cstr-10q_20180331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________.

Commission File Number:  001-37886

 

CAPSTAR FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Tennessee

81-1527911

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

 

1201 Demonbreun Street, Suite 700

Nashville, Tennessee

(Address of principal executive office)

37203

(zip code)

 

(615) 732-6400

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

(Do not check if a smaller reporting company)

Smaller Reporting Company

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Shares outstanding as of April 30, 2018

Common Stock, par value $1.00 per share

11,660,457

Non-voting Common Stock, par value $1.00 per share

132,561

 

 

 


 

CAPSTAR FINANCIAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

Item

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements

 

5

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017

 

5

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2018 and 2017

 

6

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2018  and 2017

 

7

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three months ended March 31, 2018 and 2017

 

8

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2018 and 2017

 

9

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

39

 

 

 

 

Item 4.

Controls and Procedures

 

39

 

 

 

PART II – OTHER INFORMATION

 

40

 

 

 

 

Item 1. 

Legal Proceedings

 

40

 

 

 

 

Item 1A.

Risk Factors

 

40

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

 

 

Item 6.

Exhibits

 

43

 

 

 

 

SIGNATURES

 

44

 

 

2


 

TERMINOLOGY

The terms “we,” “our,” “us,” “the Company,” “CSTR” and “CapStar” that appear in this Quarterly Report on Form 10-Q (this “Report”) refer to CapStar Financial Holdings, Inc. and its wholly-owned subsidiary, CapStar Bank.  The terms “CapStar Bank,” “the Bank” and “our Bank” that appear in this Report refer to CapStar Bank.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements reflect our current views with respect to, among other things, future events and our financial 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,” “roadmap,” “achieve,” “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 our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution 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 we believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Report, 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 our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

Economic conditions (including interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation and deflation) that impact the financial services industry as a whole and/or our business; the concentration of our business in the Nashville metropolitan statistical area (“MSA”) and the effect of changes in the economic, political and environmental conditions on this market; increased competition in the financial services industry, locally, regionally or nationally, which may adversely affect pricing and the other terms offered to our clients; our dependence on our management team and board of directors and changes in our management and board composition; our reputation in the community; our ability to execute our strategy and to achieve loan and deposit growth through organic growth and strategic acquisitions; credit risks related to the size of our borrowers and our ability to adequately identify, assess and limit our credit risk; our concentration of large loans to a small number of borrowers; the significant portion of our loan portfolio that originated during the past two years and therefore may less reliably predict future collectability than older loans; the adequacy of reserves (including our allowance for loan losses) and the appropriateness of our methodology for calculating such reserves; non-performing loans and leases; non-performing assets; charge-offs, non-accruals, troubled-debt restructurings, impairments and other credit issues; adverse trends in the healthcare service industry, which is an integral component of our market’s economy; our management of risks inherent in our commercial real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure; governmental legislation and regulation, including changes in the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act of 2010, as amended, the Tax Cuts and Jobs Act, Basel guidelines, capital requirements, accounting regulation or standards and other applicable laws and regulations; the loss of large depositor relationships, which could force us to fund our business through more expensive and less stable sources; operational and liquidity risks associated with our business, including liquidity risks inherent in correspondent banking; volatility in interest rates and our overall management of interest rate risk, including managing the sensitivity of our interest-earning assets and interest-bearing liabilities to interest rates, and the impact to our earnings from a change in interest rates; the potential for our Bank’s regulatory lending limits and other factors related to our size to restrict our growth and prevent us from effectively implementing our business strategy; strategic acquisitions we may undertake to achieve our goals; the sufficiency of our capital, including sources of capital and the extent to which we may be required to raise additional capital to meet our goals; fluctuations to the fair value of our investment securities that are beyond our control; deterioration in the fiscal position of the U.S. government and downgrades in Treasury and federal agency securities; potential exposure to fraud, negligence, computer theft and cyber-crime; the adequacy of our risk management framework; our dependence on our information technology and telecommunications systems and the potential for any systems failures or interruptions; our dependence upon outside third parties for the processing and handling of our records and data; our ability to adapt to technological change; the financial soundness of other financial institutions; our exposure to environmental liability risk associated with our lending activities; our engagement in derivative transactions; our involvement from time to time in legal proceedings and examinations and remedial actions by regulators; the susceptibility of our market to natural disasters and acts of God; and the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting.

3


 

The foregoing factors should not be construed as exhaustive and should be read in conjunction with those factors that are detailed from time to time in the Company’s periodic and current reports filed with the Securities and Exchange Commission (the “SEC”), including those factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 under the heading “Item 1A. Risk Factors” 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 our 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 Report, and we do 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 us to predict their occurrence or how they will affect us.

 

 

4


 

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except share data)

 

 

March 31, 2018

 

 

 

 

 

 

 

(unaudited)

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

10,980

 

 

$

9,506

 

Interest-bearing deposits in financial institutions

 

 

34,629

 

 

 

68,572

 

Federal funds sold

 

 

5,516

 

 

 

4,719

 

Total cash and cash equivalents

 

 

51,125

 

 

 

82,797

 

Securities available-for-sale, at fair value

 

 

189,580

 

 

 

192,621

 

Securities held-to-maturity, fair value of $3,804, and $3,848 at

   March 31, 2018 and December 31, 2017, respectively

 

 

3,752

 

 

 

3,759

 

Loans held for sale

 

 

62,286

 

 

 

74,093

 

Loans

 

 

1,031,821

 

 

 

947,537

 

Less allowance for loan losses

 

 

(14,563

)

 

 

(13,721

)

Loans, net

 

 

1,017,258

 

 

 

933,816

 

Premises and equipment, net

 

 

5,856

 

 

 

5,884

 

Restricted equity securities

 

 

8,809

 

 

 

8,806

 

Accrued interest receivable

 

 

4,058

 

 

 

4,084

 

Goodwill

 

 

6,219

 

 

 

6,219

 

Core deposit intangible

 

 

13

 

 

 

23

 

Other assets

 

 

33,789

 

 

 

32,327

 

Total assets

 

$

1,382,745

 

 

$

1,344,429

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest-bearing

 

$

258,161

 

 

$

301,742

 

Interest-bearing

 

 

295,495

 

 

 

274,681

 

Savings and money market accounts

 

 

403,216

 

 

 

367,246

 

Time

 

 

170,681

 

 

 

176,197

 

Total deposits

 

 

1,127,553

 

 

 

1,119,866

 

Federal Home Loan Bank advances

 

 

100,000

 

 

 

70,000

 

Other liabilities

 

 

6,499

 

 

 

7,617

 

Total liabilities

 

 

1,234,052

 

 

 

1,197,483

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $1 par value; 5,000,000 shares authorized;

   878,049 shares issued and outstanding at March 31, 2018 and

   December 31, 2017

 

 

878

 

 

 

878

 

Common stock, voting, $1 par value; 20,000,000 shares authorized; 11,640,797 and

   11,449,465 shares issued and outstanding at March 31, 2018 and December 31,

   2017, respectively

 

 

11,641

 

 

 

11,450

 

Common stock, nonvoting, $1 par value; 5,000,000 shares authorized; 132,561

  shares issued and outstanding at March 31, 2018 and December 31, 2017

 

 

133

 

 

 

133

 

Additional paid-in capital

 

 

119,147

 

 

 

118,120

 

Retained earnings

 

 

22,087

 

 

 

18,892

 

Accumulated other comprehensive loss, net of income tax

 

 

(5,193

)

 

 

(2,527

)

Total shareholders’ equity

 

 

148,693

 

 

 

146,946

 

Total liabilities and shareholders’ equity

 

$

1,382,745

 

 

$

1,344,429

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

5


 

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Interest income:

 

 

 

 

 

 

 

 

Loans, including fees

 

$

12,234

 

 

$

10,467

 

Securities:

 

 

 

 

 

 

 

 

Taxable

 

 

876

 

 

 

1,003

 

Tax-exempt

 

 

284

 

 

 

326

 

Federal funds sold

 

 

20

 

 

 

2

 

Restricted equity securities

 

 

129

 

 

 

76

 

Interest-bearing deposits in financial institutions

 

 

201

 

 

 

105

 

Total interest income

 

 

13,744

 

 

 

11,979

 

Interest expense:

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

754

 

 

 

617

 

Savings and money market accounts

 

 

1,005

 

 

 

815

 

Time deposits

 

 

649

 

 

 

471

 

Federal funds purchased

 

 

1

 

 

 

4

 

Federal Home Loan Bank advances

 

 

489

 

 

 

140

 

Total interest expense

 

 

2,898

 

 

 

2,047

 

Net interest income

 

 

10,846

 

 

 

9,932

 

Provision for loan losses

 

 

678

 

 

 

3,405

 

Net interest income after provision for loan losses

 

 

10,168

 

 

 

6,527

 

Noninterest income:

 

 

 

 

 

 

 

 

Treasury management and other deposit service charges

 

 

402

 

 

 

329

 

Loan commitment fees

 

 

387

 

 

 

236

 

Net gain (loss) on sale of securities

 

 

 

 

 

(6

)

Tri-Net fees

 

 

528

 

 

 

84

 

Mortgage banking income

 

 

1,313

 

 

 

1,132

 

Other noninterest income

 

 

460

 

 

 

359

 

Total noninterest income

 

 

3,090

 

 

 

2,134

 

Noninterest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

6,257

 

 

 

5,086

 

Data processing and software

 

 

798

 

 

 

621

 

Professional fees

 

 

474

 

 

 

365

 

Occupancy

 

 

521

 

 

 

449

 

Equipment

 

 

539

 

 

 

496

 

Regulatory fees

 

 

203

 

 

 

307

 

Other operating

 

 

788

 

 

 

1,052

 

Total noninterest expense

 

 

9,580

 

 

 

8,376

 

Income before income taxes

 

 

3,678

 

 

 

285

 

Income tax expense (benefit)

 

 

483

 

 

 

(47

)

Net income

 

$

3,195

 

 

$

332

 

Per share information:

 

 

 

 

 

 

 

 

Basic net income per share of common stock

 

$

0.27

 

 

$

0.03

 

Diluted net income per share of common stock

 

$

0.25

 

 

$

0.03

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

11,664,467

 

 

 

11,210,948

 

Diluted

 

 

12,975,981

 

 

 

12,784,117

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

6


 

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Net income

 

$

3,195

 

 

$

332

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities available-for-sale:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

(4,354

)

 

 

575

 

Reclassification adjustment for (gains) losses included in

   net income

 

 

 

 

 

6

 

Tax effect

 

 

1,138

 

 

 

(222

)

Net of tax

 

 

(3,216

)

 

 

359

 

Unrealized losses on securities transferred to held-to-maturity:

 

 

 

 

 

 

 

 

Reclassification adjustment for losses included in

   net income

 

 

14

 

 

 

42

 

Tax effect

 

 

(4

)

 

 

(16

)

Net of tax

 

 

10

 

 

 

26

 

Unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

424

 

 

 

(1

)

Reclassification adjustment for losses included in

   net income

 

 

250

 

 

 

154

 

Tax effect

 

 

(134

)

 

 

 

Net of tax

 

 

540

 

 

 

153

 

Other comprehensive income (loss)

 

 

(2,666

)

 

 

538

 

Comprehensive income

 

$

529

 

 

$

870

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

7


 

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share data)

 

 

 

Preferred

 

 

Common Stock,

voting

 

 

Common Stock,

nonvoting

 

 

Additional

paid-in

 

 

Retained

 

 

Accumulated

other

comprehensive

 

 

Total

shareholders’

 

 

 

stock

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

equity

 

Balance December 31, 2016

 

$

878

 

 

 

11,204,515

 

 

$

11,205

 

 

 

 

 

$

 

 

$

116,143

 

 

$

17,132

 

 

$

(6,151

)

 

$

139,207

 

Issuance of restricted common

   stock, net of forfeitures and

   withholdings to satisfy

   employee tax obligations

 

 

 

 

 

(2,054

)

 

 

(2

)

 

 

 

 

 

 

 

 

(187

)

 

 

 

 

 

 

 

 

(189

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

236

 

 

 

 

 

 

 

 

 

236

 

Exercise of employee

   common stock options,

   net of withholdings to

   satisfy employee tax

   obligations

 

 

 

 

 

9,367

 

 

 

9

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

22

 

Exercise of common stock

   warrants

 

 

 

 

 

6,500

 

 

 

6

 

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

65

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

332

 

 

 

 

 

 

332

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

538

 

 

 

538

 

Balance March 31, 2017

 

$

878

 

 

 

11,218,328

 

 

$

11,218

 

 

 

 

 

$

 

 

$

116,264

 

 

$

17,464

 

 

$

(5,613

)

 

$

140,211

 

Balance December 31, 2017

 

$

878

 

 

 

11,449,465

 

 

$

11,450

 

 

 

132,561

 

 

$

133

 

 

$

118,120

 

 

$

18,892

 

 

$

(2,527

)

 

$

146,946

 

Issuance of restricted common

   stock, net of forfeitures and

   withholdings to satisfy

   employee tax obligations

 

 

 

 

 

24,729

 

 

 

25

 

 

 

 

 

 

 

 

 

(354

)

 

 

 

 

 

 

 

 

(329

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

305

 

 

 

 

 

 

 

 

 

305

 

Exercise of employee

   common stock options,

   net of withholdings to

   satisfy employee tax

   obligations

 

 

 

 

 

61,822

 

 

 

62

 

 

 

 

 

 

 

 

 

238

 

 

 

 

 

 

 

 

 

300

 

Exercise of common stock

   warrants

 

 

 

 

 

104,781

 

 

 

104

 

 

 

 

 

 

 

 

 

838

 

 

 

 

 

 

 

 

 

942

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,195

 

 

 

 

 

 

3,195

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,666

)

 

 

(2,666

)

Balance March 31, 2018

 

$

878

 

 

 

11,640,797

 

 

$

11,641

 

 

 

132,561

 

 

$

133

 

 

$

119,147

 

 

$

22,087

 

 

$

(5,193

)

 

$

148,693

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

8


 

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,195

 

 

$

332

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

678

 

 

 

3,405

 

Accretion of discounts on acquired loans and deferred fees

 

 

(171

)

 

 

(159

)

Depreciation and amortization

 

 

104

 

 

 

107

 

Net amortization of premiums on investment securities

 

 

289

 

 

 

358

 

Securities (gains) losses, net

 

 

 

 

 

6

 

Mortgage banking income

 

 

(1,313

)

 

 

(1,132

)

Tri-Net fees

 

 

(528

)

 

 

(84

)

Net loss on disposal of premises and equipment

 

 

 

 

 

137

 

Stock-based compensation

 

 

305

 

 

 

236

 

Deferred income tax expense (benefit)

 

 

255

 

 

 

(744

)

Origination of loans held for sale

 

 

(123,853

)

 

 

(93,162

)

Proceeds from loans held for sale

 

 

137,501

 

 

 

101,118

 

Net increase in accrued interest receivable and other assets

 

 

(691

)

 

 

(1,331

)

Net decrease in accrued interest payable and other liabilities

 

 

(444

)

 

 

(2,120

)

Net cash provided by operating activities

 

 

15,327

 

 

 

6,967

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Activities in securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(8,639

)

 

 

(11,754

)

Sales

 

 

2,014

 

 

 

645

 

Maturities, prepayments and calls

 

 

5,044

 

 

 

5,186

 

Activities in securities held-to-maturity:

 

 

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

 

 

 

29

 

Purchase of restricted equity securities

 

 

(3

)

 

 

(513

)

Net increase in loans

 

 

(83,949

)

 

 

(69,065

)

Purchase of premises and equipment

 

 

(66

)

 

 

(742

)

Proceeds from the sale of premises and equipment

 

 

 

 

 

3

 

Net cash used in investing activities

 

 

(85,599

)

 

 

(76,211

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

7,687

 

 

 

29,273

 

Proceeds from Federal Home Loan Bank advances

 

 

30,000

 

 

 

20,000

 

Exercise of common stock options and warrants, net of repurchase of restricted shares

 

 

913

 

 

 

(101

)

Net cash provided by financing activities

 

 

38,600

 

 

 

49,172

 

Net decrease in cash and cash equivalents

 

 

(31,672

)

 

 

(20,072

)

Cash and cash equivalents at beginning of period

 

 

82,797

 

 

 

80,111

 

Cash and cash equivalents at end of period

 

$

51,125

 

 

$

60,039

 

Supplemental disclosures of cash paid:

 

 

 

 

 

 

 

 

Interest paid

 

$

2,888

 

 

$

2,023

 

Income taxes

 

 

264

 

 

 

 

Supplemental disclosures of noncash transactions:

 

 

 

 

 

 

 

 

Loans charged off to the allowance for loan losses

 

$

160

 

 

$

1,124

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

 

9


 

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements as of and for the period ended March 31, 2018 include CapStar Financial Holdings, Inc. and its wholly owned subsidiary, CapStar Bank (the “Bank”, together referred to as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.  

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.  These unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, determination of impairment of intangible assets, including goodwill, the valuation of our investment portfolio, deferred tax assets and estimated liabilities.  There have been no significant changes to the Company’s critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Subsequent Events

Accounting Standards Codification (“ASC”) 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company evaluated all events or transactions that occurred after March 31, 2018 through the date of the issued financial statements.

 

 

NOTE 2 – SECURITIES

The amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2018 and December 31, 2017 are summarized as follows (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

unrealized

gains

 

 

Gross

unrealized

(losses)

 

 

Estimated

fair value

 

 

Amortized

Cost

 

 

Gross

unrealized

gains

 

 

Gross

unrealized

(losses)

 

 

Estimated

fair value

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. government agency securities

 

$

11,251

 

 

$

 

 

$

(407

)

 

$

10,844

 

 

$

11,433

 

 

$

12

 

 

$

(168

)

 

$

11,277

 

State and municipal securities

 

 

49,234

 

 

 

442

 

 

 

(1,461

)

 

 

48,215

 

 

 

51,790

 

 

 

1,430

 

 

 

(222

)

 

 

52,998

 

Mortgage-backed securities

 

 

107,832

 

 

 

 

 

 

(3,540

)

 

 

104,292

 

 

 

108,236

 

 

 

40

 

 

 

(1,714

)

 

 

106,562

 

Asset-backed securities

 

 

16,478

 

 

 

1

 

 

 

(123

)

 

 

16,356

 

 

 

16,575

 

 

 

 

 

 

(198

)

 

 

16,377

 

Other debt securities

 

 

9,878

 

 

 

70

 

 

 

(75

)

 

 

9,873

 

 

 

5,326

 

 

 

81

 

 

 

 

 

 

5,407

 

Total

 

$

194,673

 

 

$

513

 

 

$

(5,606

)

 

$

189,580

 

 

$

193,360

 

 

$

1,563

 

 

$

(2,302

)

 

$

192,621

 

Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal securities

 

$

3,752

 

 

$

56

 

 

$

(4

)

 

$

3,804

 

 

$

3,759

 

 

$

89

 

 

$

 

 

$

3,848

 

Total

 

$

3,752

 

 

$

56

 

 

$

(4

)

 

$

3,804

 

 

$

3,759

 

 

$

89

 

 

$

 

 

$

3,848

 

 

Security fair values are established by an independent pricing service as of the dates indicated. The difference between amortized cost and fair value reflects current interest rates and represents the potential gain (loss) had the portfolio been liquidated on those dates. Security gains (losses) are realized only in the event of dispositions prior to maturity or other-than-temporary impairment. Securities

10

 


 

with unrealized losses as of March 31, 2018 and December 31, 2017, and the length of time they were in continuous loss positions as of such dates are as follows (in thousands):

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

March 31, 2018

 

Estimated

fair value

 

 

Gross

unrealized