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spk08: Good morning, everyone, and welcome to the Tri-State Capital Holdings Conference call to discuss financial results for the three months ended March 31st, 2021. All participants will be in a listen-only mode. If you need assistance, you may say no to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. We do ask the participants please limit themselves to one question and one follow-up return. If you still have questions, please know you may re-enter the question queue. Please also note that today's event is being recorded. Before turning the call over to management, I'd 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 and 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 Securities Litigation Reform Act of 1995, You should keep in mind that any forward-looking statements made by Tri-State Capital speak only as of the date on which they are 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 gap measures. Reconciliations of the non-gap 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 Tim Riddle, Managing Partner and Chief Executive Officer of Chartwell Investment Partners. They will be joined by David DeMust, Chief Financial Officer, and Brian Federoff, President and CEO of Tri-State Capital Bank, for the question and answer session. At this time, I would like to turn the conference call over to Mr. Goetz.
spk01: Good morning, and thank you for joining us. Tri-State Capital's first quarter performance underscores the earnings power and potential of this company, which today operates a $10 billion plus bank and an $11 billion-plus asset management firm. All three of our businesses have been built on our core capabilities and distribution strength to drive strong demand for our client-focused products and services, which are in turn delivering continued and meaningful organic growth. We again delivered record net interest income and total revenue during the quarter, as well as all-time high pre-tax income assets under management, loans, and deposits. The performance enabled us to grow first quarter 2021 net income by 28% from the linked quarter and 26% over the same period last year. These results were achieved thanks to the trust and confidence of our clients, which they place in us, and the unrelenting efforts of our talented investment management, private banking, and commercial banking teams. Chartwell built on last year's strong performance to deliver a breakout quarter for our asset manager. Clearly, the markets provided a tailwind, which contributed to Chartwell strategies performing very well against benchmarks. At the same time, Chartwell is also differentiated by what we believe is a best-in-class business development and distribution capability. In the first quarter of 2021 alone, This business had more than a half billion dollars of net inflows led by Chartwell's short duration high yield product and its high grade fixed income product. To continue its momentum, Chartwell started the second quarter with more than $100 million in unfunded institutional commitments in its pipeline. Together, business development and investment performance led to Assets under management growth of 35% over the last year to $11.2 billion on March 31, 2021, an all-time high. First quarter investment management fees of $9 million were up nearly 18% for the same period last year, while Chartwell's run rate revenue as of March 31, 2021, was nearly $39 million, an increase of 35% from one year prior. At the same time, Chartwell's first quarter segment net income was up 77% from the same period last year, and we expect to continue improving asset management's contributions to consolidated earnings as we scale this business with the talent and infrastructure we have in place today. Before we turn to our other businesses, I would like Chartwell's CEO, Tim Riddle, to share a few of his thoughts with you given the standout performance our asset manager had in the first quarter. Tim?
spk02: Thank you, Jim. Chartwell's first quarter performance and our optimism about our ability to continue growing revenues and our contributions to Tri-State Capital's earnings are based on the strengths of our investment performance, client relationships, and distribution capabilities. The majority of our $940 million in AUM growth during the quarter, or 54% of it, resulted from positive net flows from existing accounts and from new business. So while AUM benefited from the market's tailwind in Q1, our ability to generate new business and net flows from existing client relationships were the primary drivers of AUM growth. We don't believe many active managers will be able to make that claim. We also made strategic decisions to enhance Chartwell's operating leverage and segment profitability. These efforts began well before the onset of the pandemic and continued throughout 2020. As a reminder, by the end of 2019, we had taken active measures which reduced our annual expense run rate by more than $2 million. For the full year 2020, Chartwell's expenses were down a full $4 million year over year. The efforts we've made to date have been very successful, and we believe position us well to deliver profitable growth at an even greater rate moving forward. In fact, with the team and infrastructure in place today, we believe we can grow Chartwell's AUM and revenue by another 50% or so. That confidence is supported by the success of our unparalleled distribution team and by Tri-State Capital's continued commitment to investing in distribution. We're also continuously continuously developing new products and new avenues to deliver those products to our clients and to prospective clients. As one example, within the past year, we launched collective investment trusts and collective trust funds. CITs and CTFs resonate with a broader base of prospective clients, particularly in the area of outsourced chief investment officer programs, or OCIO, which have become increasingly popular in the institutional market. And in fact, CITs and CTS have had a meaningful impact on our AUM growth, particularly over the last six months, accounting for approximately $70 million in inflows. Charwell is hitting its stride. With unique product offerings, credible performance, exceptional talent, and an enviable distribution capability, we are focused on scaling our business and enhancing profitability and earnings. With that, I'd like to turn it back to Jim.
spk01: Thank you, Tim. Turning to Tri-State Capital Bank, total loans grew by 23% over last year to $8.5 billion last on March 31st, 2021. Growth continues to be led by our highly differentiated private banking business. We are the nation's leading provider of marketable securities-backed loans distributed through independent financial advisors, trust companies, family offices, and regional securities firms. And we now have 265 financial intermediaries in our referral network. Private banking loans reached a record of $5.1 billion a quarter end and now make up 59% of total loans. And first quarter private banking loan application volume hit a new record level in 2021, up some 44% from the same period last year. Commercial loans are up nearly 15% year over year, as our in-market commercial real estate lending more than offset pay downs on revolving credit lines in our commercial and industrial portfolio during the first quarter. As a reminder, we are coming off record CNI growth in the fourth quarter of $136 million, so over the last six months, we've increased commercial and industrial lending by $110 million, or 10%. Our commercial real estate and C&I portfolios remain well diversified with strong pipelines. New CRE and C&I originations in the first quarter continue to be primarily with our longstanding relationships. This commercial loan growth is truly organic, high quality, middle market growth, as we do not offer PPP or any small business products. For example, With C&I, our single largest borrower category remains financial services and insurance, representing some 32% of commercial and industrial loans. This includes our investment fund finance offering, including call lines of credit and net asset values of credit. And we see excellent C&I growth opportunities in this industry vertical alone. There are some periods, like the first quarter, where there may be timing differences and paydowns of lines, based on capital calls made in prior quarters. Also of note, many of our financial services company borrowers are members of Tri-State Capital's intermediary network, offering our private banking loans to their high net worth clients. Our equipment finance offering in our C&I business also continues to have strong opportunities in the improving economy that we are experiencing. Considering what the rest of the industry has been reporting for the first quarter so far, We think our commercial loan growth to date and our expectations will continue to stand out. Overall, for full year 2021, we continue to believe our organic total loan growth goal of 15% to 20% remains very attainable based on the performance achieved in the first quarter and the strong pipelines we have in place today. Our credit quality continues to be a differentiator among our peers in the industry. benefiting from the large proportion of private banking loans, as well as the quality and the depth of our commercial lending relationships and our strong fundamental underwriting. We did increase MPAs by $13 million in the first quarter, though non-performers represented just 24 basis points of total assets on March 31st. The increase primarily related to two loans, to borrowers managing unique situations related to challenges in commercial real estate markets. We believe we are adequately reserved. Notably, we have only four non-performers among thousands of loans in our $8.5 billion portfolio. With private banking representing some 60% of loans, the quality of our middle market borrowers and our credit talent and underwriting processes We continue to expect to experience low annual credit costs and superior asset quality metrics relative to peers. Loan growth was fully funded by the continued expansion of our liquidity and treasury management offerings. Record deposits more than $9.2 billion at quarter end reflect 19% growth over the last 12 months. Treasury management deposits, which remain an ongoing and strategic focus grew by 64 percent from one year prior. We've steadily managed deposit costs, which were down by eight basis points from the fourth quarter, and played a key role in net interest margin expanding by some six basis points. Even more important, in our view, is our success in consistently growing net interest income dollars across a variety of rate environments since launching the company back in 2007. First quarter 2021, NII grew to a record $38.7 million, up nearly 11% over the same period last year. This marks Tri-State Capital's 21st consecutive quarter of annual net interest income growth. Continuing to increase NII dollars through high quality volume and margin expansion and responsible growth remains one of our goals for full year 2021. NII and non-interest income, excluding securities gains and losses, combined to generate record quarterly total revenue in the first three months of 2021. Revenue grew to record $52.3 million, increasing 8.6% over the same period last year and 4.8% for the linked quarter. Based on the pipelines we mentioned earlier and other expectations, our full-year 2021 revenue growth goal of 15% to 20% remains unchanged. First quarter operating expenses grew by only 7% from the same period last year. As we continue to invest in our growth company's clients, people, infrastructure, and technology, our previously disclosed operating expense growth target remains 10% to 12% for the full year 2021. We built this company to thrive in all seasons, with the three businesses supporting one another, so that we consistently accomplish top and bottom line growth at superior rates over the long term, while continuously improving operating leverage and increasing earnings for our shareholders. That's exactly what we achieved in the first quarter of 2021, providing a solid foundation for what we believe will be a consequential year. I have with me this morning David Demas, our CFO, Tim Riddle, our CEO at Chartwell, and Brian Federoff, the CEO of Tri-State Capital Bank, to assist with the call. Operator, would you kindly open the lines?
spk08: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and one on a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Once again, we do ask that you please limit yourselves to one question and one follow-up. And please note, if you do have additional questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Matt Olney from Stevens. Please go ahead with your question.
spk04: Hey, great. Thanks. Good morning, guys. Good morning, Matt. I want to start on the net interest margin and appreciate your expectations from here. I think you mentioned last call that you hope to be at that 160 margin by the end of the year, and it looks like we made some good progress here in the first quarter at the holding company. We'd love to hear any thoughts around that.
spk03: Matt, good morning. It's David. As you saw, we were able to deliver on some of the improvement that we talked about with this group last fall and then again in January in terms of margin expansion. And we see that continuing to occur in the current rate environment. The expansion is primarily driven by our deposit cost reduction, and we've made great progress there. We were at 59 basis points on deposit costs on a spot basis at year end. That dropped to 48 basis points, again, on a spot basis at the end of the first quarter. We believe we'll continue to see improvement in deposit costs and win the year somewhere in the low 40s on a spot basis. As you saw, NIM continued to expand from 153 at year end to 159 at the end of the first quarter. And with deposit costs coming down, And with the floors that we've got in place and what we believe is a benign interest rate environment, you'll see continued improvement from here. And NIM will be in the mid to high 160s by year end at the holding company and a little bit higher than that at the bank.
spk04: Okay, perfect. That's helpful, David. And then I'm also curious at this point how you're managing the balance sheet around liquidity. and securities. I think on an average basis, we saw liquidity move down, securities move up. We'd love to understand kind of how you're thinking about that as you move through the year.
spk08: Well, I think just on a real quick piece, this is Brian. I think we're doing a really good job of highlighting the structural, you know, really the structural alignment of the funding mechanism and then the asset deployment aspects of the company. Last year, obviously, seeing a lot happen within the funding base and not only responding to what we thought we wanted in liquidity, but also responding to our best clients and making sure that we had room and capacity for them. We've been able to through a lot of communication, sales management, and prioritization, make sure that we're really aligning what we would call an agile funding mechanism with our ability to do that. So that predictability, I think, allows us to make some better use or more efficient use of the balance sheet. So, David, if you want to.
spk03: Yeah, so we've, Matt, been focused on bringing cash balances down and deploying the liquidity we had and built last year into longer-term higher returning assets, right? So we've built a fair amount of liquidity in the investment portfolio, which is high-grade, double-A agency, U.S. government securities that are fully pledgeable at the Fed and creates a lot of liquidity for us. And so we've moved it from cash to other parts of the balance sheet, but we'll continue to focus on the liquidity of the overall balance sheet as we move through the year.
spk04: Okay, I'll step back in the queue. Thank you.
spk08: Our next question comes from Daniel Tomeo from Raymond James. Please go ahead with your question.
spk00: Good morning, everybody. Good morning, Dan.
spk03: Good morning, Dan.
spk00: You know, maybe we talk about deposit growth just quickly, very strong in the quarter. You know, you touched on in the release the drivers there with the liquidity management. business, but maybe you can give a little more detail there about, you know, what's driving that strong deposit growth and then expectations going forward, you know, obviously including the environment with, as you just touched on, excess liquidity and everything else. Thanks.
spk08: Yes. Thanks. So, you know, we are, I think, pretty pleased with the first quarter. If you look at fourth quarter last year and first quarter this year, if you put them together, six-month time period, we think are pretty representative of what we want to be doing as we approach this more stable environment. And I guess we would classify that as meaningful growth, meaningful clients, and meaningful business. So pretty... diversified across the platform, actually, in those two quarters. Treasury management was our service-based offerings that drive liquidity balances. We're a very significant driver of the deposit growth within the first quarter from a balance perspective and some new relationships, which we're pretty excited about. And then our national sales business and the family office business both contributing to in smaller account sizes, but with more names. So we're trying to really grow our relationships at this time and sort of build for the future, if you will, and taking advantage of that. But if you look, our overall expectations will be our service-based offerings will be somewhere in the range of 40% to 50% of our deposit growth this year. So we did see probably a little bit more on the service-based originations in the first quarter, but if you look at fourth quarter, first quarter, I think that's a pretty good balance there, 40% and 50% on the TM and service-based side.
spk01: Dan, this is Jim. What you're asking really falls in line with the whole nature of this company from time of inception. We wanted to be consistently reducing the risk profile So at this point, as you heard earlier, we're close to about 60% of our loans being loans secured by marketable securities. They're actually priced every single day and valued. So we have a good understanding of what the nature of the collateral is in 60% of that portfolio. But more importantly, this situation where we've been able to garnish deposits, we've taken advantage of to build up the investment portfolio, which continues to lower the risk profile. If you look back a couple quarters, you'll see we took a very meaningful gain in that portfolio of some $3.8 million and took it out of corporates and put it into agencies. And that's what we've been consistently doing. And as David pointed out, We have an average rating of AA+, but we also have a short duration on that of 4.3 years. So we've really been able to create an appropriate environment for the type of circumstances that we find ourselves in.
spk00: Terrific. That's great, Collin. Thanks. And then maybe switching over to Chartwell, so you've you've had some nice expansion of EBITDA margins over the last few quarters. You know, just mentioned the 50% AUM and revenue growth. Maybe, you know, do you think you can continue to see EBITDA margins expand in that business? And then if you can touch on the timing of the 50% growth expectations within that business. Thanks.
spk02: Sure. This is Tim. In terms of the EBITDA margin, we would expect that to – to expand from here. We've obviously put a great deal of time and effort in on, again, controlling the expenses across the board within Chartwell. And again, with our success and continued success in, again, new business and in flows from existing accounts, that naturally will expand that EBITDA margin as time goes by. In terms of the growing of the AUM and the revenues by 50% from here, again, we could accomplish that task if, in fact, the market cooperates and we continue to expand, again, new product offerings and, as I had indicated, also opening up new areas where we can distribute those products. But that could happen over the course of the next, say, three to perhaps five years.
spk00: Thanks for taking my question.
spk08: And our next question comes from Russell Gunther from DA Davidson. Please go ahead with your question.
spk07: Hey, good morning, guys. Good morning, Russell. Bigger picture question to start. Just give us an update on sort of where the financial intermediary network stands today and Just curious how that's trended over the past year. Trying to get a sense for, you know, has the pandemic slowed the growth rate of onboarding new relationships? And as the economy reopens and people travel again, does that provide a bigger runway to bring more folks on board? I just appreciate some general thoughts there.
spk08: Yes. Yes, thanks, Russell. I think overall... Yeah, we're continuing to increase that number to the mid-260 range. And certainly we're very pleased with that type of growth. It's one of our actually larger growth quarters. Our applications did hit a record number. We're up 44% year-over-year, same quarter. And so we are seeing, I would say, continued growth. success from our distribution platform and as well as just increased awareness and demand and acceptance around what we're doing here. So it's probably unprecedented in terms of the opportunity that we have. And I guess accordingly, we're really focusing on our meaningful business, making sure that we're there for our most meaningful clients and making sure that sort of our Yeah, the additions to the platform are relationships that we know we can serve really well at a premier level. But overall, to your point, we're seeing, I would say, unprecedented opportunity within the channel.
spk07: I appreciate it, Brian. Thank you for the update. And then switching gears a little bit, you guys gave some good color on the CNI dynamics this quarter. Just looking for a general update on the equipment finance vertical expectations for growth there going forward. Thank you.
spk08: Yeah. Yeah, for sure. So, I mean, I think we're very happy with, again, both the private bank production in the first quarter. Again, when you put fourth quarter and first quarter together, you know, record production. And, again, same thing on our commercial side, right? So, overall – I guess our distribution capabilities, our internal ability to meet client expectations and be there for our clients, I would say, again, that is an historic high level right now. On the commercial side, as we pointed out, I think in the release, if you look at the fourth quarter, first quarter, we're pretty happy with $100 million plus growth on just, again, we're talking the C&I side. So we're happy with that. We did increase our equipment finance and the fund finance verticals of centers of excellence to make sure that we had opportunities with good clients in all environments. Those are more agile products that did well last year from a growth perspective. In the first quarter, a bit of normalization around that fourth quarter into the first quarter, but as we look forward, We're very positive on growth of both of those businesses, and I think as we get into the recovery economy, we're very excited about our prospects within traditional CNI. We've, again, focused a bit on that fund finance, equipment finance space in the last 12 to 24 months, and as we move forward from here, we know that those are working really well, and we're really excited what we think we can do in traditional CNI. And again, this is the time when we really stand out to people, which is we'll have to be more thoughtful when you're originating new C&I relationships. That's what we're the best at. That's what our people are the best at. So we're excited about how we're going to differentiate ourselves sort of over the next 12 to 24 months. And again, we think that as the market opens a little bit, as you were talking about just our ability to meet with people a little bit more, you know, and convey that in person, not just over the phone or by video, you know, will help our distribution efforts getting that message really felt by, you know, clients and prospects. Our next question comes from Steve Moss from B-Riley Securities. Please go ahead with your question.
spk06: Hey, everyone. This is Gage Schwartzman, Steve's associate sub and infirm today. How's everyone doing? morning well great so i wanted to start out on credit here um the mpas picked up 13 million of that was for the two cre loans i'm i'm sort of curious can we see any build and reserves moving forward from here due to that or i'm also sort of curious what the timeline is to get some of those loans off of deferrals uh thank you so um i understood i think maybe two questions um in terms of
spk08: the NPAs and provision and then the deferral trajectory from here. So I think on the provisions, we feel that we're adequately reserved or well-reserved at this point. And we don't see any trends that are referenced by those. As we indicated, those are unique circumstances. So we'll see anything that those NPAs will really reflect on the broader portfolio, and I'll let David give some further guidance. But on the deferral basis, as we indicated, we're eight loans, $62 million. We're scheduled to reduce that pretty significantly again here over the next one to two quarters. So we're really happy and pleased, I guess, inspired, if you will, by the performance of the loans that we had in the deferral portfolio. So again, I'm The quality of people we worked with just really on demonstration here as those people managed their businesses and properties through that. But, David, if you wanted to give more guidance on provision, I guess.
spk03: Yeah, sure. I'd be happy to, Brian. So, you know, we're very pleased with the investments we've made in talent and our credit culture, and it continues to pay dividends. We believe that those investments will keep our annual credit costs well below our peer group. You know, Brian's talked about the fact that we haven't seen any notable trends here. And while we remain comfortable with our reserve levels and our credit book, CECL is a bit unique. And the future volatility of CECL with any potential macroeconomic issues that may emerge in the short and the medium term is, you know, in terms of dealing with a pandemic, we're in sort of a transitionary period. and factors such as losses across the entire banking sector as loans come off deferral and need to enter repayment status. Macroeconomic variables like commercial real estate, price indexes, vacancy rates, and the underlying weaknesses mask or cloak some that are cloaked by current fiscal policy. You also have potential tax policy in here, right? So there's just a lot going on with respect to what the CISO model needs to absorb and process. And so we feel good about where we are right now. We don't see any further losses emerging, but we're going to be very cautious and prudent before we release any reserves at this point.
spk06: Okay, gotcha. Yeah, that's super helpful. And Just on, it seems like you guys are putting a lot more money into investment securities here. Sort of curious, looking forward, are you guys looking to continue that trend? And also, what are the current yields looking like on investment securities? Thank you.
spk03: So the current investment portfolio is, as Jim mentioned, AA plus rated, average duration of about 4.3 years. Agency securities are that are seeing some repayments now, but those repayments will slow, and the overall yield will continue to improve. We're probably somewhere around a 170, 175 overall yield of the portfolio at the moment. Expect that to pick up a little bit as prepayments slow here over the course of the next few months.
spk06: Thank you. Thanks for taking my questions. I'll pass it off.
spk08: Our next question comes from Michael Pareto from KBW. Please go ahead with your question.
spk05: Hey, good morning. Good to have you all on this morning. I have a question for Tim. I appreciate you being on today and giving us the update on Chartwell. I was wondering if you could maybe expand a little bit on your expectations for your kind of weighted average fee rate going forward. It looked like it took a very modest step down in the quarter. Is that due to mix and some of the trusting AUM growth you were talking about, or is that just a timing issue on revenue recognition? Just any expanded thoughts there that you're willing to share? Sure, Michael.
spk02: How are you? It is all about the mix. So when you take a look at where we had a lot of success in Q1 in terms of not only flows, but also in terms of new business, a lot of that was on the fixed income side. Slightly lower fee, obviously. So that's what drives that average fee rate that, again, might move around a basis point or two, given the flow and the mix of the new business through the quarter.
spk01: Mike, you want to keep in mind, this is Jim, that when we acquired Chartwell in 2014, the average weighted fee was 25 basis points, and now it's 35. You're aware we had put in place a family of mutual funds, and the yield on those mutual funds to the company is higher. And that, to an extent, drove that business. And if you look at the portfolio itself, it was overwhelmingly, when we acquired it, institutional business that's much more competitive. Now over 20% of it is retail. But that 35 is probably going to be a pretty solid number. It'll rotate between 33 and 36 or 37, but it's not going to get much better than that. And the portfolio, the whole portfolio of the AUM has been diversified meaningfully. If you look at it now, it's about 57%. fixed income, while before it was probably not much more than 15% when we bought the company. And in environments that you find that you experience like we have last year, it added stability to the company.
spk05: Makes sense. Thank you guys for that. And then as my follow-up, maybe a question for For David, I apologize if I missed this earlier in the call, but I feel like the last couple quarters here I've been throwing darts at the board on this FDIC insurance expense. I was just wondering if you have any clarity in kind of when and where that might settle into a more normalized run rate moving forward here, especially with the strong deposit growth that you guys are continuing to see.
spk03: Sure, Mike. So let me put some context to it. The FDIC insurance expense was on an annualized basis four basis points on average assets in the first quarter. That's down from about eight basis points in the fourth and down from about 13 in the third of last year. I think we have shared with this group previously that because we've crested over the $10 billion mark, the methodology in terms of calculating that insurance premium is different and we get the benefit of our private banking loan portfolio, the lower-risk nature of that portfolio in terms of the calculation. So you will see the insurance premiums tick up slightly from here based on growth, but where we sit right now is probably a pretty good run rate of where we'll go through the year, obviously adjusting a little bit for... But that move from the third quarter to the fourth when we were able to apply for the first time and then to the first, most of that transition is now behind us, and this will start to normalize from here. Got it.
spk05: So we're growing off of kind of the $1.1 million because the new methodology makes the back half of last year a little less relevant from a calculation standpoint. Exactly. Got it. Well, it was good to hear from you all. Thank you for taking my questions. Take care.
spk08: Once again, if you would like to ask a question, please press star and then 1. To withdraw yourself from the question queue, you may press star and 2. Our next question is a follow-up from Matt Olney from Stevens. Please go ahead with your follow-up.
spk04: Yeah, thanks for taking the follow-up. Just want to circle back on the expense discussion we were just having. And just taking a step back, operating expenses were sequentially low in the first quarter, and you mentioned FDIC insurance is one of the reasons. The guidance of 10% to 12% growth in 2021 was maintained and implies quite a bit of ramp from these levels in the first quarter. We'd love to hear more about kind of where you expect to see that ramp and in which categories. Thanks. Thanks.
spk03: So, Matt, you think about our growth last year and our ability to manage expenses to about 10%. We were able to continue to make significant investments last year as we built technology, people, processes, regulatory compliance, all to support what we view as responsible growth by the organization. For this year, our goals continue to be annual growth of loans and deposits of 15% to 20%. and revenue of 15% to 20%. To support that responsible growth, we need to continue to make investments in people, process, and technology. So that's where you'll see the primary drivers being in compensation and technology-related expenses. We believe we can focus on driving those continued investments and keeping expense growth under 12%. You'll naturally see as we move through the year improvements in operating leverage, operating efficiency ratio, the non-interest expense to average assets ratio, and return on equity, which is above nine for the quarter, and we believe we'll get that to double digits by the end of the year. So responsible growth, a lot of investments we're making in people and technology to support that growth, regulatory compliance-related type items. And, you know, we feel good about the projection that Jim had in his remarks of 10 to 12%.
spk08: Yeah, and I would just add, you know, around the client engagement, client experience piece, a lot of those are aligned with the risk management side. But a lot of the people and automation and technology that we're putting in place are we'll absolutely enhance the client experience. So we'll reduce manual touches to more automated touches. So we're freeing up our people to focus on higher level client engagement and more meaningful engagement. And also, as you can see, sort of our T&E and other client engagement expense is fairly low in the quarter. Our hope certainly is that we're finding ways to continue to engage with clients in person or more meaningfully over time. So we'll certainly see some increases as we do that as well.
spk04: Okay. That's helpful. And just a few more housekeeping questions here. I guess more on the modeling front. It looks like in the first quarter, the diluted share count was a little bit lower than I expected, but a higher preferred dividend. David, I think we kind of talked about this a few months ago. Just kind of remind me of the puts and takes on that in the first quarter. and how we should be thinking about that moving forward.
spk03: Yeah, Matt, as a recovering accountant, I sometimes find there's an inverse relationship between the amount of disclosure and its usefulness. We will continue to provide this table on page 14 to you each quarter. Diluted common shares are about 32.2 million shares. That should stay relatively stable. The biggest change this quarter was the share count of restricted stock, the amount which was dilutive. That fluctuates with the market price and what shares are in the money. With the improvement in the tri-state market price, the restricted stock, more shares became dilutive. And so absent any significant change in terms of restricted stock, For the remainder of the year, the diluted common share count should stay around $32.2 million, maybe a little higher or lower just based on market fluctuations. So, you know, we'll continue to provide this disclosure and continue to try to provide transparency and clarity here.
spk04: And on the preferred dividends, I think it's around $5 million this quarter. How will that fluctuate throughout the year?
spk03: That will stay relatively consistent as well. It will grow slightly quarter to quarter to the extent that Stone Point elects to receive the dividend in additional shares versus cash. To date, they have done that. They've elected additional shares. But the overall dividend should stay relatively stable at the first quarter levels. Okay.
spk04: And then just lastly, David, on the effective tax rate, we'll let them know kind of how you're thinking about that this year.
spk03: So we're a little higher than we had hoped to be in the first quarter, but we still believe we can get that down to 17%, 18% through the year. We've got, you know, a couple of credits on the horizon that potentially will help us get there if we're able to execute and transact on those. And so guides of 17% to 18% still holds.
spk04: Okay, perfect. I'm all set. Nice quarter. Thank you.
spk01: Thank you.
spk08: And ladies and gentlemen, in showing no additional questions, I'd like to turn the conference back over to management for any closing remarks.
spk01: Thank you very much for your continued interest in Tri-State Capital and your participation today. We all look forward to updating you in our second quarter results in July. Have a great day. Thanks.
spk08: And, ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.
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