CapStar Reports Second Quarter 2021 Results

Rhea-AI Summary

CapStar Financial Holdings (CSTR) reported a net income of $12.1 million ($0.54 per diluted share) for Q2 2021, an increase from $11.0 million in Q1 2021 and $6.2 million in Q2 2020. Year-to-date net income reached $23.1 million, compared to $7.5 million in 2020. Key metrics included an annualized return on average assets of 1.57% and a return on average equity of 13.50%. Total revenue grew to $32.9 million, driven by increased net interest income. The efficiency ratio rose to 57.97%. Additionally, a quarterly cash dividend of $0.06 was announced, payable August 25, 2021.

Positive

• Net income increased to $12.1 million in Q2 2021 from $11.0 million in Q1 2021.
• Year-to-date net income of $23.1 million shows substantial growth from $7.5 million in 2020.
• Annualized return on average assets improved to 1.57% in Q2 2021.
• Total revenue rose to $32.9 million, with net interest income contributing significantly to growth.

Negative

• The efficiency ratio increased to 57.97%, indicating a rise in noninterest expenses relative to total revenue.
• Noninterest income declined by $131,000 from the prior quarter.

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

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

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

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

Revenue

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

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

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

Within the adjusted net interest margin, the Company continued to experience favorable deposit trends. Average deposits totaled $2.66 billion in the second quarter of 2021, unchanged from the prior quarter. The Company experienced a favorable mix shift as average interest-bearing deposits declined $46.2 million, led by a $34.2 million reduction in higher cost time deposits. While the Company is experiencing a period of excess liquidity, a key longer-term strategic initiative is to create a stronger deposit-led culture with an emphasis on lower cost relationship-based deposits. During the quarter, the Company’s two lowest cost deposit categories, noninterest bearing and savings, increased $55.8 million on average from the prior quarter, or 27.8 percent linked-quarter annualized. Deposit costs declined across all interest-bearing account types leading to a 6 basis point decline to 0.29 percent. Combined with the favorable shift in noninterest bearing deposits, total deposit costs improved 5 basis points to 0.21 percent.

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

Noninterest Expense and Operating Efficiency

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

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

Asset Quality

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

As a result of the Company’s quarterly analysis of the adequacy of the allowance for credit losses, the Company released reserves during the quarter based on improved asset quality trends and other qualitative factors. In addition to providing reserves for the strong loan growth experienced during the second quarter, the allowance for loan losses declined $1.1 million. As a result, the allowance for loan losses plus the fair value mark on acquired loans to total loans, less PPP loans, declined 13 basis points to 1.46 percent at June 30, 2021 from 1.59 percent at March 31, 2021. 

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

Income Tax Expense

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

Capital

The Company continues to be strongly capitalized with tangible equity of $311.1 million at June 30, 2021. Tangible book value per share of common stock for the quarter ended June 30, 2021 increased to $14.03 compared to $13.34 and $13.02 for the quarters ended March 31, 2021 and June 30, 2020, respectively. The regulatory capital ratios in the table below are significantly above levels required to be considered “well capitalized," which is the highest possible regulatory designation.

Capital ratios:		6/30/2021				3/31/2021				12/31/2020				9/30/2020				6/30/2020
Total risk-based capital			16.13	%			16.29	%			16.03	%			15.96	%			16.76	%
Common equity tier 1 capital			13.78	%			13.79	%			13.52	%			13.39	%			13.76	%
Leverage			10.17	%			9.78	%			9.60	%			9.23	%			10.08	%

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

Dividend

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

Conference Call and Webcast Information

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

About CapStar Financial Holdings, Inc.

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

NON-GAAP MEASURES

This release includes financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). This financial information includes certain operating performance measures, which exclude merger-related and other charges that are not considered part of recurring operations. Such measures include: “Efficiency ratio – operating,” “Expenses – operating,” “Earnings per share – operating,” “Diluted earnings per share – operating,” “Tangible book value per share,” “Return on common equity – operating,” “Return on tangible common equity – operating,” “Return on assets – operating,” and “Tangible common equity to tangible assets.”

Management has included these non-GAAP measures because it believes these measures may provide useful supplemental information for evaluating CapStar’s underlying performance trends. Further, management uses these measures in managing and evaluating CapStar’s business and intends to refer to them in discussions about our operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the ‘Non-GAAP Reconciliation Tables’ included in the exhibits to this presentation.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Income (unaudited) (dollars in thousands, except share data)
Second quarter 2021 Earnings Release

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

This information is preliminary and based on CapStar data available at the time of this earnings release.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)
Second quarter 2021 Earnings Release

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

_____________________
*This metric is a non-GAAP financial measure. See Non-GAAP disclaimer in this earnings release and below for discussion and reconciliation to the most directly comparable GAAP financial measure.
This information is preliminary and based on CapStar data available at the time of this earnings release.

CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (unaudited) (dollars in thousands, except share data)
Second quarter 2021 Earnings Release

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

_____________________

This information is preliminary and based on CapStar data available at the time of this earnings release.

(1)   Net Interest Margin, Securities yields, and Total interest-earning asset yields are calculated on a tax-equivalent basis.


CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Analysis of Interest Income and Expense, Rates and Yields (unaudited) (dollars in thousands)
Second quarter 2021 Earnings Release

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

_____________________

(1)   Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(2)   Taxable investment securities include restricted equity securities.
(3)   Yields on tax exempt securities, total securities, and total interest-earning assets are shown on a tax equivalent basis.
(4)   Net interest spread is the average yield on total average interest-earning assets minus the average rate on total average interest-bearing liabilities.
(5)   Net interest margin is annualized net interest income calculated on a tax equivalent basis divided by total average interest-earning assets for the period.

This information is preliminary and based on CapStar data available at the time of this earnings release.

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

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

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

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

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

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

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

_____________________

(1)   Net interest margin and adjusted net interest margin are shown on a tax equivalent basis.

CONTACT

Denis J. Duncan
Chief Financial Officer
(615) 732-7492

FAQ

What are the Q2 2021 financial results for CapStar Financial Holdings (CSTR)?

CapStar reported a net income of $12.1 million, or $0.54 per diluted share, for Q2 2021.

How much did CapStar's revenue increase in Q2 2021 compared to Q1 2021?

Total revenue increased by $0.7 million to $32.9 million from the prior quarter.

What is the efficiency ratio for CapStar in Q2 2021?

The efficiency ratio for CapStar rose to 57.97% in Q2 2021.

What dividend was announced by CapStar Financial Holdings in July 2021?

CapStar announced a quarterly cash dividend of $0.06 per common share, payable on August 25, 2021.

How much did CapStar earn year-to-date in 2021 compared to 2020?

CapStar reported year-to-date net income of $23.1 million in 2021, compared to $7.5 million in 2020.