31, 2016. As of December 31, 2017, $1.07 billion of total commercial real estate loans had a floating interest rate and $178.1 million had a fixed interest rate, as compared to $901.5 million and $176.2 million, respectively, as of December 31, 2016. 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 December 31, 2017 One Year or Less (1) One to Five Years Greater Than Five Years Total $ 2,131,012 $ 70,701 $ 64,024 $ 2,265,737 120,492 272,128 414,287 505,505 132,905 473,190 667,684 1,250,823 2,523,632 $ 990,493 $ 670,119 $ 4,184,244 117,131 $ 128,552 $ 135,411 $ 381,094 2,406,501 861,941 534,708 3,803,150 $ $ Loans held-for-investment (1) The loans outstanding reflected in the One Year or Less category in the table above include $2.09 billion of loans that are due on demand with no 2,523,632 $ 990,493 $ 670,119 $ 4,184,244 $ stated maturity. 61 Large Credit Relationships We originate and maintain large credit relationships with numerous customers in the ordinary course of our business. We have established a preferred limit on loans that is significantly lower than our legal lending limit of approximately $52.3 million as of December 31, 2017. Our present preferred 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 based on the strength of the underlying credit and sponsor, type and composition of the credit exposure, collateral support, structure of the credit facilities as well as the presence of other potential positive credit factors. Additionally, we review this along with other aspects of our credit policy which can change from time to time. As of December 31, 2017, our average commercial loan size was approximately $3.6 million and average private banking loan size was approximately $500,000. The following table summarizes the aggregate committed and outstanding balances of our larger credit relationships as of December 31, 2017 and December 31, 2016. (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, 2017 December 31, 2016 Number of Relationships Commitment (based on availability) Outstanding Balance Number of Relationships Commitment (based on availability) Outstanding Balance 3 6 13 38 $ $ $ $ 92,564 $ 141,739 $ 237,189 $ 476,370 $ 49,090 102,330 166,483 375,529 1 7 7 31 $ $ $ $ 25,827 $ 158,158 $ 122,316 $ 383,853 $ 10,317 130,745 103,492 285,167 Approximately $478.5 million and $367.5 million of commitments to large credit relationships were fully secured by cash and marketable securities as of December 31, 2017 and December 31, 2016, 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 December 31, 2017, approximately 90.9% of our loans had a floating rate. Interest Reserve Loans As of December 31, 2017, loans with interest reserves totaled $205.1 million, which represented 4.9% of loans held-for-investment, as compared to $159.4 million, or 4.7%, as of December 31, 2016, largely attributable to 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 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 recorded in the consolidated statements of 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 two components of the allowance for loan losses are general reserves, in which estimates are based upon homogeneous loan pools such as commercial loans, consumer lines of credit and residential mortgages that are not individually evaluated for impairment; and specific reserves, which are applied to commercial and consumer loans that are individually evaluated for impairment. 62 In management’s opinion, a loan is impaired, based upon current information and events, 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 Troubled Debt Restructuring (“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 of general reserves 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. We base the computation of the allowance for loan losses of general reserves 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: private banking, commercial and industrial, and commercial real estate. 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 that 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 quarterly. 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 2017 2016 2015 2014 2013 $ $ 11,910 2,507 14,417 $ $ 0.34% 11,823 6,939 18,762 $ $ 0.55% 13,429 4,545 17,974 $ $ 0.63% 14,690 5,583 20,273 $ $ 0.84% 13,524 5,472 18,996 1.02% December 31, As of December 31, 2017, we had specific reserves totaling $2.5 million related to impaired loans with an aggregated total outstanding balance of $3.2 million. As of December 31, 2016, we had specific reserves totaling $6.9 million related to impaired loans with an aggregated total outstanding balance of $17.8 million. All loans with specific reserves were on non-accrual status as of December 31, 2017 and December 31, 2016. The following tables summarize allowance for loan losses and the percentage of loans by loan category, as of the dates indicated: 2017 2016 December 31, 2015 2014 2013 (Dollars in thousands) Reserve Percent of Loans Percent of Loans Reserve Percent of Loans Percent of Loans Reserve Reserve Reserve Private banking $ 1,577 54.1% $ 1,424 51.0% $ 1,566 47.3% $ 2,017 41.2% $ 2,011 8,043 4,797 16.0% 29.9% 12,326 5,012 17.3% 31.7% 11,064 5,344 22.4% 30.3% 13,501 4,755 28.2% 30.6% 11,881 5,104 Percent of Loans 30.6% 39.7% 29.7% Commercial and industrial Commercial real estate Total allowance for loan losses $ 14,417 100.0% $ 18,762 100.0% $ 17,974 100.0% $ 20,273 100.0% $ 18,996 100.0% Allowance for Loan Losses as of December 31, 2017 and 2016. Our allowance for loan losses was $14.4 million, or 0.34% of loans, as of December 31, 2017, as compared to $18.8 million, or 0.55% of loans, as of December 31, 2016, which reflects the change in complexion of our loan portfolio over the past year with a higher percentage of the portfolio in private banking loans secured by marketable securities and also a decline in our adverse-rated credits. Our allowance for loan losses related to private banking loans increased $153,000, to $1.6 million as of December 31, 2017, as compared to $1.4 million as of December 31, 2016, which was attributable to growth in this portfolio partially offset by lower specific reserves related to paydowns on non-performing loans. Our allowance for loan losses related 63 to commercial and industrial loans decreased $4.3 million, to $8.0 million as of December 31, 2017, as compared to $12.3 million as of December 31, 2016, which was largely attributable to charge-offs. Our allowance for loan losses related to commercial real estate loans decreased $215,000, to $4.8 million as of December 31, 2017, as compared to $5.0 million as of December 31, 2016, primarily due to the overall strong credit quality of this portfolio partially offset by loan growth. Allowance for Loan Losses as of December 31, 2016 and 2015. Our allowance for loan losses was $18.8 million, or 0.55% of loans, as of December 31, 2016, as compared to $18.0 million, or 0.63% of loans, as of December 31, 2015, which reflects the change in complexion of our loan portfolio over the past year with a higher percentage of the portfolio in private banking loans secured by marketable securities and also a decline in our adverse-rated credits. Our allowance for loan losses related to private banking loans decreased $142,000, to $1.4 million as of December 31, 2016, as compared to $1.6 million as of December 31, 2015, which was attributable to lower specific reserves related to paydowns on non-performing loans, offset by growth in this portfolio. Our allowance for loan losses related to commercial and industrial loans increased $1.3 million, to $12.3 million as of December 31, 2016, as compared to $11.1 million as of December 31, 2015, which was attributable to a net increase of specific reserves of $2.6 million on non-performing loans, partially offset by overall decreases in the commercial and industrial loan balances, in particular lower adverse-rated credits. Our allowance for loan losses related to commercial real estate loans decreased $332,000, to $5.0 million as of December 31, 2016, as compared to $5.3 million as of December 31, 2015, primarily due to the overall strong credit quality of this portfolio, partially offset by loan growth. Charge-Offs / Recoveries 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 charge-offs, recoveries and provision for loan losses for the years indicated: (Dollars in thousands) Beginning balance Charge-offs: Private banking Commercial and industrial Commercial real estate Total charge-offs Recoveries: Private banking Commercial and industrial Commercial real estate Total recoveries Net charge-offs Provision (credit) for loan losses Ending balance Years Ended December 31, 2017 2016 2015 2014 2013 $ 18,762 $ 17,974 $ 20,273 $ 18,996 $ 17,874 — (4,302) — (4,302) — 575 5 580 (3,722) (623) — (4,258) — (4,258) — 797 3,411 4,208 (50) 838 — (3,353) — (3,353) 13 1,028 — 1,041 (2,312) 13 — (9,521) — (9,521) 94 545 — 639 (8,882) 10,159 $ 14,417 $ 18,762 $ 17,974 $ 20,273 $ (13) (5,508) (1,936) (7,457) — 114 278 392 (7,065) 8,187 18,996 0.41% 0.47% Net loan charge-offs to average total loans Provision (credit) for loan losses to average total loans 0.10 % (0.02)% —% 0.03% 0.09% —% 0.41% 0.47% Non-Performing Assets Non-performing assets consist of non-performing loans and other real estate owned (“OREO”). Non-performing loans are 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 record OREO at fair value, less estimated costs to sell the assets. 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 64 December 31, 2017, 2016 and 2015, and there was no interest income recognized on these loans, while on non-accrual, for the years ended December 31, 2017, 2016 and 2015. As of December 31, 2017, non-performing loans were $3.2 million, or 0.08% of total loans, compared to $17.8 million, or 0.52%, and $16.7 million, or 0.59%, as of December 31, 2016 and 2015, respectively. We had specific reserves of $2.5 million, $6.9 million and $4.5 million as of December 31, 2017, 2016 and 2015, respectively, on these non-performing loans. The net loan balance of our non-performing loans was 18.4%, 40.5% and 38.0% of the customer’s outstanding balance after payments, charge-offs and specific reserves as of December 31, 2017, 2016 and 2015, respectively. For additional information on our non-performing loans as of December 31, 2017, 2016 and 2015, refer to Note 6, 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/or 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 $6.8 million, or 0.14% of total assets, as of December 31, 2017, as compared to $22.0 million, or 0.56% of total assets, as of December 31, 2016. The decrease in non-performing assets was the result of $15.2 million in reductions to non- performing loans including a loan which was restructured and returned to performing status as well as charge-offs, paydowns and sales of OREO in 2017. This decrease was considered within the assessment of the determination of the allowance for loan losses. As of December 31, 2017, we had OREO properties totaling $3.6 million. During the year ended December 31, 2017, a property was sold from OREO for $597,000. We had non-performing assets of $22.0 million, or 0.56% of total assets, as of December 31, 2016, as compared to $18.4 million, or 0.56% of total assets, as of December 31, 2015. The increase in non-performing assets was the result of $11.8 million in additions and $8.2 million in reductions to non-performing assets in 2016. This increase was considered within the assessment of the determination of the allowance for loan losses. As of December 31, 2016, we had OREO properties totaling $4.2 million. The following table summarizes our non-performing assets as of the dates indicated: (Dollars in thousands) Non-performing loans: Private banking Commercial and industrial Commercial real estate Total non-performing loans Other real estate owned Total non-performing assets Non-performing troubled debt restructured loans 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 Potential Problem Loans 2017 2016 2015 2014 2013 December 31, $ $ $ $ 368 $ 517 $ 1,948 $ 2,069 $ 2,815 — 3,183 3,576 6,759 3,183 3,371 $ $ $ 0.08% 452.94% 0.14% 17,273 — 17,790 4,178 21,968 17,273 471 0.52% 105.46% 0.56% $ $ $ 11,800 2,912 16,660 1,730 18,390 12,894 510 0.59% 107.89% 0.56% $ $ $ 24,665 3,498 30,232 1,370 31,602 14,107 528 1.26% 67.06% 1.11% $ $ $ 1,119 15,676 3,498 20,293 1,413 21,706 13,021 527 1.09% 93.61% 0.95% 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 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. 65 For additional information on the age analysis of past due loans segregated by class of loan for December 31, 2017 and 2016, refer to Note 6, 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. On a daily basis, we monitor the collateral of loans secured by cash and marketable securities within the private banking portfolio, which further reduces the risk profile of that portfolio. Loan risk ratings are assigned based upon the creditworthiness of the borrower and the quality of the collateral for loans secured by marketable securities. 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 that are risk rated as special mention, substandard and doubtful, which are believed to have an increasing risk of loss. Our internal risk ratings are consistent with regulatory guidance. We also monitor the loan portfolio through a formal periodic review process. All non-pass rated loans are reviewed monthly and higher risk-rated loans within the pass category are reviewed three times a year. For additional information on the definitions of our internal risk rating and the recorded investment in loans by credit quality indicator for December 31, 2017 and 2016, refer to Note 6, 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. Also included in our investment securities is Federal Home Loan Bank Stock. For additional information on FHLB stock, refer to Note 4, Federal Home Loan Bank Stock, to our consolidated financial statements. 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 statements 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. 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, 2017 and December 31, 2016, 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. Securities, like loans, are subject to interest rate risk 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. 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 for debt securities 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, as well as certain equity securities. Our held-to-maturity portfolio consists of certain municipal bonds, agency obligations and corporate bonds while our trading portfolio, when active, typically 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, 2017, was approximately 1.5, 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. 66 Available-for-Sale Investment Securities. We held $147.5 million and $174.9 million in investment securities available-for-sale as of December 31, 2017 and December 31, 2016, respectively. The decrease of $27.4 million was primarily attributable to repayments, including calls and maturities, of $55.6 million and sales of $2.5 million, net of the purchases of $30.5 million of certain securities during the year ended December 31, 2017. On a fair value basis, 49.1% of our available-for-sale investment securities as of December 31, 2017, were floating-rate securities for which yields increase or decrease based on changes in market interest rates. As of December 31, 2016, floating-rate securities comprised 67.0% of our available-for-sale investment securities. On a fair value basis, 39.2% of our available-for-sale investment securities as of December 31, 2017, 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 collateralized loan obligations, and certain equity securities. As of December 31, 2016, agency securities comprised 41.6% of our available-for-sale investment securities. Held-to-Maturity Investment Securities. We held $59.3 million and $53.9 million in investment securities held-to-maturity as of December 31, 2017 and December 31, 2016, respectively. The increase of $5.3 million was primarily attributable to purchases of $8.5 million, net of a call of $3.0 million during the year ended December 31, 2017. 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, 2017. Trading Investment Securities. We held no trading investment securities as of December 31, 2017 and December 31, 2016. 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, 2017, there was a purchase and subsequent sale of a U.S. Treasury security of $9.8 million. During the year ended December 31, 2015, there was a purchase and subsequent sale of a U.S. Treasury security of $5.0 million. 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: (Dollars in thousands) Investment securities available-for-sale: Corporate bonds Trust preferred securities Non-agency collateralized loan obligations Agency collateralized mortgage obligations Agency mortgage-backed securities Equity securities December 31, 2017 Gross Unrealized Appreciation Gross Unrealized Depreciation Amortized Cost Estimated Fair Value $ 61,616 $ 17,840 811 38,873 19,007 8,910 216 $ 741 — 25 96 — 143 $ — 6 76 150 275 650 33 — 11 44 61,689 18,581 805 38,822 18,953 8,635 147,485 32,941 1,987 25,213 60,141 Total investment securities available-for-sale 147,057 1,078 Investment securities held-to-maturity: Corporate bonds Agency debentures Municipal bonds Total investment securities held-to-maturity 32,189 1,984 25,102 59,275 785 3 122 910 Total $ 206,332 $ 1,988 $ 694 $ 207,626 67 (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 Municipal bonds Total investment securities held-to-maturity December 31, 2016 Gross Unrealized Appreciation Gross Unrealized Depreciation Amortized Cost Estimated Fair Value $ 53,902 $ 17,711 5,750 16,234 44,051 24,107 4,760 8,643 175,158 28,693 25,247 53,940 164 $ 159 14 — 49 240 23 — 649 596 88 684 21 $ 72 — 54 279 198 — 291 915 30 96 126 54,045 17,798 5,764 16,180 43,821 24,149 4,783 8,352 174,892 29,259 25,239 54,498 Total $ 229,098 $ 1,333 $ 1,041 $ 229,390 (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 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 — — — 92 270 13 — 978 13 132 265 187 — 599 43,733 16,601 5,743 11,711 49,371 28,669 4,732 7,759 Total investment securities available-for-sale $ 170,337 $ 393 $ 2,411 $ 168,319 Investment securities held-to-maturity: Corporate bonds Agency debentures Municipal bonds Total investment securities held-to-maturity 19,448 2,453 25,389 47,290 498 19 377 894 84 — 1 85 19,862 2,472 25,765 48,099 Total $ 217,627 $ 1,287 $ 2,496 $ 216,418 The change in the fair values of our municipal bonds, agency debentures, agency collateralized mortgage obligations and agency mortgage- backed securities are primarily the result of interest rate fluctuations. To assess for credit impairment, 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 most recent 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 debt 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 temporarily impaired. 68 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, 2017. Contractual maturities may differ from expected maturities because issuers and/or borrowers may have the right to call or prepay obligations with or without penalties, which would also impact the corresponding yield. Less Than One Year One to Five Years Five to 10 Years Greater Than 10 Years Total December 31, 2017 (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Investment securities available- for-sale: Corporate bonds $ 10,058 1.95% $ 31,559 2.32% $ 20,072 5.00% $ — —% $ 61,689 —% 9,475 3.19% 9,106 3.46% 18,581 3.13% 3.32% Trust preferred securities Non-agency collateralized loan obligation Agency collateralized mortgage obligations Agency mortgage-backed securities Total debt securities available- for-sale — — — — —% —% —% —% — — —% 863 1.59% — —% — — — —% 805 3.79% 805 3.79% —% 37,959 1.72% 38,822 1.72% —% 18,953 1.88% 18,953 1.88% 10,058 32,422 29,547 66,823 138,850 Weighted average yield 1.95% 2.30% 4.43% 2.02% 2.59% Investment securities held-to- maturity: Corporate bonds Agency debentures Municipal bonds Total debt securities held-to- maturity Weighted average yield 5,144 6.38% — —% — — —% —% 27,797 1,987 1,002 1.97% 12,911 2.50% 10,380 5.33% 2.83% 2.83% — — —% —% 920 3.55% 6,146 12,911 40,164 920 5.64% 2.50% 4.55% 3.55% 32,941 1,987 25,213 60,141 Total debt securities $ 16,204 $ 45,333 $ 69,711 $ 67,743 $ 198,991 Weighted average yield 3.33% 2.36% 4.50% 2.04% 5.49% 2.83% 2.65% 4.20% 3.07% The table above excludes equity securities because they have an indefinite life. 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. We have focused on creating and growing diversified, stable, and low all-in cost deposit channels without operating through a traditional branch network. Our client market primarily consists of high- net-worth individuals; family offices; trust companies; wealth management firms; businesses and their executives; municipalities; endowments and foundations; broker/dealers; futures commission merchants; and other financial institutions. We build deposit relationships through both our commercial bank and our private bank channels. We compete for deposits by offering superior liquidity and treasury management products and services to our customers. We focus on providing our clients and prospects within our key markets with superior service, sophisticated yet customizable solutions, simple and competitive fee structures for our service offerings and an easier client experience. We believe that our deposit base is stable and diversified. We further believe we have the ability to attract new deposits, which is the primary source of funding our projected loan growth. As of December 31, 2017, we consider approximately 89% of our total deposits to be relationship-based deposits. Some of our relationship- based deposits, including reciprocal certificates of deposit placed through CDARS® service and reciprocal demand deposits placed through ICS®, have been classified for some regulatory purposes as brokered deposits, while for other regulatory purposes they are not classified as brokered deposits. As of December 31, 2017, the Bank had CDARS® and ICS® reciprocal deposits totaling $627.5 million and other brokered deposits of $440.8 million. We continue to utilize other brokered deposits as a tool for us to manage our cost of funds and to efficiently match changes in our liquidity needs based on our loan growth with our deposit balances and origination activity. For additional information on our deposits, refer to Note 9, Deposits, to our consolidated financial statements. 69 The table below depicts average balances of and rates paid on our deposit portfolio broken out by deposit type, for the years ended December 31, 2017, 2016 and 2015. (Dollars in thousands) Years Ended December 31, 2017 2016 2015 Average Amount Average Rate Paid Average Amount Average Rate Paid Average Amount Average Rate Paid Interest-bearing checking accounts $ 336,337 1.10% $ 171,431 0.47% $ 107,292 Money market deposit accounts Certificates of deposit Total average interest-bearing deposits Noninterest-bearing deposits Total average deposits 1,999,399 967,503 3,303,239 210,860 1.12% 1.18% 1.13% — 1,676,455 874,615 2,722,501 170,573 0.68% 0.87% 0.73% — 1,367,584 898,336 2,373,212 149,567 $ 3,514,099 1.07% $ 2,893,074 0.68% $ 2,522,779 0.41% 0.42% 0.75% 0.54% — 0.51% Average Deposits for the Years Ended December 31, 2017 and 2016. For the year ended December 31, 2017, our average total deposits were $3.51 billion, representing an increase of $621.0 million, or 21.5%, from the same period in 2016. The deposit growth was driven by increases in all deposit categories. Our average cost of interest-bearing deposits increased 40 basis points to 1.13% for the year ended December 31, 2017, from 0.73% for the same period in 2016, as average rates paid were higher in all interest-bearing deposit categories. Average money market deposits decreased to 60.5% of total average interest-bearing deposits, for the year ended December 31, 2017, from 61.6% for the same period in 2016. Average certificates of deposit decreased to 29.3% of total average interest-bearing deposits for the year ended December 31, 2017, compared to 32.1% for the same period in 2016. Average interest-bearing checking accounts increased to 10.2% of total average interest-bearing deposits for the year ended December 31, 2017, compared to 6.3% for the same period in 2016. Average noninterest-bearing deposits increased $40.3 million, or 23.6%, for the year ended December 31, 2017, from 2016, and the average cost of total deposits increased 39 basis points to 1.07% for the year ended December 31, 2017, from 0.68% for the year ended December 31, 2016. Average Deposits for the Years Ended December 31, 2016 and 2015. For the year ended December 31, 2016, our average total deposits were $2.89 billion, representing an increase of $370.3 million, or 14.7%, from the same period in 2015. The deposit growth was driven by increases in noninterest and interest-bearing checking accounts and money market deposit accounts, partially offset by a decrease in certificates of deposit. Our average cost of interest-bearing deposits of 0.73%, for the year ended December 31, 2016, increased from 0.54%, for the same period in 2015, as average rates paid were higher in all interest-bearing deposit categories. Average money market deposits increased to 61.6% of total average interest-bearing deposits, for the year ended December 31, 2016, from 57.6% for the same period in 2015. Average certificates of deposit decreased to 32.1% of total average interest-bearing deposits for the year ended December 31, 2016, compared to 37.9% for the same period in 2015. Average noninterest-bearing deposits increased $21.0 million, or 14.0% for the year ended December 31, 2016, from 2015, and the average cost of total deposits increased 17 basis points to 0.68% for the year ended December 31, 2016, from 0.51% for the year ended December 31, 2015. Certificates of Deposit Maturities of certificates of deposit 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 Borrowings December 31, 2017 $ $ 417,886 211,567 119,596 117,476 866,525 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, 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. 70 The following table presents certain information with respect to our outstanding borrowings, as of the following dates. (Dollars in thousands) Amount Rate December 31, 2017 Maximum Balance at Any Month End Average Balance During Year Original Term Amount Rate December 31, 2016 Maximum Balance at Any Month End Average Balance During Year Original Term $ 195,000 1.57% $ 370,000 $ 195,315 1-4 days $105,000 0.77% $ 260,000 $ 142,664 1-4 days Daily FHLB borrowings Term FHLB borrowings: Issued 7/29/2015 Issued 7/29/2015 Issued 6/29/2016 Issued 9/29/2016 Issued 12/29/2016 Issued 3/29/2017 Issued 6/29/2017 Issued 9/29/2017 Line of credit borrowings Subordinated notes payable Total borrowings outstanding — —% — —% — —% — —% — 0.85% — 1.07% — 1.32% — 1.33% — — — — 100,000 100,000 100,000 100,000 100,000 — — — — — 0.61% — 0.72% — 0.66% — 0.58% 23,836 3 months 100,000 0.85% 25,205 3 months 25,205 3 months 24,932 3 months 822 3 months — —% — —% — —% — —% 6,200 4.56% 6,200 2,214 12 months — —% 25,000 25,000 100,000 100,000 100,000 14,754 12 months 20,970 15 months 24,863 3 months 24,863 3 months 820 3 months — — — — — — — — — — 35,000 5.75% 35,000 35,000 5 years 35,000 5.75% 35,000 35,000 5 years $ 336,200 2.09% $ 911,200 $ 332,529 $240,000 1.53% $ 645,000 $ 263,934 Issued 12/29/2017 100,000 1.66% (Dollars in thousands) Amount Rate December 31, 2015 Maximum Balance at Any Month End Average Balance During Year Original Term Daily FHLB borrowings Term FHLB borrowings: 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 Total borrowings outstanding $ 170,000 0.51% $ 170,000 $ 62,137 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 6,576 12 months 10,822 14 months 17,123 17 months 2,397 9 months 10,685 12 months 10,685 15 months 35,000 5.75% 35,000 35,000 5 years $ 255,000 1.26% $ 355,000 $ 155,425 In June 2016, the Company entered into a three-year cash flow hedge derivative transaction to establish the interest rate paid on $100.0 million of the FHLB borrowings at an effective rate of 0.83% plus the difference between the 3-month FHLB advance rate and 3-month LIBOR. For additional information on the cash flow hedge, refer to Note 17, Derivatives and Hedging Activity, to our consolidated financial statements. Liquidity We evaluate liquidity both at the holding company level and at the Bank level. As of December 31, 2017, 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, availability on our line of credit, and the net proceeds from the issuance of our debt or equity securities. As of December 31, 2017, our primary liquidity needs at the parent company level were the semi-annual interest 71 payments on the subordinated notes payable, interest payments on other borrowings and our share repurchase programs. All other liquidity needs were minimal and related solely to reimbursing the Bank for management, accounting and financial reporting services provided by bank personnel. During the year ended December 31, 2017, the parent company paid $8.7 million related to share repurchase programs and $2.1 million related to interest payments on subordinated notes and other borrowings. During the year ended December 31, 2016, the parent company paid $2.0 million related to interest payments on subordinated notes, $11.3 million related to share repurchase programs, and $15.0 million related to the TKG 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, 2017. In addition, the holding company maintains an unsecured line of credit of $25.0 million with Texas Capital Bank, of which $18.8 million was available as of December 31, 2017. 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 the 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. Our principal sources of asset liquidity are cash, interest-earning deposits with other banks, federal funds sold, unpledged securities available-for-sale, loan repayments (scheduled and unscheduled), and future 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 reciprocal CDARS® and ICS® deposits and other brokered deposits, 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 certificates of deposit, 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 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 due to our ability to generate strong growth in deposits, which is evidenced by our ratio of total deposits to total assets of 83.5%, 83.6% and 81.5% as of December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had available liquidity of $770.5 million, or 16.1% of total assets. These sources consisted of liquid assets (cash and cash equivalents, and unpledged investment securities available-for-sale), totaling $234.6 million, or 4.9% of total assets, coupled with secondary sources of liquidity (the ability to borrow from the FHLB and correspondent bank lines) totaling $535.9 million, or 11.2% 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, 2017 2016 2015 $ $ 91,060 $ 64,816 $ 143,499 535,907 169,830 509,906 770,466 $ 744,552 $ 63,401 161,951 299,057 524,409 For the year ended December 31, 2017, we generated $38.2 million in cash from operating activities, compared to $30.1 million for the same period in 2016. This change in cash flow was primarily the result of an increase in net income of $9.3 million for the year ended December 31, 2017, offset by changes in working capital items largely related to timing. Investing activities resulted in a net cash outflow of $776.1 million, for the year ended December 31, 2017, as compared to a net cash outflow of $596.1 million for the same period in 2016. The outflows for the year ended December 31, 2017, were primarily due to the net loan growth of $793.8 million, $38.9 million for the purchase of investment securities, partially offset by proceeds from the sale of 72 investment securities available-for-sale totaling $2.5 million and principal repayments and maturities of investments securities of $58.6 million. The outflows for the year ended December 31, 2016, were primarily due to $564.6 million in net loan growth, the purchase of investment securities of $36.7 million, and $14.1 million for the TKG acquisition net of cash, partially offset by proceeds from the sale of investment securities available-for-sale totaling $4.7 million and principal repayments and maturities of investments securities of $19.8 million. Financing activities resulted in a net inflow of $790.0 million for the year ended December 31, 2017, compared to a net inflow of $573.3 million for the same period in 2016, primarily as a result of the net growth in deposits of $700.8 million and an increase of $90.0 million in FHLB advances, partially offset by payments of $8.7 million for share repurchase programs for the year ended December 31, 2017, compared to net growth of $596.9 million in deposits, partially offset by a decrease in FHLB advances of $15.0 million and payment of $11.3 million for share repurchase programs for the year ended December 31, 2016. 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. The Company filed a registration statement on Form S-3 with the SEC on December 15, 2017, which allows us to raise capital to finance our growth objectives. 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 $389.1 million as of December 31, 2017, compared to $351.8 million as of December 31, 2016. The $37.3 million increase during the year ended December 31, 2017, was attributable to net income of $38.0 million, the impact of $5.9 million in stock-based compensation, $1.7 million in stock options exercised and an increase of $416,000 in accumulated other comprehensive income (loss), partially offset by the purchase of $8.7 million in treasury stock. Shareholders’ equity increased to $351.8 million as of December 31, 2016, compared to $326.0 million as of December 31, 2015. The $25.8 million increase during the year ended December 31, 2016, was attributable to net income of $28.6 million, the impact of $3.6 million in stock-based compensation, $2.7 million in stock options exercised and an increase of $2.3 million in accumulated other comprehensive income (loss), partially offset by the purchase of $5.1 million in treasury stock and $6.2 million in cancellation of stock options. Regulatory Capital. As of December 31, 2017 and 2016, 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 will 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. Basel III, which began phasing in on January 1, 2015, has replaced the 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 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 risk-based capital ratios 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 will 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). As of December 31, 2017 and December 31, 2016, the capital conservation buffer was 1.25% and 0.625%, respectively, in addition to the minimum capital adequacy levels in the tables below. Thus, both the Company and the Bank were above the levels required to avoid limitations on capital distributions and discretionary bonus payments. 73 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 (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, 2017 For Capital Adequacy Purposes To be Well Capitalized Under Prompt Corrective Action Provisions Actual Amount Ratio Amount Ratio Amount Ratio 343,758 348,378 326,594 337,656 326,594 337,656 326,594 337,656 11.72% $ 234,576 8.00% N/A 11.99% $ 232,392 8.00% $ 290,490 N/A 10.00% 11.14% $ 175,932 6.00% N/A 11.62% $ 174,294 6.00% $ 232,392 11.14% $ 131,949 4.50% N/A 11.62% $ 130,720 4.50% $ 188,818 7.25% $ 180,090 4.00% N/A 7.55% $ 178,979 4.00% $ 223,723 N/A 8.00% N/A 6.50% N/A 5.00% December 31, 2016 For Capital Adequacy Purposes To be Well Capitalized Under Prompt Corrective Action Provisions Actual Amount Ratio Amount Ratio Amount Ratio 325,122 314,419 295,089 298,093 295,089 298,093 295,089 298,093 12.66% $ 205,488 8.00% N/A 12.39% $ 203,030 8.00% $ 253,787 N/A 10.00% 11.49% $ 154,116 6.00% N/A 11.75% $ 152,272 6.00% $ 203,030 11.49% $ 115,587 4.50% N/A 11.75% $ 114,204 4.50% $ 164,962 7.90% $ 149,369 4.00% N/A 8.04% $ 148,252 4.00% $ 185,316 N/A 8.00% N/A 6.50% N/A 5.00% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 74 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) Transaction deposits Certificates of deposit Borrowings outstanding Interest payments on certificates of deposit and borrowings Operating leases Commitments for tax credit investments Commitments for small business investment companies December 31, 2017 One Year or Less One to Three Years Three to Five Years Greater Than Five Years Total $ 2,925,219 $ 68,003 $ — $ — $ 2,993,222 874,733 301,200 10,504 2,563 6,263 2,595 119,656 35,000 3,542 5,010 12,228 — — — — 2,287 423 — — — — 907 56 — 994,389 336,200 14,046 10,767 18,970 2,595 Total contractual obligations $ 4,123,077 $ 243,439 $ 2,710 $ 963 $ 4,370,189 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. Loan 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 cash and marketable securities or residential properties, commitments to fund loans secured by commercial real estate, construction loans, business lines of credit and other unused commitments of loans in various stages of funding. Standby letters of credit are written conditional commitments issued by us to guarantee the performance of our customer to a third party. In the event our 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. 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 commitments, based on the availability of eligible collateral or other terms under the loan agreement, by contractual maturities as of the date indicated. (Dollars in thousands) Unused loan commitments Standby letters of credit December 31, 2017 One Year or Less (1) One to Three Years Three to Five Years Greater Than Five Years Total $ 2,010,780 $ 177,796 $ 38,731 $ 72,699 $ 2,300,006 42,373 23,725 3,332 5,405 74,835 Total off-balance sheet arrangements 2,053,153 $ (1) The off-balance sheet amounts reflected in the One Year or Less category in the table above include $1.81 billion in unused loan commitments and 201,521 $ 2,374,841 42,063 $ 78,104 $ $ $3.0 million in standby letters of credit that are due on demand with no stated maturity. 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 that 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. 75 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 may prepay their loans when rates fall, while certain depositors may 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. 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, 2017 December 31, 2016 Amount Change from Base Case Percent Change from Base Case ALCO Guidelines Amount Change from Base Case Percent Change from Base Case $ $ $ $ $ $ $ $ 24,558 16,380 8,166 (8,928) (971) 43 55 (391) 23.27 % 15.52 % 7.74 % (8.46)% (0.25)% 0.01 % 0.01 % (0.10)% -20.00% $ -15.00% $ -10.00% $ -10.00% $ +/-30.00% $ +/-20.00% $ +/-10.00% $ +/-10.00% $ 25,570 16,986 8,431 (3,836) 6,027 4,201 2,095 (11,980) 30.48 % 20.25 % 10.05 % (4.57)% 1.82 % 1.27 % 0.63 % (3.61)% Given the current interest rate environment, we will continue to manage an asset sensitive interest rate risk position when it comes to net interest income. Given the longer term nature of the economic value of equity and with interest rates moving up, we will begin to manage a more neutral interest rate risk position when it comes to economic value of equity. 76 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. 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 December 31, 2017 $ 140,975 $ Federal funds sold 14,798 — $ — — $ — — $ — — — — $ — $ — $ 140,975 91,267 3,891,694 — 2,998 33,047 — 28,900 61,792 — 60,296 122,922 — 20,692 58,149 — 16,160 22,655 — $ 4,138,734 $ 36,045 $ 90,692 $ 183,218 $ 78,841 $ 38,815 $ 211,552 $ 4,777,897 — 239 14,798 220,552 (6,015) 4,184,244 217,328 217,328 Transaction deposits $ 2,450,971 $ 87,000 $ 139,156 $ 68,003 $ — $ — $ 248,092 $ 2,993,222 Certificates of deposit Borrowings, net Other liabilities 504,172 201,200 — 247,379 123,182 — — — — 119,656 135,000 — Total liabilities 3,156,343 334,379 262,338 322,659 — — — — — — — — — — — — — — — (287) 65,302 313,107 389,071 994,389 335,913 65,302 4,388,826 389,071 3,156,343 $ 334,379 $ 262,338 $ 322,659 $ — $ — $ 702,178 $ 4,777,897 982,391 $ (298,334) $ (171,646) $ (139,441) $ 78,841 $ 38,815 $ (490,626) 982,391 $ 684,057 $ 512,411 $ 372,970 $ 451,811 $ 490,626 131.1% 119.6% 113.7% 109.2% 111.1% 112.0% 108.9% 20.6% 14.3% 10.7% 7.8% 9.5% 10.3% (Dollars in thousands) Assets: Interest-earning deposits Total investment securities Total loans Other assets Total assets Liabilities: $ $ $ 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 The cumulative twelve-month ratio of interest rate sensitive assets to interest rate sensitive liabilities decreased to 113.7% as of December 31, 2017, as compared to 120.5% as of December 31, 2016. In June 2016, the Company entered into a cash flow hedge derivative transaction to fix the interest rate on $100.0 million of the Company’s borrowings for a period of three years. This transaction has the effect on our gap analysis of moving $100.0 million of borrowings from the less than 90 day re-pricing category to the one to three years re-pricing category. For additional information on the cash flow hedge, refer to Note 17, Derivatives and Hedging Activity, to our consolidated financial statements. 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 re-pricing 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. 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 77 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 unrealized gains and losses reported as a component of accumulated other comprehensive income (loss), on an after-tax basis. The cost of securities sold is determined on a specific identification basis. Amortization of premiums and accretion of discounts are recorded as interest income on investments over the estimated 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 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. For equity securities an OTTI charge is recorded through current period earnings for the full decline in fair value below cost. Allowance for Loan Losses. The allowance for loan losses is established through provisions for loan losses that are recorded in the consolidated statements of income. Loans are charged off 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. In management’s judgment, the allowance was appropriate to cover probable losses inherent in the loan portfolio as of December 31, 2017 and 2016. 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 78 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 two components of the allowance for loan losses represent estimates of general reserves based upon Accounting Standards Codification (“ASC”) Topic 450, Contingencies; and specific reserves based on ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as commercial loans, consumer lines of credit and residential mortgages that are not individually evaluated for impairment. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment. In management’s opinion, a loan is impaired, based upon current information and events, 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 of general reserves 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, the results of internal loan reviews, etc. Finally, management considers the impact of changes in current local and regional economic conditions in the markets that we serve. Management bases the computation of the allowance for loan losses of general reserves 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: private banking, commercial and industrial, and commercial real estate. 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 that 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. Goodwill is not amortized and is subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill annually and again at any quarter-end if a material event occurs during the quarter that may affect goodwill. If goodwill testing is required, an assessment of qualitative factors can be completed before performing the two step goodwill impairment test. If an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then the two step goodwill impairment test is not required. Goodwill is evaluated for potential impairment by determining if the fair value has fallen below carrying value. Other intangible assets represent purchased assets that may lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. The Company has determined that certain of its acquired mutual fund client relationships meet the criteria to be considered indefinite-lived assets because the Company expects both the renewal of these contracts and the cash flows generated by these assets to continue indefinitely. Accordingly, the Company does not amortize these intangible assets, but instead reviews these assets annually or more frequently whenever events or circumstances occur indicating that the recorded indefinite-lived assets may be impaired. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company would assess whether the carrying value of these assets exceeds its fair value, an impairment loss would be recorded in an amount equal to any such excess and these assets would be reclassified to finite-lived. Other intangible assets that the Company has determined to have finite lives, such as trade name, client lists and non-compete agreements are amortized over their estimated useful lives. These finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from four to twenty-five years. Finite-lived intangibles are evaluated for impairment on an annual basis or more frequently whenever events or circumstances occur indicating that the carrying amount may not be recoverable. 79 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. The Company considers uncertain tax positions that it has taken or expects to take on a tax return. Any interest and penalties related to unrecognized tax benefits would be recognized 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. 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.” 80 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 82 83 84 85 86 87 89 132 81 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors TriState Capital Holdings, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of TriState Capital Holdings, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Basis for Opinion 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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2007. Pittsburgh, Pennsylvania February 23, 2018 82 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: $147,057 and $175,158, respectively) Investment securities held-to-maturity, at cost (fair value: $60,141 and $54,498, respectively) Federal Home Loan Bank stock Total investment securities Loans held-for-investment Allowance for loan losses Loans held-for-investment, net Accrued interest receivable Investment management fees receivable, net 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, net Accrued interest payable on deposits and borrowings Deferred tax liability, net Other accrued expenses and other liabilities Total liabilities Shareholders’ Equity: December 31, 2017 December 31, 2016 $ 380 $ 140,975 14,798 156,153 147,485 59,275 13,792 220,552 4,184,244 (14,417) 4,169,827 13,519 7,720 65,358 4,885 66,593 — 73,290 183 96,244 7,567 103,994 174,892 53,940 9,641 238,473 3,401,054 (18,762) 3,382,292 9,614 7,749 67,209 5,471 64,815 7,204 43,636 $ $ 4,777,897 $ 3,930,457 3,987,611 $ 335,913 2,499 4,152 58,651 3,286,779 239,510 1,867 — 50,494 4,388,826 3,578,650 Preferred stock, no par value; Shares authorized - 150,000, Shares issued - none — — Common stock, no par value; Shares authorized - 45,000,000; Shares issued - 30,342,471 and 29,790,383, respectively; Shares outstanding - 28,591,101 and 28,415,654, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income, net Treasury stock (1,751,370 and 1,374,729 shares, respectively) Total shareholders’ equity Total liabilities and shareholders’ equity See accompanying notes to consolidated financial statements. 289,507 10,290 111,732 1,246 (23,704) 389,071 285,480 6,782 73,744 830 (15,029) 351,807 $ 4,777,897 $ 3,930,457 83 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 (credit) for loan losses Net interest income after provision for loan losses Non-interest income: Investment management fees Service charges Net gain on the sale and call of investment securities Swap fees Commitment and other fees Unrealized net 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 insurance expense State capital shares tax Travel and entertainment expense Data processing expense Charitable contributions Intangible amortization expense Change in fair value of acquisition earn out 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. 84 Years Ended December 31, 2017 2016 2015 $ 126,544 $ 92,252 $ 6,217 1,534 134,295 37,485 5,457 42,942 91,353 (623) 91,976 5,443 617 98,312 19,807 3,692 23,499 74,813 838 73,975 79,205 4,022 369 83,596 12,888 2,755 15,643 67,953 13 67,940 37,100 37,035 29,618 399 310 5,353 1,462 195 1,778 369 504 77 4,384 2,029 570 1,796 113 647 33 1,551 2,022 (161) 1,696 77 46,966 46,508 35,483 59,316 54,522 46,136 5,010 3,873 4,238 1,047 1,546 3,118 582 1,057 1,851 — 9,834 91,472 47,470 9,482 4,865 3,850 3,058 1,037 1,394 3,062 1,153 996 1,753 (3,687) 6,791 78,794 41,689 13,048 $ $ $ 37,988 $ 28,641 $ 1.38 $ 1.32 $ 1.04 $ 1.01 $ 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 22,488 0.81 0.80 TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) Net income Other comprehensive income (loss): Unrealized holding gains (losses) on investment securities, net of tax expense (benefit) of $387, $674 and ($472), respectively Reclassification adjustment for gains included in net income on investment securities, net of tax expense of ($109), ($11) and ($12), respectively Unrealized holding gains on derivatives, net of tax expense of $107, $650 and $0, respectively Reclassification adjustment for losses (gains) included in net income on derivatives, net of tax benefit (expense) of ($138), $16 and $0, respectively Other comprehensive income (loss) Total comprehensive income See accompanying notes to consolidated financial statements. Years Ended December 31, 2017 2016 2015 $ 37,988 $ 28,641 $ 22,488 655 (186) 180 (233) 416 1,166 (20) 1,100 27 2,273 $ 38,404 $ 30,914 $ (795) (21) — — (816) 21,672 85 TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Dollars in thousands) Common Stock Additional Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Income (Loss), net Treasury Stock Total Shareholders' Equity Balance, December 31, 2014 $ 280,895 $ 9,253 $ 22,615 $ (627) $ (6,746) $ Net income Other comprehensive loss Exercise of stock options Purchase of treasury stock Cancellation of stock options Stock-based compensation — — 517 — — — — — (164) — (229) 1,949 22,488 — — — — — — (816) — — — — — — — (3,158) — — Balance, December 31, 2015 $ 281,412 $ 10,809 $ 45,103 $ (1,443) $ (9,904) $ Net income Other comprehensive income Exercise of stock options Purchase of treasury stock Cancellation of stock options Stock-based compensation — — 4,068 — — — — — (1,394) — (6,200) 3,567 28,641 — — — — — — 2,273 — — — — — — — (5,125) — — Balance, December 31, 2016 $ 285,480 $ 6,782 $ 73,744 $ 830 $ (15,029) $ Net income Other comprehensive income Exercise of stock options Purchase of treasury stock Stock-based compensation — — 4,027 — — — — (2,364) — 5,872 37,988 — — — — — 416 — — — — — — (8,675) — 305,390 22,488 (816) 353 (3,158) (229) 1,949 325,977 28,641 2,273 2,674 (5,125) (6,200) 3,567 351,807 37,988 416 1,663 (8,675) 5,872 Balance, December 31, 2017 $ 289,507 $ 10,290 $ 111,732 $ 1,246 $ (23,704) $ 389,071 See accompanying notes to consolidated financial statements. 86 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: 2017 Years Ended December 31, 2016 2015 $ 37,988 $ 28,641 $ 22,488 Depreciation and intangible amortization expense Amortization of deferred financing costs Provision (credit) for loan losses Net gain on the sale of loans Stock-based compensation expense Net gain on the sale or call of investment securities available-for-sale Net gain on the call of investment securities held-to-maturity 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, net Increase in accrued interest receivable Increase in accrued interest payable Bank owned life insurance income Change in fair value of acquisition earn out Increase (decrease) in income taxes payable Decrease (increase) in prepaid income taxes Deferred tax provision Increase (decrease) in accounts payable and other accrued expenses Payment of contingent consideration impacting operations Cash received for allowance for leasehold improvements 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 Investment in low income housing and historic tax credits Investment in small business investment company Net redemption (purchase) of Federal Home Loan Bank stock Net increase in loans Proceeds from loan sales Proceeds from the sale of other real estate owned 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 decrease in Federal Home Loan Bank advances Net increase in line of credit advances Net proceeds from exercise of stock options Cancellation 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 $ 87 3,366 203 (623) (17) 5,872 (295) (15) (48) (9,802) 9,850 919 29 (3,905) 632 (1,778) — 166 (10,222) 11,110 (1,508) — — (3,709) 38,213 (30,470) (8,467) 2,527 55,621 3,000 — (5,502) (1,405) (4,151) (793,762) 6,867 597 (929) — (776,074) 700,832 90,000 — 6,200 1,663 — — (8,675) 790,020 52,159 103,994 156,153 $ 3,077 202 838 — 3,567 (31) (46) — — — 883 (646) (2,558) 105 (1,796) (3,687) (95) (5,438) 3,675 3,661 — 1,050 (1,293) 30,109 (27,495) (9,250) 4,691 17,333 2,500 (3,000) (1,625) — 161 (564,634) 1,196 1,080 (2,937) (14,095) (596,075) 596,935 — (15,000) — 2,674 (6,200) — (5,125) 573,284 7,318 96,676 103,994 $ 2,882 203 13 — 1,949 (33) — (20) (4,963) 4,983 752 627 (777) 27 (1,696) — 713 762 172 7,263 (1,771) — (1,884) 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 (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 See accompanying notes to consolidated financial statements. 2017 Years Ended December 31, 2016 2015 $ $ $ $ $ 42,107 $ 7,266 $ — $ — $ — $ 23,192 $ 14,823 $ 1,038 $ 1,402 $ 3,618 $ 15,413 9,393 — — 360 88 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”), a registered broker/dealer. The Bank was established to serve the commercial banking needs of middle-market businesses and private banking needs and high- net-worth individuals. Chartwell provides investment management services primarily to institutional investors, mutual funds and individual investors. CTSC Securities supports marketing efforts for the proprietary investment products provided by Chartwell, including shares of mutual 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 Securities and Exchange Commission (“SEC”). CTSC Securities is regulated by the SEC and Financial Industry Regulatory Authority (“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 conducts business through its office located in Pittsburgh, Pennsylvania. 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 different 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, valuation of goodwill and other intangible assets and its evaluation 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 and CTSC Securities, after elimination of inter-company accounts and transactions. The accounts of the Bank, in turn, include its wholly-owned subsidiary, Meadowood Asset Management, LLC (established in 2011 to hold and manage the foreclosed properties for the Bank), 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 that have an original maturity of 90 days or less. 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 unrealized gains and losses reported as a component of accumulated other comprehensive income (loss), on an after- tax basis. The cost of securities sold is determined on a specific identification basis. Amortization of premiums and accretion of discounts are recorded as interest income on investments over the estimated life of the security utilizing the level yield method. We evaluate 89 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 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. For equity securities an OTTI charge is recorded through current period earnings for the full decline in fair value below cost. 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 were recoverable at par value, as of December 31, 2017 and 2016. Cash and stock dividends are reported as interest income on investments, in the consolidated statements of income. 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 estimated 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 on non-accrual status. In assessing accrual status, the Company considers the likelihood that repayment and performance according to the original contractual terms will be achieved, as well as the borrower’s historical payment performance. A loan is designated and reported as a 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 accrued and unpaid 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 owned, other than bank premises, is recorded at fair value less estimated selling costs. Fair value is determined based on an independent appraisal. Expenses related to holding the property are charged against earnings when incurred. Depreciation is not recorded on other real estate owned (“OREO”) properties. 90 ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through provisions for loan losses that are recorded in the consolidated statements of income. Loans are charged off 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. In management’s judgment, the allowance was appropriate to cover probable losses inherent in the loan portfolio as of December 31, 2017 and 2016. 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 two components of the allowance for loan losses represent estimates of general reserves based upon Accounting Standards Codification (“ASC”) Topic 450, Contingencies; and specific reserves based on ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as commercial loans, consumer lines of credit and residential mortgages that are not individually evaluated for impairment. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment. In management’s opinion, a loan is impaired, based upon current information and events, 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 of general reserves 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, the results of internal loan reviews, etc. Finally, management considers the impact of changes in current local and regional economic conditions in the markets that we serve. Management bases the computation of the allowance for loan losses of general reserves 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: private banking, commercial and industrial, and commercial real estate. 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 that 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 received on a quarterly basis. 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. Bad debt expense is recorded to other non-interest 91 expense on the consolidated statements of income and the allowance for uncollectible accounts is recorded to investment management fees receivable, net on the consolidated statements of financial position. Investment management fees receivable are considered delinquent when payment is not received within contractual terms and are charged off against the allowance for uncollectible accounts when management determines that recovery is unlikely and the Company ceases its collection efforts. There was $322,000 of bad debt expense associated with a single relationship recorded for the year ended December 31, 2017. There was no bad debt expense recorded for the years ended December 31, 2016 and 2015. There was no allowance for uncollectible accounts recorded as of December 31, 2017 and 2016. 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 earn out 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. Goodwill is not amortized and is subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill annually and again at any quarter-end if a material event occurs during the quarter that may affect goodwill. If goodwill testing is required, an assessment of qualitative factors can be completed before performing the two step goodwill impairment test. If an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then the two step goodwill impairment test is not required. Goodwill is evaluated for potential impairment by determining if the fair value has fallen below carrying value. Other intangible assets represent purchased assets that may lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. The Company has determined that certain of its acquired mutual fund client relationships meet the criteria to be considered indefinite-lived assets because the Company expects both the renewal of these contracts and the cash flows generated by these assets to continue indefinitely. Accordingly, the Company does not amortize these intangible assets, but instead reviews these assets annually or more frequently whenever events or circumstances occur indicating that the recorded indefinite-lived assets may be impaired. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company would assess whether the carrying value of these assets exceeds its fair value, an impairment loss would be recorded in an amount equal to any such excess and these assets would be reclassified to finite-lived. Other intangible assets that the Company has determined to have finite lives, such as trade name, client lists and non-compete agreements are amortized over their estimated useful lives. These finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from four to twenty-five years. Finite-lived intangibles are evaluated for impairment on an annual basis or more frequently whenever events or circumstances occur indicating that the carrying amount may not be recoverable. 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 that extend the useful life are capitalized and depreciated to non-interest 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. Interest on deposits is accrued and charged to interest expense daily and is paid or credited in accordance with the terms of the respective accounts. 92 BORROWINGS The Company records FHLB advances, line of credit borrowings and subordinated notes payable at their principal amount net of debt issuance costs. Interest expense is recognized based on the coupon rate of the obligations. Costs associated with the acquisition of subordinated notes payable are amortized to interest expense over the expected term of the borrowing. EARNINGS PER COMMON SHARE Basic earnings per common share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, excluding non-vested restricted stock. Diluted EPS reflects the potential dilution upon the exercise of stock options and the vesting of restricted stock 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. The Company considers uncertain tax positions that it has taken or expects to take on a tax return. Any interest and penalties related to unrecognized tax benefits would be recognized in income tax expense in the consolidated statements of income. DERIVATIVES AND HEDGING ACTIVITIES All derivatives are evaluated at inception as to whether or not they are hedging or non-hedging activities, and appropriate documentation is maintained to support the final determination. All derivatives are recognized as either assets or liabilities on the consolidated statements of financial condition and measured at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item. For derivatives designated as cash flow hedges, changes in fair value of the effective portion of the cash flow hedges are reported in accumulated other comprehensive income (loss). When the cash flows associated with the hedged item are realized, the gain or loss included in accumulated other comprehensive income (loss) is recognized in the consolidated statements of income. The Company also has interest rate derivative positions that are not designated as hedging instruments. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. 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 of share-based awards made to employees and directors. 93 Compensation cost for all share-based payments is based on the estimated grant-date fair value. The value of the portion of the award that is ultimately expected to vest is included in stock-based compensation expense 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 unrealized 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. Unrealized holding gains (losses) on the effective portion of the Company’s cash flow hedge derivatives are included in accumulated other comprehensive income (loss), net of applicable income taxes, which will be reclassified to interest expense as interest payments are made on the Company’s debt. 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. RECENT ACCOUNTING DEVELOPMENTS In February 2018, the FASB issued Accounting Standard Update (“ASU”) 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" to address a narrow- scope financial reporting issue that arose as a consequence of the change in the tax law. On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (“Tax Cuts and Jobs Act”). The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The changes could be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company early adopted this standard on January 1, 2018, and elected to reclassify the effect of the change in the U.S. federal corporate income tax rate from accumulated other comprehensive income to retained earnings, to be reflected in the Consolidated Statements of Changes in Shareholders' Equity in the period of adoption. In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which changes the recognition and presentation requirements of hedge accounting, including: eliminating the requirement to separately measure and report hedge ineffectiveness; and presenting all items that affect earnings in the same income statement line item as the hedged item. The standard also provides new alternatives for: applying hedge accounting to additional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. This standard is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact this standard will have on our results of operations and financial position. In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies what constitutes a modification of a share-based payment award. This standard is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In March 2017, the FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” which shortens the premium amortization period for purchased non- contingently callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income recognition with the expectations incorporated in the market pricing on the underlying securities. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact this standard will have on our results of operations and financial position. 94 In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The changes are effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2019. All entities may early adopt the standard for goodwill impairment tests with measurement dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on our results of operations and financial position. In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016, and November 17, 2016, EITF Meetings (SEC Update),” which incorporates into the FASB Accounting Standards Codification® recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The SEC staff had previously announced that registrants should include the disclosures starting with their December 2017 financial statements. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805),” which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” which requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In September 2016, the FASB issued ASU 2016-15, “Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight classification issues related to the statement of cash flows. The eight classification issues are as follows: debt prepayment or debt extinguishment costs; settlement of zero-coupon bonds; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Entities should apply this standard using a retrospective transition method to each period presented. If it is impracticable for an entity to apply this standard retrospectively for some of the issues, it may apply the amendments for those issues prospectively as of the earliest date practicable. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. The changes are effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact this standard will have on our results of operations and financial position. In February 2016, the FASB issued ASU 2016-02, “Leases,” which, among other things, requires lessees to recognize most leases on-balance sheet. This will increase their reported assets and liabilities - in some cases very significantly. Lessor accounting remains substantially similar to current U.S. GAAP. ASU 2016-02 supersedes Topic 840, Leases. This standard is effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact this standard will have on our results of operations and financial position. In January 2016, the FASB issued 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. This standard is effective 95 for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This standard implements a common approach 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. This standard establishes a five-step model that entities must follow to recognize revenue. This update is effective for annual periods and interim periods in fiscal years beginning after December 15, 2017, for public business entities. A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. The Company completed its assessment of revenue streams and associated incremental costs of contracts affected by the standard. The Company’s adoption of this standard did not change the method in which we recognize revenue. This standard requires that certain incremental costs incurred to acquire some of our investment management contracts to be capitalized and deferred over the life of the contract. The adoption of this standard altered the timing, measurement and recognition of these costs in the income statement; however, the impact is not material. In addition, the Company is evaluating the standard’s expanded disclosure requirements. The Company has adopted this standard on January 1, 2018, utilizing the modified retrospective approach with a cumulative effect adjustment to opening retained earnings. 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 April 29, 2016, TriState Capital Holdings, Inc. through its wholly-owned subsidiary, Chartwell Investment Partners, LLC, completed the acquisition of substantially all of the assets of The Killen Group, Inc. (the "TKG acquisition"), an investment management firm with approximately $2.02 billion in assets under management. Under the terms of the Asset Purchase Agreement substantially all of the assets of The Killen Group, Inc. (“TKG”) were acquired for a purchase price consisting of $15.0 million paid in cash at closing based on five- times a base EBITDA (earnings before interest, taxes, depreciation and amortization) of $3.0 million plus an earn out. The earn out, while not limited under the terms of the Asset Purchase Agreement, was calculated based on a multiple of seven-times the incremental growth in TKG's annual run-rate EBITDA over $3.0 million at December 31, 2016. The earn out was estimated, at closing, to be approximately $3.7 million based on the estimated annual run-rate EBITDA of TKG at December 31, 2016. The change to the earn out calculation from the estimated $3.7 million recorded at closing, was recorded in the statement of income during the year ended December 31, 2016. The following table summarizes total consideration at closing, assets acquired and liabilities assumed for the TKG acquisition on April 29, 2016: (Dollars in thousands) Consideration paid: Cash Estimated earn out, 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 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 96 TKG Acquisition 15,000 3,687 18,687 905 912 20 106 1,943 1,402 1,402 541 13,585 4,561 18,687 $ $ $ $ During the year ended December 31, 2016, the fair value of the estimated acquisition earn out was decreased by $3.7 million based on management’s final determination of the annualized run-rate EBITDA of TKG at December 31, 2016. This adjustment to the earn out was credited to non-interest expense during the year ended December 31, 2016. There was no remaining acquisition earn out liability as of December 31, 2016. In connection with the TKG acquisition, total acquisition-related transaction costs incurred by the Company was approximately $1,000 and $601,000 during the years ended December 31, 2016 and 2015, respectively, which were primarily comprised of legal, advisory and other costs. Since the acquisition, the TKG acquired operations contributed approximate revenues of $7.2 million and approximate earnings of $1.4 million (excluding the earn out adjustment as discussed above) which were included in the consolidated statement of income for the year ended December 31, 2016. Goodwill is not amortized for book purposes, but goodwill capitalized for tax purposes is deductible. The following table shows the amount of other intangible assets acquired through the TKG acquisition on April 29, 2016, by class and estimated useful life: (Dollars in thousands) Trade name Client Relationships: Sub-advisory client list Separate managed accounts client list Non-compete agreements Total finite-lived intangibles Client Relationships: Mutual fund client relationships Total intangibles assets [3] INVESTMENT SECURITIES Gross Amount Estimated Useful Life (months) 2,850 330 715 390 4,285 9,300 13,585 300 132 168 48 242 Indefinite life $ $ $ Investment securities available-for-sale and held-to-maturity were comprised of the following: (Dollars in thousands) Investment securities available-for-sale: Corporate bonds Trust preferred securities Non-agency collateralized loan obligations Agency collateralized mortgage obligations Agency mortgage-backed securities Equity securities Investment securities held-to-maturity: Corporate bonds Agency debentures Municipal bonds Total investment securities held-to-maturity Total Total investment securities available-for-sale 147,057 1,078 December 31, 2017 Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Estimated Fair Value $ 61,616 $ 17,840 811 38,873 19,007 8,910 216 $ 741 — 25 96 — 32,189 1,984 25,102 59,275 785 3 122 910 143 $ — 6 76 150 275 650 33 — 11 44 61,689 18,581 805 38,822 18,953 8,635 147,485 32,941 1,987 25,213 60,141 $ 206,332 $ 1,988 $ 694 $ 207,626 97 (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 Municipal bonds Total investment securities held-to-maturity Total December 31, 2016 Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Estimated Fair Value $ 53,902 $ 17,711 5,750 16,234 44,051 24,107 4,760 8,643 175,158 28,693 25,247 53,940 164 $ 159 14 — 49 240 23 — 649 596 88 684 21 $ 72 — 54 279 198 — 291 915 30 96 126 54,045 17,798 5,764 16,180 43,821 24,149 4,783 8,352 174,892 29,259 25,239 54,498 $ 229,098 $ 1,333 $ 1,041 $ 229,390 The equity securities noted in the tables above consisted of a mutual fund investing in short-duration, corporate bonds. Interest income on investment securities was as follows: (Dollars in thousands) Taxable interest income Non-taxable interest income Dividend income Total interest income on investments Years Ended December 31, 2017 2016 2015 4,896 $ 4,213 $ 452 869 452 778 6,217 $ 5,443 $ 2,975 409 638 4,022 $ $ As of December 31, 2017, the contractual maturities of the debt securities were: (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, 2017 Available-for-Sale Held-to-Maturity Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value $ $ 10,055 $ 10,058 $ 6,003 $ 32,426 29,186 66,480 32,422 29,547 66,823 12,898 39,466 908 138,147 $ 138,850 $ 59,275 $ 6,146 12,911 40,164 920 60,141 The $66.8 million fair value of debt securities available-for-sale with a contractual maturity due after ten years as of December 31, 2017, included $57.1 million or 85.4% that are floating-rate securities. The $39.5 million amortized cost of debt securities held-to-maturity with a contractual maturity due from five to ten years as of December 31, 2017, included $20.8 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. 98 Proceeds from the sale and call of investment securities available-for-sale and held-to-maturity and related realized gains and losses were: (Dollars in thousands) Proceeds from sales Proceeds from calls Total proceeds Gross realized gains Gross realized losses Net realized gains (losses) Available-for-Sale Years Ended December 31, Held-to-Maturity Years Ended December 31, 2017 2016 2015 2017 2016 2015 $ $ $ $ 2,527 $ 21,675 24,202 $ 297 $ 2 295 $ 4,691 $ 2,000 6,691 $ 34 $ 3 31 $ 11,792 4,000 15,792 50 17 33 $ $ $ $ — $ 3,000 3,000 $ 15 $ — 15 $ — $ 2,500 2,500 $ 46 $ — 46 $ — 6,540 6,540 — — — Investment securities available-for-sale of $4.0 million, as of December 31, 2017, were held in safekeeping at the FHLB and were included in the calculation of borrowing capacity. The following tables show the fair value and gross unrealized losses on temporarily impaired investment securities available-for-sale and held-to-maturity, by investment category and length of time that the individual securities have been in a continuous unrealized loss position as of December 31, 2017 and December 31, 2016: (Dollars in thousands) Investment securities available-for-sale: December 31, 2017 Less than 12 Months 12 Months or More Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Corporate bonds $ 29,995 $ 143 $ — $ — $ 29,995 $ 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 — 1,593 2,960 — 34,548 2,406 6,051 8,457 — 1 10 — 154 33 11 44 805 32,816 9,437 8,635 51,693 — — — 6 75 140 275 496 — — — 805 34,409 12,397 8,635 86,241 2,406 6,051 8,457 Total temporarily impaired securities (1) (1) The number of investment positions with unrealized losses totaled 30 for available-for-sale securities and 8 for held-to-maturity securities. 43,005 $ 51,693 $ 94,698 $ 496 198 $ $ $ 143 6 76 150 275 650 33 11 44 694 99 (Dollars in thousands) Investment securities available-for-sale: Corporate bonds Trust preferred 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, 2016 Less than 12 Months 12 Months or More Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses $ 10,543 $ — 6,191 4,593 12,292 — 33,619 2,492 12,559 15,051 21 — 50 12 198 — 281 8 96 104 $ — $ — $ 10,543 $ 9,038 9,990 34,408 — 8,352 61,788 1,978 — 1,978 72 4 267 — 291 634 22 — 22 9,038 16,181 39,001 12,292 8,352 95,407 4,470 12,559 17,029 21 72 54 279 198 291 915 30 96 126 Total temporarily impaired securities (1) (1) The number of investment positions with unrealized losses totaled 30 for available-for-sale securities and 18 for held-to-maturity securities. 112,436 $ 63,766 $ 48,670 $ 656 385 $ $ $ 1,041 The change in the fair values of our municipal bonds, agency debentures, agency collateralized mortgage obligations and agency mortgage- backed securities are primarily the result of interest rate fluctuations. To assess for credit impairment, 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 most recent 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 debt 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 temporarily impaired. There were no investment securities classified as trading securities outstanding as of December 31, 2017 and December 31, 2016. [4] FEDERAL HOME LOAN BANK STOCK The Company is a member of the FHLB system. As a member of the FHLB of 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, 0.75% of its issued letters of credits, 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 $13.8 million and $9.6 million at December 31, 2017 and 2016, respectively. At December 31, 2017, $12.6 million of stock was required based on the Bank’s membership asset value of approximately $742.2 million; $295.0 million in outstanding advances; and $6.7 million in issued letters of credit. The Company received dividends from its holdings in FHLB capital stock of $603,000, $494,000 and $389,000 for the years ended December 31, 2017, 2016 and 2015, respectively. [5] LOANS The Company generates loans through the private banking and middle-market channels. These channels provide risk diversification and offer significant growth opportunities. The private banking channel primarily includes loans made to high-net-worth individuals, trusts and businesses that are typically secured by cash and marketable securities. 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 in our primary markets. 100 Loans held-for-investment were comprised of the following: (Dollars in thousands) December 31, 2017 Private Banking Commercial and Industrial Commercial Real Estate Total Loans held-for-investment, before deferred fees and costs $ 2,261,625 $ 667,028 $ 1,254,184 $ 4,182,837 Net deferred loan costs (fees) Loans held-for-investment, net of deferred fees and costs Allowance for loan losses Loans held-for-investment, net 4,112 2,265,737 (1,577) 656 667,684 (8,043) (3,361) 1,407 1,250,823 4,184,244 (4,797) (14,417) $ 2,264,160 $ 659,641 $ 1,246,026 $ 4,169,827 (Dollars in thousands) December 31, 2016 Private Banking Commercial and Industrial Commercial Real Estate Total Loans held-for-investment, before deferred fees and costs $ 1,732,578 $ 587,791 $ 1,080,637 $ 3,401,006 Net deferred loan costs (fees) Loans held-for-investment, net of deferred fees and costs Allowance for loan losses Loans held-for-investment, net 3,350 1,735,928 (1,424) (368) 587,423 (12,326) (2,934) 48 1,077,703 3,401,054 (5,012) (18,762) $ 1,734,504 $ 575,097 $ 1,072,691 $ 3,382,292 The Company’s customers have unused loan commitments based on the availability of eligible collateral or other terms and conditions under the loan agreement. 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, 2017 and December 31, 2016, was $2.37 billion and $1.75 billion, respectively. The interest rate for each commitment is based on the prevailing market conditions at the time of funding. The reserve for losses on unfunded commitments was $504,000 and $650,000, as of December 31, 2017 and December 31, 2016, respectively, which includes reserves for probable losses on unfunded loan commitments, including standby letters of credit and also risk participations. The total unfunded commitments above included loans in the process of origination totaling approximately $53.3 million and $59.8 million as of December 31, 2017 and December 31, 2016, respectively, which extend over varying periods of time. 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 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, 2017 and December 31, 2016, included in the total unfunded commitments above, was $74.8 million and $77.4 million, respectively. Should the Company be obligated to perform under the standby letters of credit the Company will seek repayment from the customer for amounts paid. During the year ended December 31, 2017 and 2016, there were draws on standby letters of credit totaling $204,000 and $151,000, respectively, which were immediately repaid by the borrower or converted to an outstanding loan based on the contractual terms and subsequently repaid. Most of these commitments are expected to expire without being drawn upon and the total amount does not necessarily represent future cash requirements. The potential 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, 2017 and December 31, 2016, 90.5% and 91.1%, respectively, of the commercial 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 commercial loan portfolio is subject to the general economic conditions within those areas. The Company evaluates each customer’s creditworthiness on an individual 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. 101 The Company’s loan portfolio is comprised of amortizing loans, where scheduled principal and interest payments are applied according to the terms of the loan agreement, as well as interest-only loans. As of December 31, 2017 and December 31, 2016, interest-only loans represented 71.1% and 69.0% of the loans held-for-investment, respectively, of which the majority were lines of credit. There were $2.09 billion in loans that are due on demand with no stated maturity and $2.09 billion in loans with stated maturities which have an expected average remaining maturity of approximately four years as of December 31, 2017, compared to $1.55 billion in loans that are due on demand with no stated maturity and $1.85 billion in loans with stated maturities which have an expected average remaining maturity of approximately four years as of December 31, 2016. As of December 31, 2017 and December 31, 2016, 90.9% and 88.6%, respectively, of the portfolio was comprised of variable rate loans. [6] 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 recorded in the consolidated statements of 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. 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: private banking, commercial and industrial and commercial real estate. In addition, management takes into account the historical loss experience of each loan portfolio, to ensure that the 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. The following discusses key characteristics and risks within each primary loan portfolio: 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 are typically secured by cash and marketable securities. This portfolio also has some loans that are secured by residential real estate or other financial assets, lines of credit and unsecured loans. 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 were 94.6% and 91.3% of total private banking loans as of December 31, 2017 and 2016, respectively. Middle-Market Banking: Commercial and Industrial Loans This loan portfolio primarily includes loans made to service companies or manufacturers generally for the purposes of financing production, operating capacity, accounts receivable, inventory, equipment, acquisitions and recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment for these loans. The borrower’s industry and local and regional economic conditions are important indicators of risk for this loan portfolio. Collateral for these types of loans at times does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. 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 that 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, industrial, multifamily, retail, hospitality, healthcare and self-storage. The primary source of repayment for commercial real estate loans secured by owner-occupied properties is cash flow from the borrower’s operations. Individual project cash flows, global cash flows and liquidity from the developer, or the sale of the property are the primary sources of repayment for commercial real estate loans secured by investment properties. 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 for 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. 102 The underlying purpose and collateral of the loans are important indicators of risk for this loan portfolio. Additional risks exist and are dependent on several factors such as the condition of the local and regional economies, whether or not the project is owner- occupied, the type of project, and the experience and resources of the developer. On a monthly basis, management monitors various credit quality indicators for the loan portfolio, 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 monitors the collateral of 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. Loan risk ratings are assigned based upon the creditworthiness of the borrower and the quality of the collateral for loans secured by marketable securities. 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 that are risk rated as special mention, substandard and doubtful, which are believed to have an increasing risk of loss. Our internal risk ratings are consistent with regulatory guidance. Management also monitors the loan portfolio through a formal periodic review process. All non-pass rated loans are reviewed monthly and higher risk-rated loans within the pass category are reviewed three times a year. The Company’s risk ratings are consistent with regulatory guidance and are as follows: 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) Pass Special mention Substandard Loans held-for-investment (Dollars in thousands) Pass Special mention Substandard Loans held-for-investment December 31, 2017 Private Banking Commercial and Industrial Commercial Real Estate Total 2,265,369 $ 639,987 $ 1,248,972 $ 4,154,328 — 368 24,882 2,815 1,851 — 26,733 3,183 2,265,737 $ 667,684 $ 1,250,823 $ 4,184,244 December 31, 2016 Private Banking Commercial and Industrial Commercial Real Estate Total 1,735,404 $ 545,276 $ 1,077,703 $ 3,358,383 — 524 18,776 23,371 — — 18,776 23,895 1,735,928 $ 587,423 $ 1,077,703 $ 3,401,054 $ $ $ $ 103 Changes in the allowance for loan losses were as follows for the years ended December 31, 2017, 2016 and 2015: Year Ended December 31, 2017 (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 (Dollars in thousands) Balance, beginning of period Provision (credit) for loan losses Charge-offs Recoveries Balance, end of period $ $ $ $ $ $ Private Banking Commercial and Industrial 1,424 $ 12,326 $ 153 — — (556) (4,302) 575 Commercial Real Estate Total 5,012 $ (220) — 5 18,762 (623) (4,302) 580 14,417 1,577 $ 8,043 $ 4,797 $ Year Ended December 31, 2016 Private Banking Commercial and Industrial Commercial Real Estate Total 1,566 $ (142) — — 11,064 $ 4,723 (4,258) 797 5,344 $ (3,743) — 3,411 1,424 $ 12,326 $ 5,012 $ 17,974 838 (4,258) 4,208 18,762 Year Ended December 31, 2015 Private Banking Commercial and Industrial Commercial Real Estate Total 2,017 $ (464) — 13 13,501 $ 4,755 $ (112) (3,353) 1,028 589 — — 1,566 $ 11,064 $ 5,344 $ 20,273 13 (3,353) 1,041 17,974 The following tables present the age analysis of past due loans segregated by class of loan: (Dollars in thousands) Private banking Commercial and industrial Commercial real estate Loans held-for-investment (Dollars in thousands) Private banking Commercial and industrial Commercial real estate Loans held-for-investment $ $ $ $ 30-59 Days Past Due 60-89 Days Past Due December 31, 2017 Loans Past Due 90 Days or More Total Past Due Current Total 1,266 $ — 1,849 3,115 $ — $ — — — $ — $ 1,266 $ 2,264,471 $ 2,265,737 — — — 1,849 667,684 1,248,974 667,684 1,250,823 — $ 3,115 $ 4,181,129 $ 4,184,244 30-59 Days Past Due 60-89 Days Past Due December 31, 2016 Loans Past Due 90 Days or More Total Past Due Current Total 224 $ 224 $ 1,735,704 $ 1,735,928 — — — — 587,423 1,077,703 587,423 1,077,703 224 $ 224 $ 3,400,830 $ 3,401,054 — $ — — — $ — $ — — — $ 104 Non-Performing and Impaired Loans Management monitors the delinquency status of the loan portfolio on a monthly basis. Loans are 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. 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: Private banking Commercial and industrial Commercial real estate Total with a related allowance recorded Without a related allowance recorded: Private banking Commercial and industrial Commercial real estate Total without a related allowance recorded Total: Private banking Commercial and industrial Commercial real estate Total (Dollars in thousands) With a related allowance recorded: Private banking Commercial and industrial Commercial real estate Total with a related allowance recorded Without a related allowance recorded: Private banking Commercial and industrial Commercial real estate Total without a related allowance recorded Total: Private banking Commercial and industrial Commercial real estate Total As of and for the Year Ended December 31, 2017 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized $ 368 $ 541 $ 368 $ 438 $ 2,815 — 3,183 — 3,371 — 3,371 368 6,186 — 3,135 — 3,676 — 5,330 — 5,330 541 8,465 — 2,139 — 2,507 — — — — 368 2,139 — 3,067 — 3,505 — 4,224 — 4,224 438 7,291 — $ 6,554 $ 9,006 $ 2,507 $ 7,729 $ — — — — — 146 — 146 — 146 — 146 As of and for the Year Ended December 31, 2016 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized $ 517 $ 656 $ 517 $ 592 $ 17,273 — 17,790 — 471 — 471 517 17,744 — 26,126 — 26,782 — 487 — 487 656 26,613 — 6,422 — 6,939 — — — — 517 6,422 — 19,158 — 19,750 — 485 — 485 592 19,643 — $ 18,261 $ 27,269 $ 6,939 $ 20,235 $ — — — — — 26 — 26 — 26 — 26 105 (Dollars in thousands) With a related allowance recorded: Private banking Commercial and industrial Commercial real estate Total with a related allowance recorded Without a related allowance recorded: Private banking Commercial and industrial Commercial real estate Total without a related allowance recorded Total: Private banking Commercial and industrial Commercial real estate Total As of and for the Year Ended December 31, 2015 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized $ 745 $ 864 $ 745 $ 824 $ 11,797 — 12,542 1,203 513 2,912 4,628 1,948 12,310 2,912 19,204 — 20,068 1,448 1,789 9,067 12,304 2,312 20,993 9,067 3,800 — 4,545 — — — — 745 3,800 — 15,331 — 16,155 1,202 838 3,108 5,148 2,026 16,169 3,108 $ 17,170 $ 32,372 $ 4,545 $ 21,303 $ — — — — — 29 — 29 — 29 — 29 Impaired loans as of December 31, 2017 and December 31, 2016, were $6.6 million and $18.3 million, respectively. There was no interest income recognized while on non-accrual status for the years ended December 31, 2017, 2016 and 2015. As of December 31, 2017 and December 31, 2016, 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 there were specific reserves totaling $2.5 million and $6.9 million as of December 31, 2017 and December 31, 2016, respectively. 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, 2017 Private Banking Commercial and Industrial Commercial Real Estate Total $ $ $ $ 368 $ 1,209 1,577 $ 2,139 $ 5,904 8,043 $ — $ 4,797 4,797 $ 2,507 11,910 14,417 368 $ 6,186 $ — $ 6,554 2,265,369 661,498 1,250,823 4,177,690 2,265,737 $ 667,684 $ 1,250,823 $ 4,184,244 106 (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, 2016 Private Banking Commercial and Industrial Commercial Real Estate Total $ $ $ $ 517 $ 907 6,422 $ 5,904 1,424 $ 12,326 $ — $ 5,012 5,012 $ 6,939 11,823 18,762 517 $ 17,744 $ — $ 18,261 1,735,411 569,679 1,077,703 3,382,793 1,735,928 $ 587,423 $ 1,077,703 $ 3,401,054 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, 2017 December 31, 2016 $ $ 3,371 $ 3,183 6,554 $ 471 17,273 17,744 There were unused commitments of $708,000 and $121,000 on TDR loans as of December 31, 2017 and 2016, respectively. The modifications made to restructured loans typically consist of an extension of the payment terms or the deferral of principal payments. There were no loans modified as a TDR within twelve months of the corresponding balance sheet date with payment defaults during the years ended December 31, 2017 and 2016, respectively. There were loans totaling $973,000 that were modified as a TDR within twelve months of the corresponding balance sheet date with payment defaults during the year ended December 31, 2015. The financial effects of our modifications made to loans newly designated as TDRs during the years ended December 31, 2017, 2016 and 2015, were as follows: (Dollars in thousands) Private banking: Extended term, deferred principal and reduced interest rate Total (Dollars in thousands) Commercial and industrial: Extended term and deferred principal Total Year Ended December 31, 2017 Recorded Investment at the time of Modification Current Recorded Investment Allowance for Loan Losses at the time of Modification Current Allowance for Loan Losses 433 $ 433 $ 368 $ 368 $ 433 $ 433 $ 368 368 Year Ended December 31, 2016 Recorded Investment at the time of Modification Current Recorded Investment Allowance for Loan Losses at the time of Modification Current Allowance for Loan Losses 11,098 $ 11,098 $ 11,081 $ 11,081 $ 2,354 $ 2,354 $ 3,274 3,274 Count 2 2 Count 2 2 $ $ $ $ 107 (Dollars in thousands) Commercial and industrial: Deferred principal Extended term and deferred principal Change in interest terms Total Other Real Estate Owned 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 $ $ 6,849 $ 973 $ 1,500 $ 433 4,064 — — 433 400 11,346 $ 973 $ 2,333 $ 172 — — 172 Count 2 1 1 4 As of December 31, 2017 and December 31, 2016, the balance of the other real estate owned portfolio was $3.6 million and $4.2 million, respectively. Properties were sold from other real estate owned totaling $597,000 with net gains of $141,000 realized during the year ended December 31, 2017. There were no residential mortgage loans that were in the process of foreclosure as of December 31, 2017. [7] GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill of $4.6 million and other intangible assets of $13.6 million were recorded during the year ended December 31, 2016, related to the TKG acquisition. The following table presents the change in goodwill for the years ended December 31, 2017 and 2016: (Dollars in thousands) Balance, beginning of period Additions Balance, end of period 2017 2016 $ $ 38,724 $ — 38,724 $ 34,163 4,561 38,724 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, 2017 and 2016: (Dollars in thousands) Balance, beginning of period Additions Amortization Balance, end of period 2017 2016 $ $ 28,485 $ — (1,851) 26,634 $ 16,653 13,585 (1,753) 28,485 The following table presents the gross amount of intangible assets and total accumulated amortization 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 finite-lived intangibles Client Relationships: Mutual fund client relationships (indefinite-lived) December 31, 2017 December 31, 2016 Gross Amount Accumulated Amortization Net Carrying Amount Gross Amount Accumulated Amortization Net Carrying Amount $ 4,040 $ (418) $ 3,622 $ 4,040 $ (245) $ 3,795 11,530 1,810 5,950 465 23,795 (3,230) (505) (2,074) (234) (6,461) 8,300 1,305 3,876 231 17,334 11,530 1,810 5,950 465 23,795 (2,371) (344) (1,532) (118) (4,610) 9,300 — 9,300 9,300 — 9,159 1,466 4,418 347 19,185 9,300 28,485 Total intangibles assets $ 33,095 $ (6,461) $ 26,634 $ 33,095 $ (4,610) $ 108 Intangible amortization expense on finite-lived intangible assets totaled $1.9 million, $1.8 million and $1.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. 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, 2017: (Dollars in thousands) 2018 2019 2020 2021 2022 Thereafter Total finite-lived intangibles [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 Accumulated depreciation Net office properties and equipment $ Amount 1,835 1,832 1,767 1,735 1,735 8,430 $ 17,334 December 31, 2017 2016 $ $ 9,812 $ 5,917 15,729 (10,844) 4,885 $ 9,057 5,743 14,800 (9,329) 5,471 Depreciation expense was $1.5 million, $1.3 million and $1.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company rents office space in its six office locations which are accounted for as operating leases. The remaining lease terms have expirations from 2020 to 2024 and provide for one or more renewal options. These 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 $2.2 million, $2.3 million and $2.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. The net deferred rent liability was $877,000 as of December 31, 2017. At December 31, 2017, future minimum lease payments were as follows: (Dollars in thousands) 2018 2019 2020 2021 2022 Thereafter Total $ Amount 2,563 2,530 2,480 1,417 870 907 $ 10,767 In conjunction with certain office leases the Company has received an allowance for leasehold improvements which is recognized as a reduction to rent expense over the life of the corresponding lease. The unamortized amount of the allowance for leasehold improvements was $969,000 as of December 31, 2017. 109 [9] DEPOSITS As of December 31, 2017 and December 31, 2016, deposits were comprised of the following: (Dollars in thousands) Demand and savings accounts: Noninterest-bearing checking accounts Interest-bearing checking accounts Money market deposit accounts Total demand and savings accounts Certificates of deposit Total deposits Interest Rate Range December 31, 2017 — 0.05 to 1.75% 0.10 to 2.06% Weighted Average Interest Rate Balance December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 — 1.42% 1.37% — 0.56% 0.82% $ 248,092 $ 455,341 2,289,789 2,993,222 994,389 230,226 218,984 1,938,707 2,387,917 898,862 $ 3,987,611 $ 3,286,779 0.80 to 2.13% 1.40% 0.95% Weighted average rate on interest-bearing accounts 1.38% 0.84% As of December 31, 2017 and December 31, 2016, the Bank had total brokered deposits of $1.07 billion and $1.06 billion, respectively. The amount for brokered deposits includes reciprocal Certificate of Deposit Account Registry Service® (“CDARS®”) and reciprocal Insured Cash Sweep® (“ICS®”) accounts totaling $627.5 million and $448.1 million as of December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017 and December 31, 2016, certificates of deposit with balances of $100,000 or more, excluding brokered deposits, totaled $440.2 million and $441.1 million, respectively. Certificates of deposit with balances of $250,000 or more, excluding brokered deposits, totaled $191.4 million and $178.1 million as of December 31, 2017 and December 31, 2016, respectively. The contractual maturity of certificates of deposit was 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 was as follows: (Dollars in thousands) Interest-bearing checking accounts Money market deposit accounts Certificates of deposit Total interest expense on deposits December 31, 2017 December 31, 2016 $ 874,733 $ 96,766 22,890 — — — 751,204 121,011 26,647 — — — $ 994,389 $ 898,862 Years Ended December 31, 2017 2016 2015 $ $ 3,706 $ 813 $ 22,350 11,429 11,376 7,618 439 5,687 6,762 37,485 $ 19,807 $ 12,888 110 [10] BORROWINGS As of December 31, 2017 and December 31, 2016, borrowings were comprised of the following: (Dollars in thousands) FHLB borrowings: Issued 12/29/2017 Issued 12/29/2017 Issued 12/30/2016 Issued 12/29/2016 Line of credit borrowings Subordinated notes payable (net of debt issuance costs of $287 and $490, respectively) December 31, 2017 December 31, 2016 Interest Rate Ending Balance Maturity Date Interest Rate Ending Balance Maturity Date 1.57% 1.66% 4.56% 5.75% $ 195,000 1/2/2018 $ 100,000 3/29/2018 — — 0.77% 0.85% 6,200 12/28/2018 — — 105,000 100,000 — 1/3/2017 3/29/2017 34,713 7/1/2019 5.75% 34,510 7/1/2019 Total borrowings, net $ 335,913 $ 239,510 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, 2017, the Bank’s borrowing capacity is based on the information provided in the September 30, 2017, QCR filing. As of December 31, 2017, the Bank had securities held in safekeeping at the FHLB with a fair value of $4.0 million, combined with pledged loans of $1.11 billion, for a gross borrowing capacity of $788.8 million, of which $295.0 million was outstanding in advances. As of December 31, 2016, there was $205.0 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, 2017, the full amount of these established lines were available to the Bank. The Holding Company maintains an unsecured line of credit of $25.0 million with Texas Capital Bank, of which $6.2 million was outstanding as of December 31, 2017. In June 2014, the Company 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. Interest expense on borrowings was as follows: (Dollars in thousands) FHLB borrowings Line of credit borrowings Subordinated notes payable Total interest expense on borrowings Years Ended December 31, 2017 2016 2015 $ $ 3,152 $ 1,477 $ 90 2,215 — 2,215 5,457 $ 3,692 $ 540 — 2,215 2,755 111 [11] INCOME TAXES The income tax provision reconciled to taxes computed at the statutory federal rate was as follows: (Dollars in thousands) Tax provision at statutory rate Meals and entertainment Dues and subscriptions Bank owned life insurance Stock option exercises and cancellations State tax expense, net of federal benefit Impact of change in tax rates Adjustments to prior year tax Tax exempt income, net of disallowed interest Renewable energy tax credits Low income housing tax credits Other Income tax provision Years Ended December 31, 2017 2016 2015 $ 16,615 $ 14,591 $ 11,683 152 142 (622) (674) 1,024 (2,351) 215 (151) (4,629) (260) 21 147 132 (629) (484) 1,184 — 46 (162) (1,778) (17) 18 103 116 (593) 52 951 — (60) (160) (1,198) — (2) $ 9,482 $ 13,048 $ 10,892 In December 2017, the Tax Cuts and Jobs Act was signed into law which lowers the maximum corporate tax rate from 35% to 21%. Due to this enactment, income tax provision for the year ended December 31, 2017, was impacted by a $2.4 million one-time benefit on the re-measurement of the Company’s deferred tax liability. The adjustment was largely related to the acceleration of an incentive compensation deduction for tax purposes and favorable depreciation treatment associated with renewable energy credits. The tax credits in the table above relate to transactions for the financing of renewable solar energy facilities as well as low income housing tax credits. These transactions provided federal tax credits and state tax credits (where applicable) during the 2017, 2016 and 2015 tax years. The financing of the solar energy facilities are accounted for as direct financing leases included within the C&I loan portfolio. The amortization of the Company’s low income housing tax credit investments has been reflected as income tax expense. The net amount of low income housing tax credits, amortization and tax benefits recorded as income tax expenses during the years ended December 31, 2017 and 2016, was $260,000 and $17,000, respectively. The carrying amount of the investment in low income housing tax credits was $23.8 million of which $18.1 million was unfunded as of December 31, 2017. The income tax provision consisted of: (Dollars in thousands) Current income tax provision (benefit) - federal Current income tax provision - state Deferred tax provision - federal Deferred tax provision (benefit) - state Income tax provision Years Ended December 31, 2017 2016 2015 (2,324) $ 7,781 $ 9,917 696 10,050 1,060 1,592 3,322 353 803 225 (53) 9,482 $ 13,048 $ 10,892 $ $ 112 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, 2017 and 2016, were 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 Earn out liability non-purchase accounting Other Gross deferred tax assets Deferred tax liabilities: Office properties and equipment Deferred loan costs Intangibles Goodwill State capital shares tax liability Unrealized gain on investments and derivatives Gross deferred tax liability Net deferred tax asset (liability) December 31, 2017 2016 $ 200 $ 65 2,150 779 251 3,376 205 118 824 288 — 374 180 — 134 1,659 6,599 464 6,970 361 241 1,116 480 125 606 247 8,810 19,002 (6,947) (2,447) (9) (3,003) (101) (455) (12,962) $ (4,152) $ (4,631) (2,934) — (3,531) (219) (483) (11,798) 7,204 Management believes that, as of December 31, 2017, it is more likely than not that the deferred tax assets will be fully realized upon the generation of future taxable income. The Company has certain pre-tax state net operating loss carryforwards of $2.6 million which will expire in 2037. The change in the net deferred tax asset or liability for the years ended December 31, 2017 and 2016, was detailed as follows: (Dollars in thousands) Deferred tax provision Deferred tax impact from other comprehensive income Deferred tax asset established related to acquisitions Change in net deferred tax asset or liability December 31, 2017 2016 $ $ (11,110) $ (246) — (3,675) (1,329) 22 (11,356) $ (4,982) The Company considers uncertain tax positions that it has taken or expects to take on a tax return. The Company recognizes interest accrued and penalties (if any) related to unrecognized tax benefits in income tax expense. Tax years 2014 through 2017 remain subject to federal and state tax examinations, as of December 31, 2017. A federal tax examination of the 2015 tax year is currently in progress. 113 A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits was 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, 2017 2016 2015 599 $ 353 $ 18 — 127 — 26 — 220 — 744 $ 599 $ — 142 — 211 — 353 $ $ The total estimated unrecognized tax benefit that, if recognized, would affect the Company’s effective tax rate was approximately $620,000, $390,000 and $230,000 as of December 31, 2017, 2016 and 2015, respectively. The impact of interest and penalties was immaterial to the Company’s financial statements for the years ended December 31, 2017, 2016 and 2015. 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 to average assets (as defined). As of December 31, 2017 and December 31, 2016, TriState Capital Holdings, Inc. and TriState Capital Bank exceeded all capital adequacy requirements to which they were subjected. Financial depository institutions are categorized as well capitalized if they meet minimum capital ratios as set forth in the tables below. 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 in the tables below. Basel III, which began phasing in on January 1, 2015, has replaced the 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 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 risk-based capital ratios 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 will 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). As of December 31, 2017 and December 31, 2016, the capital conservation buffer was 1.25% and 0.625%, respectively, in addition to the minimum capital adequacy levels in the tables below. Thus, both the Company and the Bank were above the levels required to avoid limitations on capital distributions and discretionary bonus payments. 114 The following tables set forth certain information concerning the Company’s and the Bank’s regulatory capital as of December 31, 2017 and December 31, 2016: December 31, 2017 For Capital Adequacy Purposes To be Well Capitalized Under Prompt Corrective Action Provisions Actual Amount Ratio Amount Ratio Amount Ratio 343,758 348,378 326,594 337,656 326,594 337,656 326,594 337,656 11.72% $ 234,576 8.00% N/A 11.99% $ 232,392 8.00% $ 290,490 N/A 10.00% 11.14% $ 175,932 6.00% N/A 11.62% $ 174,294 6.00% $ 232,392 11.14% $ 131,949 4.50% N/A 11.62% $ 130,720 4.50% $ 188,818 7.25% $ 180,090 4.00% N/A 7.55% $ 178,979 4.00% $ 223,723 N/A 8.00% N/A 6.50% N/A 5.00% December 31, 2016 For Capital Adequacy Purposes To be Well Capitalized Under Prompt Corrective Action Provisions Actual Amount Ratio Amount Ratio Amount Ratio 325,122 314,419 295,089 298,093 295,089 298,093 295,089 298,093 12.66% $ 205,488 8.00% N/A 12.39% $ 203,030 8.00% $ 253,787 N/A 10.00% 11.49% $ 154,116 6.00% N/A 11.75% $ 152,272 6.00% $ 203,030 11.49% $ 115,587 4.50% N/A 11.75% $ 114,204 4.50% $ 164,962 7.90% $ 149,369 4.00% N/A 8.04% $ 148,252 4.00% $ 185,316 N/A 8.00% N/A 6.50% N/A 5.00% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (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 Common equity tier 1 risk-based capital ratio Company Bank Tier 1 leverage ratio Company Bank [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, 2017, 2016 and 2015, the Company automatically contributed three percent of the eligible 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 the age of 21, whichever is later. The Company’s contribution expense was $863,000, $788,000 and $683,000 for the years ended December 31, 2017, 2016 and 2015, respectively. 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 latter of retirement or 60 months. For the years ended December 31, 2017, 2016 and 2015, the Company recorded expense related to SERP of $513,000, $919,000 and $791,000, respectively, utilizing a discount rate of 3.59%, 2.15% and 2.98%, respectively. The recorded liability related to the SERP plan was $3.5 million and $3.0 million as of December 31, 2017 and December 31, 2016, respectively. 115 [14] STOCK TRANSACTIONS Under programs authorized by the Board of Directors in 2016 and 2017, the Company was permitted to repurchase up to $20 million of its common stock, which has been fully utilized as of December 31, 2017. The Board also authorized the Company to utilize some of the share repurchase program authorizations to cancel options granted by the Company to purchase shares of its common stock that would have expired in 2017. During the year ended December 31, 2017, the Company repurchased a total of 376,641 shares for approximately $8.7 million, at an average cost of $23.03 per share, which are held as treasury stock. During the year ended December 31, 2016, the Company repurchased a total of 374,729 shares for approximately $5.1 million, at an average cost of $13.68 per share, which are held as treasury stock. In 2016, the Company’s Board of Directors approved a stock option cancellation program to allow for outstanding and vested stock option awards granted in 2007 and expiring in 2017 to be canceled by the option holder at a price based on the closing day’s stock price less the option exercise price. During the year ended December 31, 2016, there were 1,174,500 options canceled for $6.2 million, which was recorded as a reduction to additional paid-in capital. Under prior programs authorized by the Board of Directors, the Company repurchased a total of 321,109 shares for approximately $3.2 million, at an average cost of $9.84 per share, during the year ended December 31, 2015. The table below shows the changes in the Company’s common shares outstanding during the periods indicated: Number of Common Shares Outstanding 28,060,888 282,916 (4,000) 37,500 (321,109) 28,056,195 497,309 (13,121) 250,000 (374,729) 28,415,654 396,175 (14,637) 170,550 (376,641) 28,591,101 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 Issuance of restricted common stock Forfeitures of restricted common stock Exercise of stock options Purchase of treasury stock Balance, December 31, 2016 Issuance of restricted common stock Forfeitures of restricted common stock Exercise of stock options Purchase of treasury stock Balance, December 31, 2017 116 [15] EARNINGS PER COMMON SHARE The computation of basic and diluted earnings per common share for the periods presented was as follows: (Dollars in thousands, except per share data) Years Ended December 31, 2017 2016 2015 Net income available to common shareholders $ 37,988 $ 28,641 $ 22,488 Weighted average common shares outstanding: Basic Restricted stock - dilutive Stock options - dilutive Diluted Earnings per common share: Basic Diluted 27,550,833 27,593,725 27,771,345 649,956 510,533 260,799 504,628 56,364 409,744 28,711,322 28,359,152 28,237,453 $ $ 1.38 $ 1.32 $ 1.04 $ 1.01 $ 0.81 0.80 Years Ended December 31, 2017 2016 2015 27,000 125,500 721,893 Anti-dilutive shares (1) (1) Includes stock options and/or restricted stock 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, canceled, 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, 2017, under both the 2006 Plan and the Omnibus Plan (combined the “Plans”). As of December 31, 2017, the Company has issued non-qualifying stock options and restricted shares. The aggregate awards outstanding were 2,084,186 under both of the Plans. 526,849 stock options and restricted shares have been exercised or vested, respectively, leaving 1,388,965 additional awards available for the Company to grant under the Omnibus Plan as of December 31, 2017. 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 $5.9 million, $3.6 million and $1.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. In 2016 and 2015, the Company’s Board of Directors approved stock option cancellation programs to allow for outstanding and vested stock option awards granted in 2007 to be canceled by the option holder at a price based on the closing day’s stock price less the option exercise price. During the year ended December 31, 2016, there were 1,174,500 options canceled for $6.2 million, which was recorded as a reduction to additional paid-in capital. During the year ended December 31, 2015, there were 77,000 options canceled for $229,000, which was recorded as a reduction to additional paid-in capital. 117 Stock Options The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model. 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. There were no stock options granted for the year ended December 31, 2017. The weighted average assumptions for stock options granted for the years ended December 31, 2016 and 2015, were as follows: Valuation Assumptions: Expected dividend yield Expected volatility Expected term (years) Risk-free interest rate Stock option activity during the periods indicated was as follows: Balance, December 31, 2014 Granted Exercised Forfeited Canceled Expired Balance, December 31, 2015 Granted Exercised Forfeited Canceled Expired Balance, December 31, 2016 Granted Exercised Forfeited Canceled Expired Balance, December 31, 2017 Exercisable as of December 31, 2015 Exercisable as of December 31, 2016 Exercisable as of December 31, 2017 December 31, 2016 2015 0.0% 35.9% 6.9 1.7% 0.0% 45.4% 6.9 1.6% Number of Options Weighted Average Exercise Price 2,509,732 $ 205,661 37,500 41,500 77,000 — 2,559,393 $ 22,000 250,000 23,500 1,174,500 — 1,133,393 $ — 170,550 16,500 — — 946,343 $ 1,789,750 $ 575,116 $ 617,646 $ 10.28 10.39 9.41 10.75 10.00 — 10.30 12.07 10.69 11.77 10.00 — 10.53 — 9.75 10.30 — — 10.67 9.99 10.01 10.16 Weighted Average Remaining Contractual Term (years) 4.52 3.98 5.76 5.01 2.28 4.32 4.25 The weighted average grant date fair value of options granted during the years ended December 31, 2016 and 2015, was $5.14 and $4.98, respectively. The weighted average grant date fair value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $4.69, $4.85 and $4.38, respectively. 118 A summary of the status of the Company’s non-vested options as of and changes during the years ended December 31, 2017, 2016 and 2015, is presented below: Non-vested options: Balance, December 31, 2014 Granted Vested Forfeited Balance, December 31, 2015 Granted Vested Forfeited Balance, December 31, 2016 Granted Vested Forfeited Balance, December 31, 2017 Number of Options Weighted Average Grant-Date Fair Value 816,232 $ 205,661 210,750 41,500 769,643 $ 22,000 209,866 23,500 558,277 $ — 213,080 16,500 328,697 $ 4.87 4.98 5.91 4.85 4.93 5.14 3.73 5.16 4.95 — 4.97 4.99 4.94 As of December 31, 2017, there was $793,000 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 1.6 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, 2017, 2016 and 2015, is presented below: Non-vested restricted shares: Balance, December 31, 2014 Granted Vested Forfeited Balance, December 31, 2015 Granted Vested Forfeited Balance, December 31, 2016 Granted Vested Forfeited Balance, December 31, 2017 Number of Shares Weighted Average Grant-Date Fair Value 27,000 $ 282,916 — 4,000 305,916 $ 497,309 6,799 13,121 783,305 $ 396,175 27,000 14,637 1,137,843 $ 10.66 10.54 — 10.57 10.55 12.96 11.95 11.76 12.05 22.07 10.66 13.87 15.54 As of December 31, 2017, there was $10.4 million of total unrecognized compensation cost related to non-vested restricted shares granted under the Omnibus Plan and the unrecognized compensation cost is expected to be recognized over a weighted average period of 2.1 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 119 debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative 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 and differences in the amount, timing, and duration of the Company's known or expected cash payments related to certain of the Company's FHLB borrowings. 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, 2017 and December 31, 2016: (Dollars in thousands) Derivatives designated as hedging instruments: Interest rate products Derivatives not designated as hedging instruments: Asset Derivatives Liability Derivatives as of December 31, 2017 as of December 31, 2017 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other assets $ 1,650 Other liabilities $ 9 Interest rate products Other assets 12,111 Other liabilities 12,069 Total Other assets $ 13,761 Other liabilities $ 12,078 (Dollars in thousands) Derivatives designated as hedging instruments: Interest rate products Derivatives not designated as hedging instruments: Asset Derivatives Liability Derivatives as of December 31, 2016 as of December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other assets $ 1,793 Other liabilities $ 80 Interest rate products Other assets 10,324 Other liabilities 10,529 Total Other assets $ 12,117 Other liabilities $ 10,609 The following tables show the impact legally enforceable master netting agreements had on the Company’s derivative financial instruments as of December 31, 2017: Offsetting of Derivative Assets December 31, 2017 (Dollars in thousands) Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivatives $ 13,761 $ — $ 13,761 $ (5,677) $ — $ 8,084 120 Offsetting of Derivative Liabilities December 31, 2017 (Dollars in thousands) Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Financial Instruments Cash Collateral Posted Net Amount Derivatives $ 12,078 $ — $ 12,078 $ (5,677) $ (124) $ 6,277 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, 2017, the Company had four interest rate swaps, with an aggregate notional amount of $2.4 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 and credit risk was considered insignificant for the years ended December 31, 2017 and 2016. There were no counterparty default losses on derivatives for the years ended December 31, 2017 and 2016. For the 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 table below presents the effect of the Company’s fair value hedge instruments in the consolidated statements of income: (Dollars in thousands) Years Ended December 31, 2017 2016 2015 Derivatives designated as hedging instruments: Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative Interest rate products Interest rate products Total Interest income Non-interest income $ $ (60) $ 4 (56) $ (88) $ 4 (84) $ (294) 3 (291) CASH FLOW HEDGES OF INTEREST RATE RISK The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. In June 2016, the Company entered into derivative contracts to hedge the variable cash flows associated with certain FHLB borrowings. These interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company’s cash flow hedge derivatives did not have any hedge ineffectiveness recognized in earnings during the years ended December 31, 2017 and 2016. As of December 31, 2017, the Company had two outstanding interest rate derivatives with an aggregate notional amount of $100.0 million that were designated as cash flow hedges of interest rate risk. During the years ended December 31, 2017 and 2016, net gains of $287,000 and $1.8 million, respectively, were recognized in accumulated other comprehensive income (loss) on the effective portion of the derivative. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s debt. During the next twelve months, the Company estimates $1.0 million to be reclassified to earnings as a decrease to interest expense. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a remaining period of 18 months. 121 The table below presents the effect of the Company’s cash flow hedge instruments in the consolidated statements of income: (Dollars in thousands) Years Ended December 31, 2017 2016 2015 Derivatives designated as hedging instruments: Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative Interest rate products Interest expense Total $ $ 371 $ 371 $ (43) $ (43) $ — — 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, 2017, the Company had 316 derivative transactions with an aggregate notional amount of $1.43 billion related to this program. The table below presents the effect of the Company’s non-designated hedge instruments in the consolidated statements of income: (Dollars in thousands) Years Ended December 31, 2017 2016 2015 Derivatives not designated as hedging instruments: Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative Interest rate products Non-interest income Total $ $ (1) $ (1) $ 528 $ 528 $ (174) (174) 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, 2017, the termination value of derivatives for which we had master netting arrangements with the counterparty and in a net liability position was $152,000, including accrued interest. As of December 31, 2017, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $4.9 million. If the Company had breached any of these provisions as of December 31, 2017, 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 122 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. • 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, 2017 and December 31, 2016: (Dollars in thousands) Financial assets: Investment securities available-for-sale: Corporate bonds Trust preferred securities Non-agency collateralized loan obligations Agency collateralized mortgage obligations Agency mortgage-backed securities Equity securities Interest rate swaps Total financial assets Financial liabilities: Interest rate swaps Total financial liabilities December 31, 2017 Level 1 Level 2 Level 3 Total Assets / Liabilities at Fair Value $ $ $ $ — $ 61,689 $ — $ — — — — 8,635 — 18,581 805 38,822 18,953 — 13,761 — — — — — — 61,689 18,581 805 38,822 18,953 8,635 13,761 8,635 $ 152,611 $ — $ 161,246 — $ — $ 12,078 $ 12,078 $ — $ — $ 12,078 12,078 123 (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 INVESTMENT SECURITIES December 31, 2016 Level 1 Level 2 Level 3 Total Assets / Liabilities at Fair Value $ — $ 54,045 $ — $ — — — — — — 8,352 — 17,798 5,764 16,180 43,821 24,149 4,783 — 12,117 — — — — — — — — 8,352 $ 178,657 $ — $ 54,045 17,798 5,764 16,180 43,821 24,149 4,783 8,352 12,117 187,009 — $ — $ 10,609 $ 10,609 $ — $ — $ 10,609 10,609 $ $ $ Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs and therefore are classified as Level 2. Equity securities (including mutual funds) are classified as Level 1 because these securities are in actively traded markets. INTEREST RATE SWAPS The fair value of interest rate swaps 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, 2017 and December 31, 2016: (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, 2017 Level 1 Level 2 Level 3 Total Assets at Fair Value — $ — — $ — $ — — $ 4,047 $ 3,576 7,623 $ 4,047 3,576 7,623 December 31, 2016 Level 1 Level 2 Level 3 Total Assets at Fair Value — $ — — $ — $ — — $ 10,851 $ 4,178 15,029 $ 10,851 4,178 15,029 $ $ $ $ As of December 31, 2017 and December 31, 2016, the Company recorded $2.5 million and $6.9 million, respectively, of specific reserves to the allowance for loan losses as a result of adjusting the fair value of impaired loans. 124 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 cause us to believe our recoverable value may be less than the independent appraised value. Accordingly, impaired loans are classified as Level 3. The Company measures impairment on all loans 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 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 cause us to believe our recoverable 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, 2017 and December 31, 2016: (Dollars in thousands) Loans measured for impairment, net Loans measured for impairment, net December 31, 2017 Fair Value Valuation Techniques (1) Significant Unobservable Inputs Weighted Average Discount Rate $ $ 676 Appraisal value 3,371 Discounted cash flow Discount due to salability conditions Discount due to restructured nature of operations —% 6% Other real estate owned 10% (1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include level 3 inputs that are not 3,576 Appraisal value $ Discount due to salability conditions identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. (Dollars in thousands) Loans measured for impairment, net December 31, 2016 Fair Value Valuation Techniques (1) Significant Unobservable Inputs Weighted Average Discount Rate $ 10,851 Discounted cash flow Discount due to restructured nature of operations 6% Other real estate owned 10% (1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include level 3 inputs that are not 4,178 Appraisal value $ Discount due to salability conditions identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. 125 FAIR VALUE OF FINANCIAL INSTRUMENTS A summary of the carrying amounts and estimated fair values of financial instruments was 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 Federal Home Loan Bank stock Loans held-for-investment, net Accrued interest receivable Investment management fees receivable, net Bank owned life insurance Other real estate owned Interest rate swaps Financial liabilities: Deposits Borrowings, net Interest rate swaps December 31, 2017 December 31, 2016 Fair Value Level Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value 1 2 1 2 2 3 2 2 2 3 2 2 2 2 $ 156,153 $ 156,153 $ 103,994 $ 138,850 8,635 59,275 13,792 138,850 8,635 60,141 13,792 166,540 8,352 53,940 9,641 103,994 166,540 8,352 54,498 9,641 4,169,827 4,167,775 3,382,292 3,362,031 13,519 7,720 66,593 3,576 13,761 13,519 7,720 66,593 3,576 13,761 9,614 7,749 64,815 4,178 12,117 9,614 7,749 64,815 4,178 12,117 $ 3,987,611 $ 3,985,883 $ 3,286,779 $ 3,286,553 335,913 12,078 336,051 12,078 239,510 10,609 240,143 10,609 During the years ended December 31, 2017, 2016 and 2015, 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, 2017 and December 31, 2016: 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. FEDERAL HOME LOAN BANK STOCK The carrying value of our FHLB stock, which is carried at cost, approximates fair value. LOANS HELD-FOR-INVESTMENT The fair value of loans held-for-investment 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. ACCRUED INTEREST RECEIVABLE The carrying amount approximates fair value. INVESTMENT MANAGEMENT FEES RECEIVABLE The carrying amount 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 fair value, less estimated disposition costs, with the fair value being determined by appraisal. 126 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 deposits 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 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) net of tax, for the periods presented: 2017 2016 2015 Years Ended December 31, (Dollars in thousands) Investment Securities Derivatives Total Investment Securities Derivatives Total Investment Securities Derivatives Total Balance, beginning of period $ (297) $ 1,127 $ 830 $ (1,443) $ — $ (1,443) $ (627) $ — $ (627) Change in unrealized holding gains (losses) Losses (gains) reclassified from other comprehensive income Net other comprehensive income (loss) 655 180 835 1,166 1,100 2,266 (795) (186) (233) (419) (20) 27 7 (21) 469 (53) 416 1,146 1,127 2,273 (816) — — — (795) (21) (816) Balance, end of period $ 172 $ 1,074 $ 1,246 $ (297) $ 1,127 $ 830 $ (1,443) $ — $ (1,443) [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, 2017, the Bank had four loans outstanding to directors totaling $12.2 million. As of December 31, 2017, the Bank had deposits outstanding from directors, executive officers and their related interests totaling $15.8 million. During the years ended December 31, 2017, 2016 and 2015, the Bank obtained services from affiliated companies of certain directors in the normal course of business as outlined below: (Dollars in thousands) Years Ended December 31, Related Party Affiliation Nature of Transaction 2017 2016 2015 Voyager Jet Center Owned by a director Aircraft charter Total [21] CONTINGENT LIABILITIES $ $ 109 $ 109 $ 104 $ 104 $ 73 73 The Company is not 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. 127 [22] CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed statements of financial condition of the parent company as of December 31, 2017 and 2016, and the related condensed statements of income and cash flows for the years ended December 31, 2017, 2016 and 2015, should be read in conjunction with our Consolidated Financial Statements and related notes: CONDENSED STATEMENTS OF FINANCIAL CONDITION PARENT COMPANY ONLY (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, net Other accrued expenses and other liabilities Shareholders’ equity Total liabilities and shareholders’ equity CONDENSED STATEMENTS OF INCOME PARENT COMPANY ONLY (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, 2017 2016 $ $ $ $ 3,986 $ 8,635 418,189 541 4,728 8,352 374,577 892 431,351 $ 388,549 40,913 $ 1,367 389,071 431,351 $ 34,510 2,232 351,807 388,549 Years Ended December 31, 2017 2016 2015 $ 279 $ 301 $ 3,000 3,279 2,305 974 — 371 603 (251) 854 37,134 37,988 $ $ 23,100 23,401 2,215 21,186 — 370 20,816 (877) 21,693 6,948 28,641 $ 268 2,510 2,778 2,215 563 — 91 472 68 404 22,084 22,488 128 CONDENSED STATEMENTS OF CASH FLOWS PARENT COMPANY ONLY (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 Increase (decrease) 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 increase in line of credit advances Net proceeds from exercise of stock options Cancellation of stock options Purchase of treasury stock Net cash 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, 2017 2016 2015 $ 37,988 $ 28,641 $ 22,488 (37,134) (6,948) (22,084) 203 19 238 (777) 537 (267) (200) (467) 6,200 1,663 — (8,675) (812) (742) 4,728 202 — (913) 776 21,758 (285) (13,030) (13,315) — 2,674 (6,200) (5,125) (8,651) (208) 4,936 $ 3,986 $ 4,728 $ 203 (143) 587 532 1,583 (248) (12,600) (12,848) — 353 (229) (3,158) (3,034) (14,299) 19,235 4,936 The Company operates two reportable segments: Bank and Investment Management. • The Bank segment provides commercial banking services to middle-market businesses and private banking services to high- net-worth individuals through the TriState Capital Bank subsidiary. • The Investment Management segment provides advisory and sub-advisory investment management services primarily to institutional investors, mutual funds and individual investors through the Chartwell Investment Partners, LLC subsidiary. It also supports 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 general operating activity of the Company not considered to be a reportable segment, which includes the parent company activity as well as eliminations and adjustments that are necessary for purposes of reconciliation to the consolidated amounts. (Dollars in thousands) Assets: Bank Investment management Parent and other Total assets December 31, 2017 December 31, 2016 $ $ 4,691,760 $ 3,846,353 84,714 1,423 85,072 (968) 4,777,897 $ 3,930,457 129 (Dollars in thousands) Income statement data: Interest income Interest expense Net interest income (loss) Provision (credit) for loan losses Net interest income (loss) after provision for loan losses Non-interest income: Investment management fees Net gain on the sale and call of investment securities 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 (benefit) 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 and call of investment securities Other non-interest income Total non-interest income Non-interest expense: Intangible amortization expense Change in fair value of acquisition earn out Other non-interest expense Total non-interest expense Income (loss) before tax Income tax expense (benefit) Net income (loss) Year Ended December 31, 2017 Investment Management Parent and Other Bank Consolidated $ 134,029 $ — $ 266 $ 134,295 40,649 93,380 (623) 94,003 — 310 9,554 9,864 — 59,073 59,073 44,794 9,211 — — — — 37,309 — 2 37,311 1,851 30,387 32,238 5,073 522 2,293 (2,027) — (2,027) (209) — — (209) — 161 161 (2,397) (251) $ 35,583 $ 4,551 $ (2,146) $ 42,942 91,353 (623) 91,976 37,100 310 9,556 46,966 1,851 89,621 91,472 47,470 9,482 37,988 Year Ended December 31, 2016 Investment Management Parent and Other Bank Consolidated $ 98,027 $ — $ 285 $ 21,300 76,727 838 75,889 — 77 9,393 9,470 — — 52,676 52,676 32,683 9,568 — — — — 37,258 — 3 37,261 1,753 (3,687) 27,905 25,971 11,290 4,357 2,199 (1,914) — (1,914) (223) — — (223) — — 147 147 (2,284) (877) $ 23,115 $ 6,933 $ (1,407) $ 98,312 23,499 74,813 838 73,975 37,035 77 9,396 46,508 1,753 (3,687) 80,728 78,794 41,689 13,048 28,641 130 (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 and call of investment securities 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 (benefit) Net income (loss) [24] SUBSEQUENT EVENTS Year Ended December 31, 2015 Investment Management Parent and Other Bank Consolidated $ 83,347 $ — $ 249 $ 13,448 69,899 13 69,886 — 33 5,840 5,873 — 47,186 47,186 28,573 8,347 — — — — 29,814 — (8) 29,806 1,558 21,403 22,961 6,845 2,477 2,195 (1,946) — (1,946) (196) — — (196) — (104) (104) (2,038) 68 $ 20,226 $ 4,368 $ (2,106) $ 83,596 15,643 67,953 13 67,940 29,618 33 5,832 35,483 1,558 68,485 70,043 33,380 10,892 22,488 In January 2018, the Company’s Board of Directors approved a new share repurchase program of up to $5 million. Under the authorization, purchases of shares may be made at the discretion of management from time to time in the open market or through negotiated transactions. On January 24, 2018, TriState Capital Holdings, Inc. entered into a definitive agreement to acquire the clients and client contracts and certain other assets of the fixed income business and equity business of Columbia Partners, L.L.C., Investment Management (“Columbia Partners”). Institutional accounts with up to $1 billion in client assets under management are expected to move from Columbia Partners to Chartwell upon closing of the transaction. Columbia Partners and the board of directors of TriState Capital have approved the transaction. Closing is anticipated during the first half of 2018, subject to regulatory requirements, certain Columbia Partners client consents, and other customary closing conditions and adjustments. 131 The tables below summarize our unaudited quarterly financial information for the years ended December 31, 2017 and 2016: 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 (loss) on the sale and call of investment securities 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 (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 the sale and call of investment securities Other non-interest income Total non-interest income Non-interest expense: Intangible amortization expense Change in fair value of acquisition earn out Other non-interest expense Total non-interest expense Income before tax Income tax expense Net income Earnings per common share: Basic Diluted 2017 Fourth Quarter Third Quarter Second Quarter First Quarter 37,868 $ 13,069 24,799 (1,665) 26,464 9,416 56 2,667 12,139 463 25,255 25,718 12,885 842 12,043 $ 0.44 $ 0.42 $ (unaudited) 35,575 $ 11,970 23,605 283 23,322 9,214 15 2,477 11,706 463 22,349 22,812 12,216 2,184 10,032 $ 0.36 $ 0.35 $ 2016 32,115 $ 10,082 22,033 516 21,517 9,130 241 2,341 11,712 462 21,322 21,784 11,445 3,024 8,421 $ 0.31 $ 0.29 $ 28,737 7,821 20,916 243 20,673 9,340 (2) 2,071 11,409 463 20,695 21,158 10,924 3,432 7,492 0.27 0.26 Fourth Quarter Third Quarter Second Quarter First Quarter 26,232 $ 6,719 19,513 1,178 18,335 10,221 — 3,428 13,649 462 (2,478) 22,833 20,817 11,167 3,596 7,571 $ 0.27 $ 0.27 $ (unaudited) 24,925 $ 6,221 18,704 (542) 19,246 10,333 14 2,150 12,497 463 (1,209) 21,260 20,514 11,229 2,775 8,454 $ 0.31 $ 0.30 $ 23,795 $ 5,576 18,219 80 18,139 9,462 62 1,923 11,447 438 — 19,019 19,457 10,129 3,356 6,773 $ 0.25 $ 0.24 $ 23,360 4,983 18,377 122 18,255 7,019 1 1,895 8,915 390 — 17,616 18,006 9,164 3,321 5,843 0.21 0.21 $ $ $ $ $ $ $ $ 132 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, 2017. 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, 2017. 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, 2017, 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, 2017, 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. Management’s assessment of the overall effectiveness of our internal controls over financial reporting for the year ending December 31, 2017, was based on the 2013 COSO Framework. 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, 2017, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 133 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 on or around May 17, 2018, which proxy materials will be filed with the SEC no later than April 30, 2018, 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 on or around May 17, 2018, which proxy materials will be filed with the SEC no later than April 30, 2018, 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 on or around May 17, 2018, which proxy materials will be filed with the SEC no later than April 30, 2018, 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 on or around May 17, 2018, which proxy materials will be filed with the SEC no later than April 30, 2018, 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 on or around May 17, 2018, which proxy materials will be filed with the SEC no later than April 30, 2018, and are incorporated by reference. 134 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 in the following section 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. 135 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, which is incorporated by reference to our Annual Report on Form 10-K filed with the SEC on February 16, 2016. 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. 136 21 Subsidiaries of TriState Capital Holdings, Inc., filed herewith. 23.2 Consent of KPMG LLP, Independent Registered Public Accounting Firm, filed herewith. 24 Power of Attorney, filed herewith. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 32 101 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, 2017, 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. 137 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 23, 2018 By: /s/ James F. Getz James F. Getz Chairman, President and Chief Executive Officer Date: February 23, 2018 By: /s/ David J. Demas David J. Demas 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 23, 2018 By: /s/ James F. Getz James F. Getz Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) Date: February 23, 2018 By: /s/ David J. Demas David J. Demas Chief Financial Officer (Principal Financial and Accounting Officer) Date: February 23, 2018 By: /s/ David L. Bonvenuto* David L. Bonvenuto Director Date: February 23, 2018 By: /s/ Anthony J. Buzzelli* Anthony J. Buzzelli Director Date: February 23, 2018 By: /s/ Helen Hanna Casey* Helen Hanna Casey Director Date: February 23, 2018 By: /s/ E.H. (Gene) Dewhurst* E.H. (Gene) Dewhurst Director Date: February 23, 2018 By: /s/ James J. Dolan* James J. Dolan Director Date: February 23, 2018 By: /s/ Brian S. Fetterolf* Brian S. Fetterolf Director Date: February 23, 2018 By: /s/ James E. Minnick* James E. Minnick 138 Date: February 23, 2018 By: /s/ Kim A. Ruth* Director Kim A. Ruth Director Date: February 23, 2018 By: /s/ A. William Schenck, III* A. William Schenck, III Vice Chairman and Director Date: February 23, 2018 By: /s/ Richard B. Seidel* Richard B. Seidel Director Date: February 23, 2018 By: /s/ Mark L. Sullivan* Mark L. Sullivan Vice Chairman and Director Date: February 23, 2018 By: /s/ John B. Yasinsky* John B. Yasinsky Director * By: /s/ James F. Getz James F. Getz, Attorney-in-Fact 139 TriState Capital Holdings, Inc. One Oxford Centre, Suite 2700 301 Grant Street Pittsburgh, PA 15219