CapStar Financial (CSTR) 23 Jul 212021 Q2 Earnings call transcript

Good morning, everyone. And welcome to CapStar Financial Holdings Second Quarter 2021 Earnings Conference Call. Hosting the call today from CapStar are Tim Schools, President and Chief Executive Officer; Denis Duncan, Chief Financial Officer; and Chris Tietz, Chief Credit Policy Officer. Please note that today’s call is being recorded. Replay of the call and the earnings release and presentation materials will be available on the Investor Relations page of the company’s website at capstarbank.com.

may of which the we within forward-looking presentation, meaning the federal the make constitute comments statements During securities laws. are may results implied by statements other differ materially achievements forward-looking subject forward-looking expressed and to risks All or those uncertainties, of factors CapStar that the statements. cause and actual such from the performance or to and Listeners are cautioned not to place undue reliance on forward-looking statements. CapStar’s and of these and contained in uncertainties Exchange and factors Securities the risks, description public other detailed with more A Commission. filings are by required update forward-looking made otherwise Except CapStar to during law, as any obligation applicable or disclaims presentation. revise statements any this would two for financial slides We you refer statements, and measures also to of the non-GAAP forward-looking regarding page presentation information. other disclaimers Officer. will presentation turn the I Schools, over that, CapStar’s now Chief Tim With Executive to President and Please ahead, sir. go

of you. beginning reported developments participating of hard and the associates. annualized have Year-to-date, on trends appreciate positive Thank average average was results and Good We return call. equity review earnings the for In $X.XX of on earned from and and with favorable we our opportunity you. our work saw of per you the we XX.X%. per equity share thank XX.XX%. on to second economic continued share return the quarter, our our $X.XX morning We Okay.

credit they We environment. highly not a and the from release continue related continue due mortgage have. in our very are team to will improved this benefit related producing this proud to I quarter benefited am of potential from revenues, with to they which losses PPP results credit unusual in of reserves In the trends. level our

performance not are is earnings year’s strengthening. CapStar’s sustainable, this of competitiveness some and While

organic practices, four are focused strategic allocation. consistency, and enhancing disciplined capital risk and management As sound earnings maintaining initiatives, a company, growth, profitability executing on we accelerating

the we to strong. initiatives cycle new is three, management hard that the company support our many across to as we and I in quarter. It and this has over above achieved slide been over a With mentioned milestones financial other our achievement great on risk illustrate to everyone results As during the chipping Denis our doing highlight one it that, job. cover turn is will for

you, for was up and the the Thank in to margin quarter, and quarter. the On in $XXX,XXX interest million first $XX Thank Tim, the slide good net income the quarter net day from eight, an you. due morning. increase additional interest

Our the for net quarter, about was interest X.XX% basis XX up points. margin

X first adjusted Our up basis the the quarter. quarter NIM for for first was point

margin deposits impact quarter our XX from into deposits On at favorably basis adjusted also you NIM excess quarter by nine, includes and quarter the as and loan deposits were million for assets the which in very as from earning the a slide the growth $X.X benefited the Our as PPP at at shift were for saw. record the of basis loan record first increase quarter a end billion additional strong investments, $XX well four. of level, DDA points levels the income Net net interest by NIM of adversely forgiveness points. second X interest impacted our impacted

the quarters. continue levels large several Our with core markets deposits to consistent hold of prior

deposit and rates decline in lower contended we the basis during Our costs first quarter the lower continue we were this to X as points deposit quarter.

address of total investments then loans trying priced strategically less opportunities end, end we purchases of in investment and debate, higher additional deposits. the were the loans record $XX.X portfolio PPP total run-off just the loan new million including at or by annualized grew period Slide continuing XX.X% balances levels at growth. growth, quarter XX, additional bankers, on hiring access have to We through the pricing investment focusing --

pipelines. build additional in strengthening Middle growing bankers and East our -- our to loan markets, market and We Tennessee, additional adding have continued Knoxville adding

quarter the Our down $XXX across remain $X.X Total first fees million, the loan pipelines $XXX strong of unearned about PPP were loans remained million PPP In and the end the of the all million. were year at at record end our from levels markets. at of quarter. at total,

yields and Tri-Net, our were of coupons X.XX% in our for loan with On slide record second was about and at X.XX%. income the management. quarter debit interchange non-interest loan service deposit Our quarter, the card were XX, and revenue strong levels stable fees, charges, wealth

just to quarter income overall lower efficiency were non-interest additional non-interest due spreads. credit volumes corporate position. salaries and discuss mortgage of life incentive for Chris, XX down were Our little bank-owned compensation operating quarter up non-interest the to quarter. proud We levels expenses our an But primarily purchases very are benefits, otherwise of within due quarter were we XX.XX%. Slide insurance during about shows related and our and our ratio the had the of our in the And to quarter will it to With increased bit revenues to expenses first turn decreasing overall over $XX.X the and for increased I a digital our our who late of mortgage will for that, incentive million plans. income.

Great. you, Thank Denis.

long by news only is some Turning a points to today that ago of page the XX, that year good they of midst let were are several saying pandemic me notes in prepared and start my two, pages emphasis. the the

communities our X% To and portfolio believe interest less to continued feed first, to portfolio a businesses. that employees as are customers, of relating capital our outstandings. known composition, our served specialty in efficient shareholders, from national with coming credits and shared emphasis also of portfolio best now generation with community than the that objective are We our continue markets SNCs

able first SNC zero, of not to reduce the high reduced of seek in a exposure have but SNCs our XXXX. from quarter align million to to do We will $XXX We With rather steadily where small know and SNCs non-credit to our profile, exposures businesses of are with a provide our portfolio. local profitable markets, services. our management that remain and portion we

remains XX% in-market. Second, of portfolio our

with about ago. reduction our we a not peak problem emphasis reviews, internal quality also is strategic high but insightful portfolio in million of from exposures. market through collateral four potential of $XXX a of of share in-market XX% to asset our rating increased deterioration. quality from three to approximately of of portfolio an quality a from future of review the steadily just to on diligence emphasis identification and firms under a asset about composition, and in With levels external This in performance in robust monthly maintain years event of stress, the improvements on low an on early have borrower years reviews assessment continue out XXXX historical our We performance an drivers

the these page delinquencies note pandemic to reflecting acceptable in turning remain net all loan from is we XX, you borrowers general. to remain and areas levels low. monitor result to classified experienced As believe the page and improving range, a optimism, continue it levels turn of focus, release Tim. as XX, I turning to result of will a warranted our With will effects the we elevated as the our these within factors, pandemic of criticized reserves a With on of that, over diminishing charge-offs of small economy on and are

Thank you, Chris.

growth Tennessee-based from a over banks Operator, have and where in opportunities see happy as and billion can and see As team state Tennessee among now $X assets we operational current industry results, months answer improving our to the consolidation been in financial are our many you are we acquired. four from last employees questions. our XX

you. [Operator line Piper Graham with Instructions] first of comes Our the Thank question Dick from Sandler.

line is now open. Your

Hey. Good morning, guys.

morning. Good

morning. Good

do your at? be that expand are lending operations had and So, was of might other maybe Nashville looking in looking kind success Tim, any there, to you what that the if markets there’s out-of-state I guys are you you then, wondering particularly similar and to if anything saw there in you have we

rather particular, guess, would I the and focusing to something that on mean, not manage I markets, in to I quality Nothing bankers. of respond really would logical Nashville make that but

opportunistic. fortunate Knoxville more a that looking excited were it’s was and so And us. a group to We make change about in was

we also way, one did this top of And hired volume by but ears we the hire and in we in market the Nashville our are open originators just -- of by mortgage Metro area so looking we are the one keeping top the -- quarter. we

are for that pop you more will up. looking would sure put and I it when So around talent not

then, longer get closer I maybe think, guys. quarter continues guys, Do through And guess good pent-up it over growth, we as Has to well. we to think the quarters outlook might as obviously, was, you another since production think talked to coined generally to a maybe this guess, Great. you for be good loan more your XX% pipeline you to next maybe X% X% it looks few demand come Okay. like changed range I the I just great I last? and term.

saw had I that seemed growth. it good every Well, bank pretty loan

don’t before coming like credits or and great we and real have people, and seems had. as our I want our fair So me share But out did to to company job I we the we side, I it a am happy seems we economy’s new are guess in we hype doing back. transforming there on what of some it everybody’s -- amount bankers. participations mislead a like

pipeline get does everybody in don’t our It’s it. Tennessee. ahead want just But look I So great. of to largely

I to three maybe on of growth. think I -- continue. had in it’s have or would right really certainly heading last the will we have hope sustainable. we two wood, But we that So know activities quarters the the are But see knock we to and I that that quarters good think like direction. right four

capital not still utilizing needs of the a much a a than then, for as buyback, forward, it probably question your this on back would kind brainer have And the several somewhat I would? or of you going -- last organic appealing about for disposal. guess, ago but set me been stock you so also aside much given it’s have have might current franchise thinking sure Okay. build as as at are making buying value ago, got more months how year enough capital the the you no while actually guys valuation, that How is

is, Denis still guess solving I will my let that. pitch also. I thought are in we

lot. are talk about it a -- We still we

times We still you We which an uncertain to of now. need it buybacks and rate and trying in return, crack to discount different think a ways. about think are good internal back right pretty and can have it it’s you about people forecast, as try

So markets. growth we pretty balance we and in are other trying exciting are pipeline is to opportunities. that with of conversations having some our We some I’d feel say good looking the

So want it’s add don’t anything and have your not to thing, you real you and a to know white thoughts. if black Denis, on that I

if got roughly have I we of -- our ratios capital I capital. mean, Graham. No, general, look in you at say, No. I would terms Graham in excess

pretty would We to use. million in on We obviously have $XX-odd back something that best and and months. the obviously we to of highest we we could that. and general to bank to over use kinds probably put buying capital the rallied now that like last But it got excess go put place three, of stock have stocks well is four in have ready the are

-- So to own deploy buy it’s justify capital. that it’s in using the to have back, type you organic that like tough stock you opportunities difficult your your market if to said of

continuing to we our kind look buying to within use. of at versus capital on flexibility there the to to back look a best internal get that for are be using at -- great We the nimble and returns. use it. so the of have able that it -- of highest stock in be There’s to So could levels excess us businesses we and

were then held if little it more one bit fees a loan sneak in those normalized to back quarter-to-quarter. up pretty you steady, quickly, just levels the And coupon just Great. going here? think but I looks more like historical fees loan could forward loan will Okay. Do here

I bounces… think it

Yes.

…down, it’s…

Yeah.

good surprisingly pretty yield predict. stable. been fairly so it’s and to loan the …hard But have been

Okay. Great. Thanks, guys.

you. Thank

you. Thank

Our next Truist line the question from Jennifer comes Securities. Demba with of

now line open. Your is

King Hey. on doing Jennifer. How This is for today? Brandon are you

Good Brandon. Hey. morning,

Good morning. morning. Good

hiring update most from in especially to in announced a bank? And just the recently the there on Nashville you plans like with more are hires that was made any aggressive acquisition quarter. competitive get to if would I the So

don’t That’s trying I to hired I just Reliant originators that. too I bank want a In I don’t I exciting am and Knoxville quarter, is would bank. don’t had a end outstanding transaction. for we United comment But us, mortgage first million near Community is say we outstanding to on in top first the an hired who know. of of back. one think this quarter the much portfolio. $XXX quarter. Bank know plus had banker

There have our hires. growing had our last So got balances. those or some would two also been that at I exciting now that this they dollars first we week earlier million pipelines it’s look several pipeline. They are hired and the when say in was have recent were Monday, of maybe quarter

So ones I really exciting looking contribution. substantial and was for to quarter think hires first this there don’t quarter, really their see the

always both discussions say looking a get markets. there’s four and are in-market always would that We and and the CapStar And I say, has And I questions other activity, reputation. good having in talking always people thinking. would good

whether it So and other that. or be at those I banks, to it led conversations has will banks would leave it good

customers, are increasing And or seeing I growth to DDA I good. balances is from, in it the growth for you existing own where bank gains? positive share that coming know going from is forward. pretty market liquidity Okay. the their focus is is more the coming wanted know

I’d problem, bank I mean loans ago, CapStar mean finding problem months say I it’s customers. more a young ease and right? deposits. existing in a is a good more XX bad and had and that’s

at deposits and that like deposits So everybody for times more have can was and use. we now scratching we clawing

emphasis across the crisis in bankers was and deposits crisis first quarter our or good on before So and two started a traction had the there we the then came. actually higher

So tricked we everybody, you stop. to minute, you wait hate hey, sort of a tell

money emphasis and in liquidity to honest, vast existing So work. to be still the the would stimulus that’s excess and and to an is it’s I say, economy, But to a dilemma, be wanted majority because the put we to honest. customers it just all it’s hard be

and mentioned just lastly, quarter for you if investments anything there’s And company far? that last see the I Okay. technology opportunities. know efficiency the know want you was that I update the reviewing to review more to from so on

-- software two or is We the banks maybe or No. sales software it’s a it sizable and do been that interestingly at fit. I marketed a I just two in that’s -- was banks angles. it good interesting, either not I a -- do each pretty to I a it’s One doesn’t just ended opportunity of that frames mentioned from There’s been good not. being get are -- to think have just least is, very maybe folks or was up tend

one. that’s bidding And And the number pricing. one need, two, big of automate and is sort to so project. there to evaluate coterminous more processes, you so then getting opportunity contracts have what and all number And negotiating just

of level And go -- there I a IT quarter $XXX,XXX at studying about it term in in so, opportunity project. that’s whole to slides, there. second But It infancy happen really noted in related that doesn’t memory then point. we of our software are run think longer quickly. strategy. PPP But suspect in our is will outside at our of we be just And that, our from should away and rate software processing the some some

the Thanks for answers. Okay.

Sure.

Catherine with the Our Mealor Thank comes KBW. next Instructions] of line from you. [Operator question

Your line is now open.

morning. Good Thanks.

Catherine. morning good Hey,

morning, Good Catherine.

wanted see see next have could the to your margin. it of this over couple the of of liquidity give quarter, how with view good updated thoughts like you is could -- of great Thanks. I put core a core on kind moving lot moving excess if there’s know quarters? margin lot work wanted if a core of seems morning. to and are which pieces you you the the you the margin so part, I us thinking to I about just of

to like Denis? that, address you Would

One, that is the new strategy [ph] paid in has with Sure, got specialist have we deploying. that business. Catherine, obviously, have is we seen the have working who margin. in partner have initiatives with we on just Arling But that that you going this off diligently really called on pricing several substantially Sure. our Tim. overall been a been deposit

are then we doing term very doing points of shortly. and down take deposit of costs. a bit can And deploying that kinds So in mortgage shorter conservative to backs little that have very XX be investments. down investments very, more sub-debt term, we We the that will we been longer basis

And rates our we advantage interest loan investment being some be that positioning for rise got have capacity to just portfolio, able it our X.XX say, -- to we up generally, at as at rising over X.XX%, will re-pricing X.XX%, is loan So the take rates and ourselves just within would back our deploying. goal I own portfolio. X.XX%. to within get then, of closer

to margin at several -- we be margin on to If our are saw range and to in you look the things we net the quarter. direction the X.XX%, up will definitely want the back strategies, into north interest do kind moving as this But of our Catherine close able X.XX% that. and of we be you want goals to take it that right

could You say there higher is late... that in requires this or you still rate, right, goal get

No. No. Totally. I what And Totally. say… would

Okay.

Okay.

I the great managed just funding. think, been it’s want … brought stronger again, community we partnered to command, with banks across, really I that

I that… think

Right.

on done and great the There learning have and something not about at the talking is started just committee spreads. discipline. which really done deposit ago that’s instilling CapStar, That’s finance well lot gone pricing pricing and a was Denis great. team has and monthly job a we We over talk … a on discipline. and year a

We have from loans. walked

was lot on I shared be we didn’t let’s and and customer want we to. talk have I the -- ago it spreads really think two disciplined name, that, we if the share I but walk quarters think a

a obviously we not level So get steepness the but the the but great curve, to I as are job and of of the just doing it we stabilize can, think as curve. strong

curve up more doesn’t valuable. shifts whole little so that up, is go Your DDA price and very becomes the in your If DDA worth today. DDA

rate benefit sensitivity take towards are of it we a So trying our get interest the an it absolute curve, from but what take the out, would we which is lot rise to to will of goal.

too And would yield where in, XXX-ish? or X to loan that versus you holding your about is -- take be Right. coming on an current pricing seems your on new productions average

hard, and you banks and will business right? product I think it tell community banking now, it’s because have have Well, products. more that three We about a how we got different consumer have we mix

higher yields. they higher tend come have and higher to bit charge-offs. also They little So at delinquencies

side, commercial the FHLB to theoretical a On rate. spread we matched target the funding

and go sort out website we on cost the we funds look sold. what of loan risk rating be. goods So, our on commercial of And that of a our of over cost to sort would That’s the spread put FHLB each loan. theoretical then at of the based

And know if seeing are what you so, don’t coming comment Chris, want through. you I to

generally, Yeah. coupons, range yields a the say. I Catherine, really Xs renewed And monitor on largest the we they right or this are the Generally out been they speaking, in holding portfolio. transactions or now. kind and And basis high in the holding low on addresses the X have monthly out -- commercial new should of

Great.

that’s And average weighted on basis. a

Thank Great. much. very you sense. Makes Okay.

no turn Thank I Tim are call closing questions. remarks. further Schools for now you. to the There back would

concludes That Thank you call. you the and appreciate CapStar. it. in We That’s Okay. to the following everybody appreciate much. taking we so call time

conference you Ladies call. this concludes and your for gentlemen, participation. today’s Thank

disconnect. now may You