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TriState Capital Holdings Inc (TSC)
Q4Â 2018 Earnings Conference Call
Jan. 31, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning, everyone, and welcome to the TriState Capital Holdings' Conference Call to discuss Financial Results for the Three Months ended December 31st, 2018. All participants will be in listen-only mode.
(Operator Instructions) 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 TriState Capital that may generally be identified, as describing the Company's future plans, objectives or goals. Such forward-looking statements are subject to risks 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. For further information about the factors that could affect TriState Capital's future results, please see the Company's most recent annual and quarterly reports filed on Forms 10-K and 10-Q.
You should keep in mind that any forward-looking statements made by TriState 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. TriState Capital has no duty to, and does not intend to, update or revise forward-looking statements after the date on which they are made.
To the extent non-GAAP financial measures are discussed in this call, comparable GAAP measures and reconciliations can be found in TriState Capital's earnings release, which is available on its website at tristatecapitalbank.com.
Representing TriState Capital today is Jim Getz, Chairman, President and Chief Executive Officer. He will be joined by David Demas, Chief Financial Officer for the question-and-answer session.
At this time, I would like to turn the conference over to Mr. Getz.
James F. Getz -- Chairman and Chief Executive Officer
Good morning and thank you for joining us. TriState Capital's fourth quarter was, by many measures, one of our best ever, as earnings and loan originations reached all-time highs; the success of our deposit and treasury management business continues to fund double-digit loan growth and our investment management business generated positive net inflows of client assets.
The fourth quarter rounded out a very strong year for our Company in terms of performance and gives us important momentum as we continue executing on TriState Capital's growth Strategy in 2019 and beyond. In the fourth quarter of 2018, our strategy delivered record earnings per share, with earnings up 37% for 2018 and 19% for the fourth quarter.
Year-over-year, TriState Capital has now generated double-digit EPS growth in 19 of the last 23 quarters as a public company. We believe this performance separates TriState Capital from our peers and we are as confident as ever in our ability to sustain the growth trajectory achieved since taking the Company public in 2013.
Talent, client focused culture, strategy and diverse revenues have allowed us to reliably produce superior long-term results across different operating environments and cycles. While on display throughout 2018, the attractive risk profile of TriState Capital was clearly highlighted during the last three months of the year. Against the backdrop of extraordinary equity market volatility in the fourth quarter of 2018, compare TriState Capital's results in the period versus the fourth quarter of 2017; total revenue up 12%, pre-tax pre-provision net revenue up some 33%, pre-tax profit up 19%, net income available to common shareholders up 20%.
Each of TriState Capital's three businesses achieved major milestones and contributed to our record results and we expect the profitable expansion of our private banking, commercial banking and investment management franchises in 2019.
Private bank loans outstanding grew more than 36% annualized during the fourth quarter and nearly 27% during 2018. This growth was fueled by record quarterly private bank originations of approximately $300 million and booking of nearly 650 new loans during the last three months of 2018. Private bank loan applications, another good indicator of demand, increased more than 26% annualized in the fourth quarter of 2018 compared to the year-ago period.
For full year 2018, these applications grew by more than 29% compared to 2017. Private banking loans have grown at a five year compound annual growth rate of 38%, including through periods of equity market volatility. The fourth quarter is just the latest demonstration of how TriState Capital's private banking business is designed to deliver exceptional growth and performance through a range of operating environments.
We also continue to believe we have no formidable competition for TriState Capital's offering for high net worth individuals, which we provide exclusively through our distribution network of 189 independent investment advisory firms and other intermediaries. In our view, TriState Capital's private banking business can dominate this market and we expect it to remain our fastest growing lending category for the foreseeable future. As many of you know, our private banking non-purpose margin loans are backed by marketable securities and this collateral is monitored daily by TriState Capital's proprietary technology and private banking team.
Given their expertise, the rigorous processes we have in place and the fact that we interact with financial advisors and trust officers, who work to preserve principle for their clients, the limited cure activity required in the fourth quarter was fulfilled in an orderly fashion.
During the period, we required maintenance cures on 181 loans or fewer than 3% of our private bank accounts. Average time to cure was 2.2 days. For TriState Capital's private banking loans outstanding, it's important to keep a few data points from your end in mind.
The average loan size was less than $500,000, the utilization rate across the portfolio was approximately 45%, and the median loan-to-value ratio across the portfolio was approximately 35%, given the collateral cushion we maintained beyond the maintenance cure level.
Turning to middle market commercial banking, this business really had an outstanding 2018, and we expect demand to remain strong in 2019. In the fourth quarter, our team drove record quarterly originations of approximately $130 million for commercial and industrial loans and approximately $140 million for commercial real estate loans.
The focus remains on sponsors and projects within the four states served by our five regional offices and we maintain broad industry diversification in our commercial book. Total commercial loans grew by nearly 25% annualized during the fourth quarter and 18% during 2018. Also while commercial real estate has been an important source of growth for us in recent years, it has remained about 30% of total loans.
Heading into 2019, pipelines for both commercial real estate and C&I remains strong and we have a proven ability to fund organic loan growth in all -- we anticipate another very good year for the TriState Capital banking business.
Overall, the Bank maintained superior credit quality in the fourth quarter and throughout last year. In fact, non-performers and adverse rated credits at the end of 2018 declined from levels of September 30th and the end 2017. While we continue to build reserves for private banking and commercial real estate loans, we have had to release reserves for our commercial and industrial portfolio.
This was driven by specific recoveries in the performance of our C&I book. Still, the Bank's year-end allowance measured more than 590% of non-performing loans, a reserve levels seen among the highest in the entire industry.
The Bank's credit risk profile reflects several factors, including select products offered and the markets we choose to serve as well as rigorous underwriting processes. We also believe investments made in the credit team provides us with a unique competitive advantage.
Portfolio managers dedicated to the commercial book are highly experienced, and are largely recruited from super regional banks. A separate group dedicated to private banking loans largely recruited from major custodian banks and trust companies has deep experience evaluating securities-based collateral.
We continually invest in talent across the entire Company and our unique branchless business model and operating leverage allowed us to grow full time employees by 12% in 2018. In the same year, we lowered the bank's efficiency ratio to 53% and lowered non-interest expense to average assets to 1.30% from 1.41% in 2017.
TriState Capital's risk profile is also highlighted by what is now a $6 billion balance sheet which we built for growth and resilience during all economic cycles. The balance sheet continues to be LIBOR neutral and asset sensitive while maintaining significant flexibility to manage interest rate risk in changing markets.
In addition, using our deposit activity to fund loan growth, we grew the securities portfolio by 112% in 2018 and significantly increased our on-balance sheet liquidity. The effective duration of the debt securities portfolio was about 2.2 at the end of 2018. Indicated a highly nimble book with about 44% of debt secured is either floating rate or inside of three years to maturity. We also believe it's useful to look at how and why we're pricing loans and deposits at TriState Capital as you evaluate the Company's risk profile.
The average fourth quarter loan yield was 4.35%. This reflects not only the pricing we have on TriState Capital's zero loss history at private banking loans, but our ability to do commercial business with top quality borrowers within our attractive regional markets. We target commercial clients with exceptional track records and sterling reputations, along with the ability to meet our standard terms and rigorous underwriting criteria. The quality of these companies is evident in our superior asset quality metrics and very low credit costs.
Pricing on the liability side reflects the strategic expansion of our national deposit franchise and treasury management offering, which is fueling organic loan growth. The average cost of deposits was 2.17% in the fourth quarter and here we're paying for quality, durable relationships.
TriState Capital's deposit base reflects our long-standing focus on serving sophisticated clients including high net worth individuals through their advisors, non-profits, middle market businesses and financial services firms. Last year's robust loan growth was outpaced by growth in deposits which surpassed the $5 billion milestone.
Deposits grew organically by nearly 25% annualized during the fourth quarter and nearly 27% during 2018. Our investment in durable relationships with high quality clients while maximizing the opportunity to fortify a market leading position for TriState Capital's private banking business can lead to compression in net interest margin, as it did in the fourth quarter.
Therefore, our focus remains on using organic expansion of high quality earning assets, multifaceted deposit relationships, and our scalable non-branch business model to grow net interest income dollars. Here, the numbers speak for themselves with net interest income growing year-over-year by 19% in the fourth quarter and 24% for 2018.
Turning back to the Company's risk profile and the fourth quarter's market volatility, let's look at Chartwell Investment Partners. Chartwell's national client base is increasingly balanced by the retail distribution we've been building, complementing its institutional money management heritage. Retail now represents 30% of Chartwell's assets under management. It's also helpful to remember that 58% of Chartwell's assets under management was fixed income at year-end and most of that is short duration.
Most importantly, Chartwell continues to deliver highly credible results against benchmarks, offering active strategies that are difficult to replicate with passive products. Through the end of the fourth quarter, 86% of Chartwell's products were ahead of their respective benchmarks for the one year period, 77% were ahead for the three-year period and 75% were ahead for the five-year period. Investment performance coupled with our commitment to sales and distribution generated positive net inflows of $25 million in the fourth quarter and $174 million for all of 2018.
These positive debt inflows were on top of the $1 billion in client assets we acquired last April. At the end of the day, investment returns drive institutional and retail demand for Chartwell's products. For example, Chartwell's mid-cap value fund is ranked in the first percentile in three year performance among all its peers. In turn, the mid-cap value strategy generated positive net inflows and 12% AUM growth for 2018.
Looking ahead, we expect the compelling performance by Chartwell's investment professionals to continue meaningfully contributing to the growth of our asset manager in 2019. As we told you in our October investor call, we did not anticipate a double-digit increase in Chartwell revenue for full year 2018. While Chartwell did grow annual fees slightly last year, we were certainly not immune to the revenue headwinds facing asset managers in 2018.
On the other hand, as we evaluate potential acquisitions, the environment has motivated sellers and made pricing expectations more realistic among asset managers. Their attention is also been captured by TriState Capital's consistent investments in distribution and Chartwell's positive net inflow trends.
As we begin the New Year at TriState Capital, we are very confident about demand trends for our select product offering and market niches. We're even more confident in our ability to sustain consistent execution against our growth strategy.
With this in mind, we're introducing what we believe are ambitious but achievable goals for 2019: continue to grow annual pre-tax income at a double-digit pace of 15% to 25%; continue to organically grow loans at a double-digit pace of 15% to 25%; grow treasury management deposits by $500 million or more, an increase of over 70% from the end of 2018 after having doubled the business over the last 18 months; surpass $7 billion in bank assets during 2019; deliver double-digit organic growth of Chartwell revenues year-over-year; surpass $15 billion in Chartwell assets under management through a combination of organic and acquired growth; drive operating leverage and maintain a bank efficiency ratio in the low-50s while limiting annual operating expense growth to a single-digit rate; and maintain the credit quality metrics that distinguish us from our peers.
I hope my comments provide better visibility and insights into the Company's revenue diversity and attractive risk profile. Our ability to mitigate and manage risk has been central to TriState Capital's results over the past several years and core to the confidence that we have in the Company's exceptional growth prospects in 2019 and beyond.
I'd like to now ask our Chief Financial Officer David Demas to join me for Q&A. Operator, Please open the lines.
Questions and Answers:
Operator
Thank you Mr. Getz. We will now begin the question and answer session. (Operator Instructions) And your first question will be from Michael Perito of KBW. Please go ahead.
James F. Getz -- Chairman and Chief Executive Officer
Good morning Michael.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Hey Jim, David, good morning.
James F. Getz -- Chairman and Chief Executive Officer
Good morning.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Thanks for taking the questions. I wanted to start maybe just on your last kind of outlook commentary Jim. I mean I guess the pre-tax income goal growth of 15% to 25%; just comparatively to the 15% to 25% EPS growth targets that you guys have kind of looked at in the past. Is that a function really of just the tax volatility this year? And do you envision, once we get beyond 2019, that you'll return more to the EPS focus? Or is there something more, kind of going on behind the scenes with that kind of shift in the target?
James F. Getz -- Chairman and Chief Executive Officer
We look at that pre-tax number as the core Company, the core business. We are still an organization that is really focused on earnings per share, and I think it might be helpful to provide you with some insight into how we view earnings creation. We take a holistic approach, every financial metric is important to us. Some as we realize, function differently than others but it's all based, to a great extent, on the environment -- the environment that they occur in.
Now, our common denominator is that we are, first and foremost, customer centric. Our loan pricing reflects the quality of the portfolio and the clients that we have targeted in both our private banking and commercial banking channels. So, our credit metrics are the end product of this effort to target world class customers. This is, by design, just hasn't just happened here. Now let's look at the metrics here. We evaluate ourselves based on EPS growth, and I must note that that growth over the past five years, the compound annual growth rate is 30% (ph), that's highly significant.
Now, let me tell you how we get there. Keep in mind, TSC has never been -- never been a margin story but a net interest income and non-interest income growth story. This is our major premise of driving this Company. Now, the net interest margin compression that we experienced periodically, as we did in the fourth quarter is a good example, is merely, merely a function of our rate of loan growth.
And if you recall, we indicated very clearly to everyone in the third quarter that we were driving up our deposits in anticipation of a strong fourth quarter of loan demand and we delivered it. Our loan portfolio grew 7.9% this past quarter. The growth is all organic. Our deposits grew 6.2% during the quarter. I believe that we all would agree that these are fairly respectable growth numbers.
Now, how do we offset this compression? Let's take a look, first of all, at the operating leverage. And I would suggest that the Bank efficiency ratio is just that, a bank efficiency ratio. If you take a look at the asset management world, there is no such thing as an efficiency ratio, but even more importantly, take a look at our holding company. The holding company holds one asset, Chartwell Investment Partners and that more than pays the interest on our perpetual preferred and our sub-debt.
So let's talk about the operating leverage and what it does for us at the Bank. That efficiency ratio dropped to 53.09% for the year, a 430 basis point improvement over 2017 and a 682 basis point improvement over the fourth quarter of 2017. So, non-interest expense increased 10.6% for 2018. In 2017, I point out that it increased 16.1%.
So, non-interest expense to average assets was 1.93%, down some 22 basis points from the prior year. As we've indicated to you, we continue invest for the future, but we will note that we are seeing a continual reduction in the percentage of expense growth related to non-interest expense and that supports further efficiency ratio improvement.
Now, something that I think all of us will find pretty interesting, at least, I did. But, let me dissect for you the EPS growth of the 37.1% that we experienced in 2018. First of all, and most importantly, our general business drove 21.5% of that 37.1%; our tax strategy drove 9.3%; and call it the Trump bump provided 6.3%. Thus, cutting through everything, the general company provided over 20% stand-alone of our profitability; not a bad number.
Our tax strategy is set up as an alternative vehicle to raising capital and to fully utilize our underwriting capabilities and leverage off our distribution network. And I point out that net interest income -- net interest income was up some 24% in 2018. Revenue was up some 17% for the year and pre-tax income up 27%. Non-interest income was up some 2%.
So, keep in mind, 30% of our revenue is non-interest income and we believe that this amount will continue to grow as a percentage of our revenue. Asset management and private banking are not capital intensive. There's been no common equity raise that this Company has made since May 9th of 2013, yet the balance sheet has gone from $2 billion to $6 billion and we've made three acquisitions of asset managers.
Our credit costs are contained, by design, the risk profile the bank has been reduced pretty meaningfully over the past several years. Private banking was only 19% of our business, when we took this Company public in 2013. Today, it's about 60% of our business. In 2013, we had merely $5.8 million of non-interest income. Today it's over $47 million. And from inception, we've opted not to take any type of meaningful interest rate risk with the loan portfolio, realizing we had principal risk.
Thus, we've clearly built what I would consider a very strong growth platform that for 19 of the past 23 quarters that we've been public, we've provided -- it's provided us with double digit EPS growth. We now have a very strong balance sheet and a robust income statement to continue to build this Company into the future. We believe and strongly believe that if we can consistently year-over-year grow EPS at a 15% to 25% rate, the market will pay attention to the stock. We certainly have executed effectively on that goal since May of 2013.
I hope, I answered your question, Mike.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Yes -- Excuse me, yes, that makes sense, Jim. Thanks for all that color, very helpful. And then just, one other one from me and then I'll jump back in the queue. For Chartwell's outlook for 2019, you know fully appreciating that the team market aspect of it can be challenging, but if we kind of just assume that market levels -- if we kind of take that variable out and we just assume markets levels are similar to kind of where they are today. What kind of revenue growth expectations do you have more broadly for that business unit, next year?
James F. Getz -- Chairman and Chief Executive Officer
We have very strong expectations. And let me tell you why, as when I spoke to you a few moments ago, I pointed out their performance numbers are extraordinarily good and we're beginning to perfect our distribution. So, we expect asset growth and just to point out, this is all public information, you saw where the assets ended at the end of the year. And now the assets, due to the performance of the market are some $9.6 billion at this point; so up pretty, pretty meaningfully.
But our pipeline is strong there, particularly on the institutional side where you can redo (ph) pipeline because of the type of performance that we've had across the board in many of our disciplines. So I just illustrated one of them in that regard. So, we feel that that'll be very helpful to us.
And secondly, we have clearly, clearly put in place, some measures which better align the employee's interests with that of the Company and we believe that the margins will improve there. So we're truly committed to that business growing, pretty handily for us in the New Year. And then, as I alluded to, and we've been pointing out for the past year, year and a half, we're really focused on closing a transaction this year and we feel very confident and the markets have been helpful to us from a pricing standpoint.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Helpful Jim. Thank you for taking my questions, appreciate it.
James F. Getz -- Chairman and Chief Executive Officer
Thank you.
Operator
The next question will be from Matt Schultheis of Boenning & Scattergood Please go ahead.
James F. Getz -- Chairman and Chief Executive Officer
Good morning Matt.
Matt Schultheis -- Boenning & Scattergood -- Analyst
Good morning. I'm sorry if I missed this in the prepared remarks or the press release, may have just overlooked it. Where there any -- your tax credits that you took in the first quarter and where they -- or in the fourth quarter excuse me, where they also reflected in your non-interest expenses?
David J. Demas -- Chief Financial Officer
No. Matt, this is David. No, they were all reflected in the effective tax rate in the tax provision line.
Matt Schultheis -- Boenning & Scattergood -- Analyst
Okay. Thank you. And I know that you tend to budget yourself or think about things strategically in sort of a three year window because it's more -- it's more manageable. And so I'm going to ask you to stretch that, if you'd be willing to, just thinking out in the very long term, do you view TriState as an asset manager that has some -- it has a bank and offers some banking products? Or do you view TriState as a bank that has an asset management arm? Or if we look out in 10 years, this -- is this an evenly balanced Company?
James F. Getz -- Chairman and Chief Executive Officer
Okay, well you gave me more credit than you should have. It's a two year outlook that we have and not a three year outlook. And it just has to do with, this is still a company that we're building and we have a strong foundation in place. Here's how I view and I believe most of the people working at this company view us. We view ourselves as a financial service company. Chartwell Investment Partners is just as important to us as the bank is as TriState Capital Bank and we've put sizable resources to work on both of them.
What we've attempted to do is to put a company in place -- in the marketplace that has three diversified revenue streams and we've attempted to reduce the risk profile of the parent company, of the consolidated company by the commitments that we've made to the type of commercial banking clients that we pursue to the fact that our only loans to individuals are loans secured by marketable securities and to the fact that we have a revenue stream of non-interest income.
And what you'll find is that it's a marvelous situation, because if you took a look and just take you back to when we acquired Chartwell '14, '15 and '16 were exceptional years for Chartwell and the investment management business. The contribution that they were making to our Company was a bit less in '16 and -- I'm sorry in '17 and '18 and you're going to see it, I'm alluding to the fact, you're going to see it pick up in the coming year.
And so what you have is when others were not moving quite as rapidly like in in '14 and '15, like our commercial banking wasn't growing to the level we'd like to see it, this was an offset. So this is a financial service company with a relatively low risk profile and it's not capital intensive, compared to other large financial service companies, not as capital intensive.
Matt Schultheis -- Boenning & Scattergood -- Analyst
Okay. Thank you very much.
Operator
And the next question will be from Russell Gunther of D.A. Davidson. Please go ahead.
Russell Gunther -- D.A. Davidson -- Analyst
Good morning guys.
James F. Getz -- Chairman and Chief Executive Officer
Good morning, Russel.
David J. Demas -- Chief Financial Officer
Good morning.
Russell Gunther -- D.A. Davidson -- Analyst
Yes, it was interesting to see private banking record originations in a quarter that had such great equity volatility. So, any additional color you could provide on what drove the growth this quarter, and then, any unique kind of catalysts to continue that into 2019?
James F. Getz -- Chairman and Chief Executive Officer
First of all, Russell, I should point out that historically the first and the fourth quarters -- I'm sorry the second and the fourth quarter are our best quarters that we have in private banking, if you go back and look at it historically. What we also have to keep in mind is market share. We now have 189 financial intermediaries doing business with us. And if we provided you a copy of that list, you would recognize all the names, because we've targeted the larger organizations that we felt that we could be successful with, and so our activity is picked up handily because we have new -- more advisors. We have over 60,000 advisors we're doing business with and trust officers.
So a lot of it has to do with the broadening of the distribution. We're also making it easier for people to do business with us. We began introducing the digital loan platform and it's moving along pretty successfully. And we anticipate providing you -- beginning to provide you in the next few quarters with some data and information about how that's coming about. We have an internal sales organization that's very effective in pursuing advisors and getting the information out.
So, I would say, overall, it's been a very effective targeted marketing effort in that regard. And I think to an extent, I mentioned the 180 loans that had to be cured that were cured within less than three days either by additional securities being added to the account or the client -- us working with the client and an advisor and the client opting to sell some securities. So, everything just worked nicely, and the folks that we worked with -- the advisors that we worked with gave us an opportunity for them to see how effectively we can work in a stressful type of situation and be very much client centric.
So it was really an opportunity for us. And I know that many folks naturally in the market felt that we were so tied to the equity market that they didn't anticipate that this would be as good of a quarter as we -- as we had and to be quite honest, the quarter was better than we even anticipated. We knew we were going to have a strong quarter, that's why we gave the indications in the third quarter. But it turned out consequentially better for us.
Russell Gunther -- D.A. Davidson -- Analyst
Thanks for that Jim. And then, you touched on briefly my second question here with regard to the loans that needed to be cured. Can you share what percentage was additional securities pledged versus securities sold?
James F. Getz -- Chairman and Chief Executive Officer
I don't think that that's something that we'd want to secure, but assume that it was a small number.
Operator
Mr. Gunther, do you have any additional questions, sir?
Russell Gunther -- D.A. Davidson -- Analyst
No, that's it for me. Thanks so much.
Operator
Thank you.
James F. Getz -- Chairman and Chief Executive Officer
Thanks Russell.
Operator
(Operator Instructions) The next question will be from Matt Olney of Stephens. Please go ahead.
Adam Freyaldenhoven -- Stephens Inc. -- Analyst
Good morning guys, this is Adam Freyaldenhoven on for Matt.
James F. Getz -- Chairman and Chief Executive Officer
Hi Adam, how are you?
David J. Demas -- Chief Financial Officer
Hi.
Adam Freyaldenhoven -- Stephens Inc. -- Analyst
Good. Good. So, I was wondering, how are you thinking about deposit pricing, if there are no more additional rate hikes? And does this present a headwind to growing NII in the 20% range?
James F. Getz -- Chairman and Chief Executive Officer
No, I don't see it as a headwind to grow the NII in the 20% range. Keep in mind what's driving that NII; it's volume, OK. That has a meaningful impact on that, because look at the pricing of our loans and things along that particular line, but it really is the volume of activity that we have going through there and from a pricings perspective, remember we've been talking a lot about the commitment that we have made to the treasury management arena.
And we obviously talked about that in the context of our overview that we gave, but that will help with the modification of those numbers. I don't want anyone to think that we totally dismiss net interest margin. We'd like it to be better, but we are really focused on providing a full complement to our shareholders and we're really focused on the earnings per share and we look at all the metrics, but we are building a business here and we're growing the organization profitably, profitably and that's clearly reflected in the earnings and that's why I went through the exercise of breaking down that 37% for everyone.
Adam Freyaldenhoven -- Stephens Inc. -- Analyst
Thank you, that's very helpful. And then, in 2018 you had a net release from reserves? Do you think credit cost normalizing in 2019, as we get later in the cycle?
David J. Demas -- Chief Financial Officer
Yes, I think everyone would agree that credit can't get much better from here, and we would expect those costs to normalize. And if you'd look over the sort of the history of the past three to five years, the allowance to total loans probably trend back to that level.
Adam Freyaldenhoven -- Stephens Inc. -- Analyst
Okay, thank you, that's very helpful again and that's it for me.
Operator
The next question will be from -- a follow up from Michael Perito of KBW. Please go ahead.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Yes, good morning guys. Thanks for the follow up. I just want to ask on the credit side. Can you remind us, David, just where the reserves are, on the three portfolios as it stands as of the end of the quarter, the C&I, CRE and Private Banking buckets?
David J. Demas -- Chief Financial Officer
Let me get that for you, Michael. It will take a second. Why don't we move on to the next question and I'll get back to you.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Yes, OK. And then maybe Jim, while David looks that up, just can you remind us what if, any kind of broader stroke goals you have for the mix of the loan portfolio? I mean is there a certain point where the private banking growth, I guess on a relative -- I mean where are you comfortable taking that to? Just, can you remind us if there are any like, kind of targets or ideal mixes that you guys overtime are targeting?
James F. Getz -- Chairman and Chief Executive Officer
The way we look at it, it's a pretty diversified portfolio. Obviously, the private banking portfolio, I could really see that growing over the next couple years, pushing in the 65% to 70% range. But commercial banking is a critical aspect of the business that we've been building. I don't believe because of the activity and you're probably aware of it, that you've seen a commercial real estate portfolio.
There's a lot of payoffs all the time and as you're listening to some of the reports that you're having from your other clients, they've experienced that. It's a more dynamic portfolio than the C&I portfolio. I don't see that commercial real estate portfolio here being much more than about 30% where it is now of the portfolio, OK. And the remaining amount being in the C&I arena.
And our C&I business is growing at a slower pace by design because of the nature of the clients that we are looking for in the marketplace, our target audience essentially. And that's why I kept repeating over and over again that pricing reflects the quality of the portfolio and why we haven't had a lot -- issues with that portfolio in quite some time or with the commercial real estate portfolio. David did you --?
David J. Demas -- Chief Financial Officer
Yes. So, Mike, thanks for the time to look this up. You'll see this in the K, which will be filed somewhere around February 15th. Our Private Banking reserves were $1.9 million at the end of the period, $5.7 million for Commercial and Industrial; $5.5 million for CRE; for a total of about $13.2 million in total allowance.
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
And do you guys feel that those reserve levels, like as a percentage of the portfolios are fairly good assumptions to be maintained going forward?
James F. Getz -- Chairman and Chief Executive Officer
Yes, we do and let me tell you why we feel that way. There is continual oversight of that book of business. For example, every single seven or rated credit here, every single one, there only $7.4 million of classified loans and the adverse rated credits are less than $25 million; every single one of those credits are reviewed by the executive management team of this Company every single month. And it's looked at very closely and we have a good understanding of each of them, in that regard.
We have a process and a discipline in place that every quarter that all the loans; six -- rated six or higher are -- continually are reviewed on a periodic basis by our credit committee. We have in place a refined portfolio management team, as you're aware in your industry and in the asset management industry, you can have a career as a security analyst, OK.
We've created a career for a credit analyst here at TriState, which you do not find in the banking business, where they can see a path that they can make a nice six figure income. So we have top quality people here looking at the credits and we feel really pretty comfortable with it and we're comfortable with all the numbers we have in place at this point.
David J. Demas -- Chief Financial Officer
Just to follow up on that, I think we had a fair number of recoveries for 2018. I'd ask you to look back on our history of allowance to total loans over the past three to five years and that's probably a sense of where we'll end up by the end of the year?
Operator
And the next question will be from Daniel Cardenas of Raymond James. Please go ahead.
James F. Getz -- Chairman and Chief Executive Officer
Good morning Dan.
Daniel Cardenas -- Raymond James -- Analyst
Good morning, everybody. Good morning, guys. Just a couple quick questions, as most of my other questions have been answered. In terms of the line utilization number that you saw on the private banking side, how does that number compare to previous quarters in '18? And are you seeing any significant change so far in 2019?
James F. Getz -- Chairman and Chief Executive Officer
It's in line with previous quarters. So we're not really seeing much change in it at all, it's historically been in that range.
Daniel Cardenas -- Raymond James -- Analyst
Okay, great. And then just in terms of capital utilization, looks like you bought back some stock during the quarter. How should we think about that, is there still -- is there still a program that's out there and open and the stock's trading under where you bought back during the 4Q?
James F. Getz -- Chairman and Chief Executive Officer
Yes. I think what you want to do is -- well, we obviously by buying it back feel that the stock is undervalued. And if you take a look at the -- one of the most recent Form 4s, you'll see that I recently bought a sizable amount of stock myself. So I personally believe it and several of the individuals here at the Company and our senior management have done exactly the same type of thing.
So, I would suggest that we'll probably fully utilize the remaining amount of that allocation. We've only -- we go to our Board with allocations of about $5 million each time that we go to them. We haven't at the last Board meeting asked for any more, but we believe that we'll put -- I think it's a little bit more than $2 million that's still available. I think you'll see that readily put to work in the stock. And the best way of looking at that, I think we've bought about 30 million shares since we initiated the program and I think our average cost has been around $15.
Daniel Cardenas -- Raymond James -- Analyst
Alright, perfect. Thank you guys.
Operator
And the next question will be a follow up from Russell Gunther of D.A. Davidson. Please go ahead.
Russell Gunther -- D.A. Davidson -- Analyst
Thanks for the follow up guys. Just circling back on the expense commentary earlier, appreciate your thoughts on positive operating leverage going forward. Did you share, or could you, on a consolidated basis, your expectation for the expense growth for 2019?
James F. Getz -- Chairman and Chief Executive Officer
I did; it's single digit.
Russell Gunther -- D.A. Davidson -- Analyst
Thanks, Jim.
Operator
And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back to Jim Getz for his closing comments.
James F. Getz -- Chairman and Chief Executive Officer
Thank you very much for your interest in TriState Capital and your participation today and we look forward to talking to you in April. Have a great day.
Operator
Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Duration: 51 minutes
Call participants:
James F. Getz -- Chairman and Chief Executive Officer
Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst
Matt Schultheis -- Boenning & Scattergood -- Analyst
David J. Demas -- Chief Financial Officer
Russell Gunther -- D.A. Davidson -- Analyst
Adam Freyaldenhoven -- Stephens Inc. -- Analyst
Daniel Cardenas -- Raymond James -- Analyst
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