TriState Capital Holdings, Inc.

Good morning everyone and welcome to the Tri-State Capital Holdings conference call to discuss financial results for the three months ended December 31st, 2020. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw from the question queue, please press star then two. We ask that you limit yourself to one question and one follow-up. If you have additional questions, you may re-enter the question queue. Please note this event is being recorded. Before turning the call over to management, I would like to remind everyone that today's call may contain forward-looking statements related to Tri-State Capital that reflect Tri-State Capital's current views with respect to, among other things, future events and the company's financial performance, as well as the company's future plans, objectives, or goals. Such forward-looking statements are subject to risks, assumptions, and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Security Litigation Reform Act of 1995. You should keep in mind that any forward-looking statements made by TraceBank Capital speak only as of the date on which they were made. New risks and uncertainties come up from time to time and management cannot predict these events or how they may affect the company. Tri-State Capital has no duty to and does not intend to update or revise forward-looking statements after the date on which they are made. For further information about the factors that could affect Tri-State Capital's future results, please see the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission. Please note that annualized information referenced in this presentation is not predictive of future performance which may differ materially from annualized information. To the extent non-GAAP financial measures are discussed in this call, they will be presented with their most comparable GAAP measures and reconciliations of the non-GAAP measures can be found in Tri-State Capital's earnings release, which is available on its website at tristatecapitalbank.com. Representing Tri-State Capital Holdings today are Jim Goetz, Chairman and Chief Executive Officer, and Brian Federoff, President and CEO of Tri-State Capital Bank. They will be joined for the question and answer session by David Demas, Chief Financial Officer. At this time, I would like to turn the conference over to Mr. Goetz.

Good morning, and thank you for joining us. 2020 was a defining year for Tri-State Capital. Total revenue, net interest income, and non-interest income reached their highest annual levels in the company's history. We grew total loans and deposits by double-digit rates for the seventh consecutive year as both our private banking and commercial banking businesses responded in exceptional ways to meet our clients' needs. Our Chartwell Investment Partners asset manager delivered strong performance during the year and leveraged its excellent distribution capability to grow assets under management and dramatically improve its profitability in 2020. I'm very proud of how our three businesses and each member of this company worked together during an extraordinary year to deliver for our clients and shareholders. The results of their efforts proved what we have long said, that this company is designed to outperform in any environment. And while 2020 created challenges never seen before, it also significantly accelerated the growth and progress of many significant parts of our business. Bolstered by the additional capital we secured in 2020, we are well positioned for meaningful success in 2021. Chartwell continues to be the largest contributor of our non-interest income revenue. It delivered very strong investment performance in 2020 and leveraged its exceptional distribution capabilities. Assets under management now exceeds $10 billion, expanding organically by 6% from the end of 2019 and 34% from the market's trough on March 23rd, 2020. By comparison, publicly traded asset managers as a group saw declining AUM through the third quarter of last year. Positive net flows of $152 million across our institutional and retail businesses in 2020 compared to net outflows of $771 million in 2019. Chartwell's run rate revenue as of year-end was nearly $36 million, up 6% during the fourth quarter. And the success of our strategic efforts to sustainably enhance Chartwell profitability is paying off. Chartwell in 2020 grew annual net income by 15%, and fourth quarter earnings by 89% over the year prior. As we begin 2021, Chartwell's institutional new business pipeline stands at $115 million in unfunded commitments. We have high expectations for Chartwell and its ability to contribute the overall company's top and bottom lines in 2021. Our marketing and distribution support for its investment strategies continues unabated. As just one example, we're focusing significant marketing efforts around Chartwell's short-duration, high-yield product. This strategy is uniquely positioned to perform in this environment and attract both institutional and retail clients. And with nearly $2.8 billion in assets under management, this short-duration BB discipline combines critical mass with solid long and short-term track records, making the strategy very attractive for our business. Christ State Capital Bank also continued to outperform in 2020, delivering robust annual total loan and deposit growth of 25% and 28% respectively. We achieved this meaningful growth through deep and expanding relationships with our private banking and commercial bank businesses. Private banking loans grew by 1.1 billion or 30% during the year to 4.8 billion at year end. These loans, which are primarily collateralized by marketable securities, make up more than 58% of total loans and we see ample runway to continue growing this business and dominating our position in this market. Private banking loan applications in 2020 were up 60% year over year, almost twice the rate of growth in 2019, and we expanded our referral network to 249 financial intermediary firms. This business contributes meaningfully to our company's exceptional asset quality metrics and low credit costs. Commercial loans grew 19% during the year and an annualized 29% during the quarter through broad-based growth in many of our strategies. Commercial and industrial growth during the quarter outpaced our real estate lending with continued strength in established and enhanced products, including equipment finance and our offerings for financial service companies. Commercial real estate lending continued to grow meaningfully as we supported our existing and new clients. Turning to credit, the quality and depth of our commercial lending relationships and our fundamental underrating are also important factors in our sound credit quality. Our commercial and industrial and commercial real estate portfolios remain well diversified by product as well as by geography. We historically have had limited exposure to some of the businesses that have been more negatively impacted by COVID-19, like hotels and shopping centers. Additionally, we are pleased that the overwhelming majority of our clients we work with to provide COVID-19 deferral agreements were able to exit these arrangements prior to year end. We have 13 remaining deferrals as of December 31, totaling $84.5 million for 1% of total loans. As planned and previously communicated, we adopted CECL as of December 31, 2020, and reported an allowance for loan losses of just under $35 million. Representing 101 basis points of commercial loans, our reserves reflect our differentiated and high-quality loan portfolio. Our loan growth was matched by strong deposit growth reflecting continued progress in the strengthening and broadening of our overall client base and channels. We achieved record annual deposit growth in 2020 and delivered annualized quarterly deposit growth of more than 14% for the three months ended December 31st. Treasury management deposits grew nearly 36% during the year, and an annualized 32.5% for the fourth quarter. Our strong loan growth and deposit costs and volume management contributed to our expanding net interest margin in the fourth quarter, and more importantly, supported record net interest income of nearly $138 million in 2020, up 9% from 2019. Quarterly net interest income grew more than 30% annualized from the linked third quarter, and our margin expanded by seven basis points during the fourth quarter. This strong net interest income growth, along with performance of Chartwell, continued swap fee activity, and fees from our growth in treasury management services led to 7% annual total revenue expansion to the company's highest level yet. For 2020, in the rear view, our confidence in our unique business model has been reinforced. It was tested and proven, and we're eager and optimistic about the significant opportunities ahead. Having raised more than $200 million in capital in 2020 alone, we're well positioned to accelerate Tri-State Capital's growth in 2021. More specifically, we're focused on the following financial performance goals in 2021. Growing total revenue at 15 to 20 percent rate over 2020. Managing expense growth to a double-digit rate over 2020. Continuing to generate positive net asset inflows at Chartwell. Continuing to expand Chartwell's segment profit margins. continuing to grow net interest income dollars through volume and net interest margin expansion. Organic loan growth of 15 to 20 percent while maintaining superior asset quality and organic deposit growth of some 15 to 20 percent. Before turning to Q&A, I'd like to introduce Tri-State Capital Bank President and CEO Brian Federoff. who will be touching on technology initiatives underway, which we anticipate will have a significant impact on our success in 2020 and beyond. Ryan.

Thanks, Jim. Good morning, everyone. As Jim mentioned, we wanted to share with you a deeper dive into our bank technology strategy and investment approach, including what we have planned for 21. These are all also included in the financial goals that Jim shared this morning. As a quick backdrop to investment decision process, we always start with addressing why, what, and how, or as our favorite phrase from Jim would be, what needs to exist to make it happen. I reordered these a bit here for this presentation, though. So to start off, why do we invest in technology? It's important to note that our clients and financial intermediary network are at the heart of every decision that we make. We are constantly driven to meet and exceed their needs and expectations, and to find every feasible way to accomplish this. So we prioritize our investments that provide clients with the user experience and level of personal interaction that they prefer, help them to more effectively manage their business and financial lives, and make it increasingly easier for them to do business with us, refer business to us, and engage more meaningfully with us. Our high-performing team and culture are major differentiators for us to achieve these standards of client experiences. We're always looking for ways to improve our ability to personally engage with our clients on meaningful needs and through continuous process improvement. We accomplish this guided by our continuous goal for best-in-class scalable operating and risk management platforms to not only protect and benefit our own business, but also those of our clients and relationships as well. So how do we invest in tech? Well, our agile tech strategy is a major tool we use to meet these goals and help each of these stakeholders. We believe our technology investments have a strong return because we target them to directly maximize our competitive advantages, help us address our more complex and value add target markets, target niche user experiences, and empower our branchless business model. Also, we approach our tech development strategy using a design model which maximizes our internal expertise and provides us access to best in class external expertise. We work with the perspective of our premier clients. We overlay our industry expertise in our niche markets that we've developed over the life of our company. And we apply our exceptional product design and project management capabilities to create the most impactful solutions. We ultimately outsource the actual tech and software development phase by partnering with top firms to deliver on our design vision. So we believe that our approach is the most cost-effective framework to deliver the best customized solutions, future scalability, maximum optionality, and minimum legacy constraints for the future. And Jim's talked a lot about dealing with those in the past. What have we done so far? As we've shared with investors before, our proprietary Paris technology empowers us to deliver premier risk and compliance management through daily monitoring of the securities that collateralize our private bank loans. This was a game-changing investment early on in the life cycle of Tri-State Capital that dramatically contributed to our ability to dominate this business in the independent channel, growing loan balances by 277% just over the last five years and growing even more significantly the number of clients, intermediaries, and loans booked at that time. Our investment in our treasury management tech platform has positioned us to compete with the services and experiences provided by the best-in-class large banks while maintaining our focus on high touch with our clients. Since we initiated our specialized focus on growing this business in 2016, we have delivered the scale and customization for clients with operating balances ranging from $1 million to over $200 million. In addition to our 36% TM deposit growth in 2020 alone, we've grown the number of TM clients by over 400%, Sorry, TM accounts by 400% and TM clients by over 100% just since 2016 alone. So we've also talked about the release of our digital lending platform for our private bank lending. We designed this to position the financial intermediaries and our clients for better liability management in parallel with their investable asset management. We designed the DLP to provide the independent broker-dealer advisory and trust company channels with a securities-based lending experience that exceeds what they might have or actually may have had for those transitioning advisors at a wire house or bank-owned securities firm. The DLP has been totally embraced, and private bank applications increased by a record 60% last year compared to 2019. The DLP was also integral to how we were able to communicate and help these advisors work with their clients to manage the market volatility in 2020 with perfect maintenance execution. We're continuously improving each of these platforms, but clearly they've been established as powerful for the future and establish our ability to be agile and effective investors in technology. So what are we going to do next and what are we going to invest in? Well, we couldn't be more excited as we look forward to 2021 and beyond. As Jim mentioned, 2020 accelerated many aspects of our business. And this acceleration has confirmed the business and use cases supporting our rapid and impactful investment in tech solutions. Some of the highlights for our 21 initiatives include our Paris 2.0, which is our 2020 to 2022 initiative primarily, that reinforces its state-of-the-art functionality and performance, but also enhances and scales our analysis, monitoring, and loan origination capabilities for the huge opportunities we see ahead of us. Our expansion of our front-end technology is continuing with particular focus on self-service, self-analysis, and communication capabilities for the private bank lending through the DLP and our treasury management and high net worth deposit clients through online banking. Through an initiative we introduced in 2020, we are growing the robotic process automation in our middle and back office and our risk and compliance management environments with the goal of being entirely digital. We are enhancing our commercial loan system by partnering on development with Fiserv to facilitate our growing commercial and private bank loan portfolios, support our growth in more specialized products such as equipment finance and fund finance that Jim mentioned, and more efficiently service our growing opportunities to agent lending transactions for our larger clients. And finally, through an initiative introduced in 2020, we are building out our data management and analytics capabilities through enhanced modern and scalable technology platforms as we look to help our clients, and partners, as well as us, to capture revenue opportunities. This is really powerful now, especially as we've reached critical mass in the numbers of clients, transactions, and engagement in our business. These technology plans, as mentioned, are incorporated into the 21 financial goals that Jim shared this morning, and they're a significant contributor to the positive operating leverage that we see in 21, and they're a significant contributor to the development and growth of our business on the top line. We have a great team of innovative people working on delivering this. We are pleased with our success so far. We're never satisfied with where we are, but we are more excited than ever by the potential we have. With that, Jim, I'll turn it back to you.