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CapStar Financial Holdings, Inc. Announces Second Quarter 2017 Results

NASHVILLE, Tenn., July 27, 2017 (GLOBE NEWSWIRE) -- CapStar Financial Holdings, Inc. (“CapStar”) (NASDAQ:CSTR) reported a net loss of $3.34 million, or $0.26 per share on a fully diluted basis, for the three months ended June 30, 2017, compared to net income of $2.48 million, or $0.23 per share on a fully diluted basis, for the three months ended June 30, 2016. The net loss for the quarter was primarily attributable to the charge off and costs associated with one borrowing relationship, which impacted pretax earnings by $9.7 million.

“CapStar’s organic growth remains strong,” said Claire W. Tucker, CapStar’s president and chief executive officer. “Comparing performance in the second quarter of 2017 to the same period in 2016, pre-tax pre-provision income increased 31% to $5.0 million from $3.8 million. Our otherwise strong quarterly performance was overshadowed by deterioration in one non-performing relationship that we discussed previously in connection with our first quarter results, which led to a charge off of the relationship’s existing loan balance. We believe that our existing risk management processes and credit infrastructure provide a solid framework for sound asset quality. We are consistently focused on delivering strong operating and financial results, and we remain committed to achieving our stated goal of a 1% ROAA by the end of 2018.”

Soundness

  • The allowance for loan losses represented 1.25% of total loans at June 30, 2017 compared to 1.18% at June 30, 2016.
  • Non-performing assets as a percentage of total loans and other real estate owned was 0.32% at June 30, 2017 compared to 0.66% at June 30, 2016.
  • Annualized net charge-offs totaled 4.38% for the three months ended June 30, 2017 compared to 0.01% for the same period in 2016.
  • The total risk based capital ratio increased to 11.51% at June 30, 2017 compared to 10.67% at June 30, 2016.

Profitability

  • Return on average assets ("ROAA") for the three months ended June 30, 2017 was -0.96% compared to 0.80% for the same period in 2016.
  • Return on average equity ("ROAE") for the three months ended June 30, 2017 was -9.39% compared to 8.85% for the same period in 2016.
  • The net interest margin (“NIM”) for the three months ended June 30, 2017 was 3.15% compared to 3.09% for the same period in 2016.
  • The efficiency ratio for the three months ended June 30, 2017 was 62.1% compared to 67.6% for the same period in 2016.

“While we are disappointed with the credit impact on our bottom-line performance, there are several positives from our quarterly performance,” said Rob Anderson, chief financial officer and chief administrative officer of CapStar. “Our net interest margin expanded 6 basis points, loan growth was up 18%, DDA & NOW deposits increased 14%, and noninterest income benefited from loan sales in our Tri-Net line of business. Absent the credit charges, the operating performance of the company met our internal expectations for the quarter.”

Growth

  • Average total assets for the quarter ended June 30, 2017 increased 11.7%, to $1.39 billion, compared to $1.25 billion for the same period in 2016.
  • Average gross loans for the quarter ended June 30, 2017 increased 17.7%, to $1.03 billion, compared to $874.0 million for the same period in 2016.
  • Average total deposits for the quarter ended June 30, 2017 increased 1.7%, to $1.11 billion, compared to $1.09 billion for the same period in 2016.
  • Average Demand and NOW deposits for the quarter ended June 30, 2017 increased 13.9%, to $531.6 million, compared to $466.7 million for the same period in 2016.

Conference Call and Webcast Information

CapStar will host a conference call and webcast at 9:00 a.m. Central Time on Friday, July 28, 2017. During the call, management will review the second quarter results and operational highlights. Interested parties may listen to the call by dialing (844) 412-1002. The conference ID number is 50968047. A simultaneous webcast may be accessed on CapStar’s website at ir.capstarbank.com by clicking on “News & Events”. An archived version of the webcast will be available in the same location shortly after the live call has ended.

About CapStar Financial Holdings, Inc.

CapStar Financial Holdings, Inc. is a bank holding company headquartered in Nashville, Tennessee, and operates primarily through its wholly owned subsidiary, CapStar Bank, a Tennessee-chartered state bank. CapStar Bank is a commercial bank that seeks to establish and maintain comprehensive relationships with its clients by delivering customized and creative banking solutions and superior client service. As of June 30, 2017, on a consolidated basis, CapStar had total assets of $1.4 billion, gross loans of $996.6 million, total deposits of $1.1 billion, and shareholders’ equity of $138.0 million. Visit www.capstarbank.com for more information.

Forward-Looking Statements

Certain statements in this earnings release are forward-looking statements that reflect CapStar’s current views with respect to, among other things, future events and CapStar’s financial and operational performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “aspire,” “achieve,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “roadmap,” “goal,” “target,” “would,” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about CapStar’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond CapStar’s control. The inclusion of these forward-looking statements should not be regarded as a representation by CapStar or any other person that such expectations, estimates and projections will be achieved. Accordingly, CapStar cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although CapStar believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause CapStar’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, any factors identified in this earnings release as well as those factors that are detailed from time to time in CapStar’s periodic and current reports filed with the Securities and Exchange Commission, including those factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 under the headings “Item 1A. Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” and in the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if CapStar’s underlying assumptions prove to be incorrect, actual results may differ materially from our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this earnings release, and CapStar does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for CapStar to predict their occurrence or how they will affect CapStar.

Non-GAAP Disclaimer

This earnings release includes the following financial measure that was prepared other than in accordance with generally accepted accounting principles in the United States (“non-GAAP financial measure”): pre-tax, pre-provision income. This non-GAAP financial measure (i) provides useful information to management and investors that is supplementary to CapStar’s financial condition, results of operations and cash flows computed in accordance with GAAP, (ii) enables a more complete understanding of factors and trends affecting CapStar’s business, and (iii) allows investors to evaluate CapStar’s performance in a manner similar to management, the financial services industry, bank stock analysts and bank regulators; however, CapStar acknowledges that this non-GAAP financial measure has a number of limitations. As such, you should not view this non-GAAP financial measure as a substitute for results determined in accordance with GAAP, and it is not necessarily comparable to non-GAAP financial measures that other companies use. See below for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Income (Loss) (unaudited) (dollars in thousands, except share data)
Second Quarter 2017 Earnings Release
Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Interest income:
Loans, including fees $11,373 $9,605 $21,840 $18,873
Securities:
Taxable 983 911 1,987 1,810
Tax-exempt 317 268 642 549
Federal funds sold 16 4 18 9
Restricted equity securities 86 70 163 139
Interest-bearing deposits in financial institutions 115 56 219 133
Total interest income 12,890 10,914 24,869 21,513
Interest expense:
Interest-bearing deposits 586 390 1,204 692
Savings and money market accounts 773 719 1,587 1,451
Time deposits 574 506 1,046 1,020
Federal funds purchased 7 6 11 8
Securities sold under agreements to repurchase 1
Federal Home Loan Bank advances 379 92 519 183
Total interest expense 2,319 1,713 4,367 3,355
Net interest income 10,571 9,201 20,502 18,158
Provision for loan losses 9,690 183 13,094 1,120
Net interest income after provision for loan losses 881 9,018 7,408 17,038
Noninterest income:
Service charges on deposit accounts 342 303 670 529
Loan commitment fees 187 142 423 572
Net gain on sale of securities 40 86 34 125
Tri-Net fees 297 382
Mortgage banking income 1,370 1,655 2,587 3,002
Other noninterest income 430 382 703 711
Total noninterest income 2,666 2,568 4,799 4,939
Noninterest expense:
Salaries and employee benefits 4,784 4,938 9,870 10,156
Data processing and software 711 635 1,331 1,203
Professional fees 350 426 714 757
Occupancy 539 371 987 781
Equipment 544 436 1,040 843
Regulatory fees 301 265 608 492
Other operating 988 880 2,042 1,729
Total noninterest expense 8,217 7,951 16,592 15,961
Income (loss) before income taxes (4,670) 3,635 (4,385) 6,016
Income tax (benefit) expense (1,328) 1,159 (1,375) 1,956
Net income (loss) $(3,342) $2,476 $(3,010) $4,060
Per share information:
Basic net income (loss) per share of common stock $(0.30) $0.29 $(0.27) $0.47
Diluted net income (loss) per share of common stock $(0.26) $0.23 $(0.24) $0.38
Weighted average shares outstanding:
Basic 11,226,216 8,682,438 11,218,624 8,655,561
Diluted 12,740,104 10,675,916 12,761,989 10,624,004

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)
Second Quarter 2017 Earnings Release
Five Quarter Comparison
6/30/17 3/31/17 12/31/16 9/30/16 6/30/16
Income Statement Data:
Net interest income $10,571 $9,932 $10,180 $10,126 $9,201
Provision for loan losses 9,690 3,405 70 1,639 183
Net interest income after provision for loan losses 881 6,527 10,110 8,487 9,018
Service charges on deposit accounts 342 329 303 277 303
Loan commitment fees 187 236 217 329 142
Net gain (loss) on sale of securities 40 (6) (4) 86
Tri-Net fees 297 84 125
Mortgage banking income 1,370 1,216 2,033 2,339 1,655
Other noninterest income 430 274 276 251 382
Total noninterest income 2,666 2,133 2,954 3,192 2,568
Salaries and employee benefits 4,784 5,086 5,185 5,119 4,938
Data processing and software 711 621 542 627 635
Professional fees 350 365 406 391 426
Occupancy 539 449 366 352 371
Equipment 544 496 443 458 436
Regulatory fees 301 307 348 250 265
Other operating 988 1,052 1,352 1,329 880
Total noninterest expense 8,217 8,376 8,642 8,526 7,951
Net income (loss) before income tax expense (4,670) 284 4,422 3,153 3,635
Income tax (benefit) expense (1,328) (47) 1,495 1,042 1,159
Net income (loss) $(3,342) $331 $2,927 $2,111 $2,476
Weighted average shares - basic 11,226,216 11,210,948 11,194,534 8,792,665 8,682,438
Weighted average shares - diluted 12,740,104 12,784,117 12,787,677 10,799,536 10,675,916
Net income (loss) per share, basic $(0.30) $0.03 $0.26 $0.24 $0.29
Net income (loss) per share, diluted (0.26) 0.03 0.23 0.20 0.23
Balance Sheet Data (at period end):
Cash and cash equivalents $48,093 $60,039 $80,111 $73,451 $97,546
Securities available-for-sale 155,663 188,516 182,355 167,213 171,337
Securities held-to-maturity 46,458 46,855 46,864 46,228 43,331
Loans held for sale 73,573 35,371 42,111 61,252 57,014
Total loans 996,617 1,003,434 935,251 924,031 887,437
Allowance for loan losses (12,454) (13,997) (11,634) (11,510) (10,454)
Total assets 1,371,626 1,381,703 1,333,675 1,318,057 1,310,418
Non-interest-bearing deposits 231,169 223,450 197,788 191,469 193,542
Interest-bearing deposits 889,816 934,545 930,935 944,590 949,759
Federal Home Loan Bank advances 105,000 75,000 55,000 30,000 40,000
Total liabilities 1,233,596 1,241,491 1,194,468 1,179,631 1,196,100
Shareholders' equity 138,030 140,211 139,207 138,427 114,318
Total shares of common stock outstanding 11,235,255 11,218,328 11,204,515 11,191,021 8,683,902
Total shares of preferred stock outstanding 878,049 878,049 878,049 878,049 1,609,756
Book value per share of common stock 11.48 11.70 11.62 11.57 11.26
Market value per share of common stock (1) 17.74 19.07 21.96 16.92 -
Capital ratios:
Total risk based capital 11.51% 12.13% 12.60% 12.45% 10.67%
Tier 1 risk based capital 10.54% 11.01% 11.61% 11.46% 9.73%
Common equity tier 1 capital 9.86% 10.32% 10.90% 10.75% 8.34%
Leverage 9.77% 10.37% 10.46% 10.47% 8.90%


(1) CapStar Financial Holdings, Inc. completed its initial public offering during the third quarter of 2016. As such, market values per share of common stock are not provided for previous periods.

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)
Second Quarter 2017 Earnings Release
Five Quarter Comparison
6/30/17 3/31/17 12/31/16 9/30/16 6/30/16
Average Balance Sheet Data:
Average cash and cash equivalents $62,002 $58,925 $66,758 $55,054 $56,459
Average investment securities 227,431 237,084 226,033 218,463 232,588
Average loans held for sale 34,690 28,359 52,483 63,640 43,055
Average loans 1,028,968 974,350 938,887 918,302 873,984
Average assets 1,393,331 1,340,237 1,324,620 1,296,871 1,247,077
Average interest bearing deposits 882,722 933,328 942,923 944,794 909,028
Average total deposits 1,111,833 1,143,636 1,138,779 1,132,038 1,093,452
Average Federal Home Loan Bank advances 128,901 43,837 33,478 29,565 27,418
Average liabilities 1,250,544 1,198,686 1,185,091 1,179,480 1,134,506
Average shareholders' equity 142,787 141,551 139,529 117,390 112,571
Performance Ratios:
Annualized return on average assets -0.96% 0.10% 0.88% 0.65% 0.80%
Annualized return on average equity -9.39% 0.95% 8.35% 7.15% 8.85%
Net interest margin 3.15% 3.12% 3.17% 3.23% 3.09%
Annualized Non-interest income to average assets 0.77% 0.65% 0.89% 0.98% 0.83%
Efficiency ratio 62.1% 69.4% 65.8% 64.0% 67.6%
Loans by Type:
Commercial and industrial $406,636 $420,825 $379,620 $389,718 $389,088
Commercial real estate - owner occupied 97,635 92,213 106,735 108,921 104,345
Commercial real estate - non-owner occupied 288,123 268,742 195,587 163,626 171,426
Construction and development 62,152 74,007 94,491 91,366 63,744
Consumer real estate 99,751 99,952 97,015 96,919 91,091
Consumer 4,096 4,495 5,974 7,046 7,486
Other 38,783 43,983 56,796 67,806 61,670
Asset Quality Data:
Allowance for loan losses to total loans 1.25% 1.39% 1.24% 1.25% 1.18%
Allowance for loan losses to non-performing loans 386% 103% 321% 279% 179%
Nonaccrual loans $3,229 $13,624 $3,619 $4,123 $5,829
Troubled debt restructurings 1,239 1,256 1,272 1,288 -
Loans - 90 days past due and accruing 15 - - - -
Total non-performing loans 3,229 13,624 3,619 4,123 5,829
OREO and repossessed assets - - - - -
Total non-performing assets 3,229 13,624 3,619 4,123 5,829
Non-performing loans to total loans 0.32% 1.36% 0.39% 0.45% 0.66%
Non-performing assets to total assets 0.24% 0.99% 0.27% 0.31% 0.44%
Non-performing assets to total loans and OREO 0.32% 1.36% 0.39% 0.45% 0.66%
Annualized net charge-offs to average loans 4.38% 0.43% -0.02% 0.25% 0.01%
Net charge-offs (recoveries) $11,233 $1,041 $(53) $582 $28
Interest Rates and Yields:
Loans 4.29% 4.24% 4.32% 4.36% 4.24%
Securities 2.44% 2.37% 2.19% 2.10% 2.15%
Total interest-earning assets 3.85% 3.77% 3.74% 3.79% 3.66%
Deposits 0.70% 0.67% 0.57% 0.58% 0.59%
Borrowings and repurchase agreements 1.18% 1.30% 2.32% 1.25% 1.31%
Total interest-bearing liabilities 0.92% 0.85% 0.74% 0.71% 0.73%
Other Information:
Full-time equivalent employees 169 168 170 168 166

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Analysis of Interest Income and Expense, Rates and Yields (unaudited) (dollars in thousands)
Second Quarter 2017 Earnings Release
For the Three Months Ended June 30,
2017 2016
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Interest-Earning Assets
Loans (1) $1,028,968 $11,011 4.29% $873,984 $9,204 4.24%
Loans held for sale 34,690 362 4.18% 43,055 401 3.74%
Securities:
Taxable investment securities (2) 174,075 1,069 2.46% 187,309 981 2.09%
Investment securities exempt from
federal income tax (3)
53,356 317 2.38% 45,279 268 2.37%
Total securities 227,431 1,386 2.44% 232,588 1,249 2.15%
Cash balances in other banks 49,735 115 0.93% 46,787 56 0.49%
Funds sold 3,637 16 1.78% 1,952 4 0.90%
Total interest-earning assets 1,344,461 12,890 3.85% 1,198,366 10,914 3.66%
Noninterest-earning assets 48,869 48,712
Total assets $1,393,330 $1,247,078
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $302,532 586 0.78% $282,299 390 0.56%
Savings and money market deposits 379,800 773 0.82% 444,558 719 0.65%
Time deposits 200,389 574 1.15% 182,171 506 1.12%
Total interest-bearing deposits 882,721 1,933 0.88% 909,028 1,615 0.71%
Borrowings and repurchase agreements 130,824 386 1.18% 30,000 98 1.31%
Total interest-bearing liabilities 1,013,545 2,319 0.92% 939,028 1,713 0.73%
Noninterest-bearing deposits 229,111 184,425
Total funding sources 1,242,656 1,123,453
Noninterest-bearing liabilities 7,887 11,054
Shareholders’ equity 142,787 112,571
Total liabilities and shareholders’ equity $1,393,330 $1,247,078
Net interest spread (4) 2.93% 2.93%
Net interest income/margin (5) $10,571 3.15% $9,201 3.09%

(1) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(2) Taxable investment securities include restricted equity securities.
(3) Balances for investment securities exempt from federal income tax are not calculated on a tax equivalent basis.
(4) Net interest spread is the average yield on total average interest-earning assets minus the average rate on total average interest-bearing liabilities.
(5) Net interest margin is net interest income divided by total average interest-earning assets and is presented in the table above on an annualized basis.

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Analysis of Interest Income and Expense, Rates and Yields (unaudited) (dollars in thousands)
Second Quarter 2017 Earnings Release
For the Six Months Ended June 30,
2017 2016
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Interest-Earning Assets
Loans (1) $1,001,810 $21,205 4.27% $848,048 $18,180 4.31%
Loans held for sale 31,542 635 4.06% 36,427 693 3.83%
Securities:
Taxable investment securities (2) 177,840 2,150 2.42% 182,436 1,949 2.14%
Investment securities exempt from
federal income tax (3)
54,391 642 2.36% 43,999 549 2.50%
Total securities 232,231 2,792 2.40% 226,435 2,498 2.21%
Cash balances in other banks 48,893 219 0.91% 51,607 133 0.52%
Funds sold 2,689 18 1.39% 2,328 9 0.74%
Total interest-earning assets 1,317,165 24,869 3.81% 1,164,845 21,513 3.71%
Noninterest-earning assets 49,766 49,407
Total assets $1,366,931 $1,214,252
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $316,502 1,204 0.77% $242,791 692 0.57%
Savings and money market deposits 406,937 1,587 0.79% 445,224 1,451 0.66%
Time deposits 184,446 1,046 1.14% 185,475 1,020 1.11%
Total interest-bearing deposits 907,885 3,837 0.85% 873,490 3,163 0.73%
Borrowings and repurchase agreements 88,206 530 1.21% 30,399 192 1.27%
Total interest-bearing liabilities 996,091 4,367 0.88% 903,889 3,355 0.75%
Noninterest-bearing deposits 219,762 186,965
Total funding sources 1,215,853 1,090,854
Noninterest-bearing liabilities 8,905 11,703
Shareholders’ equity 142,173 111,695
Total liabilities and shareholders’ equity $1,366,931 $1,214,252
Net interest spread (4) 2.92% 2.97%
Net interest income/margin (5) $20,502 3.14% $18,158 3.13%

(1) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(2) Taxable investment securities include restricted equity securities.
(3) Balances for investment securities exempt from federal income tax are not calculated on a tax equivalent basis.
(4) Net interest spread is the average yield on total average interest-earning assets minus the average rate on total average interest-bearing liabilities.
(5) Net interest margin is net interest income divided by total average interest-earning assets and is presented in the table above on an annualized basis.

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Non-GAAP Financial Measures (unaudited) (dollars in thousands)
Second Quarter 2017 Earnings Release
Three Months Ended
June 30,
2017 2016
Pre-Tax Pre-Provision Income:
Income (loss) before income taxes $(4,670) $3,635
Add: provision for loan losses 9,690 183
Pre-tax pre-provision income $5,020 $3,818

FOR MORE INFORMATION, CONTACT Rob Anderson Chief Financial Officer and Chief Administrative Officer (615) 732-6470

Source:CapStar Financial Holdings, Inc.

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