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CapStar Financial Holdings, Inc. Announces Second Quarter 2017 Results

NASHVILLE, Tenn., July 27, 2017 -- 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

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