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CapStar Financial Holdings, Inc. (CSTR) Q1 2019 Earnings Call Transcript

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Capstar Financial Holdings, Inc. (NASDAQ: CSTR)
Q1 2019 Earnings Call
April 24, 2019 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening, ladies and gentlemen, and welcome to CapStar Financial Holdings first-quarter 2019 earnings conference call. Hosting the call today from CapStar are Ms. Claire Tucker, president and chief executive officer; Mr. Rob Anderson, chief financial officer and chief administrative officer; and Mr. Chris Tietz, chief credit officer, CapStar Bank.

Please note that today's call is being recorded and will be made available for replay on CapStar's website. Please note that CapStar's earnings release, the presentation materials that will be referred to in this call and the Form 8-K that CapStar filed with the SEC are available on the SEC website at www.sec.gov and the Investor Relations page of CapStar's website at www.ir.capstarbank.com. Also, during this presentation, CapStar may make certain comments that constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect CapStar's current views with respect to, among other things, future events and its financial performance.

Forward-looking statements are not historical facts and are based upon CapStar's expectations, estimates and projections as of today. Accordingly, forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties, many of which are difficult to predict and beyond CapStar's control. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of today.

Except as otherwise required by law, CapStar disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, this presentation may include certain non-GAAP financial measures. The risks, assumptions and uncertainties impacting forward-looking statements and the presentation of non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures are included in the earnings release and the presentation materials referred to in this call. Finally, CapStar is not responsible for and does not edit nor guarantee the accuracy of its earnings teleconference transcripts provided by third party.

The only authorized live and archived webcast and transcripts are located on CapStar's website. With that, I'm now going to turn the presentation over to Ms. Claire Tucker, CapStar's president and chief executive officer.

Claire Tucker -- President and Chief Executive Officer

Thank you, operator, and good afternoon. Since the NFL draft is occurring in Nashville this week, it's appropriate for us to say, "CapStar, you're now on the clock." We appreciate you all participating in our first-quarter 2019 earnings call. We have good news to report on many fronts. As you know, we closed on the acquisition of Athens Federal on October 1.

We have now successfully completed the core systems conversion and branding integration. I'm very pleased with the collaborative relationships that have developed between the Middle and East Tennessee teams, all with the primary focus on delivering exceptional customer experiences with our bank. If you have the presentation deck in front of you, I direct your attention to Page 4 so that I may share with you some of the drivers of performance in the first quarter, which are reflective of our stated strategy of sound, profitable growth. Operating net income totaled $5.2 million or $0.28 earnings per share on a fully diluted basis in the first quarter of 2019.

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This compares favorably to $0.25 earnings per share for the same period of 2018, a 12% increase. Tangible book value per share grew from $11.25 to $11.55, an 11% increase from the fourth quarter of 2018. We are particularly pleased with the double-digit growth in EPS and tangible book value per share as these metrics are standard benchmarks for share pricing and the ultimate valuation of the company. Continuing, we generated annualized end-of-period loan growth of 10.8%, comparing the fourth quarter 2018 to first quarter 2019.

Average loan growth over the same period was 6.1%, impacted by several large payoffs late in the fourth quarter. We believe a view of point-to-point loan growth is more indicative of the production our bankers are generating. With that said, our strategy is not to grow for the sake of growth, but rather to do so within the parameters of sound underwriting. I'll make a couple of comments regarding our deposit growth in the first quarter.

Annualized EOP deposit growth was 28.1% over the fourth quarter of 2018. In the East Tennessee market, deposits grew over 18% point to point at significantly lower cost. This is important as validation of one of the key reasons we partnered with Athens Federal. Also, we continued to win treasury management business in our Middle Tennessee C&I business segment, which translates to deposits, and we're excited about the new opportunities that are emerging in East Tennessee. Operating return on average assets was 1.06% for the first quarter.

However, we were below the range provided in our guidance last quarter. Rob will provide details to further explain this variance in his comments. The return on average tangible equity was 10.02%. And finally, the ratio of criticized/classified loans to total gross loans was 1.71%.

This ratio is a leading indicator of asset quality in the entire loan portfolio. Moving to Page 5 of the investor deck. We prepared a slide that breaks out the key financial metrics related to our strategic goals of sound, profitable growth for ease of reading by you all. We will speak more specifically about these metrics as we move through the deck.

Let's move on to loan growth on Page 6. Excluding day one Athens loans, organic loan growth at legacy CapStar was 13.2% compared to the first quarter of 2018. New loan production and line usage was over $100 million in the first quarter. Athens added $349 million in loans on day one and provides further granularity and diversification to our loan book.

More specifically, the average loan size in the legacy Athens portfolio is $106,000. In the pie chart at the bottom-left side of the page, you will see the distribution of the loan mix. C&I and owner-occupied commercial real estate comprised 45% of the loan book. These relationships tend to be more full relationships with operating accounts and low-cost deposits. With the Athens partnership, our consumer real estate loans now represents 17% of the loan book.

I previously referenced the payoffs and paydowns that occurred late in the fourth quarter of 2018 that impacted average loan growth. During the first quarter, payoffs and paydowns totaled $44 million or about half of what they were in the fourth quarter of last year and occurred across the board in healthcare, C&I and CRE. While we cannot control factors like the timing around when our customers decide to sell their businesses, we can control our engagement in a frothy Middle Tennessee market impacted by new market entrants and non-bank lenders. Again, we remain committed to our principles of sound, profitable growth.

Let's move to Page 7 of the investor presentation and review key credit metrics. We believe that the core credit metrics, which I will review in a moment, reflect the robust market and economy in which we are operating. The trends of these key metrics further substantiate our focus on soundness as a key principle. In the top left graph, you'll note the current allowance for loan and lease losses of 1.21%.

This is comprised of $13 million or 88 basis points on CapStar loan, plus $4.8 million or 33 basis points of fair value mark on the acquired loans. The reserve is directionally aligned with the improvement in credit quality and the attributes of our criticized and classified loans. In the lower-left graph, you will see the detail of our criticized/classified loans of the past nine quarters. Total criticized and classified loans, including impaired loans, were 1.7% for the first quarter. Again, the level of criticized/classified loans is a leading indicator of asset quality in the company.

And finally, the ratio of NPAs to assets is at 14 basis points, down slightly from the prior quarter. This level compares favorably to southeastern peer banks. It is important to note that loan growth has been coming from end market deals with established borrowers, not from out-of-market deals, loan participations, SNCs or leverage lending. We've shared with you previously the discipline that we practice around industry and sector concentrations for the entire loan portfolio, diving deeper for commercial real estate and for healthcare.

We believe the addition of the East Tennessee franchise to CapStar provides further granularity in terms of average loan size, diversity and sector. It is also noteworthy that although our capital base increased with the addition of the East Tennessee franchise, house lending limits have remained the same. So in summary, we are pleased with the asset quality of the company as we begin 2019 and going forward in ensuing years. I'll now ask Rob to provide more detail around our financial performance.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Thank you, Claire, and good evening, everyone. We have shown this slide from time to time, and it's a good reminder of our business model and how we approach the market. We strive to build relationships with our clients and then gauge our success on determining if we are, in fact, the primary bank for our client. The primary bank status typically involves obtaining the client's operating account, denoted as a DDA or now checking account.

For our commercial clients, this would also include our treasury management platform, and last but not least, is a credit product. As you can see by the charts, we are executing the fundamentals of this strategy in a very clean and effective manner. Let's move to the next page. The loan yield for the quarter was 5.49% and flat to prior quarter.

Having said this, we did experience movement in different components of the yield. First, our variable rate loans repriced with the fed hike in December, adding 5 bps, and our loan volume mix contributed another 5 bps. However, we did see a decrease in our loan fees, which was attributed to a larger-than-normal amount of payoffs in the fourth quarter of 2018. As Claire mentioned and as you know, once loans are paid off, we have an immediate recognition of any deferred loan fees.

Purchase accounting was flat to prior quarter. The yield curve moved lower in the first quarter compared to the fourth quarter, and this did have an impact on our loan book and on our new loan production yields. As you can see by the chart on the lower left, yields on new loan production was 5.60% in the first quarter and slightly lower than the prior quarter. This decrease is more related to the yield curve than mix in production. Having said this, the last two quarters of yields on our new loan production has been above our portfolio average, which should help us maintain or slightly increase our loan yield in a rate environment that is largely being described as on pause.

Let's move on to deposits. While we experienced strong deposit growth during the quarter, approximately 75% of this growth was due to seasonality in our correspondent banking line of business. As we have told you in the past, these deposit balances typically reach a peak around tax time, blow out during the second quarter and then build back up over the second half of the year. Additionally, since the fed essentially set the market price for these deposits, we should be able to replace the bulk of any deposit runoff we see here with similar or lower-cost funding. As it relates to deposit growth in our East Tennessee market, our deposits grew 18% annualized since the end of last year.

This is important as we're already seeing the ability to drive deposit growth at a lower incremental cost than the Nashville market, further demonstrating the power of our partnership with the team in East Tennessee. Looking at the table on the bottom right of the page. You'll also note a pickup in our CD balances. This is a result of two factors.

First, we took advantage of lower rates in the brokered CD market and rolled approximately $30 million of FHLB borrowings in the three-month brokered CDs, saving approximately 10 to 20 bps in the process. Second, in conjunction with the opening of our new branch in Brentwood, Tennessee, we ran a 12-month CD special, which brought in just under $20 million of new deposits. While deposit costs continue to increase this quarter, we remained focused on balancing the need for core deposit growth with the challenge of keeping our deposit rates in check. So let's see how all of these impacted our margin. Our net interest margin moved down 14 basis points to 3.75%.

This movement is outlined in the bottom-left chart with the increase in deposit costs being the main culprit. As I mentioned earlier, elevated loan payoffs last quarter led to the decrease in loan fees this quarter. Our loan-to-deposit ratio is at 92% and at 96.2% if you include our held-for-sale loans. This ratio is well within our guidance and has been fairly steady for some time.

I would expect this metric to continue at these levels throughout 2019. Before we talk about forward guidance, let's move on to our noninterest income. Our noninterest income to average assets was 0.97% and well within the guidance we provided last quarter. Treasury management and deposit service charges were in line with prior quarter.

Typically, clients can pay their treasury management fees in deposit balances or hard charge fees. This quarter, we saw more deposit balances than fees and explains the relatively flat quarter from Q4 2018. Tri-Net had a record quarter with $641,000 in loan fees and is reflective of the demand we see for this product from other financial institutions. An additional benefit driving these fees higher was the interest rate environment.

Most of these loans were originated in Q4 when the yield curve was higher and then sold once rates dropped in Q1, resulting in a higher premium. For Q2, you can expect Tri-Net fees to be similar to our Q1 levels. Mortgage loan origination was lighter this quarter than last year, but the premium for which we sold the loans was higher this year. The end result was mortgage income flat to prior year.

Also of note is that our origination volume was 71% purchase volume, which is reflective of the robust market of Nashville, Tennessee. Given the recent jobs announcements from the likes of Amazon, AllianceBernstein and others, I'm confident our mortgage group will have a strong year compared to 2018. Let's move on to expenses. Our operating noninterest expenses came in at $14.1 million with an operating efficiency ratio of 65%.

This is squarely in line with our guidance of starting the year out in the mid-60s and moving to the lower 60s by the end of the year. Looking at the individual line items. Our compensation expense moved down from prior quarter, and this is more typical of the run rate you should expect going forward. As you may recall, last quarter was elevated as we ran a higher incentive accrual at year-end related to our overall 2018 performance.

Our occupancy expense increased slightly with the relocation of our Brentwood branch to a freestanding, high-visibility location within Williamson County. Additionally, we staffed this branch with a very high-performing branch manager, so we expect the benefits of increased business to quickly earn back the increase in expense for this location. And as I mentioned earlier, we ran a deposit campaign during the first quarter in conjunction with the grand opening to jump-start this business. Other expense line items are in line with prior quarters, so let me speak about the merger for a bit.

As you can see on Page 14, we are progressing our way to a full integration with Athens. We completed the branding and core systems conversion earlier this month and are quickly working our way to capturing tailwind synergies in the second half of the year. This includes some personnel but also operating on one core platform. Additionally, the teams are identifying revenue synergies between the two geographies which should benefit the top line over time as we further integrate leadership, best practices and different products to both East and Middle Tennessee.

Let's go to Page 15. Post acquisition, all our capital ratios remain above well-capitalized regulatory guidelines. I would remind you of the $8 million stock buyback we announced in December. And as of March 31, we repurchased 155,400 shares at an average price of $15.62.

For those of you doing the math, that's just under $4 million. Let's just -- let's talk about guidance and our performance relative to that guidance. In January, we shared with you 10 data points of guidance to help you model our numbers and to provide transparency into our goals. For our first quarter's performance, we hit on 9 out of the 10 points of guidance.

The ROAA came in at 1.06%, so that was clearly a miss. The miss was driven predominantly by the elevated cost of our deposits. As I stated earlier, I do expect our deposit cost to continue to move up, albeit at a slowing pace, as we compete for business to fund our loan growth. Having said this, I would reiterate our NIM range but believe we will be at the lower end of this range for the time being.

As it relates to our ROAA guidance, we will stick to the guidance, knowing that the first quarter has traditionally been the most challenging given seasonality in mortgage, a reload of FICA expenses and our synergy model has not yet been fully executed. I would expect this to be within our stated guidance in the second quarter. As it relates to loan growth, we are sticking to the stated guidance but we do anticipate a number of payoffs in the second quarter, which may put us below or at the lower end of our guidance near term. Should this occur, this will also allow us an opportunity to be more diligent in pricing to attract new deposits and gives us a higher degree of confidence in our stated NIM guidance.

With that, let me turn it back to Claire for some closing comments.

Claire Tucker -- President and Chief Executive Officer

Thank you, Rob. Let me direct your attention to Page 17 of the investor deck for a few key takeaways. CapStar's strategy remains one of sound, profitable growth. We believe that the financial results that we reported earlier this afternoon and the clean loan portfolio as demonstrated in our credit metrics going forward are reflective of this strategy. Although we have posted solid loan growth of 10.8% from the fourth quarter of 2018, the level of transactions that we have considered but passed on has increased as our bankers maintained discipline in terms of pricing and requested deal structure.

We continue -- we expect to continue this tactic as we focus on pursuit of those opportunities that are consistent with our soundness principles and bring full relationships to CapStar. We are keenly focused on delivering a successful integration with our Athens partners in capturing the deal economics in terms of one-time costs and synergies. I've been particularly pleased with the connectivity and shared goal of all of our associates to deliver an unparalleled customer experience, strong financial results for our shareholders and meaningful outreach in each of the communities in which we operate. The recognition for customer excellence that CapStar received from Greenwich Associates is consistent with our goal of differentiating our bank from our competition. Continued penetration of the customer wallet and increase in primary bank status with more customers is front and center for all our bankers.

Our partners in East Tennessee are excited about new product offerings, such as treasury management product suite and our SBA loan products. Given the markets in which we operate, we believe that we have continued opportunity for increasing market share through organic growth. We will continue to explore strategic and financially attractive M&A opportunities that have the potential of enhancing our core franchise and building shareholder value. We're very appreciative of the investment that many of you on this call have made in CapStar and your continued support of our company.

Operator, we're now ready to open the lines for questions from participants on the call. Thank you. 

Questions and Answers:

Operator

[Operator instructions] Our first question comes from the line of Stephen Scouten of Sandler O'Neill. Your line is open.

Stephen Scouten -- Sandler O'Neill -- Analyst

Hey guys, good evening.

Claire Tucker -- President and Chief Executive Officer

Afternoon, Stephen.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Stephen?

Stephen Scouten -- Sandler O'Neill -- Analyst

So I know, Rob, you gave a little bit of color around the really strong deposit growth and the $20 million from that Brentwood office. But can you give us a little more detail around kind of what the level of those specials were that you were running and maybe an idea where those deposits came on at in the quarter from a pricing perspective?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. So the one-year CDs were right around 2.75%. That sounds a little steep for the Nashville market, but we've also seen one-year CDs at 3%, amazingly enough. So -- but 2.75%.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. Helpful --

Claire Tucker -- President and Chief Executive Officer

Stephen, let me add something to that, too. The individual that we just recently hired as leader of our new Brentwood office came from a large regional competitor, and he has been able to bring, along with those CDs, a lot of operating accounts, money market accounts. So our blended cost is going to be lower than that there. But we're really, really excited about the inroads he's been able to make in that market.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. Sorry, Stephen. That 2.75% required also checking account deposits as well.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. And then obviously you guys noted in the presentation kind of this idea of growing the full relationship and the importance of that moving forward. Is there a specific metric you guys are tracking? Or is there a number that you guys have that can kind of frame that up for us or give us an idea of the size of that opportunity, maybe even like what percentage of your customers currently have a full relationship with you or something along those lines?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

No. We don't have that. We're not talking about that externally, but we certainly talk about that when we are looking at the client relationship. If we only have a single product, why don't we have the other piece? When we put out term sheets on commercial deals, it has to have the operating account, where's the treasury business.

So a part of how we approach either new clients or selection of clients is from a relationship standpoint. And then, again, with existing relationships, our litmus test for us is if we have and can say to each other that we are that client's primary bank, and that typically denotes an operating account with a DDA or a NOW.

Claire Tucker -- President and Chief Executive Officer

Stephen, one thing I would add to that as well just anecdotally is we, in the last 30 days, have won a huge relationship with a local company here. It involves a term loan that we committed and closed, but we required that they move all of their treasury to us. That treasury is valued at about $400,000 a year. I think with a system that big, that really speaks well to the solid treasury management product suite that we have and our ability to handle these bigger relationships.

So I think we're poised to continue to grow that.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. Great. And then maybe just last thing for me. Curious on the variable rate loan book.

I know you benefited about 5 bps in the quarter from the repricings. But as LIBOR started to move down slightly, what do you anticipate will be the net effect on loan repricings, assuming the rate environment kind of stays as it is?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. Assuming it stays where it is, I mean, the tough part about growing the yields on our loan book will be what the coming on rate is. And that's why we added in the chart our new production loan yields. And for the past two quarters, that's been above our portfolio average.

But as it goes to the existing loans on the books, that's just -- those reprice either monthly, quarterly. They have all different types of contractual repricing pieces. But if we're in a flat rate environment, just like everyone else, we're going to be challenged on the margin.

Stephen Scouten -- Sandler O'Neill -- Analyst

Yes. And based on where LIBOR's moved so far, would we actually see some downside in 2Q?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

You could.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK, OK. Well, great. Well, I'll let somebody else hop in. Thanks for the color, guys.

Claire Tucker -- President and Chief Executive Officer

Thank you, Stephen.

Operator

Our next question comes from Catherine Mealor of KBW. Your question, please.

Catherine Mealor -- KBW -- Analyst

Thanks. Good evening.

Claire Tucker -- President and Chief Executive Officer

Good evening, Catherine.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Hi, Catherine.

Catherine Mealor -- KBW -- Analyst

One more thought on the margin. Is there a way to think about the incremental cost of deposits this quarter and how they trended through the months of the quarter? So we -- I feel like we've heard from a number of management teams that it had an increase in deposit costs this quarter, but that cost was less in March versus the early part of the quarter. Could that be the same for you? Or how can we think about that?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Well, the one thing for our quarter is that we had seasonality in our correspondent banking business as I said. And traditionally, that business is growing at wholesale rates or basically competing with the fed. So if that rolls off, that's going to be rolling off higher dollar amounts. If we need to replace those funds, we could at least do it at wholesale rates, if not have an opportunity to do it better.

But overall, I would say our cost through the quarter has slightly increased in March, especially in Middle Tennessee. Now the growth that we mentioned in East Tennessee was fairly strong and robust, and that's had a significantly lower cost, as you may know, than Middle Tennessee.

Catherine Mealor -- KBW -- Analyst

Got it. OK. That's helpful. And then on the expense side, so you said that this past quarter was a better run rate as we look in the second quarter.

And so is that absent of any further cost savings you expect to get from Athens? And so in that, is there -- I guess maybe can you frame for us the dollar amount of Athens cost savings that we should expect to see over the next couple of quarters?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. I don't think it's going to be material right off the bat. We just did a systems conversion in the first part of April. We have to be in a stabilization period.

We certainly are not going to take the risk of pulling people out too quickly. What I would say, Catherine, is kind of where I've guided you for the past couple of quarters. We started around a 65% efficiency ratio, and I think that's going to slowly trend down to about the low 60s. So I think you could see this dollar amount with some slight movement, either flat or down, as we go through the year.

Catherine Mealor -- KBW -- Analyst

Got it. OK. But then that efficiency ratio, shouldn't that be impacted by the lower margin? And so is there a chance that we're actually higher?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. We'll still have -- loan growth, we're still expecting fee businesses to kick in, but we are expecting to meet our numbers. So the guidance that I gave you on the margin, I think we're going to be at the lower end. That's where we're going to be pressurized.

So we got to look at other avenues as well to make some of that up. I think the Tri-Net piece on the noninterest income, that was a record quarter that we had with $641,000. We think we'll have a similar level there. We had the SBA team that we picked up last year.

That's starting to gain traction in terms of loan origination, starting to sell that in the second half of the year. So those are opportunities for us to bring the revenue up.

Catherine Mealor -- KBW -- Analyst

OK. All right. Great point. All right.

Thank you so much.

Claire Tucker -- President and Chief Executive Officer

Thank you, Catherine.

Operator

[Operator instructions] Our next question comes from the line of Tyler Stafford of Stephens. Your line is open.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, good afternoon.

Claire Tucker -- President and Chief Executive Officer

Hi, Tyler.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Hi, Tyler.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, maybe just to start on the securities portfolio this quarter. Those were down in the period. Was that just pruning from the Athens portfolio? Or would you expect to see further reductions in just the absolute size of that, Rob?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. I would say that's more around liquidity. I think we'll rightsize that just a tad at the end of the quarter, looking at that and getting our mix right.

Tyler Stafford -- Stephens Inc. -- Analyst

OK. What was -- just on the margin, do you have the balance of the correspondent-related deposits that flowed on to the balance sheet in the first quarter?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

There's probably an additional 75. So we probably went from 150 up to about -- I'm looking at a little over -- about 225, somewhere around there.

Tyler Stafford -- Stephens Inc. -- Analyst

And those are predominantly in what deposit categories?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Some demand, but mainly interest bearing and the NOW accounts and then money market as well.

Tyler Stafford -- Stephens Inc. -- Analyst

OK. And absent just the seasonality this quarter, can you just speak to any kind of trends you're seeing on the migration from DDA and interest bearing?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

I wouldn't characterize it as anything large or abnormal. I mean, we are seeing a little bit, but nothing that I would point out.

Claire Tucker -- President and Chief Executive Officer

Tyler, one thing I'd add to that is if I look at the DDA balances for correspondent over the past 12 months, it's been fairly constant. And a part of that has to do with the fact that for many of these correspondents, we serve as the settlement bank, and they will pay for their fees with balances. And so there's an established level that's going to be there just to support the settlement services.

Tyler Stafford -- Stephens Inc. -- Analyst

OK. Thanks, Claire. Just last for me on the margin, Rob. I'm struggling a little bit to get to your comment about the lower end of the margin range for the second quarter. I mean, just on the heels of the 14 basis points of GAAP margin compression from the fourth quarter, you mentioned the continued increase in deposit cost. And I think it implies lower accretion going into the second quarter to foot to the $1 million of accretion for the full year.

Can you just walk through how that GAAP margin will stay at the bottom end of that range and not be below it in -- at least in the near term?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Well, I think on the loan yield side, I think we have some opportunities with our new loan production. That, I think, will continue at higher-than-the-portfolio average of 5.49% today, so if we've put another quarter on and we roll off some other stuff. I also think some of the Tri-Net paper that we actually have on balance sheet and held for sale is at a fairly high level. We have multiple sales of that going on.

The yield on that paper is a little -- yes, it's lower than in our portfolio average on the loan side, and that will help our NIM, as we sell those off as well.

Tyler Stafford -- Stephens Inc. -- Analyst

OK. Got it. And I just wanted to make sure, on the expense side, I understand something correctly. So the 25% cost saves from Athens is still in play.

It's just -- even though the conversion was recent, the associate cost savings may be more drawn out throughout the remainder of the year?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

I think that's right. I mean, we've got a little bit by jumping on one core platform and signing that contract with the core provider. We got a little bit of that upfront. We've had some, what I would call, slight or expected turnover and some noncritical roles of staff positions that may have come out early.

But I think that will happen slowly over a period of time.

Tyler Stafford -- Stephens Inc. -- Analyst

OK. All right. That's it for me. Thanks for answering those questions.

Claire Tucker -- President and Chief Executive Officer

Thank you, Tyler.

Operator

Thank you. Our next question comes from Laurie Hunsicker of Compass Point. Your line is open.

Laurie Hunsicker -- Compass Point -- Analyst

Hi. Good afternoon.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Hi, Laurie.

Laurie Hunsicker -- Compass Point -- Analyst

Just wanted to go back to margin. The actual dollar accretion income that was a net interest income this quarter, what was it?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Say around $400,000, right around there.

Laurie Hunsicker -- Compass Point -- Analyst

OK. Yes. I thought I heard you say it was 5%. I wasn't sure.

OK. So you had 9 basis points of accretion income in your 3.75% margin. So if I'm looking, your core margin basically went from 3.80% then to 3.66%. So you had 14 basis points of core contraction.

Is that accurate?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Say that again? I'm not sure.

Laurie Hunsicker -- Compass Point -- Analyst

So if I'm stripping out this $400,000, right, so you had 9 basis points of accretion income in your 3.75%, so I'm in a core margin of 3.66%. And I guess this goes to Tyler's question a little bit. The accretion income is going to run down, right? So next quarter, it might only be 7 basis points.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

No. I wouldn't think it would be fairly similar -- or if we did it like $400,000 a quarter, it's going to be similar.

Laurie Hunsicker -- Compass Point -- Analyst

It's going to be similar? OK. Because I mean I'm just looking at even if we run this down to $300,000, then suddenly it's only 7 basis points. So I guess directionally, I'm trying to understand how that reported margin is going to hold at current levels. I mean, I guess if you were to sort of think about, again, directionally, your cost of deposits is going higher, where could we potentially see that fourth quarter margin if we were just thinking about where --

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Fourth quarter of 2016 -- or '19, I mean?

Laurie Hunsicker -- Compass Point -- Analyst

Yes. Fourth quarter of '19, right? So your accretion come runs down. I'm just trying to understand how the margin holds, I guess.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

I think a placeholder for your margin on purchase accounting accretion is around $400,000 a quarter. You might have some quarters a little higher, some a little bit lower. Especially if we get some payoffs on some loans on East Tennessee, that could trigger a little bit higher accretion. So I'd say a safe modeling would be $400,000.

We are going to see some increases in our deposit costs, albeit significantly so, as we're basically in a rate environment where it's paused. So I would anticipate competition to also be being very careful about pricing of their deposits. The second piece is we're looking at our East Tennessee partners that really be driving a lot of our deposit growth, which they have. We've mentioned 18%.

And then our loan yield side is going to be another piece where we can look to drive a little bit higher loan yield. And then the other piece, near term, what I would say is I think we have how much, Chris, in Tri-Net paper on the balance sheet right now that when we --

Chris Tietz -- Chief Credit Officer -- Analyst

Well, yes, at quarter end, we're about $53 million or $56 million in the held-for-sale bucket, and so that will continue to push through as well.

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

So if we sell that, that's going to help on the margin side. I'm not saying it's not going to be challenging, but that's why I said we're going to guide at the lower end. And if we think we're going to go below that, we'll certainly hit back on the phone with you guys and say. But near term, we'll be at the lower end.

Laurie Hunsicker -- Compass Point -- Analyst

OK. OK. Great. That's helpful.

OK. And then just one thing here on money markets because the volatility, I guess, is more in the interest checking line, not the money market. But your money market rates still went up to 13 basis points linked quarter, the 1.42%. Is there -- are there other specials you guys are running? Or how specifically should we be thinking about that?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. On money markets, we have done a money market special as well. I think we've done that in the low- to mid-2s, and that has also come with additional business. So we're on deposit campaigns.

We mentioned the pricing on the CDs, but we also did one on the money market side. And then also, I would just say money markets, I've seen in this marketplace competitors where we've lost deals at 2.75% in Middle Tennessee for money markets.

Laurie Hunsicker -- Compass Point -- Analyst

Wow. OK. Great. OK.

One last question here. Your tax rate, just a little lower than I was expecting. What's a good number to use for the rest of year?

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Yes. I would say 23%, Laurie. I mean, it might ebb and flow from quarter to quarter. But I think over the longer period of the year, it will be around 23%.

Operator

At this time, I'd like to turn the call back over to Ms. Claire Tucker for any closing remarks. Ma'am?

Claire Tucker -- President and Chief Executive Officer

Thank you, operator. Once again, thanks to each of you for your participation in CapStar's earning call this afternoon. Should you have any follow-up questions, please feel free to reach out to Rob or me. And for those of you all who are on the phone who are investors in CapStar, we greatly appreciate your confidence in our company and appreciate your investment.

With that, operator, we will end the call. Thank you.

Operator

[Operator signoff]

Duration: 41 minutes

Call Participants:

Claire Tucker -- President and Chief Executive Officer

Rob Anderson -- Chief Financial Officer and Chief Administrative Officer

Stephen Scouten -- Sandler O'Neill -- Analyst

Catherine Mealor -- KBW -- Analyst

Tyler Stafford -- Stephens Inc. -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

Chris Tietz -- Chief Credit Officer -- Analyst

More CSTR analysis

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