CSTR CapStar Financial Holdings Inc

CapStar Financial Holdings, Inc. (“CapStar”) (NASDAQ:CSTR) reported net income of $2.9 million, or $0.23 per share on a fully diluted basis, for the three months ended December 31, 2016, compared to $2.1 million, or $0.20 per share, for the three months ended December 31, 2015.  For the year ended December 31, 2016, CapStar reported net income of $9.1 million, or $0.81 per share on a fully diluted basis, compared to $7.6 million, or $0.73 per share, for the year ended December 31, 2015.

“CapStar experienced an exciting year in 2016 with the completion of our initial public offering in September,” said Claire W. Tucker, president and chief executive officer of CapStar. “Our team of experienced bankers did an excellent job delivering sound, profitable growth as evidenced by 19% growth in loans and leases and 38% growth in demand and NOW deposits. In addition, 2016 was a record year for net income, excluding the reversal of our valuation allowance of our deferred tax asset in 2012.”

Profitability

• Return on average assets ("ROAA") for the three months ended December 31, 2016 was 0.88% compared to 0.73% for the same period in 2015.  ROAA for 2016 was 0.72% compared to 0.66% in 2015.  
• Return on average equity ("ROAE") for the three months ended December 31, 2016 was 8.35% compared to 7.61% for the same period in 2015.  ROAE for 2016 was 7.57% compared to 7.08% in 2015. 
• The net interest margin (“NIM”) for the three months ended December 31, 2016 was 3.17% compared to 3.22% for the same period in 2015.  NIM for 2016 was 3.17% compared to 3.19% in 2015. 
• The efficiency ratio for the three months ended December 31, 2016 was 65.8% compared to 68.1% for the same period in 2015.  The efficiency ratio for 2016 was 66.9% compared to 71.0% in 2015.

Growth

• Average gross loans and leases for the quarter increased 18.7%, to $939 million for the three months ended December 31, 2016 compared to $791 million for the same period in 2015. 
• Average total deposits for the quarter increased 17.0%, to $1.1 billion for the three months ended December 31, 2016 compared to $973 million for the same period in 2015. 
• Average Demand and NOW deposits for the quarter increased 38.1%, to $482 million for the three months ended December 31, 2016 compared to $349 million for the same period in 2015. 
• Mortgage loan originations increased 36.2%, to $128 million for the three months ended December 31, 2016 compared to $94 million for the same period in 2015.

“By many measures, 2016 was a successful year. Our team produced 13% revenue growth,  contained expense growth to 7%, maintained sound credit quality, and delivered 20% net income growth.  We believe our shareholders will be similarly pleased with these results,” said Rob Anderson, chief financial officer and chief administrative officer of CapStar.    

Soundness

• The allowance for loan and lease losses represented 1.24% of total loans at December 31, 2016 compared to 1.25% at December 31, 2015. 
• Non-performing assets as a percent of total loans and other real estate owned was 0.39% at December 31, 2016 compared to 0.36% at December 31, 2015. 
• Net recoveries totaled 0.02% for the three months ended December 31, 2016 compared to 0.04% for the same period in 2015.  Net charge-offs for the year ended December 31, 2016 totaled 0.15% compared to 0.36% for the same period in 2015. 
• The total risk based capital ratio increased to 12.6% at December 31, 2016 compared to 11.42% at December 31, 2015.

Conference Call and Webcast Information

CapStar will host a conference call and webcast at 5:00 p.m. Central Time on Monday, January 30, 2017.  During the call, management will review the fourth quarter results and operational highlights.  Interested parties may listen to the call by dialing (844) 412-1002.  The conference ID number is 50977213.  A simultaneous webcast may be accessed on CapStar’s website at www.capstarbank.com.  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 December 31, 2016, on a consolidated basis, CapStar had total assets of $1.3 billion, net loans of $923.6 million, total deposits of $1.1 billion, and shareholders’ equity of $139.2 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,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “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, the risk factors previously disclosed in the “Risk Factors” section included in our prospectus filed with the SEC on September 23, 2016 pursuant to Rule 424(b)(4) under the Securities Act.   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.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Income (unaudited)

Fourth Quarter 2016 Earnings Release

		Three Months Ended								Year Ended
		December 31,								December 31,
		2016				2015				2016				2015
Interest income:
Loans, including fees		$	10,680,975			$	9,009,779			$	40,212,379			$	34,844,200
Securities:
Taxable			851,621				874,971				3,447,684				4,152,507
Tax-exempt			316,800				277,980				1,158,061				1,080,008
Federal funds sold			7,052				5,342				19,159				18,480
Restricted equity securities			71,332				67,997				280,985				268,171
Interest-bearing deposits in financial institutions			79,454				35,304				276,488				140,367
Total interest income			12,007,234				10,271,373				45,394,756				40,503,733
Interest expense:
Interest-bearing deposits			393,486				214,335				1,489,470				748,082
Savings and money market accounts			718,660				693,235				2,859,064				2,732,985
Time deposits			518,398				466,514				2,084,771				2,031,267
Federal funds purchased			694				9,083				21,612				23,687
Securities sold under agreements to repurchase			—				1,894				1,311				14,625
Federal Home Loan Bank advances			195,723				48,865				475,308				179,866
Total interest expense			1,826,961				1,433,926				6,931,536				5,730,512
Net interest income			10,180,273				8,837,447				38,463,220				34,773,221
Provision for loan and lease losses			69,884				350,000				2,828,633				1,650,675
Net interest income after provision for loan and lease losses			10,110,389				8,487,447				35,634,587				33,122,546
Noninterest income:
Service charges on deposit accounts			302,831				242,282				1,108,153				909,698
Loan commitment fees			217,042				191,032				1,118,565				822,162
Net gain (loss) on sale of securities			—				(40,561	)			120,873				55,023
Mortgage banking income			2,033,459				1,262,590				7,375,064				5,961,766
Other noninterest income			400,689				262,814				1,361,794				1,134,861
Total noninterest income			2,954,021				1,918,157				11,084,449				8,883,510
Noninterest expense:
Salaries and employee benefits			5,185,016				4,650,035				20,460,510				19,278,328
Data processing and software			542,300				539,752				2,372,854				2,316,707
Professional fees			405,947				355,255				1,553,680				1,469,031
Occupancy			365,741				365,994				1,498,405				1,538,157
Equipment			442,547				397,072				1,743,340				1,598,156
Regulatory fees			348,427				225,994				1,090,735				914,959
Other operating			1,351,527				788,918				4,409,324				3,861,435
Total noninterest expense			8,641,505				7,323,020				33,128,848				30,976,773
Income before income taxes			4,422,905				3,082,584				13,590,188				11,029,283
Income tax expense			1,495,445				989,615				4,493,410				3,469,847
Net income		$	2,927,460			$	2,092,969			$	9,096,778			$	7,559,436
Per share information:
Basic net income per common share		$	0.26			$	0.24			$	0.98			$	0.89
Diluted net income per common share		$	0.23			$	0.20			$	0.81			$	0.73
Weighted average shares outstanding:
Basic			11,194,534				8,574,964				9,328,236				8,538,970
Diluted			12,787,677				10,434,171				11,212,026				10,381,895

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)

Fourth Quarter 2016 Earnings Release

		Five Quarter Comparison
		12/31/16				9/30/16				6/30/16				3/31/16				12/31/15
Income Statement Data:
Net interest income		$	10,180,273			$	10,125,515			$	9,201,155			$	8,956,275			$	8,837,447
Provision for loan and lease losses			69,884				1,638,669				182,863				937,216				350,000
Net interest income after provision for loan and lease losses			10,110,389				8,486,845				9,018,292				8,019,059				8,487,447
Service charges on deposit accounts			302,831				276,751				303,144				225,427				242,282
Loan commitment fees			217,042				328,785				142,618				430,122				191,032
Net gain (loss) on sale of securities			—				(3,964	)			85,876				38,961				(40,561	)
Mortgage banking income			2,033,459				2,339,310				1,654,843				1,347,452				1,262,590
Other noninterest income			400,689				250,582				381,711				328,809				262,814
Total noninterest income			2,954,021				3,191,463				2,568,192				2,370,772				1,918,157
Salaries and employee benefits			5,185,016				5,119,356				4,938,383				5,217,755				4,650,035
Data processing and software			542,300				627,335				634,742				568,477				539,752
Professional fees			405,947				390,862				426,132				330,738				355,255
Occupancy			365,741				351,691				371,092				409,881				365,994
Equipment			442,547				458,053				436,168				406,571				397,072
Regulatory fees			348,427				250,424				264,625				227,260				225,994
Other operating			1,351,527				1,329,084				879,652				849,059				788,918
Total noninterest expense			8,641,505				8,526,805				7,950,794				8,009,741				7,323,020
Net income before income tax expense			4,422,905				3,151,504				3,635,690				2,380,090				3,082,584
Income tax expense			1,495,445				1,042,282				1,159,438				796,245				989,615
Net income		$	2,927,460			$	2,109,222			$	2,476,252			$	1,583,845			$	2,092,969
Weighted average shares - basic			11,194,534				8,792,665				8,682,438				8,628,683				8,574,964
Weighted average shares - diluted			12,787,677				10,799,536				10,675,916				10,572,193				10,434,171
Net income per share, basic		$	0.26			$	0.24			$	0.29			$	0.18			$	0.24
Net income per share, diluted			0.23				0.20				0.23				0.15				0.20
Balance Sheet Data (at period end):
Cash and cash equivalents		$	80,110,806			$	73,450,735			$	97,546,046			$	76,706,579			$	100,184,841
Securities available for sale			182,354,987				167,213,109				171,336,596				189,807,985				173,382,957
Securities held to maturity			46,863,640				46,227,968				43,331,042				42,953,364				43,093,951
Loans held for sale			42,110,581				61,251,662				57,014,256				29,530,174				35,729,353
Total loans and leases			935,250,703				924,030,515				887,437,485				837,690,395				808,396,064
Allowance for loan and lease losses			(11,633,531	)			(11,510,464	)			(10,453,603	)			(10,298,559	)			(10,131,729	)
Total assets			1,333,675,063				1,318,057,325				1,310,417,841				1,223,179,646				1,206,800,280
Non-interest-bearing deposits			197,787,618				191,469,462				193,541,662				220,686,364				190,580,468
Interest-bearing deposits			930,934,634				944,590,330				949,759,113				865,650,400				847,879,843
Federal Home Loan Bank advances			55,000,000				30,000,000				40,000,000				15,000,000				45,000,000
Total liabilities			1,194,467,666				1,179,630,825				1,196,099,660				1,112,320,842				1,098,214,173
Shareholders' equity		$	139,207,396			$	138,426,500			$	114,318,181			$	110,858,804			$	108,586,107
Total common shares outstanding			11,204,515				11,191,021				8,683,902				8,677,902				8,577,051
Total preferred shares outstanding			878,049				878,049				1,609,756				1,609,756				1,609,756
Book value per common share		$	11.62			$	11.57			$	11.26			$	10.87			$	10.74
Market value per common share (1)			21.96				16.92				-				-				-
Capital ratios:
Total risk based capital			12.60	%			12.45	%			10.67	%			11.26	%			11.42	%
Tier 1 risk based capital			11.61	%			11.46	%			9.73	%			10.26	%			10.41	%
Common equity tier 1 capital			10.90	%			10.75	%			8.34	%			8.75	%			8.89	%
Leverage			10.46	%			10.47	%			8.90	%			9.16	%			9.33	%

                                           (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)

Fourth Quarter 2016 Earnings Release

		Five Quarter Comparison
		12/31/16				9/30/16				6/30/16				3/31/16				12/31/15
Average Balance Sheet Data:
Average cash and cash equivalents		$	66,757,676			$	55,054,076			$	56,458,924			$	67,706,162			$	63,187,062
Average investment securities			226,032,691				218,462,999				232,587,954				220,281,801				216,982,746
Average loans held for sale			52,483,255				63,640,373				43,055,160				29,798,738				27,338,722
Average loans and leases			938,887,232				918,301,556				873,984,373				822,111,590				790,899,319
Average assets			1,324,620,495				1,296,870,515				1,247,076,866				1,181,427,683				1,140,126,959
Average interest bearing deposits			942,922,989				944,794,017				909,027,610				837,952,639				781,893,266
Average total deposits			1,138,778,930				1,132,037,604				1,093,452,418				1,027,457,215				973,109,277
Average Federal Home Loan Bank advances			33,478,261				29,565,217				27,417,582				28,021,978				39,891,304
Average liabilities			1,185,091,445				1,179,480,497				1,134,506,177				1,070,607,967				1,030,995,222
Average shareholders' equity			139,529,051				117,390,018				112,570,689				110,819,715				109,131,737
Performance Ratios:
Annualized return on average assets			0.88	%			0.65	%			0.80	%			0.54	%			0.73	%
Annualized return on average equity			8.35	%			7.15	%			8.85	%			5.75	%			7.61	%
Net interest margin			3.17	%			3.23	%			3.09	%			3.18	%			3.22	%
Annualized Non-interest income to average assets			0.89	%			0.98	%			0.83	%			0.81	%			0.67	%
Efficiency ratio			65.8	%			64.0	%			67.6	%			70.7	%			68.1	%
Loans by Type:
Commercial and industrial		$	379,619,518			$	389,717,893			$	389,087,927			$	381,548,046			$	353,442,069
Commercial real estate - owner occupied			106,734,888				108,920,619				104,345,021				104,243,080				108,132,048
Commercial real estate - non-owner occupied			195,586,977				163,625,512				171,426,074				161,466,867				143,064,438
Construction and development			94,491,256				91,366,437				63,744,151				52,479,785				52,521,802
Consumer real estate			97,014,959				96,918,661				91,090,508				90,393,165				93,785,260
Consumer			5,974,465				7,045,978				7,486,178				8,291,223				8,668,242
Other			56,795,954				67,805,899				61,669,965				40,698,880				50,196,845
Asset Quality Data:
Allowance for loan and lease losses to total loans			1.24	%			1.25	%			1.18	%			1.23	%			1.25	%
Allowance for loan and lease losses to non-performing loans			321	%			279	%			179	%			184	%			377	%
Nonaccrual loans		$	3,619,422			$	4,122,942			$	5,829,423			$	5,586,503			$	2,689,000
Troubled debt restructurings			1,271,897				1,288,324				-				-				125,000
Loans - 90 days past due & still accruing			-				-				-				-				-
Total non-performing loans			3,619,422				4,122,942				5,829,423				5,586,503				2,689,000
OREO and repossessed assets			-				-				-				-				216,254
Total non-performing assets			3,619,422				4,122,942				5,829,423				5,586,503				2,905,000
Non-performing loans to total loans			0.39	%			0.45	%			0.66	%			0.67	%			0.33	%
Non-performing assets to total assets			0.27	%			0.31	%			0.44	%			0.46	%			0.24	%
Non-performing assets to total loans and OREO			0.39	%			0.45	%			0.66	%			0.67	%			0.36	%
Annualized net charge-offs to average loans			-0.02	%			0.25	%			0.01	%			0.38	%			-0.04	%
Net charge-offs (recoveries)		$	(53,183	)		$	581,809			$	27,819			$	770,386			$	(81,689	)
Other Information:
Full-time equivalent employees		170				168				166				163				162

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)

Fourth Quarter 2016 Earnings Release

		For the Three Months Ended December 31,
		2016												2015
		AverageOutstandingBalance				InterestIncome/Expense				AverageYield/Rate				AverageOutstandingBalance				InterestIncome/Expense				AverageYield/Rate
Interest-Earning Assets
Loans (1)		$	938,887			$	10,198				4.32	%		$	790,899			$	8,756				4.39	%
Loans held for sale			52,483				483				3.66	%			27,339				254				3.69	%
Securities:
Taxable investment securities			172,771				923				2.14	%			175,527				943				2.15	%
Investment securities exempt from  federal income tax (2)			53,262				317				2.38	%			41,456				278				2.68	%
Total securities			226,033				1,240				2.19	%			216,983				1,221				2.25	%
Cash balances in other banks			56,263				79				0.56	%			51,636				35				0.27	%
Funds sold			2,449				7				1.15	%			3,039				5				0.70	%
Total interest-earning assets			1,276,115				12,007				3.74	%			1,089,896				10,271				3.74	%
Noninterest-earning assets			48,505												50,231
Total assets		$	1,324,620											$	1,140,127
Interest-Bearing Liabilities
Interest-bearing transaction accounts		$	286,572				393				0.55	%		$	158,122				214				0.54	%
Savings and money market deposits			455,201				719				0.63	%			448,667				693				0.61	%
Time deposits			201,151				518				1.03	%			175,103				467				1.06	%
Borrowings and repurchase agreements			33,696				197				2.32	%			45,986				60				0.52	%
Total interest-bearing liabilities			976,620				1,827				0.74	%			827,878				1,434				0.69	%
Noninterest-bearing deposits			195,856												191,216
Total funding sources			1,172,475												1,019,094
Noninterest-bearing liabilities			12,617												11,900
Shareholders’ equity			139,529												109,132
Total liabilities and shareholders’ equity		$	1,324,621											$	1,140,126
Net interest spread (3)											3.00	%											3.05	%
Net interest income/margin (4)						$	10,180				3.17	%						$	8,837				3.22	%

                                         

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

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)

Fourth Quarter 2016 Earnings Release

		For the Year Ended December 31,
		2016												2015
		AverageOutstandingBalance				InterestIncome/Expense				AverageYield/Rate				AverageOutstandingBalance				InterestIncome/Expense				AverageYield/Rate
Interest-Earning Assets
Loans (1)		$	888,541			$	38,450				4.33	%		$	744,151			$	33,722				4.53	%
Loans held for sale			47,303				1,763				3.73	%			29,324				1,123				3.83	%
Securities:
Taxable investment securities			176,977				3,729				2.11	%			220,167				4,421				2.01	%
Investment securities exempt from  federal income tax (2)			47,353				1,158				2.45	%			40,160				1,080				2.69	%
Total securities			224,330				4,887				2.18	%			260,327				5,501				2.11	%
Cash balances in other banks			51,147				276				0.54	%			54,143				140				0.26	%
Funds sold			2,153				19				0.89	%			3,094				18				0.60	%
Total interest-earning assets			1,213,475				45,395				3.74	%			1,091,039				40,504				3.71	%
Noninterest-earning assets			49,288												49,721
Total assets		$	1,262,763											$	1,140,760
Interest-Bearing Liabilities
Interest-bearing transaction accounts		$	269,113				1,489				0.55	%		$	143,939				748				0.52	%
Savings and money market deposits			445,873				2,859				0.64	%			465,622				2,733				0.59	%
Time deposits			193,881				2,085				1.08	%			197,535				2,031				1.03	%
Borrowings and repurchase agreements			32,371				499				1.54	%			39,581				219				0.55	%
Total interest-bearing liabilities			941,238				6,932				0.74	%			846,677				5,731				0.68	%
Noninterest-bearing deposits			189,270												176,577
Total funding sources			1,130,507												1,023,255
Noninterest-bearing liabilities			12,133												10,778
Shareholders’ equity			120,123												106,727
Total liabilities and shareholders’ equity		$	1,262,763											$	1,140,760
Net interest spread (3)											3.00	%											3.04	%
Net interest income/margin (4)						$	38,463				3.17	%						$	34,773				3.19	%

                                            

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

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

 

CONTACT

Rob Anderson
Chief Financial Officer and Chief Administrative Officer
(615) 732-6470