CSTR CapStar Financial Holdings Inc

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
		AverageOutstandingBalance				InterestIncome/Expense				AverageYield/Rate				AverageOutstandingBalance				InterestIncome/Expense				AverageYield/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
		AverageOutstandingBalance				InterestIncome/Expense				AverageYield/Rate				AverageOutstandingBalance				InterestIncome/Expense				AverageYield/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