KBRA Affirms Ratings for TriState Capital Bank

8 Sep 2023   |   New York


KBRA affirms the deposit and senior unsecured debt ratings A and the short-term deposit and debt ratings of K1 for Pittsburgh, Pennsylvania based TriState Capital Bank (“TriState”) (“the bank”). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings incorporate the bank’s relationship with its parent company, Raymond James Financial, Inc. (NYSE: RJF), and the intrinsic support that TriState is likely to receive from RJF should the need arise. Viewed as strategically important to RJF, TriState is expected to receive ongoing funding and capital support as reflected by the $50 million in capital pushed down to the bank by RJF during 1H23. TriState employs a relatively lower-risk, low-NIM, operating strategy that has historically generated below average earnings (in terms of ROA, which has generally run between 0.7% - 0.8% in recent years) though has reported returns on RWA that have tracked more in line with peer averages in recent periods. The bank has reported positive NIM momentum through 1H23, primarily due to a loan portfolio that is highly concentrated in variable rate loans (nearly 90% at 2Q23), enabling TriState to offset the significant rise in its funding costs via the repricing of its loan book (TriState reported an increase in its average loan yield of more than 400 bps YoY).

The ratings are further supported by TriState’s comparatively lower-risk balance sheet that includes 60% of loans in lower-risk, private banking loans, which are collateralized by highly liquid assets. This is reflected in the bank’s long-term track record of low loss rates with an NCO ratio that has tracked below 0.10% since 2015. Largely due to its lower-risk balance sheet, TriState’s risk-based capital ratios have trended well above rated peer averages with a reported CET1 ratio of 14.7% at 2Q23. The higher-cost deposit base (interest-bearing deposit costs were 4.13% for 2Q23) is largely related to its lack of retail branch network, with deposits primarily sourced through its middle market commercial and private banking business lines. TriState’s funding is supplemented by its access to the Raymond James Bank Deposit Program (“RJBDP”), with nearly $3 billion in deposits from the RJBDP at 2Q23.

Rating Sensitivities

Given the higher ratings relative to KBRA’s rated universe, we view the prospect of an upgrade as primarily reliant upon positive developments in the credit profile of the bank’s parent, RJF. Should the credit profile of TriState materially change, reflected in comparatively elevated credit losses over multiple periods, or if RJF demonstrates a lack of commitment in supporting TriState, downward pressure on ratings could ensue.

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