cstr-10q_20200331.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, 2020

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 offices)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

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 May 5, 2020

Common Stock, par value $1.00 per share

 

18,307,447

 

 

 

 

 

 


 

CAPSTAR FINANCIAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

Item

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

5

 

 

 

 

Item 1.

Consolidated Financial Statements

 

5

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019

 

5

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2020 and 2019

 

6

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2020 and 2019

 

7

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three months ended March 31, 2020 and 2019

 

8

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2020 and 2019

 

9

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

Item 2.

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

 

31

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

42

 

 

 

 

Item 4.

Controls and Procedures

 

42

 

 

 

PART II – OTHER INFORMATION

 

43

 

 

 

 

Item 1. 

Legal Proceedings

 

43

 

 

 

 

Item 1A.

Risk Factors

 

43

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

 

 

 

Item 6.

Exhibits

 

45

 

 

 

 

SIGNATURES

 

46

 

 

2


 

TERMINOLOGY

The terms “we,” “our,” “us,” “CapStar,” “the Company,” “CSTR” and “CapStar Financial” 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, which we sometimes refer to as “CapStar Bank,” “our bank subsidiary,” “the Bank” and “our 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 and that are beyond our control. 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:

The COVID-19 pandemic is adversely affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impacts on our business, including on our credit quality, business operations and liquidity, as well as its impact on general economic and financial market conditions, is uncertain. Continued deterioration in general business and economic conditions, or turbulence in domestic or global financial markets could adversely affect CapStar’s revenues and the values of its assets and liabilities, reduce the availability of funding, affect credit quality, and increase stock price volatility. The Company may not capitalize on opportunities to enhance market share in certain markets and the Company’s services may not be generally accepted in new markets; the ability of the Company to meet expectations regarding the benefits, costs, synergies and financial and operational impact of the FCB Corporation (“FCB”) and the Bank of Waynesboro (“BOW”) mergers; that regulatory or other approvals required for the FCB and BOW mergers will not be obtained or that other customary closing conditions will not be satisfied in a timely manner or at all; reputational risks and the reaction of shareholders, customers, employees or other constituents of the Company to the FCB and BOW mergers; the acceptance by customers of FCB and BOW of the Company’s products and services; the possibility that the FCB and BOW merger integrations will be more expensive or take more time to complete than anticipated; 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 our Target Market 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; an increase in the cost of deposits, loss of deposits or a change in the deposit mix, which could increase our cost of funding; an increase in the costs of capital, which could negatively affect our ability to borrow funds, successfully raise additional capital or participate in strategic acquisition opportunities; 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 to achieve our loan, ROAA and efficiency ratio goals, hire seasoned bankers, and achieve 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 as well as geographic concentrations located within our Target Market; 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-related issues; adverse trends in the healthcare service industry, which is an integral component of our Target Market’s economy and which could adversely affect the business operations of certain of our key borrowers; 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; our inability to realize operating efficiencies and tax savings from the implementation of our strategic plan; 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 of 2017, as amended, Basel guidelines, capital requirements, accounting regulation or

3


 

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 in 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; threats to and breaches of our information technology systems and data security, including cyber-attacks; 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; our involvement from time to time in litigation or other proceedings instituted by or against shareholders, customers, employees or third parties and the cost of legal fees associated with such litigation or proceedings; 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.

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, 2019 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, 2020

 

 

 

 

 

 

 

(unaudited)

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

19,794

 

 

$

17,726

 

Interest-bearing deposits in financial institutions

 

 

71,656

 

 

 

83,368

 

Federal funds sold

 

 

 

 

 

175

 

Total cash and cash equivalents

 

 

91,450

 

 

 

101,269

 

Securities available-for-sale, at fair value

 

 

219,213

 

 

 

213,129

 

Securities held-to-maturity, fair value of $3,394 and $3,411 at

   March 31, 2020 and December 31, 2019, respectively

 

 

3,306

 

 

 

3,313

 

Loans held for sale (includes $54,896 and $30,740 measured

   at fair value at March 31, 2020 and December 31, 2019, respectively)

 

 

186,937

 

 

 

168,222

 

Loans

 

 

1,446,835

 

 

 

1,420,102

 

Less allowance for loan losses

 

 

(20,114

)

 

 

(12,604

)

Loans, net

 

 

1,426,721

 

 

 

1,407,498

 

Premises and equipment, net

 

 

18,896

 

 

 

19,184

 

Restricted equity securities

 

 

13,573

 

 

 

13,689

 

Accrued interest receivable

 

 

5,786

 

 

 

5,792

 

Goodwill

 

 

37,510

 

 

 

37,510

 

Core deposit intangible, net

 

 

6,498

 

 

 

6,883

 

Other real estate owned, net

 

 

147

 

 

 

1,044

 

Other assets

 

 

62,548

 

 

 

59,668

 

Total assets

 

$

2,072,585

 

 

$

2,037,201

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest-bearing

 

$

442,789

 

 

$

312,096

 

Interest-bearing

 

 

547,561

 

 

 

607,211

 

Savings and money market accounts

 

 

472,717

 

 

 

506,692

 

Time

 

 

300,642

 

 

 

303,452

 

Total deposits

 

 

1,763,709

 

 

 

1,729,451

 

Federal Home Loan Bank advances

 

 

10,000

 

 

 

10,000

 

Other liabilities

 

 

23,086

 

 

 

24,704

 

Total liabilities

 

 

1,796,795

 

 

 

1,764,155

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock, voting, $1 par value; 20,000,000 shares authorized; 18,307,802 and

   18,361,922 shares issued and outstanding at March 31, 2020 and December 31,

   2019, respectively

 

 

18,308

 

 

 

18,362

 

Additional paid-in capital

 

 

206,043

 

 

 

207,083

 

Retained earnings

 

 

46,648

 

 

 

46,218

 

Accumulated other comprehensive income, net of income tax

 

 

4,791

 

 

 

1,383

 

Total shareholders’ equity

 

 

275,790

 

 

 

273,046

 

Total liabilities and shareholders’ equity

 

$

2,072,585

 

 

$

2,037,201

 

 

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,

 

 

 

2020

 

 

2019

 

Interest income:

 

 

 

 

 

 

 

 

Loans, including fees

 

$

19,738

 

 

$

20,592

 

Securities:

 

 

 

 

 

 

 

 

Taxable

 

 

1,174

 

 

 

1,346

 

Tax-exempt

 

 

321

 

 

 

377

 

Federal funds sold

 

 

 

 

 

19

 

Restricted equity securities

 

 

142

 

 

 

187

 

Interest-bearing deposits in financial institutions

 

 

363

 

 

 

446

 

Total interest income

 

 

21,738

 

 

 

22,967

 

Interest expense:

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

1,901

 

 

 

1,594

 

Savings and money market accounts

 

 

1,551

 

 

 

1,718

 

Time deposits

 

 

1,481

 

 

 

1,813

 

Federal funds purchased

 

 

 

 

 

4

 

Securities sold under agreements to repurchase

 

 

 

 

 

5

 

Federal Home Loan Bank advances

 

 

144

 

 

 

831

 

Total interest expense

 

 

5,077

 

 

 

5,965

 

Net interest income

 

 

16,661

 

 

 

17,002

 

Provision for loan losses

 

 

7,553

 

 

 

886

 

Net interest income after provision for loan losses

 

 

9,108

 

 

 

16,116

 

Noninterest income:

 

 

 

 

 

 

 

 

Treasury management and other deposit service charges

 

 

775

 

 

 

798

 

Net gain on sale of securities

 

 

27

 

 

 

12

 

Tri-Net fees

 

 

599

 

 

 

641

 

Mortgage banking income

 

 

2,253

 

 

 

1,385

 

Wealth management fees

 

 

407

 

 

 

306

 

Interchange and debit card transaction fees

 

 

724

 

 

 

579

 

Other noninterest income

 

 

1,089

 

 

 

1,014

 

Total noninterest income

 

 

5,874

 

 

 

4,735

 

Noninterest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

8,002

 

 

 

8,432

 

Data processing and software

 

 

1,864

 

 

 

1,474

 

Professional fees

 

 

636

 

 

 

543

 

Occupancy

 

 

820

 

 

 

883

 

Equipment

 

 

751

 

 

 

852

 

Regulatory fees

 

 

163

 

 

 

274

 

Merger related expenses

 

 

290

 

 

 

594

 

Amortization of intangibles

 

 

386

 

 

 

430

 

Other operating

 

 

1,299

 

 

 

1,243

 

Total noninterest expense

 

 

14,211

 

 

 

14,725

 

Income before income taxes

 

 

771

 

 

 

6,126

 

Income tax expense (benefit)

 

 

(575

)

 

 

1,346

 

Net income

 

$

1,346

 

 

$

4,780

 

Per share information:

 

 

 

 

 

 

 

 

Basic net income per share of common stock

 

$

0.07

 

 

$

0.27

 

Diluted net income per share of common stock

 

$

0.07

 

 

$

0.25

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

18,392,913

 

 

 

17,783,239

 

Diluted

 

 

18,443,725

 

 

 

18,830,933

 

 

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,

 

 

 

2020

 

 

2019

 

Net income

 

$

1,346

 

 

$

4,780

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gains on securities available-for-sale:

 

 

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

 

4,203

 

 

 

3,264

 

Reclassification adjustment for gains included in

   net income

 

 

(27

)

 

 

(12

)

Tax effect

 

 

(1,021

)

 

 

(850

)

Net of tax

 

 

3,155

 

 

 

2,402

 

Unrealized losses on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

 

 

 

(241

)

Reclassification adjustment for losses included in

   net income

 

 

253

 

 

 

197

 

Tax effect

 

 

 

 

 

54

 

Net of tax

 

 

253

 

 

 

10

 

Other comprehensive income

 

 

3,408

 

 

 

2,412

 

Comprehensive income

 

$

4,754

 

 

$

7,192

 

 

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

 

 

income (loss)

 

 

equity

 

Balance December 31, 2018

 

$

878

 

 

 

17,592,160

 

 

$

17,592

 

 

 

132,561

 

 

$

133

 

 

$

211,789

 

 

$

27,303

 

 

$

(3,316

)

 

$

254,379

 

Net issuance of restricted common stock

 

 

 

 

 

13,801

 

 

 

14

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(168

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

344

 

 

 

 

 

 

 

 

 

344

 

Net exercise of common stock options

 

 

 

 

 

182,002

 

 

 

182

 

 

 

 

 

 

 

 

 

998

 

 

 

 

 

 

 

 

 

1,180

 

Repurchase of common stock

 

 

 

 

 

(155,400

)

 

 

(155

)

 

 

 

 

 

 

 

 

(2,276

)

 

 

 

 

 

 

 

 

(2,431

)

Common and preferred stock dividends declared ($0.04 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(745

)

 

 

 

 

 

(745

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,780

 

 

 

 

 

 

4,780

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,412

 

 

 

2,412

 

Balance March 31, 2019

 

$

878

 

 

 

17,632,563

 

 

$

17,633

 

 

 

132,561

 

 

$

133

 

 

$

210,673

 

 

$

31,338

 

 

$

(904

)

 

$

259,751

 

Balance December 31, 2019

 

$

 

 

 

18,361,922

 

 

$

18,362

 

 

 

 

 

$

 

 

$

207,083

 

 

$

46,218

 

 

$

1,383

 

 

$

273,046

 

Net issuance of restricted common stock

 

 

 

 

 

73,098

 

 

 

73

 

 

 

 

 

 

 

 

 

(196

)

 

 

 

 

 

 

 

 

(123

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

360

 

 

 

 

 

 

 

 

 

360

 

Net exercise of common stock options

 

 

 

 

 

20,582

 

 

 

21

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

106

 

Repurchase of common stock

 

 

 

 

 

(147,800

)

 

 

(148

)

 

 

 

 

 

 

 

 

(1,289

)

 

 

 

 

 

 

 

 

(1,437

)

Common and preferred stock dividends declared ($0.05 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(916

)

 

 

 

 

 

(916

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,346

 

 

 

 

 

 

1,346

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,408

 

 

 

3,408

 

Balance March 31, 2020

 

$

 

 

 

18,307,802

 

 

$

18,308

 

 

 

 

 

$

 

 

$

206,043

 

 

$

46,648

 

 

$

4,791

 

 

$

275,790

 

 

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,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,346

 

 

$

4,780

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

7,553

 

 

 

886

 

Accretion of discounts on acquired loans and deferred fees

 

 

(297

)

 

 

(559

)

Depreciation and amortization

 

 

681

 

 

 

737

 

Net amortization of premiums on investment securities

 

 

180

 

 

 

205

 

Net gain on sale of securities

 

 

(27

)

 

 

(12

)

Mortgage banking income

 

 

(2,253

)

 

 

(1,385

)

Tri-Net fees

 

 

(599

)

 

 

(641

)

Net gain on sale of loans

 

 

(35

)

 

 

(196

)

Net gain on sale of other real estate owned

 

 

(37

)

 

 

 

Stock-based compensation

 

 

360

 

 

 

344

 

Deferred income tax expense (benefit)

 

 

(2,692

)

 

 

395

 

Origination of loans held for sale

 

 

(226,109

)

 

 

(130,697

)

Proceeds from loans held for sale

 

 

210,246

 

 

 

117,471

 

Cash payments arising from operating leases

 

 

(462

)

 

 

(459

)

Net increase in accrued interest receivable and other assets

 

 

(741

)

 

 

(12,979

)

Net increase (decrease) in accrued interest payable and other liabilities

 

 

(1,365

)

 

 

7,718

 

Net cash used in operating activities

 

 

(14,251

)

 

 

(14,392

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Activities in securities available-for-sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(17,302

)

 

 

(2,138

)

Sales

 

 

6,043

 

 

 

9,722

 

Maturities, prepayments and calls

 

 

9,205

 

 

 

5,599

 

Net redemption (purchase) of restricted equity securities

 

 

116

 

 

 

(2,107

)

Net increase in loans

 

 

(26,515

)

 

 

(37,327

)

Purchase of premises and equipment

 

 

(8

)

 

 

(1,109

)

Proceeds from sale of other real estate

 

 

1,005

 

 

 

 

Net cash used in investing activities

 

 

(27,456

)

 

 

(27,360

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

34,258

 

 

 

108,794

 

Proceeds from Federal Home Loan Bank advances

 

 

680,000

 

 

 

65,000

 

Payments on Federal Home Loan Bank advances

 

 

(680,000

)

 

 

(115,000

)

Repurchase of common stock

 

 

(1,437

)

 

 

(2,431

)

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

 

 

(17

)

 

 

1,012

 

Common and preferred stock dividends paid

 

 

(916

)

 

 

(745

)

Net cash provided by financing activities

 

 

31,888

 

 

 

56,630

 

Net increase (decrease) in cash and cash equivalents

 

 

(9,819

)

 

 

14,878

 

Cash and cash equivalents at beginning of period

 

 

101,269

 

 

 

105,443

 

Cash and cash equivalents at end of period

 

$

91,450

 

 

$

120,321

 

Supplemental disclosures of cash paid:

 

 

 

 

 

 

 

 

Interest paid

 

$

5,189

 

 

$

6,034

 

Income taxes

 

 

1,676

 

 

 

356

 

Supplemental disclosures of noncash transactions:

 

 

 

 

 

 

 

 

Transfer of loans to other real estate

 

$

71

 

 

$

50

 

Loans charged off to the allowance for loan losses

 

 

172

 

 

 

82

 

 

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, 2020 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, 2019.

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, 2019.

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, 2020 through the date of the issued financial statements.

On April 24, 2020, the Company adopted articles of amendment to its charter whereby the total number of shares of capital stock which the Company has authority to issue was amended to 40,000,000 shares, of which 35,000,000 shares shall be common stock ($1.00 par value per share) and 5,000,000 shares shall be preferred stock ($1.00 par value per share). Aside from the changes to its authorized shares, no further amendments were made to the Company’s charter.

 

 

NOTE 2 – SECURITIES

The amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2020 and December 31, 2019 are summarized as follows (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

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

 

$

11,620

 

 

$

466

 

 

$

 

 

$

12,086

 

 

$

10,421

 

 

$

4

 

 

$

(94

)

 

$

10,331

 

State and municipal securities

 

 

43,146

 

 

 

1,995

 

 

 

(9

)

 

 

45,132

 

 

 

44,053

 

 

 

1,927

 

 

 

(20

)

 

 

45,960

 

Mortgage-backed securities

 

 

136,506

 

 

 

5,215

 

 

 

(172

)

 

 

141,549

 

 

 

137,305

 

 

 

1,834

 

 

 

(460

)

 

 

138,679

 

Asset-backed securities

 

 

3,325

 

 

 

 

 

 

(282

)

 

 

3,043

 

 

 

3,325

 

 

 

 

 

 

(128

)

 

 

3,197

 

Other debt securities

 

 

17,254

 

 

 

358

 

 

 

(209

)

 

 

17,403

 

 

 

14,839

 

 

 

141

 

 

 

(18

)

 

 

14,962

 

Total

 

$

211,851

 

 

$

8,034

 

 

$

(672

)

 

$

219,213

 

 

$

209,943

 

 

$

3,906

 

 

$

(720

)

 

$

213,129

 

Securities held-to-maturity: