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CapStar Reports Second Quarter 2021 Results

NASHVILLE, Tenn., July 22, 2021 (GLOBE NEWSWIRE) -- CapStar Financial Holdings, Inc. (“CapStar”) (NASDAQ:CSTR) today reported net income of $12.1 million or $0.54 per diluted share, for the quarter ended June 30, 2021, compared with net income of $11.0 million or $0.50 per diluted share, for the quarter ended March 31, 2021, and net income of $6.2 million or $0.34 per diluted share, for the quarter ended June 30, 2020. Annualized return on average assets and return on average equity for the quarter ended June 30, 2021 were 1.57 percent and 13.50 percent, respectively. Second quarter 2021 noninterest expense included $256,000 in acquisition related costs.

For the six months ended June 30, 2021, the Company reported net income of $23.1 million or $1.04 per diluted share, compared with $7.5 million or $0.41 per diluted share, for the same period of 2020. Year to date 2021 annualized return on average assets and return on average equity were 1.51 percent and 13.13 percent, respectively. Year to date 2021 noninterest expense included $323,000 in acquisition related costs.

Four Key Drivers   Targets   2Q21   1Q21   2Q20
Annualized revenue growth   > 5%   8.96%   -22.41%   106.43%
Net interest margin   ≥ 3.60%   3.26%   3.13%   3.23%
Efficiency ratio   ≤ 55%   57.97%   54.08%   66.44%
Annualized net charge-offs to average loans   ≤ 0.25%   0.01%   0.00%   0.18%

“Our second quarter results reflect strong, profitable growth resulting from the hard work of our dedicated employees.  As we continue to execute on our strategic plan, we are enhancing profitability and accelerating in-market revenue growth while maintaining outstanding credit quality and customer service,” said Timothy K. Schools, President and Chief Executive Officer of CapStar. “The highlights of the second quarter include record noninterest bearing and total deposit balances; loan production, loan balances, and loan pipeline; earnings per share; book value per share; stock price; and market capitalization. Additionally, our criticized and classified loans as a percentage of total loans and classified loans to total risk-based capital ratios are returning to more traditional pre-pandemic levels. Our results benefited from increased PPP forgiveness and while these earnings are temporary in nature, they represent the tremendous effort and customer service provided by our teammates during the pandemic and are reflective of the Company’s capabilities. Looking forward, we are excited and optimistic about the many opportunities we have to expand our highly responsive and customer centric banking model across Tennessee, cited in a recent CNBC study as having our nation’s second best economy and as the fifth best place for business among all fifty states. With four Tennessee-based, $1 billion and greater financial institutions being acquired within our markets over the past twelve months, CapStar is poised to become one of Tennessee’s leading locally-based banks.”

Revenue

Total revenue, defined as net interest income plus noninterest income, increased $0.7 million to $32.9 million from the prior quarter. Net interest income totaled $23.0 million, an increase of $0.9 million compared to the first quarter of 2021, principally from income related to increased forgiveness of PPP loans. Second quarter 2021 noninterest income totaled $9.9 million, a decline of $131,000 from the prior quarter.

Second quarter 2021 average earning assets of $2.85 billion remained essentially unchanged from first quarter 2021, as strong growth in loans held for investment offset declines in low-yielding interest earning cash and PPP balances. Average loans held for investment, excluding PPP balances, increased $40.8 million from the prior quarter, or 9.4 percent linked-quarter annualized. Loan growth accelerated during the second quarter of 2021 with end of period loans held for investment, excluding PPP balances, increasing $67.6 million, or 15.7 percent linked-quarter annualized. Due to a significant increase in deposits over the past year, average loans as a percentage of average earning assets was 68.4 percent for second quarter 2021. The Company’s commercial loan pipeline is at a record level, approaching $500 million, comprised principally of CapStar-led Tennessee-based loans, presenting the Company a tremendous opportunity to utilize current excess liquidity and capital to grow revenue and net income.

The Company’s net interest margin continues to be positively and negatively impacted from the effects of the recent pandemic. For the second quarter of 2021, the net interest margin increased 13 basis points from the prior quarter to 3.26 percent. The Company's net interest margin continues to be impacted by revenues related to PPP loans, as well as significant growth in deposit balances over the past year. Adjusting for the influence of PPP and excess deposits, the Company estimates its second quarter 2021 net interest margin was 3.36 percent, an increase of 1 basis point compared to the first quarter of 2021. 

Within the adjusted net interest margin, the Company continued to experience favorable deposit trends. Average deposits totaled $2.66 billion in the second quarter of 2021, unchanged from the prior quarter. The Company experienced a favorable mix shift as average interest-bearing deposits declined $46.2 million, led by a $34.2 million reduction in higher cost time deposits. While 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 two lowest cost deposit categories, noninterest bearing and savings, increased $55.8 million on average from the prior quarter, or 27.8 percent linked-quarter annualized. Deposit costs declined across all interest-bearing account types leading to a 6 basis point decline to 0.29 percent. Combined with the favorable shift in noninterest bearing deposits, total deposit costs improved 5 basis points to 0.21 percent.

Noninterest income during the quarter benefitted from record interchange and debit card transaction fees, Tri-Net revenues, wealth management revenues, as well as continued strength in SBA revenues. While mortgage revenues declined from record levels, they remain high relative to past performance, and the Company strengthened its position during the quarter by hiring one of Nashville’s leading mortgage loan originators.

Noninterest Expense and Operating Efficiency

Noninterest expenses increased $1.7 million from the first quarter of 2021 to $19.1 million in the second quarter of 2021. Second quarter 2021 noninterest expense included approximately $3.0 million associated with the Company's 2021 incentive plan. Given the Company's performance in the first two quarters of 2021 and the outlook for the remainder of the year, the incentive accrual was increased $1.5 million in anticipation of reaching maximum payout. Data processing fees increased approximately $1 million for the quarter ended June 30, 2021 compared to the same period in 2020 due to increased transaction volumes related to the Company's recent acquisitions and services related to the processing of PPP loans. As noted above, second quarter 2021 noninterest expense included $256,000 in acquisition related costs.

Efficiency is a key focus and the Company uses three metrics to monitor its performance relative to peers: efficiency ratio (noninterest expense as a percentage of total revenue), noninterest expense as a percentage of assets, and assets per employee. For the quarter ended June 30, 2021, the efficiency ratio was 57.97 percent, an increase from 54.08 percent in the first quarter of 2021. Annualized noninterest expense as a percentage of average assets increased to 2.49 percent for the quarter ended June 30, 2021 compared to 2.29 percent for the quarter ended March 31, 2021. Assets per employee improved to $8.4 million as of June 30, 2021 compared to $8.3 million for the previous quarter.

Asset Quality

Asset quality is a core tenant of the Company’s culture. Sound risk management and an improving economy led to low net charge-offs and strong credit metrics. Annualized net charge offs to average loans for the three months ended June 30, 2021 remained low at 0.01 percent. Past due loans as a percentage of total loans held for investment were 0.49 percent at June 30, 2021, compared to 0.43 percent at March 31, 2021. Within this amount, loans greater than 90 days past due totaled $2.4 million, or 0.13 percent of loans held for investment at June 30, 2021, compared to 0.14 percent at March 31, 2021. Non-performing assets to total loans and OREO were 0.22 percent at June 30, 2021, an improvement from 0.30 percent at March 31, 2021. Criticized and classified loans to total loans, which elevated during the pandemic, continued to improve and were 3.93 percent at June 30, 2021.

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 second quarter, the allowance for loan losses declined $1.1 million. As a result, the allowance for loan losses plus the fair value mark on acquired loans to total loans, less PPP loans, declined 13 basis points to 1.46 percent at June 30, 2021 from 1.59 percent at March 31, 2021

Asset Quality Data:   6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Annualized net charge-offs (recoveries) to average loans     0.01 %     0.00 %     0.02 %     0.00 %     0.18 %
Criticized and classified loans to total loans     3.93 %     4.37 %     5.44 %     5.61 %     4.25 %
Classified loans to total risk-based capital     7.69 %     10.51 %     11.08 %     11.43 %     8.88 %
Loans- past due to total end of period loans     0.49 %     0.43 %     1.12 %     0.44 %     0.32 %
Loans- over 89 days past due to total end of period loans     0.13 %     0.14 %     0.23 %     0.09 %     0.09 %
Non-performing assets to total loans and OREO     0.22 %     0.30 %     0.28 %     0.16 %     0.20 %
Allowance for loan losses plus fair value marks / Non-PPP Loans     1.46 %     1.59 %     1.57 %     1.61 %     1.73 %
Allowance for loan losses to non-performing loans     571 %     446 %     483 %     787 %     705 %

Income Tax Expense

The Company’s effective income tax rate for the second quarter of 2021 was 19.0 percent, a decline from 22.0. percent in the prior quarter ended March 31, 2021. The decrease was primarily attributable to adjustments to the tax provision related to changes in tax strategy and updated expected results for the year. The Company anticipates its effective tax rate for 2021 to be approximately 21.0 percent.

Capital

The Company continues to be strongly capitalized with tangible equity of $311.1 million at June 30, 2021. Tangible book value per share of common stock for the quarter ended June 30, 2021 increased to $14.03 compared to $13.34 and $13.02 for the quarters ended March 31, 2021 and June 30, 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:   6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Total risk-based capital     16.13 %     16.29 %     16.03 %     15.96 %     16.76 %
Common equity tier 1 capital     13.78 %     13.79 %     13.52 %     13.39 %     13.76 %
Leverage     10.17 %     9.78 %     9.60 %     9.23 %     10.08 %

In the second quarter of 2021, the Company did not repurchase common stock under its share repurchase program. The total remaining authorization for future repurchases was $29.7 million as of June 30, 2021

Dividend

On July 22, 2021, the Board of Directors of CapStar approved a quarterly cash dividend of $0.06 per common share payable on August 25, 2021 to shareholders of record as of August 11, 2021.

Conference Call and Webcast Information

CapStar will host a conference call and webcast at 9:00 a.m. Central Time on Friday, July 23, 2021. During the call, management will review the second quarter results and operational highlights. Interested parties may listen to the call by dialing (844) 412-1002. The conference ID number is 2976541. A simultaneous webcast may be accessed on CapStar’s website at ir.capstarbank.com by clicking on “News & Events.” An archived version of the webcast will be available in the same location shortly after the live call has ended.

About CapStar Financial Holdings, Inc. 

CapStar Financial Holdings, Inc. is a bank holding company headquartered in Nashville, Tennessee and operates primarily through its wholly owned subsidiary, CapStar Bank, a Tennessee-chartered state bank. CapStar Bank is a commercial bank that seeks to establish and maintain comprehensive relationships with its clients by delivering customized and creative banking solutions and superior client service. As of June 30, 2021, on a consolidated basis, CapStar had total assets of $3.2 billion, total loans of $1.9 billion, total deposits of $2.8 billion, and shareholders’ equity of $359.8 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)
Second quarter 2021 Earnings Release

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
Interest income:                        
Loans, including fees   $ 22,572     $ 19,086     $ 44,586     $ 38,823  
Securities:                        
Taxable     1,640       1,096       3,244       2,272  
Tax-exempt     356       312       722       633  
Federal funds sold     3             3        
Restricted equity securities     160       140       321       282  
Interest-bearing deposits in financial institutions     101       107       234       469  
   Total interest income     24,832       20,741       49,110       42,479  
Interest expense:                        
Interest-bearing deposits     379       831       826       2,732  
Savings and money market accounts     295       731       608       2,283  
Time deposits     732       1,416       1,663       2,897  
Federal funds purchased                        
Securities sold under agreements to repurchase                        
Federal Home Loan Bank advances           88       12       231  
Subordinated notes     394             788        
Total interest expense     1,800       3,066       3,897       8,143  
Net interest income     23,032       17,675       45,213       34,336  
Provision for loan losses     (1,065 )     1,624       (415 )     9,177  
Net interest income after provision for loan losses     24,097       16,051       45,628       25,159  
Noninterest income:                        
Deposit service charges     1,109       691       2,211       1,466  
Interchange and debit card transaction fees     1,227       729       2,318       1,454  
Mortgage banking     3,910       7,123       8,625       9,376  
Tri-Net     1,536       1,260       2,679       1,860  
Wealth management     471       374       931       781  
SBA lending     377       13       870       49  
Net gain (loss) on sale of securities     (13 )     13       13       40  
Other noninterest income     1,266       620       2,250       1,671  
 Total noninterest income     9,883       10,823       19,897       16,697  
Noninterest expense:                        
Salaries and employee benefits     10,803       12,305       20,229       20,307  
Data processing and software     3,070       2,100       5,898       3,964  
Occupancy     1,057       797       2,165       1,616  
Equipment     980       680       1,880       1,431  
Professional services     460       581       1,165       1,216  
Regulatory fees     211       333       467       496  
Acquisition related expenses     256       448       323       738  
Amortization of intangibles     493       375       1,001       761  
Other operating     1,750       1,315       3,364       2,616  
 Total noninterest expense     19,080       18,934       36,492       33,145  
 Income before income taxes     14,900       7,940       29,033       8,711  
Income tax expense     2,824       1,759       5,927       1,184  
 Net income   $ 12,076     $ 6,181     $ 23,106     $ 7,527  
Per share information:                        
Basic net income per share of common stock   $ 0.55     $ 0.34     $ 1.05     $ 0.41  
Diluted net income per share of common stock   $ 0.54     $ 0.34     $ 1.04     $ 0.41  
Weighted average shares outstanding:                        
Basic     22,133,759       18,307,083       22,089,874       18,349,998  
Diluted     22,198,829       18,320,006       22,138,052       18,381,866  

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)
Second quarter 2021 Earnings Release

    Five Quarter Comparison  
    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Income Statement Data:                              
Net interest income   $ 23,032     $ 22,182     $ 22,331     $ 19,656     $ 17,675  
Provision for loan losses     (1,065 )     650       184       2,119       1,624  
Net interest income after provision for loan losses     24,097       21,532       22,147       17,537       16,051  
Deposit service charges     1,109       1,102       964       1,064       691  
Interchange and debit card transaction fees     1,227       1,092       782       936       729  
Mortgage banking     3,910       4,716       5,971       9,686       7,123  
Tri-Net     1,536       1,143       1,165       668       1,260  
Wealth management     471       459       411       382       374  
SBA lending     377       492       916       476       13  
Net gain on sale of securities     (13 )     26       51       34       13  
Other noninterest income     1,266       984       1,488       1,558       620  
Total noninterest income     9,883       10,014       11,748       14,804       10,823  
Salaries and employee benefits     10,803       9,427       11,996       12,949       12,305  
Data processing and software     3,070       2,827       2,548       2,353       2,100  
Occupancy     1,057       1,108       975       999       797  
Equipment     980       899       900       864       680  
Professional services     460       704       370       638       581  
Regulatory fees     211       257       368       397       333  
Acquisition related expenses     256       67       2,105       2,548       448  
Amortization of intangibles     493       508       524       539       375  
Other operating     1,750       1,616       1,692       1,452       1,315  
Total noninterest expense     19,080       17,413       21,478       22,739       18,934  
Net income before income tax expense     14,900       14,133       12,417       9,602       7,940  
Income tax expense (benefit)     2,824       3,103       2,736       2,115       1,759  
Net income   $ 12,076     $ 11,030     $ 9,681     $ 7,487     $ 6,181  
Weighted average shares - basic     22,133,759       22,045,501       21,960,184       21,948,579       18,307,083  
Weighted average shares - diluted     22,198,829       22,076,600       21,978,925       21,960,490       18,320,006  
Net income per share, basic   $ 0.55     $ 0.50     $ 0.44     $ 0.34     $ 0.34  
Net income per share, diluted     0.54       0.50       0.44       0.34       0.34  
Balance Sheet Data (at period end):                              
Cash and cash equivalents   $ 449,267     $ 390,565     $ 277,439     $ 455,925     $ 368,820  
Securities available-for-sale     500,339       474,788       486,215       308,337       223,034  
Securities held-to-maturity     2,395       2,401       2,407       2,413       2,699  
Loans held for sale     148,251       162,269       179,669       198,603       129,807  
Loans held for investment     1,907,820       1,941,078       1,891,019       1,906,603       1,592,725  
Allowance for loan losses     (22,754 )     (23,877 )     (23,245 )     (23,167 )     (21,035 )
Total assets     3,212,390       3,150,457       2,987,006       3,024,348       2,445,172  
Non-interest-bearing deposits     782,170       711,606       662,934       716,707       546,974  
Interest-bearing deposits     1,998,024       2,039,595       1,905,067       1,900,835       1,548,592  
Federal Home Loan Bank advances and other borrowings     29,487       29,455       39,423       39,418       39,464  
Total liabilities     2,852,639       2,806,513       2,643,520       2,690,453       2,163,222  
Shareholders' equity   $ 359,752     $ 343,944     $ 343,486     $ 333,895     $ 281,950  
Total shares of common stock outstanding     22,165,547       22,089,873       21,988,803       21,947,805       18,302,188  
Book value per share of common stock   $ 16.23     $ 15.57     $ 15.62     $ 15.21     $ 15.41  
Tangible book value per share of common stock*     14.03       13.34       13.36       12.92       13.02  
Market value per share of common stock   $ 20.50     $ 17.25     $ 14.75     $ 9.81     $ 12.00  
Capital ratios:                              
Total risk-based capital     16.13 %     16.29 %     16.03 %     15.96 %     16.76 %
Tier 1 risk-based capital     13.78 %     13.79 %     13.52 %     13.39 %     13.76 %
Common equity tier 1 capital     13.78 %     13.79 %     13.52 %     13.39 %     13.76 %
Leverage     10.17 %     9.78 %     9.60 %     9.23 %     10.08 %

_____________________
*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)
Second quarter 2021 Earnings Release

    Five Quarter Comparison  
    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Average Balance Sheet Data:                              
Cash and cash equivalents   $ 301,773     $ 341,092     $ 427,086     $ 526,409     $ 257,709  
Investment securities     508,595       496,035       407,622       323,689       238,762  
Loans held for sale     138,093       155,677       165,441       156,123       176,193  
Loans     1,948,638       1,938,532       1,891,202       1,906,449       1,560,626  
Assets     3,078,748       3,078,745       3,028,225       3,043,847       2,350,021  
Interest bearing deposits     1,940,442       1,986,621       1,909,692       1,957,259       1,519,877  
Deposits     2,662,192       2,663,551       2,613,080       2,648,465       2,031,924  
Federal Home Loan Bank advances and other borrowings     29,467       33,879       39,428       39,431       10,966  
Liabilities     2,719,898       2,728,064       2,687,516       2,722,341       2,068,408  
Shareholders' equity     358,850       350,681       340,709       321,506       281,614  
Performance Ratios:                              
Annualized return on average assets     1.57 %     1.45 %     1.27 %     0.98 %     1.06 %
Annualized return on average equity     13.50 %     12.76 %     11.30 %     9.26 %     8.83 %
Net interest margin (1)     3.26 %     3.13 %     3.12 %     2.72 %     3.23 %
Annualized noninterest income to average assets     1.29 %     1.32 %     1.54 %     1.93 %     1.85 %
Efficiency ratio     57.97 %     54.08 %     63.02 %     65.99 %     66.44 %
Loans by Type (at period end):                              
Commercial and industrial   $ 546,261     $ 619,287     $ 630,775     $ 648,018     $ 621,541  
Commercial real estate - owner occupied     200,725       197,758       162,603       164,336       147,682  
Commercial real estate - non-owner occupied     538,521       505,252       481,229       480,106       408,402  
Construction and development     198,448       170,965       174,859       176,751       117,830  
Consumer real estate     331,580       336,496       343,791       350,238       238,696  
Consumer     45,898       45,481       44,279       42,104       27,542  
Other     46,387       65,839       53,483       45,050       31,032  
Asset Quality Data:                              
Allowance for loan losses to total loans     1.19 %     1.23 %     1.23 %     1.22 %     1.32 %
Allowance for loan losses to non-performing loans     571 %     446 %     483 %     787 %     705 %
Nonaccrual loans   $ 3,985     $ 5,355     $ 4,817     $ 2,945     $ 2,982  
Troubled debt restructurings     1,895       1,914       1,928       1,886       1,228  
Loans - over 89 days past due     2,389       2,720       4,367       1,781       1,460  
Total non-performing loans     3,985       5,355       4,817       2,945       2,982  
OREO and repossessed assets     184       523       523       171       147  
Total non-performing assets     4,169       5,878       5,340       3,116       3,129  
Non-performing loans to total loans     0.21 %     0.28 %     0.25 %     0.15 %     0.19 %
Non-performing assets to total assets     0.13 %     0.19 %     0.18 %     0.10 %     0.13 %
Non-performing assets to total loans and OREO     0.22 %     0.30 %     0.28 %     0.16 %     0.20 %
Annualized net charge-offs (recoveries) to average loans     0.01 %     0.00 %     0.02 %   0.00     0.18 %
Net charge-offs (recoveries)   $ 59     $ 18     $ 106     $ (13 )   $ 703  
Interest Rates and Yields:                              
Loans     4.41 %     4.34 %     4.48 %     4.47 %     4.50 %
Securities (1)     1.77 %     1.80 %     1.98 %     2.18 %     2.73 %
Total interest-earning assets (1)     3.51 %     3.42 %     3.45 %     3.41 %     3.78 %
Deposits     0.21 %     0.26 %     0.30 %     0.67 %     0.59 %
Borrowings and repurchase agreements     5.36 %     4.85 %     4.09 %     5.14 %     3.16 %
Total interest-bearing liabilities     0.37 %     0.42 %     0.49 %     0.99 %     0.81 %
Other Information:                              
Full-time equivalent employees     383       379       380       403       286  

_____________________

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)
Second quarter 2021 Earnings Release

    For the Three Months Ended June 30,  
    2021     2020  
    Average
Outstanding
Balance
    Interest
Income/
Expense
    Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Income/
Expense
    Average
Yield/
Rate
 
Interest-Earning Assets                                    
Loans (1)   $ 1,948,638     $ 21,412       4.41 %   $ 1,560,626     $ 17,459       4.50 %
Loans held for sale     138,093       1,160       3.37 %     176,193       1,627       3.71 %
Securities:                                    
Taxable investment securities (2)     446,696       1,800       1.61 %     194,876       1,236       2.54 %
Investment securities exempt from
  federal income tax (3)
    61,899       356       2.91 %     43,886       312       3.60 %
Total securities     508,595       2,156       1.77 %     238,762       1,548       2.73 %
Cash balances in other banks     235,212       101       0.17 %     237,738       107       0.18 %
Funds sold     18,319       3       0.06 %     1             1.27 %
Total interest-earning assets     2,848,857       24,832       3.51 %     2,213,320       20,741       3.78 %
Noninterest-earning assets     229,891                   136,701              
Total assets   $ 3,078,748                 $ 2,350,021              
Interest-Bearing Liabilities                                    
Interest-bearing deposits:                                    
Interest-bearing transaction accounts   $ 927,210       379       0.16 %   $ 691,063       831       0.48 %
Savings and money market deposits     589,006       295       0.20 %     492,682       731       0.60 %
Time deposits     424,226       732       0.69 %     336,132       1,416       1.69 %
Total interest-bearing deposits     1,940,442       1,406       0.29 %     1,519,877       2,978       0.79 %
Borrowings and repurchase agreements     29,467       394       5.36 %     11,131       88       3.16 %
Total interest-bearing liabilities     1,969,909       1,800       0.37 %     1,531,008       3,066       0.81 %
Noninterest-bearing deposits     721,751                   512,046              
Total funding sources     2,691,660                   2,043,054              
Noninterest-bearing liabilities     28,238                   25,353              
Shareholders’ equity     358,850                   281,614              
Total liabilities and shareholders’ equity   $ 3,078,748                 $ 2,350,021              
Net interest spread (4)                 3.14 %                 2.98 %
Net interest income/margin (5)         $ 23,032       3.26 %         $ 17,675       3.23 %

_____________________

(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)
Second quarter 2021 Earnings Release

    Five Quarter Comparison  
    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Operating net income:                              
Net income   $ 12,076     $ 11,030     $ 9,681     $ 7,487     $ 6,181  
Add: acquisition related expenses     256       67       2,105       2,548       448  
Less: income tax impact of acquisition related expenses     (67 )     (18 )     (550 )     (666 )     (117 )
Operating net income   $ 12,265     $ 11,079     $ 11,236     $ 9,369     $ 6,512  
                               
Operating diluted net income per
share of common stock:
                             
Operating net income   $ 12,265     $ 11,079     $ 11,236     $ 9,369     $ 6,512  
Weighted average shares - diluted     22,198,829       22,076,600       21,978,925       21,960,490       18,320,006  
Operating diluted net income
  per share of common stock
  $ 0.55     $ 0.50     $ 0.51     $ 0.43     $ 0.36  
                               
Operating annualized return on average assets:                              
Operating net income   $ 12,265     $ 11,079     $ 11,236     $ 9,369     $ 6,512  
Average assets     3,078,748       3,078,745       3,028,225       3,043,847       2,350,021  
Operating annualized return on
  average assets
    1.60 %     1.46 %     1.48 %     1.22 %     1.11 %
                               
Operating annualized return on
average tangible equity:
                             
Average total shareholders' equity   $ 358,850     $ 350,681     $ 340,709     $ 321,506     $ 281,614  
Less: average intangible assets     (49,012 )     (49,514 )     (50,038 )     (50,577 )     (43,871 )
Average tangible equity     309,838       301,167       290,671       270,929       237,743  
Operating net income   $ 12,265     $ 11,079     $ 11,236     $ 9,369     $ 6,512  
Operating annualized return on
  average tangible equity
    15.88 %     14.92 %     15.38 %     13.76 %     11.02 %
                               
Operating efficiency ratio:                              
Total noninterest expense   $ 19,080     $ 17,413     $ 21,478     $ 22,739     $ 18,934  
Less: acquisition related expenses     (256 )     (67 )     (2,105 )     (2,548 )     (448 )
Total operating noninterest expense     18,824       17,346       19,373       20,191       18,486  
Net interest income     23,032       22,182       22,331       19,656       17,675  
Total noninterest income     9,883       10,014       11,748       14,804       10,823  
Total revenues   $ 32,915     $ 32,196     $ 34,079     $ 34,460     $ 28,498  
 Operating efficiency ratio:     57.19 %     53.88 %     56.85 %     58.59 %     64.87 %
                               
Operating annualized pre-tax pre-provision income to average assets:                              
Income before income taxes   $ 14,900     $ 14,133     $ 12,417     $ 9,602     $ 7,940  
Add: acquisition related expenses     256       67       2,105       2,548       448  
Add: provision for loan losses     (1,065 )     650       184       2,119       1,624  
Operating pre-tax pre-provision income     14,091       14,850       14,706       14,269       10,012  
Average assets   $ 3,078,748     $ 3,078,745     $ 3,028,225     $ 3,043,847     $ 2,350,021  
Operating annualized pre-tax pre-provision income to average assets:     1.84 %     1.96 %     1.93 %     1.86 %     1.71 %
                               
    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Tangible Equity:                              
Total shareholders' equity   $ 359,752     $ 343,944     $ 343,486     $ 333,895     $ 281,950  
Less: intangible assets     (48,697 )     (49,190 )     (49,698 )     (50,222 )     (43,633 )
Tangible equity   $ 311,055     $ 294,754     $ 293,788     $ 283,673     $ 238,317  
                               
Tangible Book Value per Share of Common Stock:                              
Tangible common equity   $ 311,055     $ 294,754     $ 293,788     $ 283,673     $ 238,317  
Total shares of common stock outstanding     22,165,547       22,089,873       21,988,803       21,947,805       18,302,188  
Tangible book value per share of common stock   $ 14.03     $ 13.34     $ 13.36     $ 12.92     $ 13.02  


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

    Six Months Ended  
    6/30/2021     6/30/2020  
Operating net income:            
Net income   $ 23,106     $ 7,527  
Add: acquisition related expenses     323       738  
Less: income tax impact of acquisition related expenses     (84 )     (193 )
  Operating net income   $ 23,345     $ 8,072  
             
Operating diluted net income per
share of common stock:
           
Operating net income   $ 23,345     $ 8,072  
Weighted average shares - diluted     22,138,052       18,381,866  
  Operating diluted net income
    per share of common stock
  $ 1.05     $ 0.44  
             
Operating annualized return on average assets:            
Operating net income   $ 23,345     $ 8,072  
Average assets   $ 3,078,746     $ 2,204,663  
  Operating annualized return on
    average assets
    1.53 %     0.74 %
             
Operating annualized return on
average tangible equity:
           
Average total shareholders' equity   $ 354,788     $ 280,082  
Less: average intangible assets     (49,262 )     (44,062 )
Average tangible equity     305,526       236,020  
Operating net income   $ 23,345     $ 8,072  
  Operating annualized return on
    average tangible equity
    15.41 %     6.88 %
             
Operating efficiency ratio:            
Total noninterest expense   $ 36,492     $ 33,145  
Less: acquisition related expenses     (323 )     (738 )
Total operating noninterest expense     36,169       32,407  
Net interest income     45,213       34,336  
Total noninterest income     19,897       16,697  
Total revenues   $ 65,110     $ 51,033  
  Operating efficiency ratio:     55.55 %     63.50 %


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

    Five Quarter Comparison  
    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Net interest income   $ 23,032     $ 22,182     $ 22,331     $ 19,656     $ 17,675  
Less: PPP loan income     (2,686 )     (2,260 )     (2,184 )     (2,050 )     (1,258 )
Less: Excess liquidity interest income     (545 )     (504 )     (300 )            
Plus: Loss recognized on termination of interest rate swap                       1,910        
Adjusted net interest income     19,801       19,418       19,847       19,516       16,417  
                               
Average interest earning assets     2,848,857       2,889,119       2,859,096       2,886,031       2,213,320  
Less: Average PPP loans     (173,733 )     (204,459 )     (204,918 )     (215,806 )     (153,857 )
Less: Excess liquidity     (301,325 )     (334,109 )     (341,654 )     (362,659 )     (145,502 )
Adjusted interest earning assets     2,373,799       2,350,551       2,312,524       2,307,566       1,913,961  
                               
Net interest margin (1)     3.26 %     3.13 %     3.12 %     2.72 %     3.23 %
Adjusted Net interest margin (1)     3.36 %     3.35 %     3.41 %     3.40 %     3.45 %


    Five Quarter Comparison  
    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020  
Allowance for loan losses   $ 22,754     $ 23,877     $ 23,245     $ 23,167     $ 21,035  
Purchase accounting marks     3,533       3,615       3,663       4,013       2,790  
Allowance for loan losses and purchase accounting fair value
marks
    26,287       27,492       26,908       27,180       23,825  
                               
Loans     1,907,820       1,941,078       1,891,019       1,906,603       1,592,725  
Less: PPP Loans net of deferred fees     109,940       210,810       181,601       216,799       213,064  
Non-PPP Loans     1,797,880       1,730,268       1,709,418       1,689,804       1,379,661  
                               
Allowance for loan losses plus fair value marks / Non-PPP
Loans
    1.46 %     1.59 %     1.57 %     1.61 %     1.73 %

_____________________

(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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