cstr-10q_20170331.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, 2017

OR

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

For the transition period from _______ to ________.

Commission File Number:  001-37886

 

CAPSTAR FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Tennessee

81-1527911

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

 

1201 Demonbreun Street, Suite 700

Nashville, Tennessee

(Address of principal executive office)

37203

(zip code)

 

(615) 732-6400

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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

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

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

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

(Do not check if a smaller reporting company)

Smaller Reporting Company

 

 

 

Emerging Growth Company

 

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

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

As of May 2, 2017, there were 11,223,536 shares of common stock, $1.00 par value per share, issued and outstanding.

 

 


CAPSTAR FINANCIAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

Item

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements

 

5

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016

 

5

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2017 and 2016

 

6

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2017  and 2016

 

7

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three months ended March 31, 2017 and 2016

 

8

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2017 and 2016

 

9

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

Item 2.

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

 

29

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

39

 

 

 

 

Item 4.

Controls and Procedures

 

39

 

 

 

PART II – OTHER INFORMATION

 

40

 

 

 

 

Item 1. 

Legal Proceedings

 

40

 

 

 

 

Item 1A.

Risk Factors

 

40

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

 

 

Item 6.

Exhibits

 

41

 

 

 

 

SIGNATURES

 

42

 

 

2


TERMINOLOGY

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “aspire,” “roadmap,” “achieve,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Report, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but are not limited to, the following:

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

3


The foregoing factors should not be construed as exhaustive and should be read in conjunction with those factors that are detailed from time to time in the Company’s periodic and current reports filed with the Securities and Exchange Commission (the “SEC”), including those factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 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

 

 

 

March 31, 2017

 

 

 

 

 

 

 

(unaudited)

 

 

December 31, 2016

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

8,635,982

 

 

$

9,133,502

 

Interest-bearing deposits in financial institutions

 

 

49,992,644

 

 

 

54,322,823

 

Federal funds sold

 

 

1,410,000

 

 

 

16,654,481

 

Total cash and cash equivalents

 

 

60,038,626

 

 

 

80,110,806

 

Securities available for sale, at fair value

 

 

188,516,087

 

 

 

182,354,987

 

Securities held to maturity, fair value of $49,769,285, and $49,731,169 at

   March 31, 2017 and December 31, 2016, respectively

 

 

46,854,518

 

 

 

46,863,640

 

Loans held for sale

 

 

35,370,814

 

 

 

42,110,581

 

Loans and leases

 

 

1,003,433,910

 

 

 

935,250,703

 

Less allowance for loan and lease losses

 

 

(13,996,869

)

 

 

(11,633,531

)

Loans and leases, net

 

 

989,437,041

 

 

 

923,617,172

 

Premises and equipment, net

 

 

5,859,025

 

 

 

5,350,226

 

Restricted equity securities

 

 

6,544,250

 

 

 

6,031,700

 

Accrued interest receivable

 

 

4,012,367

 

 

 

3,941,609

 

Goodwill

 

 

6,218,867

 

 

 

6,218,867

 

Core deposit intangible

 

 

57,379

 

 

 

70,912

 

Deferred tax assets

 

 

13,461,531

 

 

 

12,956,059

 

Bank owned life insurance

 

 

22,044,193

 

 

 

21,900,465

 

Other assets

 

 

3,287,898

 

 

 

2,148,039

 

Total assets

 

$

1,381,702,596

 

 

$

1,333,675,063

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest-bearing

 

$

223,449,870

 

 

$

197,787,618

 

Interest-bearing

 

 

335,571,747

 

 

 

299,620,783

 

Savings and money market accounts

 

 

421,202,733

 

 

 

447,685,909

 

Time

 

 

177,770,839

 

 

 

183,627,943

 

Total deposits

 

 

1,157,995,189

 

 

 

1,128,722,253

 

Federal Home Loan Bank advances

 

 

75,000,000

 

 

 

55,000,000

 

Accrued interest payable

 

 

235,895

 

 

 

211,578

 

Other liabilities

 

 

8,260,090

 

 

 

10,533,836

 

Total liabilities

 

 

1,241,491,174

 

 

 

1,194,467,667

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

   878,049 shares issued and outstanding at March 31, 2017 and

   December 31, 2016

 

 

878,049

 

 

 

878,049

 

Common stock, voting, $1 par value; 20,000,000 shares authorized; 11,218,328 and

   11,204,515 shares issued and outstanding at March 31, 2017 and December 31,

   2016, respectively

 

 

11,218,328

 

 

 

11,204,515

 

Additional paid-in capital

 

 

116,263,244

 

 

 

116,142,894

 

Retained earnings

 

 

17,464,547

 

 

 

17,132,489

 

Accumulated other comprehensive loss, net of income tax

 

 

(5,612,746

)

 

 

(6,150,551

)

Total shareholders’ equity

 

 

140,211,422

 

 

 

139,207,396

 

Total liabilities and shareholders’ equity

 

$

1,381,702,596

 

 

$

1,333,675,063

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

5


CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Interest income:

 

 

 

 

 

 

 

 

Loans, including fees

 

$

10,466,758

 

 

$

9,268,272

 

Securities:

 

 

 

 

 

 

 

 

Taxable

 

 

1,002,896

 

 

 

898,038

 

Tax-exempt

 

 

325,916

 

 

 

282,244

 

Federal funds sold

 

 

2,305

 

 

 

4,138

 

Restricted equity securities

 

 

76,286

 

 

 

69,108

 

Interest-bearing deposits in financial institutions

 

 

104,791

 

 

 

76,378

 

Total interest income

 

 

11,978,952

 

 

 

10,598,178

 

Interest expense:

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

617,466

 

 

 

301,633

 

Savings and money market accounts

 

 

815,092

 

 

 

731,702

 

Time deposits

 

 

470,645

 

 

 

514,445

 

Federal funds purchased

 

 

3,910

 

 

 

2,083

 

Securities sold under agreements to repurchase

 

 

 

 

 

1,311

 

Federal Home Loan Bank advances

 

 

140,259

 

 

 

90,728

 

Total interest expense

 

 

2,047,372

 

 

 

1,641,902

 

Net interest income

 

 

9,931,580

 

 

 

8,956,276

 

Provision for loan and lease losses

 

 

3,404,799

 

 

 

937,216

 

Net interest income after provision for loan and lease losses

 

 

6,526,781

 

 

 

8,019,060

 

Noninterest income:

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

328,585

 

 

 

225,427

 

Loan commitment fees

 

 

236,274

 

 

 

430,122

 

Net gain (loss) on sale of securities

 

 

(6,229

)

 

 

38,961

 

Mortgage banking income

 

 

1,216,362

 

 

 

1,347,452

 

Other noninterest income

 

 

358,554

 

 

 

328,810

 

Total noninterest income

 

 

2,133,546

 

 

 

2,370,772

 

Noninterest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,086,451

 

 

 

5,217,755

 

Data processing and software

 

 

620,508

 

 

 

568,477

 

Professional fees

 

 

364,553

 

 

 

330,738

 

Occupancy

 

 

448,798

 

 

 

409,881

 

Equipment

 

 

496,196

 

 

 

406,571

 

Regulatory fees

 

 

307,060

 

 

 

227,260

 

Other operating

 

 

1,051,871

 

 

 

849,059

 

Total noninterest expense

 

 

8,375,437

 

 

 

8,009,741

 

Income before income taxes

 

 

284,890

 

 

 

2,380,091

 

Income tax expense (benefit)

 

 

(47,168

)

 

 

796,245

 

Net income

 

$

332,058

 

 

$

1,583,846

 

Per share information:

 

 

 

 

 

 

 

 

Basic net income per share of common stock

 

$

0.03

 

 

$

0.18

 

Diluted net income per share of common stock

 

$

0.03

 

 

$

0.15

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

11,210,948

 

 

 

8,628,683

 

Diluted

 

 

12,784,117

 

 

 

10,572,193

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

6


CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

332,058

 

 

$

1,583,846

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gains on securities available for sale:

 

 

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

 

574,536

 

 

 

2,138,520

 

Reclassification adjustment for (gains) losses included in

   net income

 

 

6,229

 

 

 

(38,961

)

Tax effect

 

 

(222,375

)

 

 

(803,921

)

Net of tax

 

 

358,390

 

 

 

1,295,638

 

Unrealized losses on securities transferred to held to maturity:

 

 

 

 

 

 

 

 

Reclassification adjustment for losses included in

   net income

 

 

41,720

 

 

 

41,720

 

Tax effect

 

 

(15,975

)

 

 

(15,975

)

Net of tax

 

 

25,745

 

 

 

25,745

 

Unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

(747

)

 

 

(1,502,087

)

Reclassification adjustment for losses included in

   net income

 

 

154,131

 

 

 

86,080

 

Tax effect

 

 

286

 

 

 

575,149

 

Net of tax

 

 

153,670

 

 

 

(840,858

)

Other comprehensive income

 

 

537,805

 

 

 

480,525

 

Comprehensive income

 

$

869,863

 

 

$

2,064,371

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

7


CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

 

 

Preferred

 

 

Common Stock

 

 

Additional

paid-in

 

 

Retained

 

 

Accumulated

other

comprehensive

 

 

Total

shareholders’

 

 

 

stock

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

equity

 

Balance December 31, 2015

 

$

1,609,756

 

 

 

8,577,051

 

 

$

8,577,051

 

 

$

95,277,969

 

 

$

8,035,711

 

 

$

(4,914,380

)

 

$

108,586,107

 

Issuance of restricted common

   stock, net of forfeitures and

   withholdings to satisfy

   employee tax obligations

 

 

 

 

 

99,851

 

 

 

99,851

 

 

 

(99,851

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

195,787

 

 

 

 

 

 

 

 

 

195,787

 

Excess tax benefit from stock

   compensation

 

 

 

 

 

 

 

 

 

 

 

2,539

 

 

 

 

 

 

 

 

 

2,539

 

Exercise of common stock

   warrants

 

 

 

 

 

1,000

 

 

 

1,000

 

 

 

9,000

 

 

 

 

 

 

 

 

 

10,000

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,583,846

 

 

 

 

 

 

1,583,846

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

480,525

 

 

 

480,525

 

Balance March 31, 2016

 

$

1,609,756

 

 

 

8,677,902

 

 

$

8,677,902

 

 

$

95,385,444

 

 

$

9,619,557

 

 

$

(4,433,855

)

 

$

110,858,804

 

Balance December 31, 2016

 

$

878,049

 

 

 

11,204,515

 

 

$

11,204,515

 

 

$

116,142,894

 

 

$

17,132,489

 

 

$

(6,150,551

)

 

$

139,207,396

 

Issuance of restricted common

   stock, net of forfeitures and

   withholdings to satisfy

   employee tax obligations

 

 

 

 

 

(2,054

)

 

 

(2,054

)

 

 

(186,860

)

 

 

 

 

 

 

 

 

(188,914

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

235,597

 

 

 

 

 

 

 

 

 

235,597

 

Exercise of employee

   common stock options

 

 

 

 

 

9,367

 

 

 

9,367

 

 

 

13,113

 

 

 

 

 

 

 

 

 

22,480

 

Exercise of common stock

   warrants

 

 

 

 

 

6,500

 

 

 

6,500

 

 

 

58,500

 

 

 

 

 

 

 

 

 

65,000

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

332,058

 

 

 

 

 

 

332,058

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

537,805

 

 

 

537,805

 

Balance March 31, 2017

 

$

878,049

 

 

 

11,218,328

 

 

$

11,218,328

 

 

$

116,263,244

 

 

$

17,464,547

 

 

$

(5,612,746

)

 

$

140,211,422

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

8


CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

332,058

 

 

$

1,583,846

 

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

 

 

 

 

 

 

 

 

Provision for loan and lease losses

 

 

3,404,799

 

 

 

937,216

 

Accretion of discounts on acquired loans and deferred fees

 

 

(159,331

)

 

 

(440,249

)

Depreciation and amortization

 

 

107,376

 

 

 

113,113

 

Net amortization of premiums on investment securities

 

 

358,327

 

 

 

286,011

 

Securities (gains) losses, net

 

 

6,229

 

 

 

(38,961

)

Mortgage banking income

 

 

(1,216,362

)

 

 

(1,347,452

)

Net loss on disposal of premises and equipment

 

 

137,493

 

 

 

 

Net (gain) loss on sale of other real estate owned

 

 

 

 

 

(72,669

)

Stock-based compensation

 

 

235,597

 

 

 

195,787

 

Excess tax benefit from stock compensation

 

 

 

 

 

(2,539

)

Deferred income tax expense

 

 

(743,536

)

 

 

33,697

 

Origination of loans held for sale

 

 

(93,162,136

)

 

 

(85,107,642

)

Proceeds from loans held for sale

 

 

101,118,265

 

 

 

92,654,273

 

Net increase in accrued interest receivable and other assets

 

 

(1,331,081

)

 

 

(1,226,422

)

Net increase in accrued interest payable and other liabilities

 

 

(2,120,362

)

 

 

(1,449,958

)

Net cash provided by operating activities

 

 

6,967,336

 

 

 

6,118,051

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Activities in securities available for sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(11,754,186

)

 

 

(37,585,142

)

Sales

 

 

644,983

 

 

 

18,750,334

 

Maturities, prepayments and calls

 

 

5,185,819

 

 

 

4,281,887

 

Activities in securities held to maturity:

 

 

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

29,335

 

 

 

162,709

 

Purchase of restricted equity securities

 

 

(512,550

)

 

 

(4,550

)

Net increase in loans

 

 

(69,065,337

)

 

 

(29,624,468

)

Purchase of premises and equipment

 

 

(742,375

)

 

 

 

Proceeds from the sale of premises and equipment

 

 

3,293

 

 

 

 

Proceeds from sale of other real estate

 

 

 

 

 

288,923

 

Net cash used in investing activities

 

 

(76,211,018

)

 

 

(43,730,307

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

29,272,936

 

 

 

47,876,455

 

Proceeds from Federal Home Loan Bank advances

 

 

20,000,000

 

 

 

 

Payments on Federal Home Loan Bank advances

 

 

 

 

 

(30,000,000

)

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

 

 

(101,434

)

 

 

10,000

 

Excess tax benefit from stock compensation

 

 

 

 

 

2,539

 

Net decrease in repurchase agreements

 

 

 

 

 

(3,755,000

)

Net cash provided by financing activities

 

 

49,171,502

 

 

 

14,133,994

 

Net decrease in cash and cash equivalents

 

 

(20,072,180

)

 

 

(23,478,262

)

Cash and cash equivalents at beginning of period

 

 

80,110,806

 

 

 

100,184,841

 

Cash and cash equivalents at end of period

 

$

60,038,626

 

 

$

76,706,579

 

Supplemental disclosures of cash paid:

 

 

 

 

 

 

 

 

Interest paid

 

$

2,023,056

 

 

$

1,620,198

 

Income taxes

 

 

 

 

 

807,369

 

Supplemental disclosures of noncash transactions:

 

 

 

 

 

 

 

 

Loans charged off to the allowance for loan and lease losses

 

$

1,124,350

 

 

$

773,736

 

 

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, 2017 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.  On February 5, 2016, CapStar Financial Holdings, Inc. acquired all of the Bank’s issued and outstanding shares of common stock, preferred stock, common stock options and warrants, and the Bank became the wholly owned subsidiary of CapStar Financial Holdings, Inc.

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, 2016.

Initial Public Offering

On September 21, 2016, the Securities and Exchange Commission (“SEC”) declared effective our registration statement on Form S-1 registering the shares of our common stock. On September 27, 2016, we completed the initial public offering of 2,972,750 shares of our common stock. Of the 2,972,750 shares sold, 1,688,049 shares were sold by us and 1,284,701 shares were sold by certain selling shareholders. Of the 1,284,701 shares sold by certain selling shareholders, 731,707 were from preferred shares converted to common shares and 79,166 from the cashless exercise of 250,000 common share warrants.  We received net proceeds of approximately $21.9 million from the offering, after deducting the underwriting discounts and commissions and estimated offering expenses. We did not receive any proceeds from the sale of shares by the selling shareholders.

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 and lease 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, 2016.

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, 2017 through the date of the issued financial statements.

 

 

10

 


NOTE 2 – SECURITIES

The amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2017 and December 31, 2016 are summarized as follows (in thousands):

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

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

 

$

11,531

 

 

$

 

 

$

(217

)

 

$

11,314

 

 

$

9,517

 

 

$

 

 

$

(143

)

 

$

9,374

 

State and municipal securities

 

 

27,781

 

 

 

101

 

 

 

(542

)

 

 

27,340

 

 

 

28,480

 

 

 

65

 

 

 

(632

)

 

 

27,913

 

Mortgage-backed securities

 

 

131,232

 

 

 

3

 

 

 

(2,097

)

 

 

129,138

 

 

 

126,637

 

 

 

17

 

 

 

(2,059

)

 

 

124,595

 

Asset-backed securities

 

 

21,291

 

 

 

 

 

 

(567

)

 

 

20,724

 

 

 

21,620

 

 

 

 

 

 

(1,147

)

 

 

20,473

 

Total

 

$

191,835

 

 

$

104

 

 

$

(3,423

)

 

$

188,516

 

 

$

186,254

 

 

$

82

 

 

$

(3,981

)

 

$

182,355

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal securities

 

$

36,865

 

 

$

2,818

 

 

$

 

 

$

39,683

 

 

$

36,842

 

 

$

2,784

 

 

$

 

 

$

39,626

 

Mortgage-backed securities

 

 

4,657

 

 

 

63

 

 

 

 

 

 

4,720

 

 

 

4,687

 

 

 

79

 

 

 

 

 

 

4,766

 

Other debt securities

 

 

5,333

 

 

 

33

 

 

 

 

 

 

5,366

 

 

 

5,335

 

 

 

11

 

 

 

(7

)

 

 

5,339

 

Total

 

$

46,855

 

 

$

2,914

 

 

$

 

 

$

49,769

 

 

$

46,864

 

 

$

2,874

 

 

$

(7

)

 

$

49,731

 

 

Security fair values are established by an independent pricing service as of the dates indicated. The difference between amortized cost and fair value reflects current interest rates and represents the potential gain (loss) had the portfolio been liquidated on those dates. Security gains (losses) are realized only in the event of dispositions prior to maturity or other-than-temporary impairment. Securities with unrealized losses as of March 31, 2017 and December 31, 2016, and the length of time they were in continuous loss positions as of such dates are as follows (in thousands):

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

March 31, 2017

 

Estimated

fair value

 

 

Gross

unrealized

losses

 

 

Estimated

fair value

 

 

Gross

unrealized

losses

 

 

Estimated

fair value

 

 

Gross

unrealized

losses

 

U. S. government agency securities

 

$

9,297

 

 

$

(217

)

 

$

 

 

$

 

 

$

9,297

 

 

$

(217