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CST: 17/11/2019 03:06:20   

CapStar Reports Fully Diluted EPS of ($0.04) and Fully Diluted Operating EPS of $0.33 for 4Q 2018

296 Days ago

CapStar Reports Record Fully Diluted Operating EPS of $1.19 for 2018

NASHVILLE, Tenn., Jan. 24, 2019 (GLOBE NEWSWIRE) -- CapStar Financial Holdings, Inc. (“CapStar”) (NASDAQ:CSTR) reported a net loss of ($0.7) million, or ($0.04) per share on a fully diluted basis, for the three months ended December 31, 2018, compared to net income of $0.0 million, or $0.01 per share on a fully diluted basis, for the three months ended December 31, 2017.  Operating(1) net income was $6.2 million, or $0.33 per share on a fully diluted basis, for the three months ended December 31, 2018, compared to $3.7 million, or $0.28, for the three months ended December 31, 2017. 

Net income for the twelve months ended December 31, 2018 was $9.7 million, or $0.67 per share on a fully diluted basis, compared to net income of $1.5 million, or $0.12 per share on a fully diluted basis, for the twelve months ended December 31, 2017. Operating net income was $17.2 million, or $1.19 per share on a fully diluted basis, for the twelve months ended December 31, 2018, compared to $5.1 million, or $0.40, for the twelve months ended December 31, 2017. 

“From a performance standpoint, 2018 was a good year for CapStar,” said Claire W. Tucker, CapStar’s president and chief executive officer.  “We initiated a quarterly dividend for our shareholders, were named a C&I leader in U.S. Small Business Banking by Greenwich Associates, and closed our acquisition of Athens Bancshares,” Ms. Tucker continued.  “I am very proud of our team’s efforts under very difficult circumstances.  The sudden passing of CapStar Bank president Dan W. Hogan was a tragic loss for everyone who knew him, and he will be missed tremendously. However, the strength of the CapStar culture that Dan helped build and exemplified so well stood out in each of our associates when it mattered most. Our focus on caring for our customers and each other never wavered.”

Soundness

  • The current reserve of $12.1MM plus the $5.2MM fair value mark on acquired loans would equate to a 1.21% reserve/loans.
  • Current Criticized and Classified loans are at a low level, totaling 1.71% at December 31, 2018 compared to 2.64% at December 31, 2017.
  • Non-performing assets as a percentage of total loans and other real estate owned was 0.21% at December 31, 2018 compared to 0.28% at December 31, 2017.
  • Annualized net charge-offs to average loans was 1.27% for the three months ended December 31, 2018 compared to 0.15% for the same period in 2017.             
  • Annualized net charge-offs for the year ended December 31, 2018 totaled 0.39%, compared to 1.09% for the year ended December 31, 2017.
  • The total risk based capital ratio was 12.84% at December 31, 2018 compared to 12.52% at December 31, 2017.

“CapStar’s strategy remains one of sound, profitable growth.  While charge-offs are never easy to accept, our current criticized loans are at historic low points and we feel very good about our asset quality going forward,” Ms. Tucker continued.    

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 financial results of the CapStar’s operations.

  • Operating return on average assets ("ROAA") for the three months ended December 31, 2018 was 1.27% compared to 1.09% for the same period in 2017.
  • Operating return on average tangible equity ("ROATE") for the three months ended December 31, 2018 was 12.36% compared to 10.25% for the same period in 2017.
  • The net interest margin (“NIM”) for the three months ended December 31, 2018 was 3.89% compared to 3.30% for the same period in 2017. 
  • The operating efficiency ratio for the three months ended December 31, 2018 was 61.83% compared to 65.63% for the same period in 2017.

“Our profitability profile improved significantly with the closing of the Athens acquisition on October 1, 2018,” said Rob Anderson, chief financial officer and chief administrative officer of CapStar.  “While competition for quality loans and core deposits remains fierce, we will stick to our discipline of sound, profitable, growth.”

Growth

  • Average gross loans for the quarter ended December 31, 2018 increased 50.5% to $1.44 billion, compared to $956.4 million for the same period in 2017.
    • Excluding the impact of acquired loans, legacy CapStar loans increased 13.9% compared to the same period in 2017.
  • Average deposits for the quarter ended December 31, 2018 increased 46.0% to $1.58 billion, compared to $1.1 billion for the same period in 2017.
    • Excluding the impact of acquired deposits, legacy CapStar deposits increased 4.1% compared to the same period in 2017.
  • Average total assets for the quarter ended December 31, 2018 increased 46.0% to $1.94 billion, compared to $1.33 billion for the same period in 2017.

“With the acquisition of Athens, we experienced an increase in our loan portfolio of over 50% from the fourth quarter of 2017.  Excluding the impact of acquired loans, legacy CapStar loans grew 14% since the end of last year as our bankers continue to provide excellent service and differentiate themselves with our customers,” said Mr. Anderson.  “In addition, we continue to make good progress in our integration efforts with Athens Federal and are on track with our stated synergies and delivering on the economics of the merger at announcement. I’m confident the combined organization will bring even stronger value to our shareholders, our customers and the communities in which we serve,” Anderson concluded.

Dividend

On January 24, 2019, the board of directors of CapStar approved a quarterly dividend of $0.04 per share that will be paid on or about February 25, 2019 to all shareholders of record of CapStar’s capital stock as of the close of business on February 5, 2019.

Conference Call and Webcast Information

CapStar will host a conference call and webcast at 9:00 a.m. Central Time on Friday, January 25, 2019.  During the call, management will review the fourth quarter results and operational highlights.  Interested parties may listen to the call by dialing (844) 412-1002.  The conference ID number is 1857538.  A simultaneous webcast may be accessed on CapStar’s website at ir.capstarbank.com by clicking on “News & Events”.  An archived version of the webcast will be available in the same location shortly after the live call has ended.

About CapStar Financial Holdings, Inc.

CapStar Financial Holdings, Inc. is a bank holding company headquartered in Nashville, Tennessee and operates primarily through its wholly owned subsidiary, CapStar Bank, a Tennessee-chartered state bank.  CapStar Bank is a commercial bank that seeks to establish and maintain comprehensive relationships with its clients by delivering customized and creative banking solutions and superior client service.  As of December 31, 2018, on a consolidated basis, CapStar had total assets of $1.96 billion, gross loans of $1.43 billion, total deposits of $1.57 billion, and shareholders’ equity of $254.4 million.  Visit www.capstarbank.com for more information.

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, CapStar’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 and the timing, benefits, costs and synergies of recently completed and future acquisition, disposition and other growth opportunities, including, without limitation, those relating to the acceptance by customers of Athens of CapStar’s products and services, the ability of CapStar to meet expectations regarding the benefits, costs, synergies, and financial and operational impact of the Athens merger, the possibility that any of the anticipated benefits, costs, synergies and financial and operational improvements of the Athens merger will not be realized or will not be realized as expected, the possibility that the Athens merger integration may be more expensive or take more time to complete than anticipated, the opportunities to enhance market share in certain markets and market acceptance of CapStar are generally in new markets and CapStar’s commitment to make contributions to Athens Federal Foundation. 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 its 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 (Loss) (unaudited) (dollars in thousands, except share data)

Fourth Quarter 2018 Earnings Release 

     Three Months Ended     Year Ended  
    December 31,     December 31,  
    2018     2017     2018     2017  
Interest income:                                
Loans, including fees   $ 20,554     $ 11,666     $ 60,751     $ 45,601  
Securities:                                
Taxable     1,411       869       4,184       3,696  
Tax-exempt     416       286       1,201       1,230  
Federal funds sold     8       15       63       41  
Restricted equity securities     181       125       571       396  
Interest-bearing deposits in financial institutions     330       163       1,011       551  
Total interest income     22,900       13,124       67,781       51,515  
Interest expense:                                
Interest-bearing deposits     1,371       608       4,164       2,447  
Savings and money market accounts     1,619       827       5,446       3,188  
Time deposits     1,472       694       3,940       2,445  
Federal funds purchased                 3       13  
Securities sold under agreements to repurchase     3             3       0  
Federal Home Loan Bank advances     719       477       2,533       1,559  
Total interest expense     5,184       2,606       16,089       9,652  
Net interest income     17,716       10,518       51,692       41,863  
Provision for loan losses     1,514       (30 )     2,842       12,870  
Net interest income after provision for loan losses     16,202       10,548       48,850       28,993  
Noninterest income:                                
Treasury management and other deposit service charges     793       419       2,150       1,516  
Net gain (loss) on sale of securities     1       (108 )     3       (66 )
Tri-Net fees     276       254       1,503       1,002  
Mortgage banking income     1,324       1,621       5,653       6,238  
Other noninterest income     3,993       550       6,150       2,218  
Total noninterest income     6,387       2,736       15,459       10,908  
Noninterest expense:                                
Salaries and employee benefits     9,475       5,411       28,586       20,400  
Data processing and software     1,424       746       3,835       2,786  
Professional fees     534       473       1,608       1,522  
Occupancy     736       507       2,336       2,025  
Equipment     810       467       2,471       2,071  
Regulatory fees     364       234       1,028       1,111  
Merger related expenses     8,929             9,803        
Other operating     1,560       861       3,820       3,850  
Total noninterest expense     23,832       8,699       53,487       33,765  
Income (loss) before income taxes     (1,243 )     4,585       10,822       6,136  
Income tax expense     (535 )     4,494       1,167       4,635  
Net income (loss)   $ (708 )   $ 91     $ 9,655     $ 1,501  
Per share information:                                
Basic net income (loss) per share of common stock   $ (0.04 )   $ 0.01     $ 0.73     $ 0.13  
Diluted net income (loss) per share of common stock   $ (0.04 )   $ 0.01     $ 0.67     $ 0.12  
Weighted average shares outstanding:                                
Basic     17,509,525       11,403,689       13,277,614       11,280,580  
Diluted     18,716,562       12,938,288       14,480,347       12,803,511  

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)

Fourth Quarter 2018 Earnings Release

     Five Quarter Comparison  
    12/31/18     9/30/18     6/30/18     3/31/18     12/31/17  
Income Statement Data:                                        
Net interest income   $ 17,716     $ 11,543     $ 11,587     $ 10,846     $ 10,518  
Provision for loan losses     1,514       481       169       678       (30 )
Net interest income after provision for loan losses     16,202       11,062       11,418       10,168       10,548  
Treasury management and other deposit service charges     793       528       427       402       419  
Net gain (loss) on sale of securities     1       (1 )     3             (108 )
Tri-Net fees     276       374       325       528       254  
Mortgage banking income     1,324       1,634       1,383       1,313       1,621  
Other noninterest income     3,993       683       627       845       550  
Total noninterest income     6,387       3,218       2,765       3,088       2,736  
Salaries and employee benefits     9,475       6,514       6,340       6,257       5,411  
Data processing and software     1,424       803       810       798       746  
Professional fees     534       255       344       474       473  
Occupancy     736       544       535       521       507  
Equipment     810       520       602       539       467  
Regulatory fees     364       228       233       203       234  
Merger related expenses     8,929       540       335              
Other operating     1,560       666       806       788       861  
Total noninterest expense     23,832       10,070       10,005       9,580       8,699  
Net income (loss) before income tax expense     (1,243 )     4,210       4,178       3,676       4,585  
Income tax (benefit) expense     (535 )     554       665       483       4,494  
Net income (loss)   $ (708 )   $ 3,656     $ 3,513     $ 3,193     $ 91  
Weighted average shares - basic     17,509,525       12,040,229       11,845,822       11,664,245       11,403,689  
Weighted average shares - diluted     18,716,562       13,113,775       13,067,223       12,975,759       12,938,288  
Net income (loss) per share, basic   $ (0.04 )   $ 0.30     $ 0.30     $ 0.27     $ 0.01  
Net income (loss) per share, diluted     (0.04 )     0.28       0.27       0.25       0.01  
Balance Sheet Data (at period end):                                        
Cash and cash equivalents   $ 105,443     $ 52,589     $ 58,222     $ 51,125     $ 82,797  
Securities available-for-sale     243,808       187,469       183,364       189,580       192,621  
Securities held-to-maturity     3,734       3,740       3,746       3,752       3,759  
Loans held for sale     57,618       50,499       65,320       62,286       74,093  
Total loans     1,429,794       1,073,870       1,046,525       1,031,821       947,537  
Allowance for loan losses     (12,113 )     (15,218 )     (14,705 )     (14,563 )     (13,721 )
Total assets     1,963,883       1,416,907       1,401,181       1,382,745       1,344,429  
Non-interest-bearing deposits     289,552       239,792       223,579       258,161       301,742  
Interest-bearing deposits     1,280,456       886,611       921,435       869,393       818,124  
Federal Home Loan Bank advances     125,000       125,000       95,000       100,000       70,000  
Total liabilities     1,709,504       1,259,397       1,248,035       1,234,052       1,197,483  
Shareholders' equity   $ 254,379     $ 157,510     $ 153,146     $ 148,693     $ 146,946  
Total shares of common stock outstanding     17,724,721       12,125,122       11,931,131       11,773,358       11,582,026  
Total shares of preferred stock outstanding     878,048       878,048       878,049       878,049       878,049  
Book value per share of common stock   $ 13.84     $ 12.25     $ 12.08     $ 11.87     $ 11.91  
Tangible book value per share of common stock *     11.25       11.74       11.56       11.34       11.37  
Market value per common share   $ 14.73     $ 16.72     $ 18.53     $ 18.83     $ 20.77  
Capital ratios:                                        
Total risk based capital     12.84 %     12.62 %     12.53 %     12.22 %     12.52 %
Tier 1 risk based capital     12.13 %     11.49 %     11.41 %     11.11 %     11.41 %
Common equity tier 1 capital     11.61 %     10.83 %     10.73 %     10.43 %     10.70 %
Leverage     11.06 %     11.02 %     10.87 %     10.91 %     10.77 %

*This metric is a non-GAAP financial measure.  See below for discussion and 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)

Fourth Quarter 2018 Earnings Release

     Five Quarter Comparison  
    12/31/18     9/30/18     6/30/18     3/31/18     12/31/17  
Average Balance Sheet Data:                                        
Cash and cash equivalents   $ 83,560     $ 62,787     $ 63,064     $ 60,965     $ 64,850  
Investment securities     256,595       196,031       197,933       203,274       202,818  
Loans held for sale     52,131       54,701       58,297       68,084       66,311  
Loans     1,439,652       1,070,060       1,041,835       983,496       956,441  
Assets     1,940,991       1,421,873       1,396,359       1,351,129       1,329,621  
Interest bearing deposits     1,271,602       913,534       901,076       840,871       827,732  
Deposits     1,579,250       1,147,274       1,138,400       1,111,182       1,081,380  
Federal Home Loan Bank advances     102,304       109,728       99,121       84,533       92,554  
Liabilities     1,695,181       1,265,610       1,244,824       1,202,854       1,181,954  
Shareholders' equity   $ 245,811     $ 156,264     $ 151,535     $ 148,276     $ 147,667  
Performance Ratios:                                        
Annualized return on average assets     -0.14 %     1.02 %     1.01 %     0.96 %     0.03 %
Annualized return on average equity     -1.14 %     9.28 %     9.30 %     8.74 %     0.25 %
Net interest margin (1)     3.89 %     3.35 %     3.46 %     3.39 %     3.30 %
Annualized Non-interest income to average assets     1.31 %     0.90 %     0.79 %     0.93 %     0.82 %
Efficiency ratio     98.9 %     68.2 %     69.7 %     68.8 %     65.6 %
Loans by Type (at period end):                                        
Commercial and industrial   $ 404,600     $ 398,626     $ 386,065     $ 408,353     $ 373,248  
Commercial real estate - owner occupied     141,932       117,904       121,475       131,741       101,132  
Commercial real estate - non-owner occupied     408,514       286,848       286,769       258,016       249,490  
Construction and development     174,670       129,799       96,580       91,953       82,586  
Consumer real estate     253,562       112,957       109,915       104,224       102,581  
Consumer     25,615       8,274       9,671       9,524       6,862  
Other   $ 21,002     $ 19,792     $ 36,428     $ 28,750     $ 31,984  
Asset Quality Data:                                        
Allowance for loan losses to total loans     0.85 %     1.42 %     1.41 %     1.41 %     1.45 %
Allowance for loan losses to non-performing loans     583 %     271 %     271 %     1096 %     509 %
Nonaccrual loans   $ 2,078     $ 5,610     $ 5,419     $ 1,329     $ 2,695  
Troubled debt restructurings     2,947       1,146       1,173       1,190       1,206  
Loans - over 89 days past due and accruing     214       215       216       -       231  
Total non-performing loans      2,078       5,610       5,419       1,329       2,695  
OREO and repossessed assets     988       -       -       -       -  
Total non-performing assets   $ 3,066     $ 5,610     $ 5,419     $ 1,329     $ 2,695  
Non-performing loans to total loans     0.15 %     0.52 %     0.52 %     0.13 %     0.28 %
Non-performing assets to total assets     0.16 %     0.40 %     0.39 %     0.10 %     0.20 %
Non-performing assets to total loans and OREO     0.21 %     0.52 %     0.52 %     0.13 %     0.28 %
Annualized net charge-offs (recoveries) to average loans     1.27 %     (0.01 )%     0.01 %     -0.07 %     0.15 %
Net charge-offs (recoveries)   $ 4,620     $ (32 )   $ 27     $ (165 )   $ 372  
Interest Rates and Yields:                                        
Loans     5.49 %     5.00 %     5.04 %     4.74 %     4.54 %
Securities (1)     3.30 %     2.85 %     2.82 %     2.68 %     2.83 %
Total interest-earning assets (1)     5.02 %     4.58 %     4.58 %     4.29 %     4.11 %
Deposits     1.12 %     1.22 %     1.11 %     0.88 %     0.78 %
Borrowings and repurchase agreements     2.76 %     2.53 %     2.53 %     2.35 %     2.04 %
Total interest-bearing liabilities     1.50 %     1.64 %     1.51 %     1.27 %     1.12 %
Other Information:                                        
Full-time equivalent employees     286       185       183       182       175  

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)

Fourth Quarter 2018 Earnings Release

     For the Three Months Ended December 31,  
    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)   $ 1,439,652     $ 19,904       5.49 %   $ 956,441     $ 10,950       4.54 %
Loans held for sale     52,131       650       4.95 %     66,311       716       4.28 %
Securities:                                                
Taxable investment securities (2)     198,799       1,592       3.20 %     153,882       994       2.58 %
Investment securities exempt from
  federal income tax (3)
    57,796       416       3.64 %     48,936       286       3.60 %
Total securities     256,595       2,008       3.30 %     202,818       1,280       2.83 %
Cash balances in other banks     67,880       330       1.93 %     52,988       163       1.22 %
Funds sold     1,047       8       2.92 %     2,989       15       2.04 %
Total interest-earning assets     1,817,305       22,900       5.02 %     1,281,547       13,124       4.11 %
Noninterest-earning assets     123,686                       48,074                  
Total assets   $ 1,940,991                     $ 1,329,621                  
Interest-Bearing Liabilities                                                
Interest-bearing deposits:                                                
Interest-bearing transaction accounts   $ 437,656       1,371       1.24 %   $ 281,881       608       0.86 %
Savings and money market deposits     496,319       1,619       1.29 %     346,639       827       0.95 %
Time deposits     337,628       1,472       1.73 %     199,212       694       1.38 %
Total interest-bearing deposits     1,271,603       4,462       1.39 %     827,732       2,129       1.02 %
Borrowings and repurchase agreements     103,655       722       2.76 %     92,554       477       2.04 %
Total interest-bearing liabilities     1,375,258       5,184       1.50 %     920,286       2,606       1.12 %
Noninterest-bearing deposits     307,648                       253,647                  
Total funding sources     1,682,905                       1,173,933                  
Noninterest-bearing liabilities     12,275                       8,021                  
Shareholders’ equity     245,811                       147,667                  
Total liabilities and shareholders’ equity   $ 1,940,991                     $ 1,329,621                  
Net interest spread (4)                     3.53 %                     2.99 %
Net interest income/margin (5)           $ 17,716       3.89 %           $ 10,518       3.30 %


(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)

Fourth Quarter 2018 Earnings Release

    For the Year Ended December 31,  
    2018     2017  
(Amounts in thousands)   Average
Outstanding
Balance
    Interest
Income/
Expense
    Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Income/
Expense
    Average
Yield/
Rate
 
Interest-Earning Assets                                                
Loans (1)   $ 1,134,836     $ 57,962       5.11 %   $ 987,710     $ 43,531       4.41 %
Loans held for sale     58,250       2,789       4.79 %     49,466       2,070       4.19 %
Securities:                                                
Taxable investment securities (2)     166,287       4,755       2.86 %     166,538       4,092       2.46 %
Investment securities exempt from
  federal income tax (3)
    47,270       1,201       3.22 %     52,153       1,230       3.63 %
Total securities     213,557       5,956       2.94 %     218,691       5,322       2.74 %
Cash balances in other banks     54,454       1,011       1.85 %     49,990       551       1.10 %
Funds sold     2,483       63       2.55 %     2,518       41       1.63 %
Total interest-earning assets     1,463,579       67,781       4.65 %     1,308,375       51,515       3.99 %
Noninterest-earning assets     65,336                       49,419                  
Total assets   $ 1,528,915                     $ 1,357,794                  
Interest-Bearing Liabilities                                                
Interest-bearing deposits:                                                
Interest-bearing transaction accounts   $ 330,952       4,164       1.26 %   $ 301,411       2,447       0.81 %
Savings and money market deposits     424,052       5,446       1.28 %     378,640       3,188       0.84 %
Time deposits     227,760       3,940       1.73 %     194,892       2,444       1.25 %
Total interest-bearing deposits     982,764       13,550       1.38 %     874,943       8,079       0.92 %
Borrowings and repurchase agreements     99,450       2,539       2.55 %     98,289       1,572       1.60 %
Total interest-bearing liabilities     1,082,214       16,089       1.49 %     973,232       9,651       0.99 %
Noninterest-bearing deposits     262,280                       232,687                  
Total funding sources     1,344,494                       1,205,919                  
Noninterest-bearing liabilities     8,735                       8,474                  
Shareholders’ equity     175,686                       143,402                  
Total liabilities and shareholders’ equity   $ 1,528,915                     $ 1,357,795                  
Net interest spread (4)                     3.17 %                     3.00 %
Net interest income/margin (5)           $ 51,692       3.55 %           $ 41,864       3.25 %


(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)

Fourth Quarter 2018 Earnings Release

     Three Months Ended  
    December
31, 2018
    September
30, 2018
    June 30,
2018
    March 31,
2018
    December
31, 2017
 
Operating net income:                                        
Net income (loss)   $ (708 )   $ 3,656     $ 3,513     $ 3,193     $ 91  
Add:  impact of tax reform*                             3,562  
Add:  merger related expenses     8,929       540       335              
Less: income tax impact of merger related expenses     (1,985 )     (141 )     (88 )            
Operating net income   $ 6,236     $ 4,055     $ 3,760     $ 3,193     $ 3,653  
                                         
Operating diluted net income per
  share of common stock:
                                       
Operating net income   $ 6,236     $ 4,055     $ 3,760     $ 3,193     $ 3,653  
Weighted average shares - diluted     18,716,562       13,113,775       13,067,223       12,975,759       12,938,288  
Operating diluted net income
  per share of common stock
  $ 0.33     $ 0.31     $ 0.29     $ 0.25     $ 0.28  
                                         
Operating annualized return on average assets:                                        
Operating net income   $ 6,236     $ 4,055     $ 3,760     $ 3,193     $ 3,653  
Average assets   $ 1,940,991     $ 1,421,873     $ 1,396,359     $ 1,351,129     $ 1,329,621  
Operating annualized return on
  average assets
    1.27 %     1.13 %     1.08 %     0.96 %     1.09 %
                                         
Operating annualized return on
  average tangible equity:
                                       
Average total shareholders' equity   $ 245,811     $ 156,264     $ 151,535     $ 148,276     $ 147,667  
Less: average intangible assets     (45,687 )     (6,220 )     (6,228 )     (6,238 )     (6,248 )
Average tangible equity     200,124       150,044       145,307       142,038       141,419  
Operating net income   $ 6,236     $ 4,055     $ 3,760     $ 3,193     $ 3,653  
Operating annualized return on
  average tangible equity
    12.36 %     10.72 %     10.38 %     9.12 %     10.25 %
                                         
Operating efficiency ratio:                                        
Total noninterest expense   $ 23,832     $ 10,070     $ 10,005     $ 9,580     $ 8,699  
Less:  merger related expenses     (8,929 )     (540 )     (335 )            
Total operating noninterest expense     14,903       9,530       9,670       9,580       8,699  
Net interest income     17,716       11,543       11,587       10,846       10,518  
Total noninterest income     6,387       3,218       2,765       3,088       2,736  
Total revenues   $ 24,103     $ 14,761     $ 14,352     $ 13,934     $ 13,254  
Operating efficiency ratio:     61.83 %     64.56 %     67.38 %     68.75 %     65.63 %
                                         
    December
31, 2018
    September
30, 2018
    June 30,
2018
    March 31,
2018
    December
31, 2017
 
Tangible Equity:                                        
Total shareholders' equity   $ 254,379     $ 157,510     $ 153,146     $ 148,693     $ 146,946  
Less: intangible assets     (46,048 )     (6,219 )     (6,222 )     (6,232 )     (6,242 )
Tangible equity   $ 208,331     $ 151,291     $ 146,924     $ 142,461     $ 140,704  
                                         
Tangible Common Equity:                                        
Tangible equity   $ 208,331     $ 151,291     $ 146,924     $ 142,461     $ 140,704  
Less: preferred equity     (9,000 )     (9,000 )     (9,000 )     (9,000 )     (9,000 )
Tangible common equity   $ 199,331     $ 142,291     $ 137,924     $ 133,461     $ 131,704  
                                         
Tangible Book Value per Share of Common Stock:                                        
Tangible common equity   $ 199,331     $ 142,291     $ 137,924     $ 133,461     $ 131,704  
Total shares of common stock outstanding     17,724,721       12,125,122       11,931,131       11,773,358       11,582,026  
Tangible book value per share of common stock   $ 11.25     $ 11.74     $ 11.56     $ 11.34     $ 11.37  

*As a result of the Tax Cuts and Jobs Act of 2017, which included a Federal corporate tax rate change from 35% to 21%, we revalued our deferred tax assets, which resulted in a $3.6 million increase in income tax expense for 2017.  The non-GAAP operating ratios above have excluded the impact of this transaction.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

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

Fourth Quarter 2018 Earnings Release

     Year Ended  
    December 31, 2018     December 31, 2017  
Operating net income:                
Net income   $ 9,655     $ 1,501  
Add:  impact of tax reform*           3,562  
Add:  merger related expenses     9,803        
Less: income tax impact of merger related expenses     (2,213 )      
Operating net income   $ 17,245     $ 5,063  
                 
Operating diluted net income per
  share of common stock:
               
Operating net income   $ 17,245     $ 5,063  
Weighted average shares - diluted     14,480,347       12,803,511  
Operating diluted net income
  per share of common stock
  $ 1.19     $ 0.40  
                 
Operating annualized return on average assets:                
Operating net income   $ 17,245     $ 5,063  
Average assets   $ 1,528,915     $ 1,357,794  
Operating annualized return on
  average assets
    1.13 %     0.37 %
                 
Operating annualized return on
  average tangible equity:
               
Average total shareholders' equity   $ 175,686     $ 143,402  
Less: average intangible assets     (16,174 )     (6,265 )
Average tangible equity     159,512       137,137  
Operating net income   $ 17,245     $ 5,063  
Operating annualized return on
  average tangible equity
    10.81 %     3.69 %
                 
Operating efficiency ratio:                
Total noninterest expense   $ 53,487     $ 33,765  
Less:  merger related expenses     (9,803 )      
Total operating noninterest expense     43,684       33,765  
Net interest income     51,692       41,863  
Total noninterest income     15,459       10,908  
Total revenues   $ 67,151     $ 52,771  
Operating efficiency ratio:     65.05 %     63.98 %

*As a result of the Tax Cuts and Jobs Act of 2017, which included a Federal corporate tax rate change from 35% to 21%, we revalued our deferred tax assets, which resulted in a $3.6 million increase in income tax expense for 2017.  The non-GAAP operating ratios above have excluded the impact of this transaction.

(1) For a discussion and reconciliation of the Non-GAAP operating measures that exclude merger-related costs unrelated to CapStar’s normal operations, see the section titled “Non-GAAP Disclaimer” and the Non-GAAP financial measures section of the financial statements.

CONTACT

Rob Anderson
Chief Financial Officer and Chief Administrative Officer
(615) 732-6470

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