CapStar Financial Holdings, Inc.

Good morning, everyone, and welcome to Capstar Financial Holdings 4th Quarter 2021 Earnings Conference Call. Hosting the call today are from Capstar, Tim Schools, President and Chief Executive Officer, Dennis Duncan, Chief Financial Officer, and Chris Peets, 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. During this presentation we may make comments which constitute forward-looking statements within the meaning of the federal securities laws. All forward-looking statements are subject to risk and uncertainties and other factors that may cause the actual results and the performance or achievements of Capstar to differ materially from those expressed or implied by such forward-looking statements. Listeners are cautioned not to place undue reliance on forward-looking statements. A more detailed description of these and other risks, uncertainties, and factors are contained in CAPSTAR's public filings with the Securities and Exchange Commission. Except as otherwise required by applicable law, CAPSTAR disclaims any obligation to update or revise any forward-looking statements made during this presentation. We would also refer you to page two of the presentation slides for disclaimers regarding forward-looking statements, non-GAAP financial measures, and other information. I will now turn the presentation over to Tim Schools, Capstar's president and chief executive officer.

Good morning, and thank you for participating on our call. We appreciate your interest in Capstar. We had a terrific quarter and year, and when we look back, it is rewarding and exciting to see how far our team has come. I saw an early note on today's earnings that said we finished 2021 strong. I understand what was meant, but I can promise you we're just getting started. In the fourth quarter, we reported earnings per share of 56 cents and on an annualized return on average tangible common equity of 15.02%. For the year, we earned $2.19 per share and the annualized return on tangible common equity was 15.45%. I will go into this later in the call, but our underlying profitability and capital generation is somewhat stronger. as we currently have nearly 200 basis points of tangible equity than the industry average. There is a lot of value in the excess capital as it can be invested for additional earnings or return to shareholders in the form of dividends or buybacks, where we would essentially maintain the same earnings as today as the excess capital resides in non-earning or low-earning cash. Internally, we focused on four strategic objectives. First, enhance profitability and earnings consistency. Second, accelerate organic growth. Third, maintain sound risk management. And fourth, execute disciplined capital allocation. As well as four key drivers, revenue growth, net interest margin, efficiency ratio, and net charge-offs. I'd like to highlight a few of the achievements within each of the four strategic objectives. On profitability, we are very disciplined on pricing. Anyone can put on growth. Not everyone puts on profitable growth. Our fourth quarter match funded spreads were 2.5%. That is a lot of profitable growth. We also have a higher discipline on expenses. We speak internally of being frugal but not cheap. We are also working to be productivity-minded and have productivity work metrics. Second, as it relates to organic growth, our annualized loan production was $1 billion in fourth quarter. Not one penny was a participation. This is an increase from $674 million for the full year and $445 and $296 million the prior two years. Our Nashville market has increased production, and we have added Chattanooga, Knoxville, and three fantastic community markets. In total, our commercial pipeline currently stands at $500 million. Excitingly, we have two offers extended for two additional bankers with over $100 million loan portfolios in existing markets and are in discussions with a team that has $500 million to $1 billion in loan balances. As noted later in our deck, we are also aided by leading market demographics. Third, we are strong risk managers. We have done a stellar job overseeing the health and care of our employees during the pandemic been proactive in managing credit risk to both assist our customers and protect our shareholders. And while work has been done to tame interest rate sensitivity, we remain modestly asset sensitive. Lastly, we are laser focused on putting our excess capital to work, and we will cover that in more detail later. With that, I'm going to turn it over to Dennis, who will provide you details related to the quarter.

Thank you, Tim, and good morning, everyone. I'm starting on slide 7 of the earnings release deck. Net interest income was $23 million for the quarter, which was consistent with the third quarter. The net interest margin was 3.14% for the quarter, up two basis points due to loan growth, increasing rates, and continued PPP loan forgiveness fees. The adjusted NIM for the quarter was 3.40%. Adjusted NIM, meaning we look at the impact of excess deposits, which adversely impacted the NIM by 44 basis points, and take out PPP loan forgiveness fees, which favorably impacted the NIM by 18 basis points. Net interest income in total continued to benefit from a shift of our earning assets into loan growth, and our investment portfolio was down slightly from the third quarter, both on an average and EOP basis. On slide eight, average deposits of $2.7 billion remain near record levels. Average DDA deposits also remain near record levels for the quarter. And we remain focused at Capstar on building core deposit relationships across our markets. Deposit costs held flat for the quarter at 19 basis points as we continued to lower higher rate time deposits, partially offset by an increase in our correspondent banking deposits. Our excess cash balances are continuing to be strategically deployed into loan growth and purchases within the investment portfolio where we see opportunities. And again, we're committed at Capstar to a deposit-first culture, which will ensure strong core funding as we move forward. On slide nine, total loans less PPP were at record levels at quarter end and grew $109 million or 23.7% annualized between the third and the fourth quarter. Total PPP loans were $26.5 million at the end of the quarter, down $38 million from the third quarter. And total unearned PPP fees at the end of the year totaled $630,000. In regards to production, as Tim said, Our relationship managers have done a great job in improving pipelines, which provided momentum for the fourth quarter and for 2022, and we are pleased that production for the quarter came from across our entire footprint, which includes our newest team in Chattanooga and our recent Knoxville market. The loan yield increased six basis points to 4.47% for the quarter, with loan coupons increasing by four basis points to 4.07%. PPP fees in total were relatively flat for the quarter, which contributed to some of the increase, approximately five basis points with lower average balances. Most importantly, we remained disciplined in our pricing on new loan production with matched spreads, as Tim said, of approximately 2.50%. In addition to solid loan growth, record pipeline levels and pricing We continued in 2021 to reduce our shared national credits and loan participations. On slide 10, non-interest income was strong in the fourth quarter. Our unique fee businesses have contributed over 30 percent of our revenue over the past seven quarters, highlighted this quarter by our strong tri-net business, which generated almost $4 million in fees. We also produced record levels of debit card and interchange fees, and SBA continues to be a positive contributor with strong growth prospects. Mortgage revenues were down some for the quarter due to seasonality after experiencing a record run of results in previous quarters. We are continuing to see a strong mix of purchase volume in our mortgage business, which reflects the economic health of our markets and the strength of our Capstar mortgage team. Slide 11. shows our non-interest expenses were $18.7 million for the quarter, which resulted in an operating efficiency ratio of 54.74%. Our core bank, which is our core bank excluding our mortgage efficiency ratio, was 52.38% for the quarter. Excluding about $408,000 of expenses related to our fourth quarter investment in Chattanooga, expenses declined slightly from the third quarter. Within salaries and benefits, incentive expenses continue to run at higher levels due to our strong operating performance for the year. So even with increased incentives and expenses related to Chattanooga during the quarter, our efficiency ratios remain at record low levels. With that, I'll turn it over to Chris Teets, who will discuss our credit position.