CapStar Financial Holdings, Inc. Announces Second Quarter 2018 Results


NASHVILLE, Tenn., July 26, 2018 (GLOBE NEWSWIRE) -- CapStar Financial Holdings, Inc. (“CapStar”) (NASDAQ:CSTR) reported net income of $3.5 million, or $0.27 per share on a fully diluted basis, for the three months ended June 30, 2018, compared to a net loss of $3.3 million, or ($0.26) per share on a fully diluted basis, for the three months ended June 30, 2017.  Net income for the six months ending June 30, 2018 was $6.7 million, or $0.52 per share on a fully diluted basis, compared to a net loss of $3.0 million, or ($0.24) per share on a fully diluted basis, for the six months ended June 30, 2017.

“Our associates followed up on our strong first quarter with a number of accomplishments during the second quarter that continue to demonstrate our focus on delivering sound, profitable growth for our shareholders,” said Claire W. Tucker, CapStar’s president and chief executive officer.  “Excluding merger-related charges, operating net income(1) was $3.8 million, or $0.29 per share on a fully diluted basis, for the three months ended June 30, 2018.”

Soundness

  • The allowance for loan losses represented 1.41% of total loans at June 30, 2018 compared to 1.25% at June 30, 2017.
  • Non-performing assets as a percentage of total loans and other real estate owned was 0.52% at June 30, 2018 compared to 0.32% at June 30, 2017.
  • Annualized net charge-offs (recoveries) to average loans was 0.01% for the three months ended June 30, 2018 compared to 4.38% for the same period in 2017. 
  • The total risk based capital ratio was 12.45% at June 30, 2018 compared to 11.51% at June 30, 2017.

Profitability

Operating measures exclude merger-related expenses unrelated to CapStar’s normal operations. CapStar believes these measures are useful to investors as they exclude certain costs resulting from acquisition activity and allow investors to more clearly see the economic results of the organization's operations.

  • Operating return on average assets ("ROAA") for the three months ended June 30, 2018 was 1.08% compared to  -0.96% for the same period in 2017.
  • Operating return on average tangible equity ("ROATE") for the three months ended June 30, 2018 was 10.4% compared to -9.8% for the same period in 2017.
  • The net interest margin (“NIM”) for the three months ended June 30, 2018 was 3.46% compared to 3.20% for the same period in 2017. 
  • Operating efficiency ratio for the three months ended June 30, 2018 was 67.4% compared to 62.1% for the same period in 2017.

“Excluding merger-related expenses, our operating results were in line with our expectations.  Delivering a 1.08% Operating ROAA in the second quarter is a step in the right direction towards improving our profitability profile,” said Rob Anderson, chief financial officer and chief administrative officer of CapStar.

(1) For a reconciliation of the non-GAAP operating measures that exclude merger-related costs unrelated to CapStar’s normal operations, see the non-GAAP financial measures section of this document.

Growth

  • Average gross loans for the quarter ended June 30, 2018 increased 1.3%, to $1.04 billion, compared to $1.03 billion for the same period in 2017.
  •  Average demand deposits for the quarter ended June 30, 2018 increased 3.6%, to $237.3 million, compared to $229.1 million for the same period in 2017.
  • Average total assets for the quarter ended June 30, 2018 increased 0.2%, to $1.40 billion, compared to $1.39 billion for the same period in 2017.

Merger Update

In addition, as announced on June 11, 2018, CapStar entered into a definitive merger agreement (the “Merger Agreement”) with Athens Bancshares Corporation (“Athens”).  The Merger Agreement provides that Athens will merge with and into CapStar (the “Merger”), with CapStar as the surviving entity in the Merger and that, after the Merger, Athens’ wholly owned bank subsidiary, Athens Federal Community Bank, National Association, will merge with and into CapStar’s wholly owned bank subsidiary, CapStar Bank (the “Bank Merger,” together with the Merger, the “Mergers”), with CapStar Bank as the surviving entity in the Bank Merger.  

The Merger Agreement was unanimously approved by the board of directors of each of CapStar and Athens. In the Merger, Athens shareholders will receive 2.864 shares of CapStar common stock for each share of Athens common stock.  The all-stock transaction is valued at approximately $113.5 million based on the closing price of CapStar common stock on June 11, 2018. 

Athens operates 10 locations in Southeast Tennessee. As of June 30, 2018, Athens had approximately $474 million in total assets, which included approximately $338 million in total loans, and approximately $412 million in total deposits.

CapStar expects to complete the Mergers in the fourth quarter of 2018.  However, CapStar can provide no assurances of when or if the Mergers will be completed. CapStar must first obtain the approval of CapStar shareholders and Athens shareholders for the Mergers, as well as obtain necessary regulatory approvals and satisfy certain other closing conditions.

“We believe the second quarter financial results reported by Athens earlier this week support our confidence in the merits of this combination and the value creation potential for all of our shareholders,” said Claire W. Tucker, CapStar’s president and chief executive officer.

Conference Call and Webcast Information

CapStar will host a conference call and webcast at 9:00 a.m. Central Time on Friday, July 27, 2018.  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 7191747.  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, 2018, on a consolidated basis, CapStar had total assets of $1.4 billion, gross loans of $1.0 billion, total deposits of $1.1 billion, and shareholders’ equity of $153.1 million.  Visit www.capstarbank.com for more information.

Important Additional Information about the Mergers and Where to Find It

In connection with the Mergers, CapStar has filed with the SEC a registration statement on Form S-4 (File Number 333-226112) that includes a joint proxy statement of CapStar and Athens and a prospectus of CapStar, as well as other relevant documents concerning the proposed Mergers. This earnings release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. SHAREHOLDERS OF CAPSTAR AND ATHENS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE MERGERS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGERS. When filed, this earnings release and other documents relating to the Mergers filed by CapStar with the SEC can be obtained free of charge from the SEC’s website at www.sec.gov. These documents also can be obtained free of charge by accessing CapStar’s website at https://ir.capstarbank.com/ under the tab “Financials & Filings.” Alternatively, these documents, when available, can be obtained free of charge from CapStar upon written request to CapStar Financials Holding, Inc., 1201 Demonbreun Street, Suite 700, Nashville, Tennessee 37203, Attention: Investor Relations or by calling (615) 732-6455.

Participants in the Solicitation

CapStar, Athens and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed Mergers. Information regarding CapStar’s directors and executive officers is available in its definitive proxy statement, which was filed with the SEC on March 19, 2018, and certain of its Current Reports on Form 8-K. Information about the directors and executive officers of Athens is set forth in the joint proxy statement/prospectus when it is filed with the SEC. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the joint proxy statement/prospectus and other relevant materials filed with the SEC. Free copies of this document may be obtained as described in the preceding paragraph.

Forward-Looking Statements

Certain statements in this earnings release are forward-looking statements that reflect CapStar’s current views with respect to, among other things, future events, including, without limitation, the terms, timing and closing of the proposed Mergers and CapStar’s financial and operational 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,” “achieve,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “roadmap,” “goal,” “guidance”, “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 CapStar’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond CapStar’s control. The inclusion of these forward-looking statements should not be regarded as a representation by CapStar or any other person that such expectations, estimates and projections will be achieved. Accordingly, CapStar cautions 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 CapStar believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, 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 CapStar’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, any factors identified in this earnings release as well as those factors that are detailed from time to time in CapStar’s periodic and current reports filed with the Securities and Exchange Commission, including those factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 under the headings “Item 1A. Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” 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 CapStar’s 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 earnings release, and CapStar does 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 CapStar to predict their occurrence or how they will affect CapStar.

Non-GAAP Disclaimer

This earnings release includes the following financial measures that were prepared other than in accordance with generally accepted accounting principles in the United States (“non-GAAP financial measure”): operating net income, operating diluted net income per share, operating return on average assets, operating return on average tangible equity, tangible book value per share and operating efficiency ratio. These non-GAAP financial measures (i) provide useful information to management and investors that is supplementary to CapStar’s financial condition, results of operations and cash flows computed in accordance with GAAP, (ii) enable a more complete understanding of factors and trends affecting CapStar’s business, and (iii) allow investors to evaluate CapStar’s performance in a manner similar to management, the financial services industry, bank stock analysts and bank regulators; however, CapStar acknowledges that these non-GAAP financial measures have a number of limitations.  As such, you should not view these non-GAAP financial measures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.  See below for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Income (unaudited) (dollars in thousands, except share data)

Second Quarter 2018 Earnings Release

   Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2018  2017  2018  2017 
Interest income:                
Loans, including fees $13,796  $11,373  $26,030  $21,840 
Securities:                
Taxable  939   983   1,815   1,987 
Tax-exempt  261   317   546   642 
Federal funds sold  19   16   39   18 
Restricted equity securities  128   86   257   163 
Interest-bearing deposits in financial institutions  211   115   411   219 
Total interest income  15,354   12,890   29,098   24,869 
Interest expense:                
Interest-bearing deposits  892   586   1,646   1,204 
Savings and money market accounts  1,413   773   2,418   1,587 
Time deposits  834   574   1,483   1,046 
Federal funds purchased  1   7   1   11 
Federal Home Loan Bank advances  627   379   1,117   519 
Total interest expense  3,767   2,319   6,665   4,367 
Net interest income  11,587   10,571   22,433   20,502 
Provision for loan losses  169   9,690   846   13,094 
Net interest income after provision for loan losses  11,418   881   21,587   7,408 
Noninterest income:                
Treasury management and other deposit service charges  427   342   829   670 
Loan commitment fees  185   187   572   423 
Net gain on sale of securities  3   40   3   34 
Tri-Net fees  325   297   853   382 
Mortgage banking income  1,383   1,370   2,695   2,587 
Other noninterest income  442   430   902   703 
Total noninterest income  2,765   2,666   5,854   4,799 
Noninterest expense:                
Salaries and employee benefits  6,340   4,784   12,598   9,870 
Data processing and software  810   711   1,608   1,331 
Professional fees  344   350   819   714 
Occupancy  535   539   1,056   987 
Equipment  602   544   1,141   1,040 
Regulatory fees  233   301   436   608 
Merger related expenses  335      335    
Other operating  806   988   1,593   2,042 
Total noninterest expense  10,005   8,217   19,586   16,592 
Income (loss) before income taxes  4,178   (4,670)  7,855   (4,385)
Income tax (benefit) expense  665   (1,328)  1,148   (1,375)
Net income (loss) $3,513  $(3,342) $6,707  $(3,010)
Per share information:                
Basic net income (loss) per share of common stock $0.30  $(0.30) $0.57  $(0.27)
Diluted net income (loss) per share of common stock $0.27  $(0.26) $0.52  $(0.24)
Weighted average shares outstanding:                
Basic  11,845,822   11,226,216   11,755,535   11,218,624 
Diluted  13,067,223   12,740,104   13,021,744   12,761,989 
                 

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)

Second Quarter 2018 Earnings Release

   Five Quarter Comparison 
  6/30/18  3/31/18  12/31/17  9/30/17  6/30/17 
Income Statement Data:                    
Net interest income $11,587  $10,846  $10,518  $10,843  $10,571 
Provision for loan losses  169   678   (30)  (195)  9,690 
Net interest income after provision for loan losses  11,418   10,168   10,548   11,038   881 
Treasury management and other deposit service charges  427   402   419   427   342 
Loan commitment fees  185   387   124   224   188 
Net gain (loss) on sale of securities  3      (108)  9   40 
Tri-Net fees  325   528   254   367   297 
Mortgage banking income  1,383   1,313   1,621   2,030   1,370 
Other noninterest income  442   458   426   315   429 
Total noninterest income  2,765   3,088   2,736   3,372   2,666 
Salaries and employee benefits  6,340   6,257   5,411   5,119   4,784 
Data processing and software  810   798   746   709   711 
Professional fees  344   474   473   336   350 
Occupancy  535   521   507   531   539 
Equipment  602   539   467   564   544 
Regulatory fees  233   203   234   270   301 
Merger related expenses  335             
Other operating  806   788   861   945   988 
Total noninterest expense  10,005   9,580   8,699   8,474   8,217 
Net income (loss) before income tax expense  4,178   3,676   4,585   5,936   (4,670)
Income tax (benefit) expense  665   483   4,494   1,516   (1,328)
Net income (loss) $3,513  $3,193  $91  $4,420  $(3,342)
Weighted average shares - basic  11,845,822   11,664,467   11,403,689   11,279,364   11,226,216 
Weighted average shares - diluted  13,067,223   12,975,981   12,938,288   12,750,423   12,740,104 
Net income (loss) per share, basic $0.30  $0.27  $0.01  $0.39  $(0.30)
Net income (loss) per share, diluted  0.27   0.25   0.01   0.35   (0.26)
Balance Sheet Data (at period end):                    
Cash and cash equivalents $58,222  $51,125  $82,797  $69,789  $48,093 
Securities available-for-sale  183,364   189,580   192,621   146,600   155,663 
Securities held-to-maturity  3,746   3,752   3,759   45,635   46,458 
Loans held for sale  65,320   62,286   74,093   53,225   73,573 
Total loans  1,046,525   1,031,821   947,537   974,530   996,617 
Allowance for loan losses  (14,705)  (14,563)  (13,721)  (14,122)  (12,454)
Total assets  1,401,181   1,382,745   1,344,429   1,338,559   1,371,626 
Non-interest-bearing deposits  223,579   258,161   301,742   250,007   231,169 
Interest-bearing deposits  921,435   869,393   818,124   841,488   889,816 
Federal Home Loan Bank advances  95,000   100,000   70,000   95,000   105,000 
Total liabilities  1,248,035   1,234,052   1,197,483   1,194,355   1,233,596 
Shareholders' equity $153,146  $148,693  $146,946  $144,204  $138,031 
Total shares of common stock outstanding  11,931,131   11,773,358   11,582,026   11,346,498   11,235,255 
Total shares of preferred stock outstanding  878,049   878,049   878,049   878,049   878,049 
Book value per share of common stock $12.08  $11.87  $11.91  $11.92  $11.48 
Tangible book value per share of common stock*  11.56   11.34   11.37   11.36   10.93 
Market value per share of common stock $18.53  $18.83  $20.77  $19.58  $17.74 
Capital ratios:                    
Total risk based capital  12.45%  12.22%  12.52%  12.41%  11.51%
Tier 1 risk based capital  11.33%  11.11%  11.41%  11.28%  10.54%
Common equity tier 1 capital  10.66%  10.43%  10.70%  10.58%  9.86%
Leverage  10.87%  10.91%  10.77%  10.36%  9.77%
                     

_____________________
*This metric is a non-GAAP financial measure.  See below for reconciliation to the most directly comparable GAAP financial measure.

This information is preliminary and based on company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)

Second Quarter 2018 Earnings Release

   Five Quarter Comparison 
  6/30/18  3/31/18  12/31/17  9/30/17  6/30/17 
Average Balance Sheet Data:                    
Cash and cash equivalents $63,064  $60,965  $64,850  $59,352  $62,002 
Investment securities  197,933   203,274   202,818   207,926   227,431 
Loans held for sale  58,297   68,084   66,311   67,886   34,690 
Loans  1,041,835   983,496   956,441   991,238   1,028,968 
Assets  1,396,359   1,351,129   1,329,621   1,367,993   1,393,331 
Interest bearing deposits  901,076   840,871   827,732   857,344   882,721 
Deposits  1,138,400   1,111,182   1,081,380   1,094,500   1,111,833 
Federal Home Loan Bank advances  99,121   84,533   92,554   123,315   128,901 
Liabilities  1,244,824   1,202,854   1,181,954   1,226,438   1,250,544 
Shareholders' equity  151,535   148,276   147,667   141,556   142,787 
Performance Ratios:                    
Annualized return on average assets  1.01%  0.96%  0.03%  1.28%  -0.96%
Annualized return on average equity  9.30%  8.74%  0.25%  12.38%  -9.39%
Net interest margin (1)  3.46%  3.39%  3.31%  3.31%  3.20%
Annualized Non-interest income to average assets  0.79%  0.93%  0.82%  0.98%  0.77%
Efficiency ratio  69.7%  68.8%  65.6%  59.6%  62.1%
Loans by Type (at period end):                    
Commercial and industrial $386,065  $408,353  $373,248  $394,600  $406,636 
Commercial real estate - owner occupied  121,475   131,741   101,132   103,183   97,634 
Commercial real estate - non-owner occupied  286,769   258,016   249,489   263,594   288,124 
Construction and development  96,580   91,953   82,586   79,951   62,152 
Consumer real estate  109,915   104,224   102,581   100,811   99,750 
Consumer  9,671   9,524   6,862   6,289   4,096 
Other  36,428   28,750   31,984   26,461   38,784 
Asset Quality Data:                    
Allowance for loan losses to total loans  1.41%  1.41%  1.45%  1.45%  1.25%
Allowance for loan losses to non-performing loans  271%  1096%  509%  446%  386%
Nonaccrual loans $5,419  $1,329  $2,695  $3,165  $3,229 
Troubled debt restructurings  1,173   1,190   1,206   1,222   1,239 
Loans - over 89 days past due and accruing  216   -   231   27   15 
Total non-performing loans   5,419   1,329   2,695   3,165   3,229 
OREO and repossessed assets  -   -   -   -   - 
Total non-performing assets  5,419   1,329   2,695   3,165   3,229 
Non-performing loans to total loans  0.52%  0.13%  0.28%  0.32%  0.32%
Non-performing assets to total assets  0.39%  0.10%  0.20%  0.24%  0.24%
Non-performing assets to total loans and OREO  0.52%  0.13%  0.28%  0.32%  0.32%
Annualized net charge-offs (recoveries) to average loans  0.01%  -0.07%  0.15%  -0.75%  4.38%
Net charge-offs (recoveries) $27  $(165) $372  $(1,863) $11,233 
Interest Rates and Yields:                    
Loans  5.04%  4.74%  4.54%  4.55%  4.29%
Securities (1)  2.82%  2.69%  2.84%  2.72%  2.74%
Total interest-earning assets (1)  4.58%  4.29%  4.11%  4.12%  3.90%
Deposits  1.11%  0.88%  0.78%  0.77%  0.70%
Borrowings and repurchase agreements  2.53%  2.35%  2.04%  1.81%  1.18%
Total interest-bearing liabilities  1.51%  1.27%  1.12%  1.08%  0.92%
Other Information:                    
Full-time equivalent employees  183   182   175   168   169 
                     

_____________________

This information is preliminary and based on company data available at the time of the presentation.
(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 2018 Earnings Release

   For the Three Months Ended June 30, 
  2018  2017 
  Average
Outstanding
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate
  Average
Outstanding
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate
 
Interest-Earning Assets                        
Loans (1) $1,041,835  $13,090   5.04% $1,028,968  $11,011   4.29%
Loans held for sale  58,297   706   4.86%  34,690   362   4.18%
Securities:                        
Taxable investment securities (2)  155,552   1,067   2.74%  174,075   1,069   2.46%
Investment securities exempt from
  federal income tax (3)
  42,381   261   3.12%  53,356   317   3.66%
Total securities  197,933   1,328   2.82%  227,431   1,386   2.74%
Cash balances in other banks  50,335   211   1.68%  49,735   115   0.93%
Funds sold  2,898   19   2.57%  3,637   16   1.78%
Total interest-earning assets  1,351,298   15,354   4.58%  1,344,461   12,890   3.90%
Noninterest-earning assets  45,061           48,870         
Total assets $1,396,359          $1,393,331         
Interest-Bearing Liabilities                        
Interest-bearing deposits:                        
Interest-bearing transaction accounts $279,705   892   1.28% $302,532   586   0.78%
Savings and money market deposits  428,330   1,413   1.32%  379,800   773   0.82%
Time deposits  193,041   834   1.73%  200,389   574   1.15%
Total interest-bearing deposits  901,076   3,139   1.40%  882,721   1,933   0.88%
Borrowings and repurchase agreements  99,286   628   2.53%  130,824   386   1.18%
Total interest-bearing liabilities  1,000,362   3,767   1.51%  1,013,545   2,319   0.92%
Noninterest-bearing deposits  237,324           229,111         
Total funding sources  1,237,686           1,242,656         
Noninterest-bearing liabilities  7,138           7,888         
Shareholders’ equity  151,535           142,787         
Total liabilities and shareholders’ equity $1,396,359          $1,393,331         
Net interest spread (4)          3.07%          2.98%
Net interest income/margin (5)     $11,587   3.46%     $10,571   3.20%
                         

                                               

  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 company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Analysis of Interest Income and Expense, Rates and Yields (unaudited) (dollars in thousands)

Second Quarter 2018 Earnings Release

  For the Six Months Ended June 30, 
  2018  2017 
  Average
Outstanding
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate
  Average
Outstanding
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate
 
Interest-Earning Assets                        
Loans (1) $1,012,827  $24,574   4.89% $1,001,810  $21,205   4.27%
Loans held for sale  63,163   1,456   4.65%  31,542   635   4.06%
Securities:                        
Taxable investment securities (2)  155,918   2,072   2.66%  177,840   2,150   2.42%
Investment securities exempt from
  federal income tax (3)
  44,671   546   3.09%  54,391   642   3.63%
Total securities  200,589   2,618   2.75%  232,231   2,792   2.70%
Cash balances in other banks  49,465   411   1.68%  48,893   219   0.91%
Funds sold  3,216   39   2.41%  2,689   18   1.39%
Total interest-earning assets  1,329,260   29,098   4.44%  1,317,165   24,869   3.86%
Noninterest-earning assets  44,610           49,766         
Total assets $1,373,870          $1,366,931         
Interest-Bearing Liabilities                        
Interest-bearing deposits:                        
Interest-bearing transaction accounts $283,002   1,646   1.17% $316,502   1,204   0.77%
Savings and money market deposits  404,064   2,418   1.21%  406,937   1,587   0.79%
Time deposits  184,074   1,483   1.62%  184,446   1,046   1.14%
Total interest-bearing deposits  871,140   5,547   1.28%  907,885   3,837   0.85%
Borrowings and repurchase agreements  92,006   1,118   2.45%  88,206   530   1.21%
Total interest-bearing liabilities  963,146   6,665   1.40%  996,091   4,367   0.88%
Noninterest-bearing deposits  253,727           219,762         
Total funding sources  1,216,873           1,215,853         
Noninterest-bearing liabilities  7,083           8,905         
Shareholders’ equity  149,914           142,173         
Total liabilities and shareholders’ equity $1,373,870          $1,366,931         
Net interest spread (4)          3.04%          2.98%
Net interest income/margin (5)     $22,433   3.43%     $20,502   3.19%
                         

                                               

  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 company data available at the time of the presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Non-GAAP Financial Measures (unaudited) (dollars in thousands except share data)

Second Quarter 2018 Earnings Release

   Three Months Ended 
  June 30, 2018  March 31, 2018  December 31, 2017  September 31, 2017  June 30, 2017 
Operating net income (loss):                    
Net income (loss) $3,513  $3,193  $91  $4,420  $(3,342)
Add:  merger related expenses  335             
Less: income tax impact of merger related expenses  (88)            
Operating net income (loss) $3,760  $3,193  $91  $4,420  $(3,342)
                     
Operating diluted net income (loss) per
  share of common stock:
                    
Operating net income (loss) $3,760  $3,193  $91  $4,420  $(3,342)
Weighted average shares - diluted  13,067,223   12,975,981   12,938,288   12,750,423   12,740,104 
Operating diluted net income
  (loss) per share of common stock
 $0.29  $0.25  $0.01  $0.35  $(0.26)
                     
Operating annualized return on average assets:                    
Operating net income (loss) $3,760  $3,193  $91  $4,420  $(3,342)
Average assets $1,396,359  $1,351,129  $1,329,621  $1,367,993  $1,393,331 
Operating annualized return on
  average assets
  1.08%  0.96%  0.03%  1.28%  -0.96%
                     
Operating annualized return on
  average tangible equity:
                    
Average total shareholders' equity $151,535  $148,276  $147,667  $141,556  $142,787 
Less: average intangible assets  (6,228)  (6,238)  (6,248)  (6,258)  (6,271)
Average tangible equity  145,307   142,038   141,419   135,298   136,516 
Operating net income (loss) $3,760  $3,193  $91  $4,420  $(3,342)
Operating annualized return on
  average tangible equity
  10.38%  9.12%  0.26%  12.96%  -9.82%
                     
Operating efficiency ratio:                    
Total noninterest expense $10,005  $9,580  $8,699  $8,474  $8,217 
Less:  merger related expenses  (335)            
Total operating noninterest expense  9,670   9,580   8,699   8,474   8,217 
Net interest income  11,587   10,846   10,518   10,843   10,571 
Total noninterest income  2,765   3,088   2,736   3,372   2,666 
Total revenues $14,352  $13,934  $13,254  $14,215  $13,237 
Operating efficiency ratio:  67.38%  68.75%  65.63%  59.61%  62.08%
                     
  June 30, 2018  March 31, 2018  December 31, 2017  September 31, 2017  June 30, 2017 
Tangible Equity:                    
Total shareholders' equity $153,146  $148,693  $146,946  $144,204  $138,031 
Less: intangible assets  (6,228)  (6,238)  (6,248)  (6,258)  (6,271)
Tangible equity $146,918  $142,455  $140,698  $137,946  $131,760 
                     
Tangible Common Equity:                    
Tangible equity $146,918  $142,455  $140,698  $137,946  $131,760 
Less: preferred equity  (9,000)  (9,000)  (9,000)  (9,000)  (9,000)
Tangible common equity $137,918  $133,455  $131,698  $128,946  $122,760 
                     
Tangible Book Value per Share of Common Stock:                    
Tangible common equity $137,918  $133,455  $131,698  $128,946  $122,760 
Total shares of common stock outstanding  11,931,131   11,773,358   11,582,026   11,346,498   11,235,255 
Tangible book value per share of common stock $11.56  $11.34  $11.37  $11.36  $10.93 
                     

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Non-GAAP Financial Measures (unaudited) (dollars in thousands except share data)

Second Quarter 2018 Earnings Release

  Six Months Ended 
  June 30, 2018  June 30, 2017 
Operating net income (loss):        
Net income (loss) $6,707  $(3,010)
Add:  merger related expenses  335    
Less: income tax impact of merger related expenses  (88)   
Operating net income (loss) $6,954  $(3,010)
         
Operating diluted net income (loss) per
  share of common stock:
        
Operating net income (loss) $6,954  $(3,010)
Weighted average shares - diluted  13,021,744   12,761,989 
Operating diluted net income
  (loss) per share of common stock
 $0.53  $(0.24)
         
Operating annualized return on average assets:        
Operating net income (loss) $6,954  $(3,010)
Average assets $1,373,869  $1,366,931 
Operating annualized return on
  average assets
  1.02%  -0.44%
         
Operating annualized return on
  average tangible equity:
        
Average total shareholders' equity $149,914  $142,173 
Less: average intangible assets  (6,233)  (6,278)
Average tangible equity  143,681   135,895 
Operating net income (loss) $6,954  $(3,010)
Operating annualized return on
  average tangible equity
  9.76%  -4.47%
         
Operating efficiency ratio:        
Total noninterest expense $19,586  $16,592 
Less:  merger related expenses  (335)   
Total operating noninterest expense  19,251   16,592 
Net interest income  22,433   20,502 
Total noninterest income  5,854   4,799 
Total revenues $28,287  $25,301 
Operating efficiency ratio:  68.06%  65.58%
         

            

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