CapStar Financial Earnings 2021-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

cstr-10q_20210331.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, 2021

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

For the transition period from _______ to ________.

Commission File Number: 001-37886

CAPSTAR FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Tennessee	81-1527911
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1201 Demonbreun Street, Suite 700 Nashville, Tennessee (Address of principal executive offices)	37203 (zip code)

(615) 732-6400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $1.00 par value per share		CSTR		Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

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

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

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

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☒
		Emerging Growth Company	☒

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

		Shares outstanding as of April 30, 2021
Common Stock, par value $1.00 per share		22,094,638

CAPSTAR FINANCIAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Item		Page

PART I – FINANCIAL INFORMATION			5

Item 1.	Financial Statements	5

	Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020	5

	Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2021 and 2020	6

	Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2021 and 2020	7

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three months ended March 31, 2021 and 2020	8

	Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2021 and 2020	9

	Notes to Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	43

PART II – OTHER INFORMATION			44

Item 6.	Exhibits	45

SIGNATURES			46

TERMINOLOGY

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, statements relating to the Company’s assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, short and long-term performance goals, prospects, results of operations, strategic initiatives, the benefits, cost and synergies of completed acquisitions or dispositions, and the timing, benefits, costs and synergies of future acquisitions, disposition and other growth opportunities. 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,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “roadmap,” “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 upon current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict and that are beyond our control. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Report, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

The COVID-19 pandemic is adversely affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impacts on our business, including on our credit quality, business operations and liquidity, as well as its impact on general economic and financial market conditions, is uncertain. Continued deterioration in general business and economic conditions, or turbulence in domestic or global financial markets could adversely affect CapStar’s revenues and the values of our assets and liabilities, reduce the availability of funding, affect credit quality, and increase stock price volatility. The Company may not capitalize on opportunities to enhance market share in certain markets and the Company’s services may not be generally accepted in new markets; the ability of the Company to meet expectations regarding the benefits, costs, synergies and financial and operational impact of the FCB Corporation (“FCB”) and the Bank of Waynesboro (“BOW”) acquisitions; the possibility that any of the anticipated benefits, costs, synergies and financial and operational improvements of the FCB and BOW acquisitions will not be realized or will not be realized as expected; economic conditions (including interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation and deflation) that impact the financial services industry as a whole and/or our business; the concentration of our business in our Target Market and the effect of changes in the economic, political and environmental conditions on this market; increased competition in the financial services industry, locally, regionally or nationally, which may adversely affect pricing and the other terms offered to our clients; an increase in the cost of deposits, loss of deposits or a change in the deposit mix, which could increase our cost of funding; an increase in the costs of capital, which could negatively affect our ability to borrow funds, successfully raise additional capital or participate in strategic acquisition opportunities; our dependence on our management team and board of directors and changes in our management and board composition; our reputation in the community; our ability to execute our strategy to achieve our loan, return on average assets and efficiency ratio goals, hire seasoned bankers, and achieve deposit growth through organic growth and strategic acquisitions; credit risks related to the size of our borrowers and our ability to adequately identify, assess and limit our credit risk; our concentration of large loans to a small number of borrowers as well as to borrowers located within our Target Market; the significant portion of our loan portfolio that originated during the past two years and therefore may less reliably predict future collectability than older loans; the adequacy of reserves (including our allowance for loan losses) and the appropriateness of our methodology for calculating such reserves; non-performing loans and leases; non-performing assets; charge-offs, non-accruals, troubled debt restructurings, impairments and other credit-related issues; adverse trends in the healthcare service industry, which is an integral component of our Target Market’s economy and which could adversely affect the business operations of certain of our key borrowers; our management of risks inherent in our commercial real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure; our inability to realize operating efficiencies and tax savings from the implementation of our strategic plan; governmental legislation and regulation, including changes in the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act of 2010, as amended, the Tax Cuts and Jobs Act of 2017, as amended, Basel guidelines, capital requirements, accounting regulation or standards and other applicable laws and regulations; the loss of large depositor relationships, which could force us to fund our business through more expensive and less stable sources; operational and liquidity risks associated with our business, including liquidity risks inherent in

correspondent banking; volatility in interest rates and our overall management of interest rate risk, including managing the sensitivity of our interest-earning assets and interest-bearing liabilities to interest rates, and the impact to our earnings from a change in interest rates; the potential for our Bank’s regulatory lending limits and other factors related to our size to restrict our growth and prevent us from effectively implementing our business strategy; strategic acquisitions we may undertake to achieve our goals; the sufficiency of our capital, including sources of capital and the extent to which we may be required to raise additional capital to meet our goals; fluctuations in the fair value of our investment securities that are beyond our control; deterioration in the fiscal position of the U.S. government and downgrades in Treasury and federal agency securities; potential exposure to fraud, negligence, computer theft and cyber-crime; the adequacy of our risk management framework; our dependence on our information technology and telecommunications systems and the potential for any systems failures or interruptions; threats to and breaches of our information technology systems and data security, including cyber-attacks; our dependence upon outside third parties for the processing and handling of our records and data; our ability to adapt to technological change; the financial soundness of other financial institutions; our exposure to environmental liability risk associated with our lending activities; our engagement in derivative transactions; our involvement from time to time in legal proceedings and examinations and remedial actions by regulators; our involvement from time to time in litigation or other proceedings instituted by or against shareholders, customers, employees or third parties and the cost of legal fees associated with such litigation or proceedings; the susceptibility of our market to natural disasters and acts of God; and the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and in future reports that we file with the Securities and Exchange Commission. 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except share data)

	March 31, 2021
	(unaudited)			December 31, 2020
Assets
Cash and due from banks	$	49,696		$	49,980
Interest-bearing deposits in financial institutions		340,869			227,459
Total cash and cash equivalents		390,565			277,439
Securities available-for-sale, at fair value		474,788			486,215
Securities held-to-maturity, fair value of $2,484 and $2,504 at March 31, 2021 and December 31, 2020, respectively		2,401			2,407
Loans held for sale, includes $96,228 and $97,303 measured at fair value at March 31, 2021 and December 31, 2020, respectively		162,269			179,669
Loans		1,941,078			1,891,019
Less allowance for loan losses		(23,877	)		(23,245	)
Loans, net		1,917,201			1,867,774
Premises and equipment, net		26,423			26,689
Restricted equity securities		14,993			15,562
Accrued interest receivable		8,567			8,771
Goodwill		41,068			41,068
Core deposit intangible, net		8,122			8,630
Other real estate owned, net		523			523
Other assets		103,537			72,259
Total assets	$	3,150,457		$	2,987,006
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing	$	711,606		$	662,934
Interest-bearing		1,018,960			844,101
Savings and money market accounts		578,446			591,438
Time		442,189			469,528
Total deposits		2,751,201			2,568,001
Federal Home Loan Bank advances		—			10,000
Subordinated notes		29,455			29,423
Other liabilities		25,857			36,096
Total liabilities		2,806,513			2,643,520
Shareholders’ equity:
Common stock, voting, $1 par value; 25,000,000 shares authorized; 22,089,873 and 21,988,803 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		22,090			21,989
Additional paid-in capital		246,735			246,890
Retained earnings		76,816			66,879
Accumulated other comprehensive (loss) income, net of tax		(1,697	)		7,728
Total shareholders’ equity		343,944			343,486
Total liabilities and shareholders’ equity	$	3,150,457		$	2,987,006

See accompanying notes to consolidated financial statements (unaudited).

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except share data)

	Three Months Ended
	March 31,
	2021		2020
Interest income:
Loans, including fees	$	22,014	$	19,738
Securities:
Taxable		1,596		1,174
Tax-exempt		373		321
Restricted equity securities		161		142
Interest-bearing deposits in financial institutions		134		363
Total interest income		24,278		21,738
Interest expense:
Interest-bearing deposits		446		1,901
Savings and money market accounts		313		1,551
Time deposits		931		1,481
Federal Home Loan Bank advances		12		144
Subordinated notes		394		—
Total interest expense		2,096		5,077
Net interest income		22,182		16,661
Provision for loan losses		650		7,553
Net interest income after provision for loan losses		21,532		9,108
Noninterest income:
Deposit service charges		1,102		775
Interchange and debit card transaction fees		1,092		724
Mortgage banking		4,716		2,253
Tri-Net		1,143		599
Wealth management		459		407
SBA lending		492		35
Net gain on sale of securities		26		27
Other noninterest income		984		1,054
Total noninterest income		10,014		5,874
Noninterest expense:
Salaries and employee benefits		9,427		8,002
Data processing and software		2,827		1,864
Occupancy		1,108		820
Equipment		899		751
Professional services		704		636
Regulatory fees		257		163
Acquisition related expenses		67		290
Amortization of intangibles		508		386
Other operating		1,616		1,299
Total noninterest expense		17,413		14,211
Income before income taxes		14,133		771
Income tax expense (benefit)		3,103		(575	)
Net income	$	11,030	$	1,346
Per share information:
Basic net income per share of common stock	$	0.50	$	0.07
Diluted net income per share of common stock	$	0.50	$	0.07
Weighted average shares outstanding:
Basic		22,045,501		18,392,913
Diluted		22,076,600		18,443,725

See accompanying notes to consolidated financial statements (unaudited).

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

	Three Months Ended
	March 31,
	2021			2020
Net income	$	11,030		$	1,346
Other comprehensive income (loss):
Unrealized (losses) gains on securities available-for-sale:
Unrealized (losses) gains arising during the period		(12,708	)		4,203
Reclassification adjustment for gains included in net income		(26	)		(27	)
Tax effect		3,309			(1,021	)
Net of tax		(9,425	)		3,155
Unrealized losses on cash flow hedges:
Reclassification adjustment for losses included in net income		—			253
Tax effect		—			—
Net of tax		—			253
Other comprehensive (loss) income		(9,425	)		3,408
Comprehensive income	$	1,605		$	4,754

See accompanying notes to consolidated financial statements (unaudited).

CAPSTAR FINANCIAL HOLDINGS, INC. & SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share data)

	Common Stock, voting						Additional paid-in			Retained			Accumulated other comprehensive		Total shareholders’
	Shares			Amount			capital			earnings			income (loss)		equity
Balance December 31, 2019		18,361,922		$	18,362		$	207,083		$	46,218		$	1,383	$	273,046
Net issuance of restricted common stock		73,098			73			(196	)		—			—		(123	)
Stock-based compensation expense		—			—			360			—			—		360
Net exercise of common stock options		20,582			21			85			—			—		106
Repurchase of common stock		(147,800	)		(148	)		(1,289	)		—			—		(1,437	)
Common stock dividends declared ($0.05 per share)		—			—			—			(916	)		—		(916	)
Net income		—			—			—			1,346			—		1,346
Other comprehensive income		—			—			—			—			3,408		3,408
Balance March 31, 2020		18,307,802		$	18,308		$	206,043		$	46,648		$	4,791	$	275,790

Balance December 31, 2020		21,988,803		$	21,989		$	246,890		$	66,879		$	7,728	$	343,486
Net issuance of restricted common stock		117,962			118			(216	)		—			—		(98	)
Stock-based compensation expense		—			—			349			—			—		349
Net exercise of common stock options		1,039

Price	15.07	EPS	1
Shares	19	P/E	17
MCap	281	P/FCF	-5
Net Debt	-154	EBIT	44
TEV	127	TEV/EBIT	3
TTM 2019-09-30, in MM, except price, ratios

10-Q	2021-03-31	Filed 2021-05-06
10-K	2020-12-31	Filed 2021-03-05
10-Q	2020-09-30	Filed 2020-11-05
10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-08
10-K	2019-12-31	Filed 2020-03-06
10-Q	2019-09-30	Filed 2019-11-06
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-01
10-K	2018-12-31	Filed 2019-03-15
10-Q	2018-09-30	Filed 2018-11-08
10-Q	2018-06-30	Filed 2018-07-31
10-Q	2018-03-31	Filed 2018-05-02
10-K	2017-12-31	Filed 2018-03-08
10-Q	2017-09-30	Filed 2017-10-18
10-Q	2017-06-30	Filed 2017-07-31
10-Q	2017-03-31	Filed 2017-05-03
10-K	2016-12-31	Filed 2017-03-13
10-Q	2016-09-30	Filed 2016-11-08

8-K	2021-01-28
8-K	2021-01-14
8-K	2020-10-22
8-K	2020-09-21
8-K	2020-07-24
8-K	2020-07-23
8-K	2020-07-01
8-K	2020-06-29
8-K	2020-06-16
8-K	2020-05-04
8-K	2020-04-28
8-K	2020-04-27
8-K	2020-04-24
8-K	2020-04-24
8-K	2020-03-10
8-K	2020-01-23
8-K	2020-01-23
8-K	2020-01-23
8-K	2019-12-04
8-K	2019-10-24
8-K	2019-10-24
8-K	2019-09-12
8-K	2019-09-09
8-K	2019-09-05
8-K	2019-07-25
8-K	2019-06-05
8-K	2019-05-13
8-K	2019-04-25
8-K	2019-04-25
8-K	2019-04-24
8-K	2019-02-19
8-K	2019-02-01
8-K	2019-01-24
8-K	2018-12-28
8-K	2018-12-21
8-K	2018-11-06
8-K	2018-10-24
8-K	2018-10-24
8-K	2018-10-01
8-K	2018-09-13
8-K	2018-08-29
8-K	2018-07-26
8-K	2018-06-11
8-K	2018-06-11
8-K	2018-04-26
8-K	2018-04-26
8-K	2018-01-25

EX-31.1	cstr-ex311_8.htm
EX-31.2	cstr-ex312_7.htm
EX-32.1	cstr-ex321_9.htm
EX-32.2	cstr-ex322_6.htm

CSTR 10Q Quarterly Report

CapStar Financial Earnings 2021-03-31