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CapStar Reports Fourth Quarter 2021 Results

NASHVILLE, Tenn., Jan. 27, 2022 (GLOBE NEWSWIRE) -- CapStar Financial Holdings, Inc. (“CapStar”) (NASDAQ:CSTR) today reported net income of $12.5 million or $0.56 per diluted share, for the quarter ended December 31, 2021, compared with net income of $13.1 million or $0.59 per diluted share, for the quarter ended September 30, 2021, and net income of $9.7 million or $0.44 per diluted share, for the quarter ended December 31, 2020. Annualized return on average assets and return on average equity for the quarter ended December 31, 2021 were 1.57 percent and 13.11 percent, respectively. Fourth quarter 2020 earnings included acquisition related expenses totaling $2.1 million.

For the twelve months ended December 31, 2021, the Company reported net income of $48.7 million or $2.19 per diluted share, compared with $24.7 million or $1.22 per diluted share, for the same period of 2020. Year to date 2021 return on average assets and return on average equity were 1.56 percent and 13.38 percent, respectively. The twelve months ended December 31, 2021 and 2020 included acquisition related expenses of $0.3 million and $5.4 million, respectively.

Four Key Drivers   Targets
  2021   4Q21   3Q21   Q420
Annualized revenue growth   > 5 %   11.94 %   -5.61 %   20.49 %   -4.40 %
Net interest margin   ≥ 3.60 %   3.16 %   3.14 %   3.12 %   3.12 %
Efficiency ratio   ≤ 55 %   54.94 %   54.74 %   53.06 %   63.02 %
Annualized net charge-offs to average loans   ≤ 0.25 %   0.03 %   0.04 %   0.05 %   0.02 %
                               

“The employees of CapStar delivered outstanding fourth quarter and yearly results. Their commitment to excellence led to many expanded and new customer relationships and helped us operate the company in a more productive manner,” said Timothy K. Schools President and Chief Executive Officer of CapStar. “Like many banks, CapStar experienced record earnings in 2021. However, it is the positive developments and many successes occurring across the company that make me proud and excited for our future. Of note, our team has improved our organic revenue growth capabilities, gained increased operating discipline around balance sheet and expense management, and developed active plans for significant excess capital that is currently held on our balance sheet as cash.”

“CapStar has built a winning culture, and the Company's improved operating performance, superior markets and size have us well positioned in 2022 and beyond to be an attractive destination for high performance employees and customers seeking a more personal banking experience. It is an exciting time at CapStar and we thank our employees, customers, and business partners for a great year.”

Revenue

Total revenue, defined as net interest income plus noninterest income, totaled $34.1 million in the fourth quarter, the third highest in Company history. This represents a decline of $0.5 million from the previous quarter, which was the highest revenue produced in Company history. Net interest income totaled $23.0 million, equal to the third quarter of 2021, while fourth quarter 2021 noninterest income totaled $11.1 million, a decrease of $0.5 million from the prior quarter. Interchange and debit card fees as well as the Company’s Tri-Net division achieved record results offset by declines in mortgage and SBA revenues each of which had particularly strong third quarters.

The Company continues to have excess liquidity providing the opportunity to increase net interest income without having to grow average earning assets by replacing lower yielding cash and securities with higher yielding loan balances. As a result, fourth quarter 2021 average earning assets remained relatively flat at $2.92 billion compared to September 30, 2021. As occurred throughout the year, loan growth continued to accelerate during the quarter. Average loans held for investment, excluding PPP balances, increased $56.4 million from the prior quarter, or 12.5 percent linked-quarter annualized. End of period loans held for investment, excluding PPP balances, increased $109.2 million, or 23.7 percent linked-quarter annualized, of which approximately $53.1 million originated through the Company's mid-fourth quarter Chattanooga expansion. Over the past two years, the Company successfully strengthened its in-market organic loan capabilities with fourth quarter annualized loans held for investment production of $1.02 billion compared to total actual production of $674.0 million, $445.4 million, and $296.4 million in 2021, 2020, and 2019 respectively. The current commercial loan pipeline exceeds $500 million, presenting the Company a tremendous opportunity to utilize current excess liquidity and capital to grow revenue and net income.

For the fourth quarter of 2021, the net interest margin increased 2 basis points from the prior quarter to 3.14 percent primarily resulting from an increase in non-PPP loans with higher rates and improved yields in the investment portfolio. Adjusting for the influence of PPP and excess deposits accumulated during the pandemic, the Company estimates its fourth quarter 2021 net interest margin was 3.40 percent, a 4 basis point increase compared to the third quarter of 2021. While the Company is managing to a more neutral interest rate risk profile in order to enhance earnings consistency, net interest income over the next year is expected to benefit modestly from rising rates.

The Company's average deposits totaled $2.71 billion in the fourth quarter of 2021, a slight decrease from the Company's record level of $2.73 billion for the third quarter of 2021. During the quarter, the Company experienced a $23.2 million reduction in higher cost average time deposits and $19.9 million decrease in average interest-bearing transaction accounts. These decreases were offset by a $27.5 million increase in average savings and money market deposits, creating an overall net decrease of $15.7 million in average interest-bearing deposits when compared to the third quarter of 2021. While in the short-term the Company is experiencing a period of excess liquidity, a key longer-term strategic initiative is to create a stronger deposit-led culture with an emphasis on lower cost relationship-based deposits. During the quarter, the Company’s lowest cost deposit category, noninterest bearing, comprised 27.6 percent of total average deposits, consistent with the third quarter ended September 30, 2021. Total deposit costs remained flat for the fourth quarter at 0.19 percent.

The Company's unique fee businesses continue to support non-interest income, which has exceeded 30 percent of total revenue for the past seven quarters. Noninterest income during the quarter benefitted from record Tri-Net revenue, contributing a $2.1 million improvement when compared to the quarter ended September 30, 2021. Additionally, the Company produced record interchange and debit card revenues as it relates to the Company's core banking. These increases were offset by a $2.0 million decline in mortgage banking, as the residential housing market returns to more normalized levels, and $0.6 million decline in SBA revenue following the divisions second highest results in Company history.

Noninterest Expense and Operating Efficiency

Improving productivity and operating efficiency is a key focus of the Company. During the quarter, the Company continued to exhibit strong expense discipline. Noninterest expenses increased $0.3 million from the third quarter of 2021 to $18.7 million in the fourth quarter of 2021. Excluding $0.4 million in costs associated with the Company's recent Chattanooga expansion, noninterest expense declined from the prior quarter.

For the quarter ended December 31, 2021, the efficiency ratio was 54.74 percent, an increase from 53.06 percent in the third quarter of 2021. Annualized noninterest expense as a percentage of average assets increased 5 basis points to 2.35 percent for the quarter ended December 31, 2021 compared to 2.30 percent for the quarter ended September 30, 2021. Assets per employee remained unchanged at $7.9 million as of December 31, 2021 compared to the previous quarter. The continued discipline in productivity metrics demonstrates the Company's commitment to outstanding performance.

Asset Quality

Strong asset quality is a core tenant of the Company’s culture. Continued sound risk management and an improving economy led to continued low net charge-offs and strong credit metrics. Annualized net charge offs to average loans for the three months ended December 31, 2021, improved to 0.04 percent. Past due loans as a percentage of total loans held for investment improved to 0.25 percent at December 31, 2021 compared to 0.31 percent at September 30, 2021. Within this amount, loans greater than 89 days past due totaled $2.1 million, or 0.11 percent of loans held for investment at December 31, 2021, compared to 0.12 percent at September 30, 2021. Non-performing assets to total loans and OREO were 0.18 percent at December 31, 2021, a 2 basis point improvement from 0.20 percent at September 30, 2021. Criticized and classified loans to total loans, which elevated during the pandemic, continued to improve and were 2.64 percent at December 31, 2021, a 21 basis point decline from September 30, 2021. Overall, the Company's asset quality metrics are approaching pre-pandemic levels.

As a result of the Company’s quarterly analysis of the adequacy of the allowance for credit losses, the Company released reserves during the quarter based on improved asset quality trends and other qualitative factors. In addition to providing reserves for the strong loan growth experienced during the fourth quarter, the allowance for loan losses declined $0.7 million. As a result, the allowance for loan losses plus the fair value mark on acquired loans to total loans, less PPP loans, declined 14 basis points to 1.27 percent at December 31, 2021 from 1.41 percent at September 30, 2021.  

Asset Quality Data:   12/31/21   9/30/21   6/30/21   3/31/21   12/31/20
Annualized net charge-offs to average loans   0.04 %   0.05 %   0.01 %   0.00 %   0.02 %
Criticized and classified loans to total loans   2.64 %   2.85 %   3.95 %   4.39 %   5.46 %
Classified loans to total risk-based capital   7.49 %   7.16 %   7.69 %   10.51 %   11.08 %
Loans past due to total end of period loans   0.25 %   0.31 %   0.49 %   0.44 %   1.12 %
Loans over 89 days past due to total end of period loans   0.11 %   0.12 %   0.13 %   0.14 %   0.23 %
Non-performing assets to total loans and OREO   0.18 %   0.20 %   0.22 %   0.30 %   0.28 %
Allowance for loan losses plus fair value marks / Non-PPP Loans   1.27 %   1.41 %   1.47 %   1.60 %   1.58 %
Allowance for loan losses to non-performing loans   666 %   657 %   571 %   446 %   483 %
                               

Income Tax Expense

The Company’s fourth quarter effective income tax rate increased to approximately 22.5% compared to 19.4% for the prior quarter ended September 30, 2021. The Company's 2021 effective tax rate was 21.0 percent, a 1.0 percent increase from the forecasted rate due primarily to an increase in taxable income for the full year when compared to the previous interim estimate.

Capital

The Company continues to be well capitalized with tangible equity of $332.3 million at December 31, 2021. Tangible book value per share of common stock for the quarter ended December 31, 2021 increased to $14.99 compared to $14.53 and $13.36 for the quarters ended September 30, 2021 and December 31, 2020, respectively. The regulatory capital ratios in the table below are significantly above levels required to be considered “well capitalized," which is the highest possible regulatory designation.

Capital ratios:   12/31/21   9/30/21   6/30/21   3/31/21   12/31/20
Total risk-based capital   16.29 %   16.23 %   16.13 %   16.29 %   16.03 %
Common equity tier 1 capital   14.11 %   13.95 %   13.78 %   13.79 %   13.52 %
Leverage   10.69 %   10.28 %   10.17 %   9.78 %   9.60 %
                               

In the fourth quarter of 2021, the Company did not repurchase common stock under its share repurchase program; however, on January 27, 2022, the Board of Directors of the Company renewed a common stock share repurchase up to $30 million. The Plan will terminate on the earlier of the date on which the maximum authorized dollar amount of shares of common stock has been repurchased or January 31, 2023.

Dividend

On January 27, 2022, the Board of Directors of the Company approved a quarterly dividend of $0.06 per common share payable on February 23, 2022 to shareholders of record of CapStar’s common stock as of the close of business on February 9, 2022.

Conference Call and Webcast Information

CapStar will host a conference call and webcast at 9:00 a.m. Central Time on Friday, January 28, 2022. 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 2095058. 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 December 31, 2021, on a consolidated basis, CapStar had total assets of $3.1 billion, total loans of $2.0 billion, total deposits of $2.7 billion, and shareholders’ equity of $380.1 million. Visit www.capstarbank.com for more information.

NON-GAAP MEASURES

This release includes financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). This financial information includes certain operating performance measures, which exclude merger-related and other charges that are not considered part of recurring operations. Such measures include: “Efficiency ratio – operating,” “Expenses – operating,” “Earnings per share – operating,” “Diluted earnings per share – operating,” “Tangible book value per share,” “Return on common equity – operating,” “Return on tangible common equity – operating,” “Return on assets – operating,” and “Tangible common equity to tangible assets.”

Management has included these non-GAAP measures because it believes these measures may provide useful supplemental information for evaluating CapStar’s underlying performance trends. Further, management uses these measures in managing and evaluating CapStar’s business and intends to refer to them in discussions about our operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the ‘Non-GAAP Reconciliation Tables’ included in the exhibits to this presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Income (unaudited) (dollars in thousands, except share data)
Fourth quarter 2021 Earnings Release

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2021     2020     2021     2020  
Interest income:                        
Loans, including fees   $ 22,284     $ 22,653     $ 89,219     $ 84,272  
Securities:                        
Taxable     1,682       1,412       6,573       4,863  
Tax-exempt     335       354       1,408       1,342  
Federal funds sold     9             21        
Restricted equity securities     157       155       640       576  
Interest-bearing deposits in financial institutions     192       158       598       799  
Total interest income     24,659       24,732       98,459       91,852  
Interest expense:                        
Interest-bearing deposits     410       497       1,626       3,868  
Savings and money market accounts     307       377       1,203       5,196  
Time deposits     556       1,121       2,873       5,317  
Federal Home Loan Bank advances           8       12       356  
Subordinated notes     394       398       1,575       792  
Total interest expense     1,667       2,401       7,289       15,529  
Net interest income     22,992       22,331       91,170       76,323  
Provision for loan losses     (651 )     184       (1,066 )     11,479  
Net interest income after provision for loan losses     23,643       22,147       92,236       64,844  
Noninterest income:                        
Deposit service charges     1,117       964       4,515       3,494  
Interchange and debit card transaction fees     1,261       782       4,816       3,172  
Mortgage banking income     2,740       5,971       16,058       25,034  
Tri-Net     3,996       1,165       8,613       3,693  
Wealth management     438       411       1,850       1,573  
SBA lending     279       916       2,060       1,440  
Net gain on sale of securities     8       51       28       125  
Other noninterest income     1,295       1,488       4,741       4,717  
Total noninterest income     11,134       11,748       42,681       43,248  
Noninterest expense:                        
Salaries and employee benefits     10,549       11,996       41,758       45,252  
Data processing and software     2,719       2,548       11,248       8,865  
Occupancy     1,012       975       4,205       3,590  
Equipment     867       900       3,507       3,195  
Professional services     521       370       2,155       2,224  
Regulatory fees     284       368       1,031       1,261  
Acquisition related expenses           2,105       323       5,390  
Amortization of intangibles     461       524       1,939       1,824  
Other operating     2,269       1,692       7,375       5,760  
Total noninterest expense     18,682       21,478       73,541       77,361  
Income before income taxes     16,095       12,417       61,376       30,731  
Income tax expense     3,625       2,736       12,699       6,035  
Net income   $ 12,470     $ 9,681     $ 48,677     $ 24,696  
Per share information:                        
Basic net income per share of common stock   $ 0.56     $ 0.44     $ 2.20     $ 1.22  
Diluted net income per share of common stock   $ 0.56     $ 0.44     $ 2.19     $ 1.22  
Weighted average shares outstanding:                        
Basic     22,166,410       21,960,184       22,127,919       20,162,038  
Diluted     22,221,989       21,978,925       22,179,461       20,185,589  
                                 

This information is preliminary and based on CapStar data available at the time of this earnings release.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)
Fourth quarter 2021 Earnings Release

    Five Quarter Comparison  
    12/31/21     9/30/21     6/30/21     3/31/21     12/31/20  
Income Statement Data:                              
Net interest income   $ 22,992     $ 22,964     $ 23,032     $ 22,182     $ 22,331  
Provision for loan losses     (651 )           (1,065 )     650       184  
Net interest income after provision for loan losses     23,643       22,964       24,097       21,532       22,147  
Deposit service charges     1,117       1,187       1,109       1,102       964  
Interchange and debit card transaction fees     1,261       1,236       1,227       1,092       782  
Mortgage banking     2,740       4,693       3,910       4,716       5,971  
Tri-Net     3,996       1,939       1,536       1,143       1,165  
Wealth management     438       481       471       459       411  
SBA lending     279       911       377       492       916  
Net gain (loss) on sale of securities     8       7       (13 )     26       51  
Other noninterest income     1,295       1,197       1,266       984       1,488  
Total noninterest income     11,134       11,651       9,883       10,014       11,748  
Salaries and employee benefits     10,549       10,980       10,803       9,427       11,996  
Data processing and software     2,719       2,632       3,070       2,827       2,548  
Occupancy     1,012       1,028       1,057       1,108       975  
Equipment     867       760       980       899       900  
Professional services     521       469       460       704       370  
Regulatory fees     284       279       211       257       368  
Acquisition related expenses                 256       67       2,105  
Amortization of intangibles     461       477       493       508       524  
Other operating     2,269       1,741       1,750       1,616       1,692  
Total noninterest expense     18,682       18,366       19,080       17,413       21,478  
Net income before income tax expense     16,095       16,249       14,900       14,133       12,417  
Income tax expense     3,625       3,147       2,824       3,103       2,736  
Net income   $ 12,470     $ 13,102     $ 12,076     $ 11,030     $ 9,681  
Weighted average shares - basic     22,166,410       22,164,278       22,133,759       22,045,501       21,960,184  
Weighted average shares - diluted     22,221,989       22,218,402       22,198,829       22,076,600       21,978,925  
Net income per share, basic   $ 0.56     $ 0.59     $ 0.55     $ 0.50     $ 0.44  
Net income per share, diluted     0.56       0.59       0.54       0.50       0.44  
Balance Sheet Data (at period end):                              
Cash and cash equivalents   $ 415,125     $ 359,267     $ 449,267     $ 390,565     $ 277,439  
Securities available-for-sale     459,396       483,778       500,339       474,788       486,215  
Securities held-to-maturity     1,782       1,788       2,395       2,401       2,407  
Loans held for sale     83,715       176,488       158,234       171,660       186,998  
Loans held for investment     1,965,769       1,894,249       1,897,838       1,931,687       1,883,690  
Allowance for loan losses     (21,698 )     (22,533 )     (22,754 )     (23,877 )     (23,245 )
Total assets     3,133,046       3,112,127       3,212,390       3,150,457       2,987,006  
Non-interest-bearing deposits     725,171       718,299       782,170       711,606       662,934  
Interest-bearing deposits     1,959,110       1,956,093       1,998,024       2,039,595       1,905,067  
Federal Home Loan Bank advances and borrowings     29,532       29,499       29,487       29,455       39,423  
Total liabilities     2,752,952       2,741,799       2,852,639       2,806,513       2,643,520  
Shareholders' equity   $ 380,094     $ 370,328     $ 359,752     $ 343,944     $ 343,486  
Total shares of common stock outstanding     22,166,129       22,165,760       22,165,547       22,089,873       21,988,803  
Book value per share of common stock   $ 17.15     $ 16.71     $ 16.23     $ 15.57     $ 15.62  
Tangible book value per share of common stock *     14.99       14.53       14.03       13.34       13.36  
Market value per common share     21.03       21.24       20.50       17.25       14.75  
Capital ratios:                              
Total risk based capital     16.29 %     16.23 %     16.13 %     16.29 %     16.03 %
Tier 1 risk based capital     14.11 %     13.95 %     13.78 %     13.79 %     13.52 %
Common equity tier 1 capital     14.11 %     13.95 %     13.78 %     13.79 %     13.52 %
Leverage     10.69 %     10.28 %     10.17 %     9.78 %     9.60 %
                                         

_____________________
*This metric is a non-GAAP financial measure. See Non-GAAP disclaimer in this earnings release and below for discussion and reconciliation to the most directly comparable GAAP financial measure.
This information is preliminary and based on CapStar data available at the time of this earnings release.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)
Fourth quarter 2021 Earnings Release

    Five Quarter Comparison  
    12/31/21     9/30/21     6/30/21     3/31/21     12/31/20  
Average Balance Sheet Data:                              
Cash and cash equivalents   $ 470,963     $ 411,101     $ 301,773     $ 341,092     $ 427,086  
Investment securities     491,135       515,877       508,595       496,035       407,622  
Loans held for sale     123,962       173,402       147,912       164,867       171,517  
Loans held for investment     1,888,094       1,884,935       1,938,818       1,929,343       1,885,126  
Assets     3,159,308       3,171,182       3,078,748       3,078,745       3,028,225  
Interest-bearing deposits     1,964,641       1,980,304       1,940,442       1,986,621       1,909,692  
Deposits     2,713,314       2,732,165       2,662,192       2,663,551       2,613,080  
Federal Home Loan Bank advances and other borrowings     29,514       29,495       29,467       33,879       39,428  
Liabilities     2,781,951       2,803,375       2,719,898       2,728,064       2,687,516  
Shareholders' equity   $ 377,357     $ 367,807     $ 358,850     $ 350,681     $ 340,709  
Performance Ratios:                              
Annualized return on average assets     1.57 %     1.64 %     1.57 %     1.45 %     1.27 %
Annualized return on average equity     13.11 %     14.13 %     13.50 %     12.76 %     11.30 %
Net interest margin (1)     3.14 %     3.12 %     3.26 %     3.13 %     3.12 %
Annualized noninterest income to average assets     1.40 %     1.46 %     1.29 %     1.32 %     1.54 %
Efficiency ratio     54.74 %     53.06 %     57.97 %     54.08 %     63.02 %
Loans by Type (at period end):                              
Commercial and industrial   $ 497,615     $ 478,279     $ 536,279     $ 609,896     $ 623,446  
Commercial real estate - owner occupied     209,261       193,139       200,725       197,758       162,603  
Commercial real estate - non-owner occupied     616,023       579,857       538,520       505,252       481,229  
Construction and development     214,310       210,516       198,448       170,965       174,859  
Consumer real estate     326,412       328,262       331,580       336,496       343,791  
Consumer     46,811       45,669       45,898       45,481       44,279  
Other     55,337       58,527       46,387       65,839       53,483  
Asset Quality Data:                              
Allowance for loan losses to total loans     1.10 %     1.19 %     1.20 %     1.24 %     1.23 %
Allowance for loan losses to non-performing loans     666 %     657 %     571 %     446 %     483 %
Nonaccrual loans     3,258       3,431       3,985       5,355       4,817  
Troubled debt restructurings     1,832       1,859       1,895       1,914       1,928  
Loans - over 89 days past due     2,120       2,333       2,389       2,720       4,367  
Total non-performing loans     3,258       3,431       3,985       5,355       4,817  
OREO and repossessed assets     266       349       184       523       523  
Total non-performing assets   $ 3,524     $ 3,780     $ 4,169     $ 5,878     $ 5,340  
Non-performing loans to total loans     0.17 %     0.18 %     0.21 %     0.28 %     0.26 %
Non-performing assets to total assets     0.11 %     0.12 %     0.13 %     0.19 %     0.18 %
Non-performing assets to total loans and OREO     0.18 %     0.20 %     0.22 %     0.30 %     0.28 %
Annualized net charge-offs to average loans     0.04 %     0.05 %     0.01 %     0.00 %     0.02 %
Net charge-offs   $ 184     $ 221     $ 59     $ 18     $ 106  
Interest Rates and Yields:                              
Loans     4.47 %     4.41 %     4.43 %     4.36 %     4.50 %
Securities (1)     1.84 %     1.75 %     1.77 %     1.80 %     1.98 %
Total interest-earning assets (1)     3.36 %     3.35 %     3.51 %     3.42 %     3.45 %
Deposits     0.19 %     0.19 %     0.21 %     0.26 %     0.30 %
Borrowings and repurchase agreements     5.29 %     5.30 %     5.36 %     4.85 %     4.09 %
Total interest-bearing liabilities     0.33 %     0.34 %     0.37 %     0.42 %     0.49 %
Other Information:                              
Full-time equivalent employees     397       392       383       379       380  
                                         

_____________________

This information is preliminary and based on CapStar data available at the time of this earnings release.

(1)   Net Interest Margin, Securities yields, and Total interest-earning asset yields are calculated on a tax-equivalent basis.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Analysis of Interest Income and Expense, Rates and Yields (unaudited) (dollars in thousands)
Fourth quarter 2021 Earnings Release

    For the Three Months Ended December 31,  
    2021   2020
    Average
Outstanding
Balance
    Interest
Income/
Expense
    Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Income/
Expense
    Average
Yield/
Rate
 
Interest-Earning Assets                                    
Loans held for investment (1)   $ 1,888,094     $ 21,291       4.47 %   $ 1,885,126     $ 21,305       4.50 %
Loans held for sale     123,962       993       3.18 %     171,517       1,348       3.13 %
Securities:                                    
Taxable investment securities (2)     432,165       1,839       1.70 %     350,644       1,567       1.79 %
Investment securities exempt from federal income tax (3)     58,970       335       2.88 %     56,978       354       3.14 %
Total securities     491,135       2,174       1.84 %     407,622       1,921       1.98 %
Cash balances in other banks     397,381       192       0.19 %     394,831       158       0.16 %
Funds sold     19,906       9                          
Total interest-earning assets     2,920,478       24,659       3.36 %     2,859,096       24,732       3.45 %
Noninterest-earning assets     238,830                   169,129              
Total assets   $ 3,159,308                 $ 3,028,225              
Interest-Bearing Liabilities                                    
Interest-bearing deposits:                                    
Interest-bearing transaction accounts   $ 964,932       410       0.17 %   $ 828,740       497       0.24 %
Savings and money market deposits     616,610       307       0.20 %     593,236       377       0.25 %
Time deposits     383,099       556       0.58 %     487,716       1,121       0.91 %
Total interest-bearing deposits     1,964,641       1,273       0.26 %     1,909,692       1,995       0.42 %
Borrowings and repurchase agreements     29,514       394       5.29 %     39,428       406       4.09 %
Total interest-bearing liabilities     1,994,155       1,667       0.33 %     1,949,120       2,401       0.49 %
Noninterest-bearing deposits     748,673                   703,388              
Total funding sources     2,742,828                   2,652,508              
Noninterest-bearing liabilities     39,123                   35,008              
Shareholders’ equity     377,357                   340,709              
Total liabilities and shareholders’ equity   $ 3,159,308                 $ 3,028,225              
Net interest spread (4)                 3.03 %                 2.96 %
Net interest income/margin (5)         $ 22,992       3.14 %         $ 22,331       3.12 %
                                             

_____________________

(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)   Yields on tax exempt securities, total securities, and total interest-earning assets are shown 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 annualized net interest income calculated on a tax equivalent basis divided by total average interest-earning assets for the period.

This information is preliminary and based on CapStar data available at the time of this earnings release.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Non-GAAP Financial Measures (unaudited) (dollars in thousands except share data)
Fourth quarter 2021 Earnings Release

    Five Quarter Comparison  
    12/31/21     9/30/21     6/30/21     3/31/21     12/31/20  
Operating net income:                              
Net income   $ 12,470     $ 13,102     $ 12,076     $ 11,030     $ 9,681  
Add: acquisition related expenses                 256       67       2,105  
Less: income tax impact of acquisition related expenses                 (67 )     (18 )     (550 )
Operating net income   $ 12,470     $ 13,102     $ 12,265     $ 11,079     $ 11,236  
                               
Operating diluted net income per share of common stock:                              
Operating net income   $ 12,470     $ 13,102     $ 12,265     $ 11,079     $ 11,236  
Weighted average shares - diluted     22,221,989       22,218,402       22,198,829       22,076,600       21,978,925  
Operating diluted net income per share of common stock   $ 0.56     $ 0.59     $ 0.55     $ 0.50     $ 0.51  
                               
Operating annualized return on average assets:                              
Operating net income   $ 12,470     $ 13,102     $ 12,265     $ 11,079     $ 11,236  
Average assets   $ 3,159,308     $ 3,171,182     $ 3,078,748     $ 3,078,745     $ 3,028,225  
Operating annualized return on average assets     1.57 %     1.64 %     1.60 %     1.46 %     1.48 %
                               
Operating annualized return on average tangible equity:                              
Average total shareholders' equity   $ 377,357     $ 367,807     $ 358,850     $ 350,681     $ 340,709  
Less: average intangible assets     (48,054 )     (48,527 )     (49,012 )     (49,514 )     (50,038 )
Average tangible equity     329,303       319,280       309,838       301,167       290,671  
Operating net income   $ 12,470     $ 13,102     $ 12,265     $ 11,079     $ 11,236  
Operating annualized return on average tangible equity     15.02 %     16.28 %     15.88 %     14.92 %     15.38 %
                               
Operating efficiency ratio:                              
Total noninterest expense   $ 18,682     $ 18,366     $ 19,080     $ 17,413     $ 21,478  
Less: acquisition related expenses                 (256 )     (67 )     (2,105 )
Total operating noninterest expense     18,682       18,366       18,824       17,346       19,373  
Net interest income     22,992       22,964       23,032       22,182       22,331  
Total noninterest income     11,134       11,651       9,883       10,014       11,748  
Total revenues   $ 34,126     $ 34,615     $ 32,915     $ 32,196     $ 34,079  
Operating efficiency ratio:     54.74 %     53.06 %     57.19 %     53.88 %     56.85 %
                               
Operating annualized pre-tax pre-provision income to average assets:                              
Income before income taxes   $ 16,095     $ 16,249     $ 14,900     $ 14,133     $ 12,417  
Add: acquisition related expenses                 256       67       2,105  
Add: provision for loan losses     (651 )           (1,065 )     650       184  
Operating pre-tax pre-provision income     15,444       16,249       14,091       14,850       14,706  
Average assets   $ 3,159,308     $ 3,171,182     $ 3,078,748     $ 3,078,745     $ 3,028,225  
Operating annualized pre-tax pre-provision income to average assets:     1.94 %     2.03 %     1.84 %     1.96 %     1.93 %
                               
Tangible Equity:                              
Total shareholders' equity   $ 380,094     $ 370,328     $ 359,752     $ 343,944     $ 343,486  
Less: intangible assets     (47,759 )     (48,220 )     (48,697 )     (49,190 )     (49,698 )
Tangible equity   $ 332,335     $ 322,108     $ 311,055     $ 294,754     $ 293,788  
                               
Tangible Book Value per Share of Common Stock:                              
Tangible common equity   $ 332,335     $ 322,108     $ 311,055     $ 294,754     $ 293,788  
Total shares of common stock outstanding     22,166,129       22,165,760       22,165,547       22,089,873       21,988,803  
Tangible book value per share of common stock   $ 14.99     $ 14.53     $ 14.03     $ 13.34     $ 13.36  
                                         

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Non-GAAP Financial Measures (unaudited) (dollars in thousands except share data)
Fourth quarter 2021 Earnings Release

    Year Ended  
    December 31, 2021     December 31, 2020  
Operating net income:            
Net income   $ 48,677     $ 24,696  
Add: acquisition related expenses     323       5,390  
Less: income tax impact of acquisition related expenses     (84 )     (1,409 )
Operating net income   $ 48,916     $ 28,677  
             
Operating diluted net income per share of common stock:            
Operating net income   $ 48,916     $ 28,677  
Weighted average shares - diluted     22,179,461       20,185,589  
Operating diluted net income per share of common stock   $ 2.21     $ 1.42  
             
Operating return on average assets:            
Operating net income   $ 48,916     $ 28,677  
Average assets   $ 3,122,351     $ 2,622,635  
Operating return on average assets     1.57 %     1.09 %
             
Operating return on average tangible equity:            
Average total shareholders' equity   $ 363,759     $ 305,748  
Less: average intangible assets     (48,772 )     (47,202 )
Average tangible equity     314,987       258,546  
Operating net income   $ 48,916     $ 28,677  
Operating return on average tangible equity     15.53 %     11.09 %
             
Operating efficiency ratio:            
Total noninterest expense   $ 73,541     $ 77,361  
Less: merger related expenses     (323 )     (5,390 )
Total operating noninterest expense     73,218       71,971  
Net interest income     91,170       76,323  
Total noninterest income     42,681       43,248  
Total revenues   $ 133,851     $ 119,571  
Operating efficiency ratio:     54.70 %     60.19 %
                 

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Non-GAAP Financial Measures (unaudited) (dollars in thousands except share data)
Fourth quarter 2021 Earnings Release

    Five Quarter Comparison  
    12/31/21     9/30/21     6/30/21     3/31/21     12/31/20  
Net interest income   $ 22,992     $ 22,964     $ 23,032     $ 22,182     $ 22,331  
Less: PPP loan income     (1,691 )     (1,897 )     (2,686 )     (2,260 )     (2,184 )
Less: Excess liquidity interest income     (479 )     (545 )     (545 )     (504 )     (300 )
Adjusted net interest income     20,822       20,522       19,801       19,418       19,847  
                               
Average interest earning assets     2,920,478       2,931,134       2,848,857       2,889,119       2,859,096  
Less: Average PPP loans     (42,055 )     (95,257 )     (173,733 )     (204,459 )     (204,918 )
Less: Excess liquidity     (447,548 )     (411,926 )     (301,325 )     (334,109 )     (341,654 )
Adjusted interest earning assets     2,430,875       2,423,951       2,373,799       2,350,551       2,312,524  
                               
Net interest margin (1)     3.14 %     3.12 %     3.26 %     3.13 %     3.12 %
Adjusted Net interest margin (1)     3.40 %     3.36 %     3.36 %     3.35 %     3.41 %


    Five Quarter Comparison  
    12/31/21     9/30/21     6/30/21     3/31/21     12/31/20  
Allowance for loan losses   $ 21,698     $ 22,533     $ 22,754     $ 23,877     $ 23,245  
Purchase accounting marks     3,003       3,288       3,533       3,615       3,663  
Allowance for loan losses and purchase accounting fair value marks     24,701       25,821       26,287       27,492       26,908  
                               
Loans held for investment     1,965,769       1,894,249       1,897,838       1,931,687       1,883,690  
Less: PPP Loans net of deferred fees     26,539       64,188       109,940       210,810       181,601  
Non-PPP Loans     1,939,230       1,830,061       1,787,898       1,720,877       1,702,089  
                               
Allowance for loan losses plus fair value marks / Non-PPP Loans     1.27 %     1.41 %     1.47 %     1.60 %     1.58 %
                                         

_____________________

(1)   Net interest margin and adjusted net interest margin are shown on a tax equivalent basis.

CONTACT

Denis J. Duncan
Chief Financial Officer
(615) 732-7492


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Source: CapStar Financial Holdings, Inc.

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