TRISTATE CAPITAL HOLDINGS, INC. This section presents management's perspective on our financial condition and results of operations and highlights material changes to our financial condition and results of operations as of and for the three months endedMarch 31, 2022 . The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes contained in Item 1 of this Quarterly Report on Form 10-Q and our consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year endedDecember 31, 2021 , included in the Company's Annual Report on Form 10-K, which was filed with theSecurities and Exchange Commission (the "SEC") onMarch 1, 2022 . To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections titled "Cautionary Note Regarding Forward-Looking Statements" at the beginning of this document and "Item 1A. Risk Factors."
General
TriState Capital Holdings, Inc. ("we," "us," "our," the "holding company," the "parent company," or the "Company") is a bank holding company that operates through two reportable segments: Bank and Investment Management. ThroughTriState Capital Bank , aPennsylvania chartered bank (the "Bank"), the Bank segment provides commercial banking services to middle-market and financial services businesses and private banking services to high-net-worth individuals and trusts. The Bank segment generates most of its revenue from interest on loans and investments, swap fees, loan fees, and liquidity and treasury management related fees. Its primary source of funding for loans is deposits and its secondary source of funding is borrowings. The Bank's largest expenses are interest on these deposits and borrowings, and salaries and related employee benefits. ThroughChartwell Investment Partners, LLC , anSEC -registered investment adviser ("Chartwell"), 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 throughChartwell TSC Securities Corp. , our registered broker-dealer subsidiary ("CTSC Securities ").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. This discussion and analysis present 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 available to common shareholders, earnings per common share ("EPS") and total revenue (which is a non-GAAP financial measure). Other salient metrics include the ratio of allowance for credit losses on loans and leases to loans and leases; net interest margin; the efficiency ratio of the Bank segment (which is a non-GAAP financial measure); return on average assets; return on average common equity; regulatory leverage and risk-based capital ratios; and assets under management and EBITDA of the Investment Management segment (which is a non-GAAP financial measure). Executive Overview We are a bank holding company headquartered inPittsburgh, Pennsylvania . The Company has three wholly owned subsidiaries: the Bank,Chartwell and CTSC Securities . Through the Bank, we serve middle-market and financial services businesses in our primary markets throughout the states ofPennsylvania ,Ohio ,New Jersey andNew York . We also serve high-net-worth individuals and trusts 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. The Bank's total assets were$13.60 billion as ofMarch 31, 2022 . Through Chartwell, our investment management subsidiary, we provide investment management services primarily to institutional investors, mutual funds and individual investors on a national basis. Chartwell's assets under management were$11.23 billion as ofMarch 31, 2022 .CTSC Securities , our broker-dealer subsidiary, supports marketing efforts for Chartwell's proprietary investment products and is regulated by theSEC and theFinancial Industry Regulatory Authority, Inc. ("FINRA"). OnOctober 20, 2021 , the Company announced that it entered into a definitive agreement under whichRaymond James will acquire the outstanding shares of stock of the Company for consideration that is a combination of cash andRaymond James stock at a fixed exchange rate, valued in aggregate at approximately$1.1 billion based on the trading value ofRaymond James' stock on the announcement date.Raymond James is a leading diversified financial services company providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. Subsequent to closing, 46 -------------------------------------------------------------------------------- Table of ContentsTriState Capital Bank will continue operating as a separately branded stand-alone, independently chartered bank subsidiary ofRaymond James , and Chartwell will continue to operate as a separately branded stand-alone investment adviser. The Company's shareholders approved the transaction onFebruary 28, 2022 . The acquisition is subject to customary closing conditions, including receipt of regulatory approvals, and is currently expected to close by the end of the second quarter of 2022.
Performance
For the three months endedMarch 31, 2022 , our net income available to common shareholders was$18.5 million compared to$13.1 million for the same period in 2021, an increase of$5.4 million , or 40.8%. This increase in net income available to common shareholders from the same period in 2021 was primarily due to an increase in net interest income of$14.9 million , or 38.7%, driven primarily by loan growth and reduced deposit cost and an increase in non-interest income of$1.4 million , or 10.6%, which was partially offset by an increase of$9.9 million , or 31.7%, in non-interest expense as the Company continues to invest in people, processes and technology and an increase of$704,000 in income tax expense. Our diluted EPS was$0.48 for the three months endedMarch 31, 2022 , compared to$0.35 for the same period in 2021, an increase of$0.13 per share, or 37.1%. Results for the three months endedMarch 31, 2022 , as compared to the same period in 2021, included higher net income available to common shareholders, as well as a higher number of diluted shares outstanding. EPS is computed using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends accumulated or declared and participation rights in undistributed earnings. For more information on the Company's calculation of EPS, refer to Note 1, Summary of Significant Accounting Policies and Note 9, Earnings per Common Share, to our unaudited condensed consolidated financial statements. For the three months endedMarch 31, 2022 , total revenue increased$16.4 million , or 31.3%, to$68.7 million from$52.3 million for the same period in 2021. This increase in total revenue was driven largely by higher net interest income due to decreased funding costs and loan growth, and increased non-interest income, resulting primarily from higher levels of swap fees.
Our annualized net interest margin was 1.70% and 1.59% for the three months
ended
The significant reduction in interest rates by theBoard of Governors of theFederal Reserve System (the "Federal Reserve") in response to the COVID-19 pandemic impacted our interest-earning assets and interest-bearing liabilities. Our loans are predominantly variable rate loans, of which many are indexed to one-month LIBOR, the Prime Rate, or another benchmark rate such as one-month term Secured Overnight Financing Rate ("SOFR"). At the end of the first quarter 2020, we placed interest rate floors on the majority of our floating rate loans, particularly our private banking loans, and we have continued to implement floors on newly originated loans. As a result, approximately 40% of our total loans have floors that are currently benefiting the Bank compared to their contractual index. While we continue our strategy to implement floors on recently originated loans, we have modified our pricing strategy to balance wider spreads with lower floor rates to manage our interest rate sensitivity while managing overall yield. In the current rising rate environment, the impact of these floors is less consequential. Our deposits include fixed-rate time deposits but are primarily comprised of variable rate deposits, many of which are linked to an index such as the effective federal funds rate and others that are priced at the Bank's discretion. Our non-interest income is largely comprised of investment management fees for Chartwell, which totaled$9.1 million for the three months endedMarch 31, 2022 , as compared to$9.0 million for the same period in 2021. Assets under management were$11.23 billion as ofMarch 31, 2022 , an increase of$27.0 million fromMarch 31, 2021 , driven by market appreciation of$221.0 million , partially offset by net outflows of$194.0 million . Chartwell's annual run-rate revenue decreased to$36.8 million as ofMarch 31, 2022 , compared to$38.8 million as ofMarch 31, 2021 . For the three months endedMarch 31, 2022 , investment fees grew$0.2 million , or 2.3%, while expenses grew$0.8 million , or 9.7%. As a result, EBITDA declined 31% for the three months endedMarch 31, 2022 from$1.9 million to$1.3 million . Another large component of our non-interest income is swap fees for the Bank, which totaled$4.7 million for the three months endedMarch 31, 2022 , and$2.7 million for the same period in 2021. We have continued to enhance our distribution and product strategies to drive consistent opportunities for interest rate protection through swaps in both our commercial banking and private banking clients. The number of swaps executed as well as the notional amount and term of each swap transaction impact our fee income from period to period. Our annualized ratio of non-interest expense to average assets was 1.27% and 1.24% for the three months endedMarch 31, 2022 and 2021, respectively. The Bank's efficiency ratio was 50.42% and 50.59% for the three months endedMarch 31, 2022 and 2021, respectively. The Bank's efficiency ratio reflects growth in the Bank's total revenue of 38.3%, partially offset by growth in the Bank's non-interest expense of 37.9% for the three months endedMarch 31, 2022 as compared to the same period in 2021. 47 -------------------------------------------------------------------------------- Table of Contents Our annualized return on average assets (net income to average total assets) was 0.67% and 0.64% for the three months endedMarch 31, 2022 and 2021, respectively. Our annualized return on average common equity (net income available to common shareholders to average common equity) was 11.40% and 9.06% for the three months endedMarch 31, 2022 and 2021, respectively. Our total assets were$13.68 billion as ofMarch 31, 2022 , an increase of$0.67 billion , or 21.0% on an annualized basis, fromDecember 31, 2021 , primarily due to growth in our loan and lease portfolio and growth in our investment portfolio. Loans and leases held-for-investment grew by$483.6 million to$11.25 billion as ofMarch 31, 2022 , an annualized increase of 18.2% fromDecember 31, 2021 , as a result of growth in our commercial and private banking loan portfolios. Total investment securities increased$132.8 million , or 38.3% on an annualized basis, to$1.54 billion as ofMarch 31, 2022 , fromDecember 31, 2021 . Total deposits increased$0.66 billion , or 23.3% on an annualized basis, to$12.17 billion as ofMarch 31, 2022 , fromDecember 31, 2021 . We focus on high quality loan growth and correspondingly grow our investment portfolio at a similar pace as part of our strategy to continue building greater on-balance sheet liquidity, funded by our deposits. Our ratio of adverse rated credits to total loans declined to 0.29% atMarch 31, 2022 , from 0.34% atDecember 31, 2021 , primarily due to a reduction in criticized assets of$4.7 million . Our ratio of allowance for credit losses on loans and leases to loans and leases was 0.22% and 0.27% as ofMarch 31, 2022 andDecember 31, 2021 , respectively. We recorded provision for credit losses of$563,000 for the three months endedMarch 31, 2022 , compared to$224,000 for the three months endedMarch 31, 2021 . Our book value per common share decreased$0.21 to$19.49 as ofMarch 31, 2022 , from$19.70 as ofDecember 31, 2021 . This decrease was largely as a result of higher levels of retained earnings as ofMarch 31, 2022 being more than offset by the effect increased shares outstanding and an increase in accumulated other comprehensive loss as ofMarch 31, 2022 .
Non-GAAP Financial Measures
We report 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," "pre-tax, pre-provision net revenue," "efficiency ratio" and "EBITDA." These non-GAAP financial measures are supplemental measures that we believe provide management and our investors with a more detailed understanding of our performance, although these measures are not necessarily comparable to similar measures that may be presented by other companies. These disclosures should not be viewed as a substitute for financial measures in accordance with GAAP.
The non-GAAP financial measures presented herein are calculated as follows:
"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 so that they can better understand and assess changes from period to period in common shareholders' equity exclusive of changes in intangible assets associated with prior acquisitions. Intangible assets are created when we buy businesses that add relationships and revenue to our Company. Intangible assets have 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 common shareholders' equity reduced by 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 common share exclusive of changes in intangible assets associated with prior acquisitions.
"Total revenue" is defined as net interest income and total non-interest income, excluding gains and losses on the sale and call of debt securities. We believe adjustments made to our operating revenue allow management and investors to better assess our core operating revenue by removing the volatility that is associated with certain items that are unrelated to our core business. "Pre-tax, pre-provision net revenue" is defined as net interest income and non-interest income, excluding gains and losses on the sale and call of debt securities and total non-interest expense. We believe this measure is important because it allows management and investors to better assess our performance in relation to our core operating revenue, excluding the volatility that is associated with provision for credit losses and changes in our tax rates and other items that are unrelated to our core business.
"Efficiency ratio" is defined as total non-interest expense divided by our total revenue. We believe this measure allows management and investors to better assess our operating expenses in relation to our core operating revenue, particularly at the Bank.
"EBITDA" is defined as net income before interest expense, income tax expense,
depreciation expense and intangible amortization expense. We use 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 by excluding certain non-cash items and the volatility that
is associated with certain discrete items that are unrelated to our core
business.
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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.
March 31, December 31,
(Dollars in thousands, except per share data) 2022 2021
Tangible common equity and tangible book value per common share: Common shareholders' equity
$ 655,494 $ 655,178 Less: goodwill and intangible assets 61,523 62,000 Tangible common equity (numerator)$ 593,971 $ 593,178 Common shares outstanding (denominator) 33,636,462 33,263,498 Tangible book value per common share$ 17.66 $ 17.83
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Total revenue and pre-tax, pre-provision net revenue: Net interest income
$ 53,601 $ 38,656 Total non-interest income 15,097 13,651 Less: net gain on the sale and call of debt securities - (1) Total revenue$ 68,698 $ 52,308 Less: total non-interest expense 41,185 31,278 Pre-tax, pre-provision net revenue$ 27,513 $ 21,030 BANK SEGMENT Three Months Ended March 31, (Dollars in thousands) 2022 2021 Bank total revenue: Net interest income$ 55,785 $ 40,153 Total non-interest income 6,167 4,630 Less: net gain on the sale and call of debt securities - (1) Bank total revenue$ 61,952 $ 44,784 Bank efficiency ratio: Total non-interest expense (numerator)$ 31,238 $ 22,655 Total revenue (denominator)$ 61,952 $ 44,784 Bank efficiency ratio 50.42 % 50.59 % 49
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INVESTMENT MANAGEMENT SEGMENT
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Investment Management EBITDA:
Net income $ 528 $ 1,025
Interest expense - -
Income tax expense 199 310
Depreciation expense 111 103
Intangible amortization expense 478 478
EBITDA $ 1,316 $ 1,916
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Table of Contents 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. Net interest income comprised 78.0% and 73.9% of total revenue for the three months endedMarch 31, 2022 and 2021, 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 21% for 2022 and 2021. Three Months Ended March 31, (Dollars in thousands) 2022 2021 Interest income$ 67,577 $ 51,992 Fully taxable equivalent adjustment 6 7 Interest income adjusted 67,583 51,999 Less: interest expense 13,976 13,336 Net interest income adjusted$ 53,607 $ 38,663 Yield on earning assets (1) (2) 2.15 % 2.14 % Cost of interest-bearing liabilities (1) 0.49 % 0.62 % Net interest spread (1) (2) 1.66 % 1.52 % Net interest margin (1) (2) 1.70 % 1.59 % (1)Annualized.
(2)Calculated on a fully taxable equivalent basis.
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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 three months ended March 31, 2022 and
2021. Non-accrual loans are included in the calculation of average loan
balances, while interest collected on non-accrual loans is recorded as a
reduction to principal. Where applicable, interest income and yield are
reflected on a fully taxable equivalent basis and have been adjusted based on
the statutory federal income tax rate of 21% for 2022 and 2021.
Three Months Ended
2022 2021
Interest Average Interest Average
Average Income (1)/ Yield/ Average Income (1)/ Yield/
(Dollars in thousands) Balance Expense Rate (2) Balance Expense Rate (2)
Assets
Interest-earning deposits$ 410,702 $ 189 0.19 %$ 555,427 $ 158 0.12 % Federal funds sold 11,677 3 0.10 % 10,557 2 0.08 % Debt securities available-for-sale 704,444 3,144 1.81 % 348,835 570 0.66 % Debt securities held-to-maturity 798,893 2,865 1.45 % 637,719 1,900 1.21 % Debt securities trading - - - % 315 1 1.29 % Equity securities 4,939 16 1.31 % - - - % FHLB stock 11,811 138 4.74 % 11,551 182 6.39 % Total loans and leases 10,830,464 61,228 2.29 % 8,276,059 49,186 2.41 % Total interest-earning assets 12,772,930 67,583 2.15 % 9,840,463 51,999 2.14 % Other assets 378,246 375,418 Total assets$ 13,151,176 $ 10,215,881 Liabilities and Shareholders' Equity Interest-bearing deposits: Interest-bearing checking accounts$ 4,269,019 $ 3,707 0.35 %$ 3,065,983 $ 2,793 0.37 % Money market deposit accounts 6,032,665 6,352 0.43 % 4,345,454 5,964 0.56 % Certificates of deposit 698,367 687 0.40 % 1,012,861 1,997 0.80 %
Borrowings:
FHLB borrowings 250,111 1,026 1.66 % 253,889 1,072 1.71 % Line of credit borrowings - - - % 4,589 55 4.86 %
Senior & subordinated notes payable, net 220,220 2,204
4.06 % 95,511 1,455 6.18 %
Total interest-bearing liabilities 11,470,382 13,976
0.49 % 8,778,287 13,336 0.62 %
Noninterest-bearing deposits 652,805 424,535
Other liabilities 187,171 247,659
Shareholders' equity 840,818 765,400
Total liabilities and shareholders'
equity $ 13,151,176 $ 10,215,881
Net interest income (1) $ 53,607 $ 38,663
Net interest spread (1) 1.66 % 1.52 %
Net interest margin (1) 1.70 % 1.59 %
(1)Calculated on a fully taxable equivalent basis. (2)Annualized.
Net Interest Income for the Three Months EndedMarch 31, 2022 and 2021. Net interest income, calculated on a fully taxable equivalent basis, increased$14.9 million , or 38.7%, to$53.6 million for the three months endedMarch 31, 2022 , from$38.7 million for the same period in 2021. The increase in net interest income for the three months endedMarch 31, 2022 , was comprised of an increase of$15.6 million , or 30.0%, in interest income and an increase of$640,000 , or 4.8%, in interest expense. Net interest margin increased to 1.70% for the three months endedMarch 31, 2022 , as compared to 1.59% for the same period in 2021. The increase in interest income on interest-earning assets was primarily the result of an increase in average total loans, an increase in average debt securities available-for-sale and held-to-maturity, and increases in the yields on debt securities available-for-sale and held-to-maturity partially offset by a decrease in the yield on total loans. The change in yield on loans is partially attributable to an increased portion of our portfolio being comprised of our lower-risk, lower-yielding marketable-securities-backed private banking 52 -------------------------------------------------------------------------------- Table of Contents loans. The overall yield on interest-earning assets increased 1 basis points to 2.15% for the three months endedMarch 31, 2022 , as compared to 2.14% for the same period in 2021. The increase in interest expense on interest-bearing liabilities was primarily the result higher average interest-bearing checking accounts, money market deposit accounts and senior and subordinated notes payable partially offset by lower yields paid on all deposit categories and senior and subordinated notes payable. The decrease in the average rate paid for deposits was largely driven by the repricing of our deposits as a result of the current interest rate environment. The increase in average interest-bearing liabilities was driven primarily by an increase of$1.20 billion in average interest-bearing checking accounts and an increase of$1.69 billion in average money market deposit accounts, partially offset by a decrease of$314.5 million in average certificates of deposit. The ongoing success of our treasury management business contributed to the growth in our checking account deposit categories. The following table analyzes the dollar amount of the changes in interest income and interest expense with respect to the primary components of interest-earning assets and interest-bearing liabilities. The table shows the amount of the change in interest income or interest expense caused by either changes in outstanding balances or changes in interest rates for the three months endedMarch 31, 2022 , compared to the same period in 2021. The effect of a change in balances is measured by applying the average rate during the first period to the balance ("volume") change between the two periods. The effect of changes in interest rate is measured by applying the change in rate between the two periods to the average volume during the first period. Three Months Ended March 31, 2022 over 2021 (Dollars in thousands) Yield/Rate Volume Change(1) Increase (decrease) in: Interest income: Interest-earning deposits$ 80 $ (49) $ 31 Federal funds sold 1 - 1 Debt securities available-for-sale 1,620
954 2,574
Debt securities held-to-maturity 431 534 965 Debt securities trading - (1) (1) Equity securities - 16 16 FHLB stock (48) 4 (44) Total loans (2,500) 14,542 12,042 Total increase (decrease) in interest income (416)
16,000 15,584
Interest expense:
Interest-bearing deposits:
Interest-bearing checking accounts (136) 1,050 914 Money market deposit accounts (1,591) 1,979 388 Certificates of deposit (809) (501) (1,310) Borrowings: FHLB borrowings (30) (16) (46) Line of credit borrowings - (55) (55) Senior and subordinated notes payable, net (635) 1,384 749 Total increase (decrease) in interest expense (3,201) 3,841 640 Total increase in net interest income$ 2,785 $
12,159
(1)The change in interest income and interest expense due to changes in both composition and applicable yields/rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Provision for Credit Losses on Loans and Leases
The provision for credit losses on loans and leases represents our determination
of the amount necessary to be recorded against the current period's earnings to
maintain the allowance for credit losses at a level that is consistent with
management's assessment of credit losses in the loan and lease portfolio at a
specific point in time under the methodology required by CECL. For additional
information regarding our allowance for credit losses on loans and leases, see
"Allowance for Credit Losses on Loans and Leases."
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Provision for Loan and Lease Losses for the Three Months Ended March 31, 2022
and 2021. We recorded provision expense for loan and lease losses of $654,000
for the three months ended March 31, 2022 , compared to provision expense of
$213,000 for the three months ended March 31, 2021 . The provision expense for
loan and lease losses for the three months ended March 31, 2022 , was comprised
of an increase in general reserves, net of recoveries, of approximately $619,000
and an increase of specific reserves, net of charge-offs, of approximately
$35,000 . The increase in general reserves was largely due to changes in the
economic forecasts utilized in the qualitative management overlay. The provision
expense for credit losses on loans and leases for the three months ended March
31, 2021 , was comprised of a decrease in general reserves of $4.9 million
largely due to adjustments to the qualitative risk factors related to consensus
forecasts of an economic recovery and reductions in modeled losses, and a net
increase of $4.9 million in specific reserves on non-performing loans, largely
driven by two new non-accrual loans and a charge-off of $199,000 , all in our
commercial loan portfolio.
Non-Interest Income
Non-interest income is an important component of our total revenue and is
comprised largely of investment management fees from Chartwell coupled with fees
generated from loan and deposit relationships with our Bank customers, including
swap transactions. The information provided in the table below under the caption
"Parent and Other" represents general operating activity of the Company not
considered to be a reportable segment, which includes 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 income by
operating segment for the three months ended
Three Months Ended March 31, 2022 Three Months Ended March 31, 2021
Investment Parent Investment Parent
(Dollars in thousands) Bank Management and Other Consolidated Bank Management and Other Consolidated
Investment management fees $ -
9,000
Service charges on deposits 415 - - 415 316 - -
316
Net gain on the sale and call of debt securities - - - - (1) - - (1) Swap fees 4,660 - - 4,660 2,711 - - 2,711 Commitment and other loan fees 601 - - 601 326 - -
326
Bank owned life insurance income 606 - - 606 429 - - 429 Other income (loss) (1) (115) (31) (124) (270) 849 21 - 870
Total non-interest income
13,651
(1)Other income is largely comprised of items such as change in fair value on swaps, losses on the sale of loans or OREO, and other general operating income.
Non-Interest Income for the Three Months EndedMarch 31, 2022 and 2021. Our non-interest income was$15.1 million for the three months endedMarch 31, 2022 , an increase of$1.4 million , or 10.6%, from$13.7 million for the same period in 2021. This increase was primarily related to increases in swap fees, commitment and other loan fees, and bank owned lifer insurance income partially offset by a decrease in other income: Bank Segment: •Swap fees increased$1.9 million for the three months endedMarch 31, 2022 , compared to the same period in 2021, due to changing demand from customers for interest rate protection through swaps given recent movement in the yield curve. The number of swaps executed as well as the notional amount and term of each swap transaction impact the fee income from period to period.
•Commitment and other loan fees increased
•Bank owned life insurance income increased$177,000 for the three months endedMarch 31, 2022 , compared to the same period in 2021, primarily due to additional investments made in bank owned life insurance during the second quarter of 2021.
•Other non-interest income decreased
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Investment Management Segment:
•Investment management fees increased$210,000 , or 2.3%, for the three months endedMarch 31, 2022 , compared to the same period in 2021, due primarily to slightly higher assets under management of$11.23 billion as ofMarch 31, 2022 , an increase of$27.0 million fromMarch 31, 2021 . The weighted average fee rate was 0.33% and 0.35% as ofMarch 31, 2022 and 2021, respectively.
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 in the table below under the caption "Parent and Other" represents general operating activity of the Company not considered to be a reportable segment, which includes 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 three months ended
Three Months Ended March 31, 2022 Three Months Ended March 31, 2021
Investment Parent Investment Parent
(Dollars in thousands) Bank Management and Other Consolidated Bank Management and Other Consolidated
Compensation and employee
benefits $ 18,836 $ 5,638 $ 520 $ 24,994 $ 14,194 $ 5,448 $ 279 $ 19,921
Premises and equipment
expense 1,603 386 - 1,989 1,035 371 - 1,406
Professional fees 1,286 525 469 2,280 1,098 171 55 1,324
FDIC insurance expense 1,584 - - 1,584 1,125 - - 1,125
General insurance expense 295 76 - 371 228 70 - 298
State capital shares tax 798 - - 798 650 - - 650
Travel and entertainment
expense 616 80 - 696 417 24 - 441
Technology and data services 3,306 817 - 4,123 2,300 800 - 3,100
Intangible amortization
expense - 478 - 478 - 478 - 478
Marketing and advertising 512 384 - 896 394 290 - 684
Other operating expenses (1) 2,402 302 272 2,976 1,214 268 369 1,851
Total non-interest expense$ 31,238 $ 8,686 $ 1,261 $ 41,185 $ 22,655 $ 7,920 $ 703 $ 31,278 Employee headcount (2) 324 52 - 376 270 52 - 322 (1)Other operating expenses include items such as impairment on historic tax credit investments, charitable contributions, investor relations fees, platform distribution expenses, provision for credit losses on unfunded commitments and other general operating expenses. (2)Employee headcount as of the end of the periods presented. Non-Interest Expense for the Three Months EndedMarch 31, 2022 and 2021. Our non-interest expense for the three months endedMarch 31, 2022 , increased$9.9 million , or 31.7%, as compared to the same period in 2021, which included a$8.6 million increase in expenses of the Bank segment and a$766,000 increase in expenses of the Investment Management segment. Notable changes in each segment's expenses are as follows: Bank Segment: •The Bank's compensation and employee benefits costs increased by$4.6 million for the three months endedMarch 31, 2022 , compared to the same period in 2021, primarily due to an increase in the number of employees, increases in the overall annual wage and benefits costs of our existing employees, and increases in incentive and stock-based compensation expenses. The increases in the number of employees and related expenses in 2022 are a result of our investment in talent to support our risk management, scalable growth and client experience.
•Premises and equipment expense increased
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•FDIC insurance expense increased
•Technology and data services increased by$1.0 million for the three months endedMarch 31, 2022 , compared to the same period in 2021, primarily due to increased software depreciation expense, maintenance costs and software licensing fees all as a result of our continued enhancements in technology and product innovation to support our risk management, scalable growth and client experience. •Other operating expenses increased by$1.2 million for the three months endedMarch 31, 2022 , compared to the same period in 2021, primarily due to a$933,000 increase in the provision for credit losses associated with unfunded commitments. In the current year quarter, the Bank recognized a provision for credit losses on unfunded commitments of$500,000 and in the prior year quarter the Bank recognized a credit of$433,000 .
Investment Management Segment:
•Chartwell's compensation and employee benefits costs increased by
•Professional fees increased by
•Marketing and advertising expense increased by
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 Three Months EndedMarch 31, 2022 and 2021. For the three months endedMarch 31, 2022 , we recognized income tax expense of$5.3 million , or 19.7% of income before tax, as compared to income tax expense of$4.6 million , or 22.1% of income before tax, for the same period in 2021. Our effective tax rate of 19.7% for the three months endedMarch 31, 2022 , decreased compared to the same period in the prior year primarily due to the amount and timing of tax credits recognized in 2021 compared to 2020.
Financial Condition
Our total assets as ofMarch 31, 2022 , were$13.68 billion , an increase of$0.67 billion , or 21.0% on an annualized basis, fromDecember 31, 2021 , driven primarily by growth in our loan and investment portfolios. As ofMarch 31, 2022 , our loan portfolio totaled$11.25 billion , an increase of$483.6 million , or 18.2% on an annualized basis, fromDecember 31, 2021 . Total investment securities increased$132.8 million , or 38.3% on an annualized basis, to$1.54 billion as ofMarch 31, 2022 , fromDecember 31, 2021 . We focus on high quality loan growth and correspondingly grow our investment portfolio at a similar pace as part of our strategy to continue building greater on-balance sheet liquidity, funded by our deposits. As ofMarch 31, 2022 , our total deposits were$12.17 billion , an increase of$661.1 million , or 23.3% annualized, fromDecember 31, 2021 . Net borrowings increased$99,000 to$470.3 million as ofMarch 31, 2022 , fromDecember 31, 2021 . Our shareholders' equity increased$1.4 million to$838.1 million as ofMarch 31, 2022 , fromDecember 31, 2021 , primarily due to net income of$21.6 million and the$3.1 million impact of stock-based compensation mostly offset by other comprehensive loss of$17.7 million ,$2.0 million of preferred stock dividends paid, and an increase of$4.0 million in treasury stock related to the net settlement of equity awards exercised or vested. 56 -------------------------------------------------------------------------------- Table of Contents Loans and Leases
Our loan and lease portfolio, which represents our largest earning asset,
primarily consists of loans to our private banking clients, commercial and
industrial loans and leases, and real estate loans secured by commercial
properties. As of
The following table presents the composition of our loan portfolio as of the
dates indicated:
March 31, 2022 December 31, 2021
Percent of Percent of
(Dollars in thousands) Outstanding Loans Outstanding Loans
Private banking loans $ 7,268,162 64.6 % $ 6,886,498 64.0 %
Middle-market banking loans:
Commercial and industrial 1,564,309 13.9 % 1,513,423 14.1 %
Commercial real estate 2,414,448 21.5 % 2,363,403 21.9 %
Total middle-market banking loans 3,978,757 35.4 % 3,876,826 36.0 %
Loans and leases held-for-investment $ 11,246,919 100.0 % $ 10,763,324 100.0 %
Loans and Leases Held-for-Investment. Loans and leases held-for-investment
increased by $483.6 million , or 18.2% on an annualized basis, to $11.25 billion
as of March 31, 2022 , from December 31, 2021 . Our growth for the three months
ended March 31, 2022 , was comprised of an increase in private banking loans of
$381.7 million , an increase in commercial real estate loans of $51.0 million ,
and an increase in commercial and industrial loans and leases of $50.9 million .
Primary Loan Categories
Private Banking Loans. Our private banking loans include personal and commercial loans that are sourced through our private banking channel (which operates on a national basis), including referral relationships with financial intermediaries. These loans primarily consist of loans made to high-net-worth individuals, trusts and businesses that are secured by cash and marketable securities. We also originate loans that are secured by cash value life insurance and to a lesser extent 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 ofMarch 31, 2022 ,$7.21 billion , or 99.2%, of our private banking loans were secured by cash, marketable securities and/or cash value life insurance as compared to$6.82 billion , or 99.0%, as ofDecember 31, 2021 . Our private banking lines of credit are typically due on demand. We expect the growth in these loans to continue as a result of our focus on this portion of our banking business. We believe we have strong competitive advantages in this line of business given our robust distribution channel relationships and proprietary technology. These loans usually have a lower risk profile and are an efficient use of capital because they typically are zero percent risk-weighted for regulatory capital purposes. On a daily basis, we monitor the collateral of the loans secured by cash, marketable securities and/or cash value life insurance, which further reduces the risk profile of the private banking portfolio. Since inception, we have had no charge-offs related to our loans secured by cash, marketable securities and/or cash value life insurance. Loans sourced through our private banking channel also include loans that are classified for regulatory purposes as commercial, most of which are also secured by cash, marketable securities and/or cash value life insurance. The table below includes all loans made through our private banking channel, by collateral type, as of the dates indicated. March 31, December 31, (Dollars in thousands) 2022 2021 Private banking loans: Secured by cash, marketable securities and/or cash value life insurance$ 7,208,454 $ 6,816,517 Secured by real estate 39,683 37,285 Other 20,025 32,696 Total private banking loans$ 7,268,162 $ 6,886,498 As ofMarch 31, 2022 , there were$7.15 billion of total private banking loans with a floating interest rate and$115.7 million with a fixed interest rate, compared to$6.80 billion and$84.4 million , respectively, as ofDecember 31, 2021 . Commercial Banking - Commercial and Industrial Loans and Leases. Our commercial and industrial loan and lease portfolio primarily includes loans and equipment leases made to financial and other service companies or manufacturers generally for the 57 -------------------------------------------------------------------------------- Table of Contents 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 and leases, except for certain commercial loans that are secured by marketable securities. As ofMarch 31, 2022 , there were$1.20 billion of total commercial and industrial loans with a floating interest rate and$363.5 million with a fixed interest rate, compared to$1.16 billion and$350.4 million , respectively, as ofDecember 31, 2021 . Commercial 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. There were$210.4 million and$212.6 million of owner-occupied commercial real estate loans as ofMarch 31, 2022 andDecember 31, 2021 , respectively. As ofMarch 31, 2022 , there were$2.31 billion of total commercial real estate loans with a floating interest rate and$103.3 million with a fixed interest rate, as compared to$2.26 billion and$105.2 million , respectively, as ofDecember 31, 2021 .
Loan and Lease Maturities and Interest Rate Sensitivity
The following table presents the contractual maturity ranges and the amount of
such loans and leases with fixed and adjustable rates in each maturity range as
of the date indicated.
March 31, 2022
One Year One to Five to Fifteen Greater Than (Dollars in thousands)
Due on Demand or Less Five Years Years Fifteen Years Total Maturity: Commercial and industrial
$ 6,150 $ 506,438 $ 844,778 $ 205,451 $ 1,492 $ 1,564,309 Commercial real estate - 321,303 1,061,921 1,015,556 15,668 2,414,448 Private banking 7,030,446 44,808 100,192 86,742 5,974 7,268,162 Loans and leases held-for-investment$ 7,036,596 $ 872,549 $ 2,006,891 $ 1,307,749 $ 23,134 $ 11,246,919 Interest rate sensitivity: Fixed interest rates$ 95,426 $
34,942
6,941,170 837,607 1,743,912 1,124,571 17,160 10,664,420
Loans and leases held-for-investment $ 7,036,596 $ 872,549 $ 2,006,891 $ 1,307,749 $ 23,134 $ 11,246,919
Interest Reserve Loans
As of March 31, 2022 , loans with interest reserves totaled $331.7 million , which
represented 2.9% of loans and leases held-for-investment, compared to $350.5
million , or 3.3%, as of December 31, 2021 . 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 project budget and schedule for
completion, 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, advancing funds and determining default
conditions.
Allowance for Credit Losses on Loans and Leases
Our allowance for credit losses on loans and leases represent our current
estimate of expected credit losses in the loan and lease portfolio at a specific
point in time. This estimate includes credit losses associated with individually
evaluated loans and leases that do not share similar risk characteristics.
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 and lease are charged off
or when the current estimate of expected credit losses in of any of the three
loan portfolios decreases. Refer to Note 1,
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Summary of Significant Accounting Policies and Note 4, Allowance for Credit
Losses on Loans and Leases, to our unaudited condensed consolidated financial
statements for more details on the Company's allowance for credit losses on
loans and leases.
The following table summarizes the allowance for loan and lease losses, as of
the dates indicated:
March 31, December 31,
(Dollars in thousands) 2022 2021
General reserves $ 24,618 $ 23,880
Specific reserves 406 4,683
Total allowance for credit losses on loans and leases $
25,024
As ofMarch 31, 2022 , we had specific reserves totaling$406,000 related to individually evaluated loans with an aggregate total outstanding balance of$12.5 million . As ofDecember 31, 2021 , we had specific reserves totaling$4.7 million related to individually evaluated loans with an aggregate total outstanding balance of$16.8 million . Interest income of$151,000 and$0 was recognized on individually evaluated loans during the three months endedMarch 31, 2022 and 2021, respectively. The following table summarizes allowance for credit losses on loans and leases and the percentage of loans and leases by category, as of the dates indicated: March 31, 2022 December 31, 2021 Percent of Loans Percent of Loans (Dollars in thousands) Reserve and Leases Reserve and Leases Private banking $ 2,060 64.6 %$ 1,891 64.0 % Commercial and industrial 5,116 13.9 % 8,453 14.1 % Commercial real estate 17,848 21.5 % 18,219 21.9 % Total allowance for credit losses on loans and leases$ 25,024 100.0 %$ 28,563 100.0 % Allowance for Credit Losses on Loans and Leases as ofMarch 31, 2022 andDecember 31, 2021 . Our allowance for credit losses on loans and leases was$25.0 million , or 0.22% of loans as ofMarch 31, 2022 , compared to$28.6 million , or 0.27% of loans, as ofDecember 31, 2021 . Our allowance for credit losses on commercial loans decreased to 0.58% of total commercial loans as ofMarch 31, 2022 , compared to 0.69% of commercial loans as ofDecember 31, 2021 . Our allowance for credit losses decreased$3.5 million fromDecember 31, 2021 , driven by an increase of$0.7 million in general reserves more than offset by a decrease of$4.3 million in specific reserves due to a charge-off which was fully reserved. Our allowance for credit losses related to private banking loans increased$169,000 fromDecember 31, 2021 toMarch 31, 2022 . Our allowance for credit losses related to commercial and industrial loans decreased$3.3 million fromDecember 31, 2021 toMarch 31, 2022 , which was attributable to lower specific reserves due to a$4.3 million charge-off, partially offset by an increase in general reserves of$923,000 . Our allowance for credit losses related to commercial real estate loans decreased by$0.4 million fromDecember 31, 2021 toMarch 31, 2022 primarily due to decreased general reserves. The increase in general reserves in our commercial loan portfolio was primarily driven by changing economic forecasts related to assumptions utilized in the qualitative management overlay. We applied a management overlay to our allowance for credit loss model to provide a reserve level that supports management's best estimate of current expected credit losses within the loan portfolio. The management overlay includes three scenarios: near-term economic stress, a next-cycle recession, and a period of stagflation as well as other factors based upon management judgement. The consensus forecast within our model provided for a greater reserve release based on optimism around the economic environment and loss forecasts, which we believe may be an overreaction to the early onset of historically high level and rate of changes in the forecast and transactional values within commercial asset types. We would release reserves to the extent suggested by our model if we believe that there is a sustained trend in the economic recovery data and continued progress with pandemic associated economic and supply chain issues as well as clarity on the effectiveness of monetary policy.
Charge-Offs and Recoveries
Our charge-off policy for commercial and private banking loans and leases
requires that obligations that are not collectible be promptly charged off in
the month the loss becomes probable, regardless of the delinquency status of the
loan or lease. 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. An obligation is not required to be charged off,
regardless of delinquency status, if we have determined there exists sufficient
collateral to protect the remaining loan or lease balance and 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.
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The following table provides an analysis of the net charge-offs and average total loans and leases by channel for the periods indicated:
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Net charge-offs (recoveries):
Commercial and industrial $ 4,312 $ 199
Commercial real estate (119) -
Private banking - -
Total $ 4,193 $ 199
Average total loans and leases:
Commercial and industrial $ 1,431,455 $ 1,206,647
Commercial real estate 2,378,308 2,174,239
Private banking 7,020,701 4,895,173
Total $ 10,830,464 $ 8,276,059
Net loan charge-offs (recoveries) to average total loans and leases:
(1)
Commercial and industrial 1.22 % 0.07 %
Commercial real estate (0.02) % - %
Private banking - % - %
Total 0.16 % 0.01 %
(1) Ratios are annualized
Non-Performing Assets
Non-performing assets consist of non-performing loans and 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 includes
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 was no interest income recognized
on loans while on non-accrual status for the three months ended March 31, 2022
and 2021. As of March 31, 2022 and December 31, 2021 , there were no loans 90
days or more past due and still accruing income. As of March 31, 2022 , there
were no non-performing loans, compared to $4.3 million , or 0.04% of total loans,
as of December 31, 2021 . We had specific reserves of $4.3 million as of
December 31, 2021 on non-performing loans. The net loan balance of our
non-performing loans was 0.0% of the customer's outstanding balance after
payments, charge-offs and specific reserves as of December 31, 2021 .
For additional information on our non-performing loans as of March 31, 2022 and
December 31, 2021 , refer to Note 4, Allowance for Credit Losses on Loans and
Leases, to our unaudited condensed 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, and
rented or sold to repay the original loan. Historically, foreclosure trends in
our loan portfolio have been low due to the credit quality of the real estate
portfolio. Any loans that are modified or extended are reviewed for potential
classification as a troubled debt restructuring ("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 $2.0 million , or 0.01% of total assets, as of
March 31, 2022 , as compared to $6.3 million , or 0.05% of total assets, as of
December 31, 2021 . The decrease in non-performing assets was the result of a
$4.3 million non-performing loan charge-off during the three months ended March
31, 2022 . As of March 31, 2022 and December 31, 2021 , we had OREO properties
totaling $2.0 million .
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Table of Contents The following table summarizes our non-performing assets as of the dates indicated:
March 31, December 31,
(Dollars in thousands) 2022 2021
Non-performing loans:
Private banking $ - $ -
Commercial and industrial - 4,313
Commercial real estate - -
Total non-performing loans $ - $ 4,313
Other real estate owned 2,005 2,005
Total non-performing assets $
2,005
Non-performing troubled debt restructured loans $ - $ - Performing troubled debt restructured loans$ 12,517 $ 12,499 Loans past due 90 days and still accruing $ - $ - Non-performing loans to total loans
- % 0.04 % Allowance for credit losses on loans and leases to non-performing loans
NA 662.25 %
Non-performing assets to total assets 0.01 % 0.05 %
Potential Problem Loans
Potential problem loans are those loans that are not categorized as
non-performing loans, but for which current information indicates that the
borrower may not be able to comply with repayment terms in the future. 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 and/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 individually as we would with other problem loans and consider the
effect of any potential loss in determining any additional provision for credit
losses on loans and leases. We also assess alternatives to maximize collection
of any past due loans, including and without limitation, restructuring loan
terms, requiring additional loan guarantee(s) or collateral, or other planned
action.
For additional information on the age analysis of past due loans segregated by
class of loan for
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, marketable securities and/or cash value life insurance within the private banking portfolio, which further reduces the risk profile of that portfolio. Loan risk ratings are assigned based on 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 or 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 amortized cost of loans by credit quality indicator forMarch 31, 2022 andDecember 31, 2021 , refer to Note 4, Allowance for Credit Losses on Loans and Leases, to our unaudited condensed consolidated financial statements.
We utilize investment activities to enhance net interest income while supporting liquidity management and interest rate risk management. Our securities portfolio consists of available-for-sale debt securities, held-to-maturity debt securities, equity securities and, from time to time, debt securities held for trading purposes. Also included in our investment securities is FHLB stock. For additional information on FHLB stock, refer to Note 2,Investment Securities , to our unaudited condensed consolidated financial statements. Debt 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. Equity securities are also recorded at fair value with changes in fair value recognized in the consolidated statements of income. Debt securities categorized as available-for-sale are recorded at fair value and 61 -------------------------------------------------------------------------------- Table of Contents 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. Debt securities categorized as held-to-maturity are securities that the Company intends to hold until maturity and are recorded at amortized cost, net of allowance for credit losses.
The Bank has engaged Chartwell to provide securities portfolio advisory services, subject to the investment parameters set forth in our investment policy.
In general, fair value is based on 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. We validate the prices received from these third parties on a quarterly basis 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, debt securities classified as available-for-sale, and trading securities and equity securities are also subject to fair value risks that could negatively affect the level of liquidity available to us, as well as shareholders' equity. Our available-for-sale debt securities portfolio consists ofU.S. government treasury and agency obligations, mortgage-backed securities, collateralized mortgage obligations, corporate bonds, single-issuer trust preferred securities, and certain municipal bonds, all with varying contractual maturities. Our held-to-maturity debt securities consists of certain municipal bonds, agency obligations, mortgage-backed securities,U.S. treasury notes and corporate bonds while our trading portfolio, when active, typically consists ofU.S. treasury notes, also with varying contractual maturities. However, these maturities do not necessarily represent the expected life of certain securities as the securities may be called or paid down without penalty prior to their stated maturities. The effective duration of our debt securities portfolio as ofMarch 31, 2022 was approximately 4.8, where duration is defined as the approximate percentage change in price for a 100-basis point change in rates. No investment in any of these securities exceeds any applicable limitation imposed by law or regulation. OurAsset and Liability Committee ("ALCO") reviews the investment portfolio on an ongoing basis to ensure that the investments conform to our investment policy.Available-for-Sale Debt Securities . We held$714.2 million and$586.3 million in debt securities available-for-sale as ofMarch 31, 2022 andDecember 31, 2021 , respectively. The increase of$127.8 million was primarily attributable to purchases of$176.2 million , partially offset by prepayments, calls and maturities of$17.9 million and a reduction in fair value of approximately$30 million during the three months endedMarch 31, 2022 . On a fair value basis, 18.6% of our available-for-sale debt securities as ofMarch 31, 2022 were floating-rate securities, for which yields increase or decrease based on changes in market interest rates. As ofDecember 31, 2021 , floating-rate securities comprised 23.1% of our available-for-sale debt securities. On a fair value basis, 35.9% of our available-for-sale debt securities as ofMarch 31, 2022 wereU.S. government and agency securities, which tend to have a lower risk profile than certain corporate bonds, single-issuer trust preferred securities, non-agency residential mortgage-backed securities, and municipal bonds, which comprised the remainder of the portfolio. As ofDecember 31, 2021 , agency securities comprised 24.6% of our available-for-sale debt securities.Held-to-Maturity Debt Securities . We held$807.7 million and$802.7 million in debt securities held-to-maturity as ofMarch 31, 2022 andDecember 31, 2021 , respectively. The increase of$4.9 million was primarily attributable to purchases of$42.3 million , net of calls and maturities of$35.5 million , during the three months endedMarch 31, 2022 . 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, net of allowance for credit losses, as ofMarch 31, 2022 andDecember 31, 2021 .
Trading Debt Securities. We held no trading debt securities as of
Equity Securities . Equity securities consisted of mutual funds investing in short-duration, investment grade corporate bonds and are carried at fair value. Our investment in these securities were valued at$4.9 million and$5.0 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively. 62
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The following tables summarize the amortized cost and fair value of debt
securities available-for-sale and held-to-maturity, as of the dates indicated:
March 31, 2022
Allowance for
Amortized Gross Unrealized Gross Unrealized Credit Losses Estimated
(Dollars in thousands) Cost Appreciation Depreciation (1) Fair Value
Debt securities available-for-sale:
U.S. treasury notes $ 99,416 $ - $ 2,757 $ - $ 96,659
Corporate bonds 153,425 245 2,619 - 151,051
Non-agency residential mortgage-backed
securities 307,202 3,599 21,953 - 288,848
Trust preferred securities 13,635 118 150 - 13,603
Agency collateralized mortgage obligations 15,585 12 56 - 15,541
Agency mortgage-backed securities 147,458 21 10,445 - 137,034
Agency debentures 6,733 104 - - 6,837
Municipal bonds 5,181 - 592 - 4,589
Total debt securities available-for-sale $ 748,635 $ 4,099
$ 38,572 $ -
(1)Available-for-sale debt securities are recorded on the consolidated statements of financial condition at estimated fair value, which includes allowance for credit losses, if applicable.
Amortized Gross Unrealized Gross Unrealized Estimated Allowance for Credit (Dollars in thousands)
Cost Appreciation Depreciation Fair Value Losses (1)
Debt securities held-to-maturity:
Corporate bonds $ 25,165 $ 226 $ 110 $ 25,281 $ 11
Agency debentures 66,540 131 2,749 63,922 -
Municipal bonds 410 - - 410 -
Non-agency residential mortgage-backed
securities 173,010 - 13,683 159,327 34
Agency mortgage-backed securities 503,406 176 37,869 465,713 -
U.S. treasury notes 39,120 - 3,156 35,964 -
Total debt securities held-to-maturity $ 807,651 $ 533 $ 57,567 $ 750,617 $ 45
(1)Held-to-maturity debt securities are recorded on the consolidated statements
of financial condition at amortized cost, net of allowance for credit losses.
December 31, 2021
Allowance for
Amortized Gross Unrealized Gross Unrealized Credit Losses Estimated
(Dollars in thousands) Cost Appreciation Depreciation (1) Fair Value
Debt securities available-for-sale:
Corporate bonds $ 145,568 $ 897 $ 273 $ - $ 146,192
Trust preferred securities 13,610 200 183 - 13,627
Non-agency residential mortgage-backed
securities 281,282 - 4,164 - 277,118
Agency collateralized mortgage obligations 16,458 42 2 - 16,498
Agency mortgage-backed securities 122,044 32 1,599 - 120,477
Agency debentures 6,732 496 - - 7,228
Municipal bonds 5,189 - 4 - 5,185
Total debt securities available-for-sale 590,883 1,667 6,225 - 586,325
(1)Available-for-sale debt securities are recorded on the consolidated statements of financial condition at estimated fair value, which includes allowance for credit losses, if applicable.
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December 31, 2021
Allowance for
Amortized Gross Unrealized Gross Unrealized Estimated Credit Losses
(Dollars in thousands) Cost Appreciation Depreciation Fair Value (1)
Debt securities held-to-maturity:
U.S. treasury notes $ 39,097 $ 12 $ 443 $ 38,666 $ -
Corporate bonds 25,167 827 16 25,978 71
Agency debentures 36,794 534 395 36,933 -
Municipal bonds 890 1 - 891 -
Non-agency residential mortgage-backed
securities 184,731 1 3,088 181,644 65
Agency mortgage-backed securities 516,033 570 8,753 507,850 -
Total debt securities held-to-maturity 802,712 1,945 12,695 791,962 136
(1)Held-to-maturity debt securities are recorded on the consolidated statements of financial condition at amortized cost, net of allowance for credit losses.
The changes in the fair values of our municipal bonds, agency debentures, agency collateralized mortgage obligations, agency mortgage-backed securities, andU.S. treasury notes are primarily the result of interest rate fluctuations. To assess for credit impairment on debt securities available-for-sale, 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. The most recent assessment for credit impairment did not identify any issues related to the ultimate repayment of principal and interest on these debt 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, no allowance for credit losses has been recognized on debt securities available-for-sale in an unrealized loss position.
There were
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The following table sets forth the fair value, contractual maturities and
approximated weighted average yield, calculated on a fully taxable equivalent
basis, of our available-for-sale and held-to-maturity debt securities portfolios
as of March 31, 2022 , based on estimated annual income divided by the average
amortized cost of these securities. 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.
March 31, 2022
Less Than One to Five to Greater Than
One Year Five Years 10 Years 10 Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Debt securities available-for-sale: U.S. treasury notes $ - - %$ 96,659 0.99 % $ - - % $ - - %$ 96,659 0.99 % Corporate bonds 27,498 1.01 % 67,435 1.62 % 56,118 1.75 % - - % 151,051 1.56 % Non-agency residential mortgage-backed securities - - % - - % - - % 288,848 2.55 % 288,848 2.55 % Trust preferred securities - - % 4,829 1.91 % - - % 8,774 2.35 % 13,603 2.20 % Agency collateralized mortgage obligations - - % - - % - - % 15,541 0.57 % 15,541 0.57 % Agency mortgage-backed securities - - % - - % - - % 137,034 2.18 % 137,034 2.18 % Agency debentures - - % - - % - - % 6,837 3.01 % 6,837 3.01 % Municipal bonds - - % - - % - - % 4,589 1.07 % 4,589 1.07 % Total debt securities available-for-sale 27,498 168,923 56,118 461,623 714,162 Weighted average yield 1.01 % 1.26 % 1.75 % 2.36 % 2.01 % Debt securities held-to-maturity: Corporate bonds - - % 15,236 5.16 % 10,045 4.87 % - - % 25,281 5.04 % Agency debentures - - % 19,646 2.34 % 37,607 1.55 % 6,669 3.09 % 63,922 1.94 % Municipal bonds 410 2.66 % - - % - - % - - % 410 2.66 % Non-agency residential mortgage-backed securities - - % - - % - - % 159,327 2.07 % 159,327 2.07 % Agency mortgage-backed securities - - % - - % 14,217 1.96 % 451,496 1.84 % 465,713 1.84 % U.S. treasury notes - - % - - % 35,964 1.33 % - - % 35,964 1.33 % Total debt securities held-to-maturity 410 34,882 97,833 617,492 750,617 Weighted average yield 2.66 % 3.56 % 1.84 % 1.91 % 1.97 % Total debt securities$ 27,908 $ 203,805 $ 153,951 $ 1,079,115 $ 1,464,779 Weighted average yield 1.04 % 1.65 % 1.81 % 2.10 % 1.99 % The table above excludes equity securities because they have an indefinite life. For additional information regarding our investment securities portfolios, refer to Note 2,Investment Securities , to our unaudited condensed consolidated financial statements.
Assets Under Management
Chartwell's total assets under management of$11.23 billion decreased$614.0 million , or 5.2%, as ofMarch 31, 2022 , from$11.84 billion as ofDecember 31, 2021 . 65
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The following table shows the changes of our assets under management by
investment style for the three months ended
Three
Months Ended
Beginning Market Appreciation Ending
(Dollars in thousands) Balance Inflows (1) Outflows (2) (Depreciation) Balance
Equity investment styles $ 4,454,000 $ 132,000 $ (432,000) $ (163,000) $ 3,991,000
Fixed income investment styles 6,869,000 278,000 (167,000) (229,000) 6,751,000
Balanced investment styles 521,000 6,000 (24,000) (15,000) 488,000
Total assets under management $ 11,844,000 $ 416,000 $
(623,000)
(1)Inflows consist of new business and contributions to existing accounts. (2)Outflows consist of business lost as well as distributions from existing accounts.
Deposits Deposits are our primary source of funds to support our earning assets. We have focused on creating and growing diversified, stable, and lower all-in cost deposit channels without operating through a traditional branch network. We market liquidity and treasury management products, payment processing products, and other deposit products to high-net-worth individuals, family offices, trust companies, wealth management firms, municipalities, endowments and foundations, broker/dealers, futures commission merchants, investment management firms, property management firms, payroll providers and other financial institutions. 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. With respect to our treasury management business, we utilize hybrid interest-bearing accounts that provide our clients with certainty around their fee structures and returns for their total cash position while enhancing our ability to obtain their full liquidity relationship and still meeting our cost of funds expectations, rather than the more traditional combination of separate non-interest bearing and interest-bearing accounts, which has reduced transparency and increased client burden. We continue to enhance our liquidity and treasury management capabilities and team to support our efforts to grow this source of funding.Treasury management deposit accounts totaled$2.98 billion as ofMarch 31, 2022 , an increase of$122.2 million , or 4.3%, fromDecember 31, 2021 .Treasury management deposit accounts contributed to almost 19% of our total deposit growth for the three months endedMarch 31, 2022 . As ofMarch 31, 2022 , we had approximately 524 treasury management clients, the majority of which were payment processors, lending client-operating accounts, bankruptcy, and real estate accounts.
The table below depicts average balances of, and rates paid on, our deposit
portfolio by major deposit category for the three months ended
Three Months Ended March 31,
2022 2021
Average Rate Average Rate
(Dollars in thousands) Average Amount Paid (1) Average Amount Paid (1)
Interest-bearing checking accounts $ 4,269,019 0.35 % $ 3,065,983 0.37 %
Money market deposit accounts 6,032,665 0.43 % 4,345,454 0.56 %
Certificates of deposit 698,367 0.40 % 1,012,861 0.80 %
Total average interest-bearing deposits 11,000,051 0.40 % 8,424,298 0.52 %
Noninterest-bearing deposits 652,805 - 424,535 -
Total average deposits $ 11,652,856 0.37 % $ 8,848,833 0.49 %
(1)Annualized.
Average Deposits for the Three Months Ended March 31, 2022 and 2021. For the
three months ended March 31, 2022 , our average total deposits were $11.65
billion , representing an increase of $2.80 billion , or 31.7%, from the same
period in 2021. The average deposit growth was driven by increases in our
interest-bearing checking account, money market deposit account and
noninterest-bearing deposit account categories as we continue to attract clients
to our treasury management business and grow our deposit product offerings. Our
average cost of interest-bearing deposits decreased 12 basis points to 0.40% for
the three months ended March 31, 2022 , from 0.52% for the same period in 2021,
as average rates paid were lower in all interest-bearing deposit categories,
driven by the repricing of our deposits as a result of the continued low
interest rate environment. Another driver of the combination of higher average
deposits and lower rates is our continued addition of meaningful and long-term
client relationships that support our efforts to
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manage deposit costs through variable rate and discretionary pricing in the
economic environment. Average interest-bearing checking accounts increased to
38.8% of total average interest-bearing deposits for the three months ended
March 31, 2022 , compared to 36.4% for the same period in 2021. Average money
market deposits increased to 54.8% of total average interest-bearing deposits
for the three months ended March 31, 2022 , from 51.6% for the same period in
2021. Average certificates of deposit decreased to 6.4% of total average
interest-bearing deposits for the three months ended March 31, 2022 , compared to
12.0% for the same period in 2021. Average noninterest-bearing deposits
increased $228.3 million , or 53.8%, in the three months ended March 31, 2022 ,
from the three months ended March 31, 2021 , and the average cost of total
deposits decreased 12 basis points to 0.37% for the three months ended March 31,
2022 , from 0.49% for the same period in 2021.
Uninsured Deposits and Related Information
As of
The following table summarizes the aggregate amount of individual certificates
of deposit exceeding
(Dollars in thousands) March 31, 2022
Months to maturity:
Three months or less $ 8,874
Over three to six months 24,179
Over six to 12 months 4,982
Over 12 months 1,259
Total $ 39,294 Reciprocal and Brokered Deposits
As ofMarch 31, 2022 , we consider approximately 90% of our total deposits to be relationship-based deposits, which include reciprocal certificates of deposit placed through CDARS® and reciprocal demand deposits placed through ICS®. As ofMarch 31, 2022 , the Bank had CDARS® and ICS® reciprocal deposits totaling$1.85 billion , which were not classified as brokered deposits. We continue to utilize 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. As ofMarch 31, 2022 , brokered deposits were approximately 10% of total deposits. For additional information on our deposits, refer to Note 5, Deposits, to our unaudited condensed consolidated financial statements.
Borrowings
Deposits are the primary source of funds for our lending and investment activities, as well as the Bank's general business purposes. As an alternative source of liquidity for the Bank, we may obtain advances from the FHLB ofPittsburgh , sell investment securities subject to our obligation to repurchase them, purchase federal funds or engage in overnight borrowings from the FHLB or our correspondent banks. The Company previously entered into cash flow hedge transactions to establish the interest rate paid on$250.0 million of its FHLB borrowings at varying effective rates and maturities. For additional information on the detail of each cash flow hedge transaction, refer to Note 10, Derivatives and Hedging Activity, to our unaudited condensed consolidated financial statements.
Liquidity
We evaluate liquidity both at the holding company level and at the Bank level. As ofMarch 31, 2022 , the Bank and Chartwell represent our only material assets. Our primary sources of funds at the parent company level are cash on hand, dividends paid to us from Chartwell, availability on our line of credit, and the net proceeds from the issuance of our debt and/or equity securities. As ofMarch 31, 2022 , our primary liquidity needs at the parent company level were the quarterly dividends on our preferred stock, interest payments on our subordinated debt and other borrowings, and share repurchase programs. All other liquidity needs were minimal and related to reimbursing the Bank for management, accounting and financial reporting services provided by Bank personnel. During the three months endedMarch 31, 2022 , the parent company paid$2.0 million related to our preferred stock dividends,$0 million related to interest payments on our subordinated notes payable and other borrowings, and$4.0 million for the purchase of treasury shares in connection with the net settlement of equity awards exercised or vested. During the three months endedMarch 31, 2021 , the parent company paid$1.5 million in purchase of treasury shares in connection with the net settlement of equity awards exercised or vested,$3.1 million related to our preferred stock dividends and$54,000 related to interest payments on our other borrowings. We believe 67 -------------------------------------------------------------------------------- Table of Contents 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 all foreseeable short-term and long-term parent company obligations as ofMarch 31, 2022 . In addition, we maintain an unsecured line of credit withHuntington National Bank . As ofMarch 31, 2022 , the unsecured line was$75.0 million , of which$75.0 million was available for borrowing. Our primary 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 or 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 or arrangements, and the ability to take advantage of new business opportunities. Our ALCO, which includes members of executive management, 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 stress conditions. The ALCO is designated as the body responsible for the monitoring and implementation of these policies. The ALCO reviews liquidity on a frequent basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Sources of asset liquidity are cash, interest-earning deposits with other banks, federal funds sold, certain unpledged debt and equity securities, loan repayments (scheduled and unscheduled) and future earnings. Sources of liability liquidity include a stable deposit base, the ability to renew maturing certificates of deposit, borrowing availability at the FHLB ofPittsburgh , unsecured lines with other financial institutions, access to reciprocal CDARS® and ICS® deposits and brokered deposits, and the ability to raise debt and equity. Customer deposits, which are an important source of liquidity, depend on the confidence of customers in us. Deposits are supported by our capital position and, up to applicable limits, the protection provided byFDIC 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 and liquidity needs, including a liquidity gap, which measures potential sources and uses of funds over future periods. We have established policy guidelines 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 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. Our strong liquidity position is due to our ability to generate strong growth in deposits, which is evidenced by our ratio of total deposits to total assets of 88.9% and 88.5% as ofMarch 31, 2022 andDecember 31, 2021 , respectively. Our ratio of average deposits to average assets increased to 88.6% for the three months endedMarch 31, 2022 , from 86.6% for the same period in 2021. As ofMarch 31, 2022 , we had available liquidity of$2.82 billion , or 20.6% of total assets. The sources of liquidity consisted of available cash totaling$467.8 million , unpledged investment securities totaling$1.42 billion , or 10.4% of total assets, and the ability to borrow from the FHLB and correspondent bank lines totaling$937.9 million , or 6.9% of total assets. Available cash excludes cash posted as collateral for derivative and letter of credit transactions and the reserve balance requirement at theFederal Reserve . The following table shows our available liquidity, by source, as of the dates indicated:March 31 ,December 31 , (Dollars in thousands) 2022
2021
Available cash $ 467,832 $ 380,489
Certain unpledged debt and equity securities 1,416,853 1,317,727
Net borrowing capacity 937,927 885,652
Total liquidity $ 2,822,612 $ 2,583,868
Investing activities resulted in a net cash outflow of $653.7 million for the
three months ended March 31, 2022 , as compared to a net cash outflow of $701.4
million for the same period in 2021. The outflows for the three months ended
March 31, 2022 , were primarily due to net loan growth of $491.9 million and
purchases of investment securities totaling $213.7 million , partially offset by
the proceeds from the sale, principal repayments and maturities from investment
securities totaling $53.3 million . The outflows for the three months ended March
31, 2021 , included net loan growth of $310.6 million and purchases of investment
securities totaling $471.9 million , partially offset by the proceeds from the
sale, principal repayments and maturities from investment securities totaling
$77.1 million .
Financing activities resulted in a net inflow of $655.5 million for the three
months ended March 31, 2022 , compared to a net inflow of $702.9 million for the
same period in 2021. The inflows for the three months ended March 31, 2022 , were
primarily a result of a net
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increase in deposits of $661.1 million . The inflows for the three months ended
March 31, 2021 , included a net increase in deposits of $760.9 million , partially
offset by a net decrease in FHLB borrowings of $50.0 million .
We believe that the Bank's sources of liquidity are adequate to fund all
foreseeable short-term and long-term obligations as of
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 assessment of capital adequacy depends on a number of factors, including loan composition, 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 our current operations and to promote public confidence in our Company. Shareholders' Equity. Shareholders' equity was$838.1 million as ofMarch 31, 2022 , compared to$836.7 million as ofDecember 31, 2021 . The$1.4 million increase during the three months endedMarch 31, 2022 , was primarily attributable to net income of$21.6 million and$3.1 million in stock-based compensation partially offset and by$17.7 million in other comprehensive loss, preferred stock dividends of$2.0 million and a purchase of$4.0 million in treasury stock related to the net settlement of equity awards exercised or vested.Regulatory Capital . As ofMarch 31, 2022 andDecember 31, 2021 ,TriState Capital Holdings, Inc. andTriState Capital Bank were in compliance with all applicable regulatory capital requirements, andTriState Capital Bank was categorized as well capitalized for purposes of theFDIC'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. The capital conservation buffer requirement is a CET 1 capital to risk-weighted assets ratio of 2.5% or more, in addition to the minimum risk-based capital adequacy levels shown in the tables below. As ofMarch 31, 2022 andDecember 31, 2021 , both the Company and the Bank maintained capital conservation buffers at levels that avoid limitations on capital distributions and discretionary bonus payments. In 2020,U.S. federal regulatory authorities issued a final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay the impact of CECL on regulatory capital for up to two years, beginningJanuary 1, 2020 , followed by a three-year transition period. As the Company adopted CECL onDecember 31, 2020 , the Company elected to utilize the remainder of the two-year delay of CECL's impact on its regulatory capital, fromDecember 31, 2020 throughDecember 31, 2021 , followed by the three-year transition period of CECL impact on regulatory capital, fromJanuary 1, 2022 throughDecember 31, 2024 .
The following tables present the actual capital amounts and regulatory capital ratios for the Company and the Bank as of the dates indicated:
March 31, 2022
To be Well Capitalized Under
Prompt Corrective Action
Actual For Capital Adequacy Purposes Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total risk-based capital ratio
Company $ 926,930 13.23 % $ 560,586 8.00 % N/A N/A
Bank $ 1,007,981 14.42 % $ 559,025 8.00 % $ 698,782 10.00 %
Tier 1 risk-based capital ratio
Company $ 807,115 11.52 % $ 420,440 6.00 % N/A N/A
Bank $ 983,928 14.08 % $ 419,269 6.00 % $ 559,025 8.00 %
Common equity tier 1 risk-based
capital ratio
Company $ 624,472 8.91 % $ 315,330 4.50 % N/A N/A
Bank $ 983,928 14.08 % $ 314,452 4.50 % $ 454,208 6.50 %
Tier 1 leverage ratio
Company $ 807,115 6.16 % $ 524,449 4.00 % N/A N/A
Bank $ 983,928 7.52 % $ 523,676 4.00 % $ 654,595 5.00 %
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December 31, 2021
To be Well Capitalized Under
Prompt Corrective Action
Actual For Capital Adequacy Purposes Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total risk-based capital ratio
Company $ 910,320 13.43 % $ 542,409 8.00 % N/A N/A
Bank $ 986,657 14.60 % $ 540,639 8.00 % $ 675,798 10.00 %
Tier 1 risk-based capital ratio
Company $ 788,910 11.64 % $ 406,807 6.00 % N/A N/A
Bank $ 960,955 14.22 % $ 405,479 6.00 % $ 540,639 8.00 %
Common equity tier 1 risk-based
capital ratio
Company $ 607,367 8.96 % $ 305,105 4.50 % N/A N/A
Bank $ 960,955 14.22 % $ 304,109 4.50 % $ 439,269 6.50 %
Tier 1 leverage ratio
Company $ 788,910 6.36 % $ 496,431 4.00 % N/A N/A
Bank $ 960,955 7.76 % $ 495,417 4.00 % $ 619,271 5.00 %
Contractual Obligations and Commitments
There were no material changes to contractual obligations during the three
months ended
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.
Unfunded loan commitments and demand line of credit availability, including
standby letters of credit, are recorded on our statement of financial condition
as they are funded. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Our measure of unfunded
loan commitments and demand line of credit availability include unused
availability under demand loans for our private banking lines secured by cash,
marketable securities and/or cash value life insurance, as well as commitments
to fund loans secured by residential properties, commercial real estate,
construction loans, business lines of credit and other unused commitments of
loans in various stages of funding. Not all commitments will fund or fully fund
as customers often only draw on a portion of their available credit and we
continuously monitor utilization of our unfunded lines of credit and on both
commercial and private banking loans. We believe that we maintain sufficient
liquidity or otherwise have the ability to generate the liquidity necessary to
fund anticipated draws under unused loan commitments and demand lines of credit.
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 and unfunded demand lines 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 under certain contractual agreements, these commitments
often expire without being drawn. There is no guarantee that the lines of credit
will be used.
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Table of Contents The following table is a summary of the total notional amount of unused loan commitments and demand lines of credit availability as well as standby letters of credit commitments, based on the values of eligible collateral or other terms under the loan agreement, by contractual maturities outstanding as of the date indicated.
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