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TriState Capital Holdings Inc (NASDAQ:TSC)
Q3 2019 Earnings Call
Oct 17, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning everyone and welcome to the TriState Capital Holdings Conference Call to discuss financial results for the three months ended September 30, 2019.

[Operator Instructions] 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 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 & Chief Executive Officer

Good morning and thank you for joining us. We're delighted to share our latest quarterly results with you this morning not only because of the milestones achieved and record-setting metrics delivered, but more importantly because we believe TriState Capital's performance is indicative of the Company's commitment to execution, long-term growth potential and the confidence we have in 2020 and beyond. Our third quarter results clearly demonstrate the robust earnings power of the Company we've built, one that's designed to deliver growth and value in a variety of economic and rate environments. Continued organic loan growth propelled us over our $7 billion asset target, which, you may recall, was one of the financial performance goals we set for 2019.

Total loans surpassed the $6 billion threshold for the first time, up 26% from one year prior. Loan growth was fully funded by 28% deposit growth compared to one year ago. Total deposits also crossed the $6 billion mark and our loan-to-deposit ratio was under 100% for the second consecutive quarter.

Net interest income reached a record level for the quarter, supported by double-digit organic growth in both private banking and middle-market commercial banking loans, which were up 28% and 24%, respectively, over the past 12 months. At the same time, our income statement is not solely dependent on spread income and it's capable of producing strong earnings growth even in the current low LIBOR and short-term interest rate environment.

Non-interest income continues to represent 30% of total revenue with fees reaching new record levels for the quarter and first nine months of the year. We are very pleased with how our private banking, commercial banking and investment management businesses are working together to deliver strong top and bottom line results.

Third quarter revenue totaled a record $47 million, up more than 11% from one year prior. Through the first nine months of the year, total revenue grew to a record $133 million, up more than 10% from the prior year. We continue to invest in our business with operating expenses in line with our stated single-digit annual growth rate goal for full-year 2019. At the same time, the scalability of the business is evident in the bank's improving efficiency ratio, which is also in line with our low-50s goal for this year.

Revenues pushed pre-tax income to new record highs for both the quarter and the first nine months of the year, on pace with our 15% to 25% pre-tax income growth target for full-year 2019. Our strong top line results flowed through the bottom line. Earnings per share of $0.50 grew more than 6% from the $0.47 the Company reported in the linked second quarter. That's an annualized 25% increase in earnings. The financial performance is the result of three businesses working in concert to drive differentiated and profitable growth, illustrating the flexibility and resilience of our unique model.

Our private banking business delivered one of its best all-round quarters to date as we fortified TriState Capital Bank's position as the nation's premier provider of marketable securities backed loans through financial advisors. Through private banking, we provide products, experience and solutions to high net worth individuals, trusts and businesses nationwide accessed through a network of financial intermediary firms, which we have spent years cultivating and they all number some 207. Year-to-date, we have closed new private banking loans with over 1,000 individual advisors who we had not worked with before 2019.

Private banking loan balances totaled nearly $3.4 billion at quarter end, representing 56% of total loans and reflecting growth of 28% during the past 12 months. And the number of third quarter private banking loan applications we received increased over 26% from the same period in 2018. About half of these applications are coming through our digital loan platform, and this continues to increase every quarter.

We built this digital lending platforms via [Phonetic] investment advisors, trust officers and other intermediaries we work with to help them more effectively and easily serve the high net worth clients we expect to attract even more applications through this platform in future periods. Our middle-market commercial banking business continues to have exceptional growth with total commercial loan balances at period end growing to $2.7 billion, an increase of 24% from September 30, 2018.

Commercial and industrial loans grew by nearly 29% during the past 12 months, approaching $1 billion. C&I originations remained strong, totaling approximately $104 million in the third quarter. Our C&I growth reflects the addition of high quality relationship managers to our team and enhancements to our capabilities, including more agile products, like equipment finance.

Commercial real estate loans totaled $1.7 billion, growing 22% from one year prior and comprising about 28% of total loans. CRE loan origination activity remained strong as well, totaling $121 million in the third quarter. Credit quality metrics remained pristine and, in fact, improved even further during the third quarter. Strong asset quality has become a hallmark of our performance and reflects the high-touch nature of the relationship we've developed with our clients as well as the disciplined underwriting standards of our team employees.

Pipelines for our middle-market commercial lending business continue to be robust and we expect continued strong loan growth in the fourth quarter. Loan growth remains fully funded by our deposit franchise, including our sophisticated liquidity and treasury management offering. We now have more than 500 treasury management clients, including deposit only and payments processing relationships with an essential need for TriState Capital's offering.

Treasury deposit -- treasury management deposit account balances surpassed $1 billion threshold during the third quarter. Year-to-date, we've grown treasury management deposits by approximately $450 million and look forward to achieving our goals of adding $500 million in treasury management deposits during 2019.

We continue to maintain flexibility in pricing deposits. Less than 30% of our deposits are of a term nature with the seven months duration. Just over half are a bit institutional nature and repriced with the Federal Reserve rates or other indices. The remainder, approximately 20%, are at our discretion. Our total cost of funds for all deposits and interest-bearing liabilities improved during the third quarter, averaging 2.27%. We are very pleased with our ability to lower our cost of funds by a full 15 basis points compared to 2.42% in the linked second quarter as we continue to focus on gathering lower cost deposits.

As you have -- may have noted our third quarter news release, fees from interest rate swaps exceeded $4 million during the third quarter. We believe borrower swap fee income will remain healthy in the $2.5 million to $3.5 million range for the fourth quarter. While borrower swap activity is largely driven by the rate environment, our relationship managers worked methodically to maximize this fee income opportunity. A prime example is our success in building demand beyond their traditional commercial real estate borrowers, within our large and growing private banking client base. In the third quarter alone, more than 20% of our swap fees were generated from private banking relationships.

The majority of our non-interest income is generated by Chartwell Investment Partners subsidiary, which grew assets under management by 1.4% to $9.6 billion during the third quarter. Investment management fees for the third quarter totaled $8.9 million, down approximately 9% year-over-year. While we no longer expect to achieve our full-year 2019 organic growth goal for Chartwell revenues, we believe our unique products, strong investment performance and outstanding distribution capabilities continue to gather positive momentum.

Chartwell's active investment strategies continue to deliver superior performance through the end of the third quarter. 71% of its products outperformed their respective benchmarks for the year-to-date period. 57% of its products were ahead for one year performance, 85% were ahead for three-year performance and 75% were ahead for five-year performance. This level of performance has been key to our ability to attract new business through the third quarter of 2019. Chartwell has attracted about $200 million of institutional new business. This compares to $169 million of institutional new business during all of 2018.

Overall, we are seeing a better environment on the institutional side of the business and one which we are in a strong position to take advantage of, in part because of the refinements we've made to distribution and experienced team we have assembled. Today, those institutional new business pipeline is as strong as it's ever been. We believe investors are increasingly searching for proven actively managed products to generate returns in this low rate environment. And Chartwell's track record and strategies that are difficult to replicate passively are capturing their attention. Products like our short-duration BB-rated high yields in our mid-cap value strategy shine through here, and we believe we have good opportunities within this search activity.

At September 30, we had more than $80 million of institutional commitments that are anticipate to fund in the fourth quarter of 2019. In addition, we have considerably more new business in the pipeline that we're actively pursuing today and we aim to win more than our fair share in the months ahead. We are also getting on the retail side of our investment management business, expanding our relationships with financial and registered investment advisors who are increasingly attracted to the unique and high-performing products we offer. We have generated approximately $351 million in gross retail sales through September 30th of 2019.

As with our institutional business, our retail pipeline is strong as it has ever been. As most of you know, we're actively evaluating opportunities to put our capital to work to grow investment management through a strategic acquisition that would help us take assets under management above $15 billion. Those efforts continue unabated and as always, we only pursue deals that will be immediately accretive to TriState Capital shareholders, our strong cultural fit and provide complementary product offerings.

TriState Capital's leadership is invested in its success and remains focused on building long-term value for shareholders. During the first nine months of 2019, about a dozen senior executives and Board members each made significant acquisitions of TriState Capital common stock, totaling in excess of $8 million. The strong earnings we reported in the third quarter and year-to-date reflect the effective execution of our engaged and invested management team.

Our capital position is strong and enables us to be ready to act on an appropriate acquisition opportunity that may arise. Asset quality remains pristine and continues to differentiate us from peers and the industry. We have a diversified, sophisticated and multifaceted funding mechanism in place. In summary, we're well positioned for continued success in the fourth quarter and in -- on to the future.

That concludes my prepared remarks this morning. I'll now ask David Demas to join me for Q&A. Operator, please open the lines.

Questions and Answers:

Operator

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Russell Gunther with D.A. Davidson. Please go ahead.

Russell Gunther -- D.A. Davidson -- Analyst

Hey, good morning, guys.

James F. Getz -- Chairman & Chief Executive Officer

Good morning, Russell.

David J. Demas -- Chief Financial Officer

Good morning.

Russell Gunther -- D.A. Davidson -- Analyst

I wanted to start on the continued C&I strength you guys have put up. It would be helpful to get a sense for what the equipment finance vertical contributed this quarter, perhaps some color on sort of pockets of geographic strength and any other thing you'd like to add in terms of how you're able to sustain such strong growth in C&I as well as related asset quality outlook for that loan bucket going forward.

James F. Getz -- Chairman & Chief Executive Officer

Great. Let's talk about the equipment finance. First, we launched that business in January and we've seen good growth there so far this year. At September 30, 2019, we had approximately $40 million in that portfolio. But typically, that business has its biggest activity in the fourth quarter, Russell, as companies think about equipment needs for the new year. So we'd expect those balances to continue to grow nicely through the remainder of the year.

On the C&I front, we see that continuing to grow pretty handily for us over the next couple of years. We've laid the groundwork for this to a great extent during the recession. When other banks were looking inwardly, we had -- and had their own legacy issues, we had capital and we had funding, so we laid the foundation for this and we're beginning to reap many of that benefits by the growth that we've been experiencing.

We're seeing this growth on the C&I across all our regions, some of it is particularly predominant what we see developing like in the Philadelphia area where there has been some disruption in the banking arena there with BB&T acquiring Susquehanna and Nat Penn, and we've been able to acquire talent and assets as a result of that. But I would say, all four of our regions are actively participating here.

We now have a group of people that, for the most part, have been with us on average over 10 years. So they're pretty well established and we expect this continue to grow pretty nicely for us. We had some capital call facilities that we have been picking up as well and that business is -- has been growing pretty nicely and we have about $75 million outstanding there right now and we expect it to go up about another $25 million as we go into the new year.

Russell Gunther -- D.A. Davidson -- Analyst

Great. Thanks, Jim. I appreciate that. And then just your view on the asset quality outlook within C&I. I understand favorable dynamics and zero loss content within private banking. But it'd just be helpful to get your guide sense, your view of perhaps normalized losses within this growing C&I book over the next couple of years?

James F. Getz -- Chairman & Chief Executive Officer

Well, I'm surprised you don't consider our current loss situation normalized. I'm assuming we're the only bank you will speak to today that has a 0% in non-performing loans. So it's only...

Russell Gunther -- D.A. Davidson -- Analyst

I'm certain it is.

James F. Getz -- Chairman & Chief Executive Officer

Right. It's a $185 million -- $184 million in non-performing loans. We fully anticipate the quality of this portfolio to continue as -- you're well aware, over the years, we've invested a considerable amount of money in a top-notch credit analytical staff that we have in place today. And by considerable I mean, millions of dollars. We have about 23 of them in place now. They are career analyst and they do very detailed scrutiny on the individual credits. They create, what I would characterize as, positive friction with the relationship managers in the field and they've really provided us with some strength that we value just like you do in the asset management industry with security analyst in place and it differentiates us from many other banks in the sense that they look at their credit staff as a intermediary step to becoming a relationship manager and these are clearly career people.

I think you probably met Tom Groneman, our Chief Credit Officer. I considered him to be one of the best in the country. You can mention any of our commercial credits to him and he is quite articulate on every single one of them, and that's going through his staff. So we would say that, I don't think our non-performing loans are going to get any lower than $184,000 [Phonetic] with a $6 billion portfolio. But I expect us to be in a very good situation going into the new year that you're not going to see a lot of negative activity there.

Operator

Thank you. The next question today comes from Michael Perito with KBW. Please go ahead.

Michael Perito -- KBW -- Analyst

Hey, good morning, guys. Thanks for taking my question. I wanted to start on kind of combined Chartwell capital question here. I mean, you guys with the low-risk balance sheet, you have -- obviously have some room to lever capital below kind of what we would expect to see at peer banks with more traditional portfolios. But as we look at the Chartwell performance over the last five or six quarters, I think they have struggled a little bit in the environment. I think the net growth you guys have shown has -- have been solid, but revenues have had kind of a downward tilt and end margins haven't really improved.

So I guess the question is, with how well the rest of your business is doing currently? Does it make more sense to be allocating capital to the growth opportunities there while you guys try to internally improved Chartwell's performance a little bit or do you think that kind of allocating capital to Chartwell could help accelerate their improvement by adding scale over time?

James F. Getz -- Chairman & Chief Executive Officer

Okay. Let me give you a clear perspective on this. There if you look at this from the standpoint of what their contribution is for the first nine months of the year, it's around 19%. So, we consider that a meaningful type of contribution if you look at it holistically. And if you look at it for this quarter, I think it's about 10% in this, [Phonetic] Mike.

But you have to ask yourself, why are you in this business. And you're in the asset management business because there is recurring fee income and it provides this Company with a lot of cash flow. So, it really does strengthen the Company and provide us with a much higher level of -- considerably higher level of less risk profile for the Company. So we consider it an intricate part of the Company.

From a performance standpoint, the investment performance really couldn't get much better, so you and I are talking about the financial metric contribution. When we bought this Company in March of 2014, the first year, the previous year that it had thrown off $25 million of revenue. This year the revenue is going to be more in line with $38 million. We expect the next quarter because some of the opportunities we see on the sales end of it, the flows are going to look better.

It's only been in the past two quarters that we've had negative flows here. So we feel really very positive about the business. We're comfortable with the leadership team and the investment team that's in place here. You have to realize that things are not instant gratification. If you take a look back and I take you back to 2014, 2015, 2016, their contribution was in excess of 25%. '17, '18 and '19, it hasn't been up to that particular level but either has the industry that they find themselves in. The pricing that we're finding in the marketplace is quite attractive. And we clearly -- I would suggest to you, if you dissected their business, you might want to look at the discipline that's put in place around expense management there to match the revenue and retain the growth outlook based on performance and distribution. So, you really have to dissect this a bit and you have to understand that this is a business that has a lot of runway with regard to growth into the future. So we feel to take it to additional critical mass, it's not the wrong thing to do. And the way you can find the marketplace today, it's becoming more of a sellers market, more of a buyers market. I mean, in a sellers market, it previously was a sellers market. So we're pretty comfortable with the commitment strategically that we've made and we're very comfortable with the 30% of non-interest income that between Chartwell and swap fees are generated here for the consolidated franchise.

Michael Perito -- KBW -- Analyst

Got it. And then separate question just the comment in the remarks about the swap fees. I think it was -- you expect it to be about $2.5 million to $3.5 million in the fourth quarter. As we kind of think about that line more broadly, I mean, if we are -- do you guys feel that given the -- kind of, the expansion that you have done in offering that product beyond the commercial real estate customer base that that now it's a decent offset for you guys, if we kind of remain in an environment where rates continue to decline and which, obviously, will have some drag on your margin that that balance can remain a bit elevated in that type of environment and be a little bit more of an offset for the lower margin than you guys have historically? Is that a fair way to think about it?

James F. Getz -- Chairman & Chief Executive Officer

The way that I would look at it, I think it's a fair way but let me give you a fair way to look at it. This is a business that does absolutely prosper more in a declining rate environment. But when you've reached that decline and it plateaus for a while, people will continue to have an interest in this because they want to secure the rate for the future. So, we would expect to have a fairly robust business here going into the new year with the commercial real estate business complemented by the private banking business, which you saw the private banking business was about 20% of the revenue there and we're just beginning to penetrate that market at this time and we also have opportunities there with various loans that we're putting on. Sometimes there are some size secured by marketables and the people want to lock in a rate, so it's not unusual, like the other day, we put a loan through and the fee was like $113,000 on it. So it's a -- I wouldn't say classified as recurring fee income business like asset management is, but it's going to be pretty consistent in a decline and stable low interest rate environment.

Operator

Your next question today comes from Matt Olney with Stephens. Please go ahead.

Matt Olney -- Stephens -- Analyst

Hey, thanks. Good morning, everybody.

James F. Getz -- Chairman & Chief Executive Officer

Good morning, Matt.

Matt Olney -- Stephens -- Analyst

Jim, I want to start on the private banking business. That's seen some impressive growth in recent years. I think you've noticed part of that growth is from very little competition, but I'm curious what your take is on the discount brokers that are now racing toward zero commissions. I think you did the private banking business that TriState does, some decent sized business with some of the discount brokers. So it seems like their model is changing right now. And I'm curious how you believe these changes in their model could affect the competition for your private banking channel?

James F. Getz -- Chairman & Chief Executive Officer

Well, from our standpoint, I think it's a very positive situation because of the fact that maybe more people put securities with them because they can trade their securities for zero. So it would be helpful to our cause if you want to look at that way. To be quite candid, I'm delighted we're not in that business. We are for profit organization here and that's going to be more challenging for them. But at the end, you're probably aware, the way these broker dealers make a lot of their business is the free cash flow that goes through the company and the spreads. They're able to make it by putting it back into the -- back in the market.

Some of them like an E*Trade have their own captive bank, the Schwab has their own captive bank, and they're able to deploy a lot of that cash in that manner. So I would say, we would say it as a long-term positive situation as long as those folks can continue to find alternative means of offsetting the level of trading income that they've been experiencing over the past couple of years. But as you're well aware, that level of income has been coming down throughout the broker dealer marketplace. So I don't see it having a much of a major impact on our business at all.

Matt Olney -- Stephens -- Analyst

And then Jim, what about the impact of CECL within your loan portfolio, it's very unique? With CECL reserve methodology starting next year, I'm curious what the impact will be on your future provisioning?

David J. Demas -- Chief Financial Officer

Hey, Matt, it's David. Good morning.

Matt Olney -- Stephens -- Analyst

Good morning.

David J. Demas -- Chief Financial Officer

Stay tuned on CECL. We are preparing to provide a lot more detail and its potential impact on -- in our Form 10-Q, which will be filed in early November.

Matt Olney -- Stephens -- Analyst

Okay, great. Thanks. If I could sneak one more in, David. The tax rates have been volatile so far this year. What's the outlook on the tax rate for the fourth quarter and look into next year?

David J. Demas -- Chief Financial Officer

Matt, as you know, we routinely evaluate a number of tax planning strategies, historic tax credits as well as alternative energy. And as always, that effective tax rate in any giving quarters is the impact of both the timing of that as well as the proportionate consolidated earnings attributable to the bank versus investment management.

The change to this quarter was driven by an unexpected outlook in terms of a tax credit that may not close now this year, which caught us by surprise. And it was also driven by really strong pre-tax net income growth. So we see the effect of tax rate being somewhere around 15% for the remainder of the year.

Operator

[Operator Instructions] Our next question today comes from Steve Moss with B. Riley FBR. Please go ahead.

Steve Moss -- B. Riley FBR -- Analyst

Good morning.

James F. Getz -- Chairman & Chief Executive Officer

Good morning, Steve.

Steve Moss -- B. Riley FBR -- Analyst

I apologize for jumping on late. So if [Indecipherable] I apologize for that. Just -- maybe I'll start on expenses. Any update or outlook you can give on there? In particular, just the drivers in the compensation line, if that's sticky?

David J. Demas -- Chief Financial Officer

Steve, good morning. Thanks for joining the call. We've had a focus on operating leverage for a number of years. Growing revenue at a meaningfully higher rate than expenses, and we've been able to do this. And to put it into context, two years ago, we were growing expenses at 17%. Last year, we're growing at 11% to 12%. This year, our stated goal is to grow it under 10% and we're accomplishing that goal so far, and we're going to work hard to continue to grow that -- to grow expenses at a less than double-digit pace.

This is an organization that is highly motivated by incentive compensation. Virtually, every employee is on some sort of incentive comp program. And so it's pre-tax net income raises and you see the production levels that we're seeing in swap income across the loan book, etc., compensation increases and so that increases proportionally in accordance with the growth. So that's really what the driver is for the comp increase this quarter.

James F. Getz -- Chairman & Chief Executive Officer

Steve, this is Jim. If you look at the financial metrics that we really pay a lot of attention to, you'll see -- if you compare the first nine months of '18 and first nine months of '19, you'll see that our revenue was up 18% and our expenses -- and we had indicated to folks in January, we expected to have our expenses in a single-digit number for this year and the expenses were up 8%. And we really pay an awful lot of attention to pre-tax net income, because we feel that's the core of the Company and you can analyze the core looking at that. And that's up year-to-date for the first nine months over 20% and EPS is up about 11%. So that EPS and that pre-tax is what drives the metrics in a lot of our compensation programs here to be candid with you.

Steve Moss -- B. Riley FBR -- Analyst

Right. That's helpful. And then my second question, just wondering, given the yield curve inversion we saw here in the quarter and the challenges at the end of the quarter, if you quantify that impact to the margin for the quarter, any help around that would be great?

James F. Getz -- Chairman & Chief Executive Officer

Well, I'll let David work to quantify it. But let me talk to you a little bit about our perspective on net interest margin. For the business that we're building, we're building a business where relationships are paramount and we continue to be gathering relationship deposits to fund a very high-quality borrowers' credit needs. We're also building a business that's much leaner, like you're probably aware that net interest income doesn't include any type of expenses. And so, our non-interest expenses are about 25% to 30% less than other organizations of our size. If you take a look at the risk profile, that's not there, and the net interest margin, our earning assets are dramatically different than other institutions. And we would argue lower risk in that case.

NIM at our bank and others does not reflect the competitive advantage we enjoy from having a branchless operation. We're also generating about 30% of our revenue from non-interest income that isn't there either. And if you look at our marketable securities backed loans, particularly the large dollar variety, well, they're lower in spread that contributes to our ongoing reductions in our efficiency ratio, that's now for the bank around 50's-percent [Phonetic].

So we also believe we've been a leader in deposit pricing. And while competitors catch up, we expect our funding costs to moderate through the second half of '19, assuming the Fed funds target rate range is maintained or incrementally lowered in the back half of the year.

Do you want to comment?

David J. Demas -- Chief Financial Officer

Yes. Steve, as Jim has so well described, it's a business model that he formulated more than 10 years ago, that it's very agile, and can demonstrate good growth and good results in a variety of environments. About 95% of our loan book is variable rate. About 75% of our deposit book is variable rate. And so, as you heard Jim talk about, as we've seen the cost of funds come down measurably in the quarter. There are times when effective Fed funds and LIBOR, those two relationships get a little bit out of whack when LIBOR is anticipating a Fed cut, which occurred in the quarter. I don't have an exact number, but I would estimate that impact to be somewhere between $6,000 and $8,000 of impact for the third quarter.

Steve Moss -- B. Riley FBR -- Analyst

All right. Thank you very much.

Operator

The next question today is a follow-up from Russell Gunther of D.A. Davidson. Please go ahead.

Russell Gunther -- D.A. Davidson -- Analyst

Hey, thanks guys. Just a bit of a ticky-tacky question, David. I heard you on the recommitment to high-single-digit expense growth for this year. Maybe just a little color for modeling purposes on the dynamic going forward within the state capital shares tax, please.

David J. Demas -- Chief Financial Officer

Sure. So we had the benefit of a one-time item this quarter that we worked very carefully with external advisors. It was a strategy that we identified or we talked to the State of Pennsylvania about it and we're able to prevail on that. I don't expect it to continue. And so I'd expect that we will get back to more historic norms in terms of the shares tax expense.

Russell Gunther -- D.A. Davidson -- Analyst

Great. Thanks so much.

Operator

The next question today comes from Michael Perito with KBW. Please go ahead.

Michael Perito -- KBW -- Analyst

Hey, thanks, guys, for taking the follow-up questions. Just first a follow-up on the margin. David, I was just looking through the average balance sheet and the cash balances looked a little elevated. Do you have any insight as to has that normalized since on a period-end basis? And would that presumably add a little -- 2 or 3 basis points to the NIM, if those were at a more normalized level in the quarter?

David J. Demas -- Chief Financial Officer

They have normalized, Mike. And as I believe I think we shared with you in the past, I think you had a question on this a quarter or two ago, given where the rate environment is at the moment and we've been staying liquid and short, and then holding cash and cash equivalents versus putting money into work in the investment portfolio right now. So liquidity is strong and will remain strong and we really like the balance sheet position at the moment.

Michael Perito -- KBW -- Analyst

Got it. And then, I was wondering, David, can you provide us -- I don't know is this something you have handy, but the incremental assets and liabilities that you're adding to the balance sheet, can you maybe share what the spread or the margin looks like on that relative to kind of the legacy balance sheet? I guess, what I'm trying to get at is, trying to get a sense of where that 75% variable deposit, 95% variable loans, as you guys grow though, I imagine the incremental funding costs will come down. I'm just trying to get a better sense of that dynamic, if you have any figures around that.

David J. Demas -- Chief Financial Officer

Let me give you some facts and hopefully, it gives you enough color. Let me start on deposits. Our CD book is about a seven-month duration right now. And the yield on that is about 2.50% at the moment. We're -- new CDs are being issued somewhere around 1.80% to 1.85%, and so good pricing opportunities there offset [Phonetic] very short CD portfolio matures and reprices.

On the loan side, we're putting new C&I loans on somewhere between 2.15% and 2.50% over LIBOR. Commercial real estate is going on somewhere between 2.25% and 2.50%, 2.60% over LIBOR. And then, private banking is going on at about 1.50% to 2.50% over LIBOR. And so, that's where pricing stands at the moment. We continue to feel that we've got a really good agile business model and can respond to a variety of interest rate scenarios.

Michael Perito -- KBW -- Analyst

Got it. Helpful. Thank you, guys. Appreciate it.

James F. Getz -- Chairman & Chief Executive Officer

Welcome.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Getz for any closing remarks.

James F. Getz -- Chairman & Chief Executive Officer

Thank you very much for your continued interest in TriState Capital and your participation today. We look forward to updating you on our fourth quarter and full-year 2019 results in January. Have a great day and happy New Year.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

James F. Getz -- Chairman & Chief Executive Officer

David J. Demas -- Chief Financial Officer

Russell Gunther -- D.A. Davidson -- Analyst

Michael Perito -- KBW -- Analyst

Matt Olney -- Stephens -- Analyst

Steve Moss -- B. Riley FBR -- Analyst

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