CSTR - CapStar Reports Third Quarter 2023 Results | Benzinga
NASHVILLE, Tenn., Oct. 26, 2023 (GLOBE NEWSWIRE) -- CapStar Financial Holdings, Inc. ("CapStar") (NASDAQ:CSTR) today reported net income of $8.9 million or $0.43 per diluted share, for the quarter ended September 30, 2023, compared with net income of $7.8 million or $0.37 per diluted share, for the quarter ended June 30, 2023, and net income of $8.0 million or $0.37 per diluted share, for the quarter ended September 30, 2022. Annualized return on average assets and return on average equity for the quarter ended September 30, 2023 was 1.10% and 10.18%, respectively.
"CapStar's third quarter results demonstrate the hard work of our associates to mitigate the impact of the rapid rise in interest rates over the past year," said Timothy K. Schools, CapStar President and Chief Executive Officer. "While the pace in the rise of market deposit rates slowed during the quarter, marginal deposit rates remain high relative to portfolio and new production loan yields and clients continue to migrate toward higher yielding deposit products. In response, we are focusing on controlling the controllables - liquidity, credit, expenses, and capital - each showing strength this quarter."
"Over the past five years, our team has repositioned CapStar enhancing its performance and long-term prospects. Today's merger announcement will build on and further accelerate our progress. This partnership follows 16 years of meaningful work and best positions CapStar's employees, customers, and shareholders for future success. Excitingly, our organizations share common missions and cultures, and CapStar will be a major contributor to their organization as we strengthen Old National's recent entry into Tennessee."
"I am thankful for the opportunity to have led CapStar and worked with so many talented professionals. Our team's results during this period are nothing short of remarkable. Key accomplishments include:
- Created a highly effective workforce elevating our Gallup engagement index to 73rd percentile nationally
- Elevated operating results being named by Bank Director as the nation's 14th highest performing publicly traded bank in 2022 and the highest performing Tennessee-based bank each of the past three years
- Annualized growth in total assets of 12.5% to $3.3 billion to include expansion into the dynamic Rutherford/Williamson County, Asheville, Chattanooga, and Knoxville markets
- Annualized growth in dividends per share of 19.9%
- Total shareholder return for the period of 12.5% as compared to negative 15.6% for the KRE regional bank index"
Revenue
Total revenue, defined as net interest income plus noninterest income, was $26.6 million in the third quarter of 2023 compared to the second quarter of 2023 revenue of $28.8 million.
Third quarter net interest income decreased $2.2 million from the prior quarter to $20.4 million while noninterest income remained stable at $6.3 million.
Third quarter 2023 average earning assets increased $27.4 million to $2.99 billion compared to the second quarter 2023. The growth in average earning assets was attributed to an increase in average cash balances of $112.0 million and offset by a decrease in average loans held for investment of $58.6 million. The related yield on loans held for investment increased 19 basis points from the prior quarter to 5.98%.
Over the past year, the Company has been proactive and disciplined in curtailing lending on commercial real estate investment properties and to non-depositors, focusing primarily on liquidity management. While third quarter 2023 end of period loan held for investment balances declined versus the second quarter of 2023, the Company maintains strong lending capabilities in robust markets.
The net interest margin decreased 35 basis points from the prior quarter to 2.71%. Excess interest-bearing cash reduced the net interest margin by 14 basis points in the third quarter of 2023, versus a 4 basis point adverse net interest margin impact for the second quarter of 2023. The remaining net interest margin decline was principally related to rising deposit rates as a result of intense market competition, which has eased somewhat recently. The total cost of deposits increased 59 basis points from the second quarter of 2023 to 2.85% in the third quarter of 2023, exceeding the 19 basis point loan yield increase in the third quarter of 2023 versus the second quarter of 2023.
Third quarter 2023 noninterest income as compared to the second quarter of 2023 benefited from increased treasury management revenue, service charges and BOLI offset by declines in mortgage banking and SBA lending. The Company's Tri-Net business continues to remain disciplined awaiting a return to rational market pricing with limited originations and sales occurring in 2023.
Noninterest Expense and Operating Efficiency
Noninterest expense was $17.1 million for the third quarter of 2023, compared to $19.2 million in the second quarter of 2023. Third quarter noninterest expense benefited from a $1.0 million decrease in salaries and employee benefits as well a $0.5 million recovery of a wire fraud expense previously recognized in the third quarter of 2022.
The efficiency ratio was 64.07% for the quarter ended September 30, 2023 and 66.61% for the quarter ended June 30, 2023. Annualized noninterest expense as a percentage of average assets was 2.10% for the quarter ended September 30, 2023 which is a decrease of 31 basis points compared to the quarter ended June 30, 2023. Assets per employee increased to $8.9 million as of September 30, 2023 compared to $8.3 million in the previous quarter.
Asset Quality
Due to a decrease in end of period loans held for investment and unfunded commitments versus the second quarter of 2023 along with improved macroeconomic forecasts, the Company recorded a recovery of provision of $1.6 million during the third quarter. Net loan charge-offs in third quarter totaled $0.4 million or 0.06% annualized of average loans held for investment.
Past due loans increased to $5.9 million or 0.26% of total loans held for investment at September 30, 2023 compared to $3.6 million or 0.15% of total loans held for investment at June 30, 2023. Management remains very pleased with the low level of past dues, as the prior quarter total was near a record low during the past five years.
Non-performing assets to total loans held for investment and OREO were 0.28% at September 30, 2023 compared to 0.48% at June 30, 2023. Two relationships with aggregate outstanding balances of $7.9 million returned to accrual status based on positive financial performance and timely payments.
The allowance for credit losses related to loans declined to 1.05% as of September 30, 2023 from 1.08% at June 30, 2023. The allowance for credit losses related to unfunded commitments declined to 0.39% of available balances from 0.43% at June 30, 2023.
| Asset Quality Data: |
| 9/30/2023 |
| 6/30/2023 |
| 3/31/2023 |
| 12/31/2022 |
| 9/30/2022 |
| Annualized net charge-offs to average loans |
| 0.06 |
| % |
| 0.03 |
| % |
| 0.03 |
| % |
| 0.03 |
| % |
| 0.02 |
| % |
| Criticized and classified loans to total loans |
| 1.40 |
| % |
| 1.36 |
| % |
| 1.76 |
| % |
| 1.31 |
| % |
| 1.79 |
| % |
| Loans- past due to total end of period loans |
| 0.26 |
| % |
| 0.15 |
| % |
| 0.35 |
| % |
| 0.50 |
| % |
| 0.63 |
| % |
| Loans-over 90 days past due to total period end loans |
| 0.17 |
| % |
| 0.08 |
| % |
| 0.05 |
| % |
| 0.44 |
| % |
| 0.27 |
| % |
| Non-performing assets to total loans held for investment and OREO |
| 0.28 |
| % |
| 0.48 |
| % |
| 0.42 |
| % |
| 0.46 |
| % |
| 0.30 |
| % |
| Allowance for credit losses on loans to non-performing loans |
| 376 |
| % |
| 228 |
| % |
| 249 |
| % |
| 222 |
| % |
| 333 |
| % |
Income Tax Expense
The Company's third quarter effective income tax rate increased to 19.9% when compared to 18.6% in the prior quarter ended June 30, 2023 and remains relatively stable compared to the rate of 19.8% for the quarter ended September 30, 2022. The Company expects its effective tax rate for 2023 to be approximately 19.5%.
Capital
The Company continues to be strongly capitalized with equity of $345.6 million and tangible equity of $300.7 million at September 30, 2023. At September 30, 2023, CapStar's Leverage Ratio was 11.08%, Common Equity Tier I ratio was 13.38%, and its Total Risk-Based Capital ratio was 15.36%. These regulatory capital ratios are significantly above levels required to be considered "well capitalized," which is the highest possible regulatory designation. As all investments are designated as available-for-sale, the Tangible Common Equity to Tangible Assets ratio of 9.34% is inclusive of all unrealized investment portfolio losses.
Book value per share of common stock as of September 30, 2023 was $16.67, compared to $16.64 and $15.84 for the quarters ended June 30, 2023 and September 30, 2022. Tangible book value per share of common stock was $14.50 as of September 30, 2023 compared to $14.47 and $13.72 for the quarters ended June 30, 2023 and September 30, 2022. Excluding the impact of after-tax unrealized gain or loss within the available for sale investment portfolio, tangible book value per share of common stock for the quarter ended September 30, 2023 was $17.33 compared to $16.95 and $16.16 for the quarters ended June 30, 2023 and September 30, 2022, respectively.
| Consolidated Capital ratios: |
| 9/30/2023 |
| 6/30/2023 |
| 3/31/2023 |
| 12/31/2022 |
| 9/30/2022 |
| Total risk-based capital |
| 15.36 |
| % |
| 14.34 |
| % |
| 13.98 |
| % |
| 14.51 |
| % |
| 14.59 |
| % |
| Common equity tier 1 capital |
| 13.38 |
| % |
| 12.40 |
| % |
| 12.09 |
| % |
| 12.61 |
| % |
| 12.70 |
| % |
| Leverage |
| 11.08 |
| % |
| 11.05 |
| % |
| 11.20 |
| % |
| 11.40 |
| % |
| 11.22 |
| % |
| Tangible common equity to tangible assets * |
| 9.34 |
| % |
| 9.64 |
| % |
| 9.67 |
| % |
| 10.03 |
| % |
| 9.65 |
| % |
As a component of the Company's capital allocation strategy, $4.3 million was returned to shareholders in the third quarter of 2023 in the form of share repurchases and dividends. In total, 140,110 shares were repurchased at an average price of $14.81. The Board of Directors of the Company renewed a common stock share repurchase authorization of up to $20 million on May 25, 2023. The Plan will terminate on the earlier of the date on which the maximum authorized dollar amount of shares of common stock has been repurchased or January 31, 2024.
Liquidity
Liquidity sources remain strong at a total $1.7 billion as of September 30, 2023 compared to the June 30, 2023 total of $1.5 billion. Sources as of September 30, 2023 include cash and equivalents of $352.4 million, unpledged securities of $167.2 million, remaining borrowing capacity with the FHLB of $424.6 million, borrowing capacity with the Federal Reserve Discount Window of $302.2 million, the ability to issue an additional $218.0 million of brokered CDs based on internal limits, federal funds lines of $115.0 million, loans held-for-sale of $36.4 million and $62.6 million of additional funding capacity through the Federal Reserve's Bank Term Funding Program.
The Company is pleased with $143.1 million of growth in customer end-of-period deposit balances versus the second quarter of 2023.
Dividend
On October 25, 2023, the Board of Directors of the Company approved a quarterly dividend of $0.11 per common share payable on November 22, 2023 to shareholders of record of CapStar's common stock as of the close of business on November 8, 2023.
Conference Call and Webcast Information
In light of the Company's announced merger, CapStar will not host the previously announced conference call and webcast at 10:00 a.m. Central Time on Friday, October 27, 2023.
CAPSTAR FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Income (unaudited) (dollars in thousands, except share data)
Third quarter 2023 Earnings Release
| Three Months Ended |
| Nine Months Ended |
| September 30, |
| September 30, |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| Interest income: |
| Loans, including fees |
| $ |
| 35,441 |
| $ |
| 27,335 |
| $ |
| 102,215 |
| $ |
| 71,476 |
| Securities: |
| Taxable |
| 1,964 |
| 1,966 |
| 5,940 |
| 5,643 |
| Tax-exempt |
| 301 |
| 314 |
| 923 |
| 958 |
| Federal funds sold |
| 40 |
| 7 |
| 163 |
| 31 |
| Restricted equity securities |
| 300 |
| 215 |
| 788 |
| 544 |
| Interest-bearing deposits in financial institutions |
| 3,218 |
| 617 |
| 6,305 |
| 1,076 |
| Total interest income |
| 41,264 |
| 30,454 |
| 116,334 |
| 79,728 |
| Interest expense: |
| Interest-bearing deposits |
| 6,672 |
| 1,205 |
| 14,092 |
| 2,279 |
| Savings and money market accounts |
| 4,393 |
| 1,603 |
| 10,906 |
| 2,401 |
| Time deposits |
| 8,777 |
| 1,332 |
| 21,713 |
| 2,271 |
| Federal funds purchased |
| — |
| 2 |
| — |
| 2 |
| Federal Home Loan Bank advances |
| 660 |
| 365 |
| 2,283 |
| 461 |
| Subordinated notes |
| 393 |
| 394 |
| 1,181 |
| 1,181 |
| Total interest expense |
| 20,895 |
| 4,901 |
| 50,175 |
| 8,595 |
| Net interest income |
| 20,369 |
| 25,553 |
| 66,159 |
| 71,133 |
| Provision for credit losses: |
| (Recovery of) provision for credit losses on loans |
| (1,017 |
| ) |
| 867 |
| (447 |
| ) |
| 926 |
| Provision for credit losses on available-for-sale securities |
| — |
| — |
| 2,000 |
| — |
| Recovery of credit losses on unfunded commitments |
| (544 |
| ) |
| — |
| (650 |
| ) |
| — |
| Total (recovery of) provision for credit losses |
| (1,561 |
| ) |
| 867 |
| 903 |
| 926 |
| Net interest income after provision for credit losses |
| 21,930 |
| 24,686 |
| 65,256 |
| 70,207 |
| Noninterest income: |
| Deposit service charges |
| 1,347 |
| 1,251 |
| 3,979 |
| 3,575 |
| Interchange and debit card transaction fees |
| 1,195 |
| 1,245 |
| 3,293 |
| 3,803 |
| Mortgage banking |
| 749 |
| 765 |
| 2,997 |
| 4,436 |
| Tri-Net |
| 19 |
| (2,059 |
| ) |
| 46 |
| 39 |
| Wealth management |
| 441 |
| 385 |
| 1,241 |
| 1,284 |
| SBA lending |
| 531 |
| 560 |
| 2,599 |
| 1,054 |
| Net gain on sale of securities |
| — |
| 7 |
| 5 |
| 8 |
| Other noninterest income |
| 1,996 |
| 1,118 |
| 4,605 |
| 4,038 |
| Total noninterest income |
| 6,278 |
| 3,272 |
| 18,765 |
| 18,237 |
| Noninterest expense: |
| Salaries and employee benefits |
| 9,573 |
| 8,712 |
| 30,447 |
| 28,191 |
| Data processing and software |
| 3,245 |
| 2,861 |
| 9,750 |
| 8,355 |
| Occupancy |
| 1,161 |
| 1,092 |
| 3,451 |
| 3,266 |
| Equipment |
| 591 |
| 743 |
| 2,087 |
| 2,235 |
| Professional services |
| 674 |
| 468 |
| 2,361 |
| 1,653 |
| Regulatory fees |
| 435 |
| 269 |
| 1,267 |
| 814 |
| Amortization of intangibles |
| 352 |
| 415 |
| 1,104 |
| 1,291 |
| Other operating |
| 1,041 |
| 3,371 |
| 4,831 |
| 6,935 |
| Total noninterest expense |
| 17,072 |
| 17,931 |
| 55,298 |
| 52,740 |
| Income before income taxes |
| 11,136 |
| 10,027 |
| 28,723 |
| 35,704 |
| Income tax expense |
| 2,211 |
| 1,988 |
| 5,548 |
| 7,018 |
| Net income |
| $ |
| 8,925 |
| $ |
| 8,039 |
| $ |
| 23,175 |
| $ |
| 28,686 |
| Per share information: |
| Basic net income per share of common stock |
| $ |
| 0.43 |
| $ |
| 0.37 |
| $ |
| 1.10 |
| $ |
| 1.30 |
| Diluted net income per share of common stock |
| $ |
| 0.43 |
| $ |
| 0.37 |
| $ |
| 1.09 |
| $ |
| 1.30 |
| Weighted average shares outstanding: |
| Basic |
| 20,808,677 |
| 21,938,259 |
| 21,142,177 |
| 22,051,950 |
| Diluted |
| 20,823,971 |
| 21,988,085 |
| 21,172,712 |
| 22,104,687 |
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)
Third quarter 2023 Earnings Release
| Five Quarter Comparison |
| 9/30/2023 |
| 6/30/2023 |
| 3/31/2023 |
| 12/31/2022 |
| 9/30/2022 |
| Income Statement Data: |
| Net interest income |
| $ |
| 20,369 |
| $ |
| 22,571 |
| $ |
| 23,219 |
| $ |
| 24,959 |
| $ |
| 25,553 |
| (Recovery of) provision for credit losses |
| (1,561 |
| ) |
| 22 |
| 2,442 |
| 1,548 |
| 867 |
| Net interest income after provision for credit losses |
| 21,930 |
| 22,549 |
| 20,777 |
| 23,411 |
| 24,686 |
| Deposit service charges |
| 1,347 |
| 1,264 |
| 1,368 |
| 1,206 |
| 1,251 |
| Interchange and debit card transaction fees |
| 1,195 |
| 1,060 |
| 1,038 |
| 1,250 |
| 1,245 |
| Mortgage banking |
| 749 |
| 955 |
| 1,293 |
| 637 |
| 765 |
| Tri-Net |
| 19 |
| 27 |
| — |
| 39 |
| (2,059 |
| ) |
| Wealth management |
| 441 |
| 426 |
| 374 |
| 403 |
| 385 |
| SBA lending |
| 531 |
| 977 |
| 1,091 |
| 1,446 |
| 560 |
| Net gain on sale of securities |
| — |
| — |
| 5 |
| 1 |
| 7 |
| Other noninterest income |
| 1,996 |
| 1,503 |
| 1,106 |
| 1,303 |