CapStar Financial Holdings, Inc.
Q3 2018 Earnings Call Transcript

Published: 27 Oct 2018

[Operator:]

Good morning, ladies and gentlemen. And welcome to the CapStar Financial Holdings Third Quarter 2018 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; Mr. Dan Hogan, President and Chief Operating Officer of CapStar Bank; 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 Web site. 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's website at www.sec.gov and the Investor Relations page of CapStar's Web site at www.ir.capstarbank.com. Also joining this presentation, CapStar may make certain comments that constitute forward-looking statements within the meaning of the federal security 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 the risks, assumptions and uncertainties, many of which are difficult to predict and beyond CapStar's control. Actual results may provide 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 risk assumptions and uncertainties impacting forward-looking statements and the presentation of non-GAAP financial measures and 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 parties. The only authorized live and archived webcast and transcripts are located on CapStar's website. With that, I am now going to turn the presentation over to Ms. Claire Tucker, CapStar's President and Chief Executive Officer.

[Claire Tucker:]

Thank you, operator. First of all, we appreciate each of you participating in our third quarter 2018 earnings call. We have good news to report on many fronts, including our successful closing of the Athens Federal merger and solid progress on our integration. As you know, we announced this partnership on June 11, 2018, and closed the transaction on October 1, 2018. We believe that the speed of regulatory approvals is indicative of their view of the partnership between Athens and CapStar as well as the good standing that both banks enjoy with their respective regulatory agencies. Additionally, during the quarter, we experienced improvements in our deposit betas and continued the trend of solid credit quality in our loan portfolio. 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 this performance. Our vision for CapStar is to be a high-performing financial institution known for sound profitable growth. Third quarter results demonstrating execution of this strategy are highlighted on this page. As I mentioned, we are excited about our merger with Athens Bancshares, which was completed on October 1. Throughout this presentation, we will differentiate between our GAAP results, including merger charges and those that reflect operating results excluding the merger charges. So let's look at GAAP results for the third quarter of 2018. We delivered fully diluted EPS of $0.28, resulting in a return on average assets of 1.02% and return on average tangible equity of 9.67%. The efficiency ratio was 68.2% and our NIM was 3.35%. On a non-GAAP basis, adjusting for $540,000 in merger-related expenses, fully diluted EPS was $0.31, return on average assets was 1.13% and return on average tangible equity was 10.72%. The efficiency ratio was 64.6%. There were multiple drivers of our financial performance in the quarter. First of all, average held-for-investment loan growth was up 11% from the prior quarter, growing from $1.042 billion to $1.07 billion. This growth was fueled by growth in our C&I businesses as well as fundings on multiple commercial real estate development projects. Second, we are pleased to report that CapStar ranked as the number five SBA lender in the state of Tennessee as a result of the activities of the team that we hired during the first quarter of 2018. Third, Treasury Management fees expanded nicely year-over-year by 24%. Fourth, and importantly, our credit metrics remain solid as we booked net recoveries of $32,000 for the quarter and a running net recovery of $170,000 year-to-date. We believe that the ALLL remains appropriate at 1.42% of gross loans. Fifth, net interest margin declined from 3.46% in the second quarter to 3.35% in the third quarter. Rob will provide more color on these drivers in a few minutes. Moving to Page 5, I direct your attention to the loan growth metrics. At the top left quadrant, you will note the increase of 11% in average loans held for investment, again, growing from $1.042 billion to $1.07 billion quarter-over-quarter. Growth occurred primarily in our core C&I sectors and in the construction and land development component of our commercial real estate sector. As we've noted before, the average cash equity going into the CRE projects averages in excess of 30%. The SBA team of five people that we hired during the first quarter has been successful in converting both loan and deposit relationships to CapStar. We continue to believe that this initiative has great potential to build a nice book of business and also provides an alternative way to structure transactions for our core C&I target market. We expect the SBA alternatives to provide additional market penetration opportunities in the new East Tennessee franchise as our bankers there now have additional tools as financing solutions. Unfunded commitments of $497 million represent an opportunity for future loan growth. We have experienced steady increases in committed lines as well as absolute dollar usage of these lines of credit over the past several quarters. We continue to manage our credit concentrations for the entire loan portfolio with deeper segmentation done within the real estate and healthcare categories. We have established guidelines that are a function of the bank's risk-based capital, and we review these on a quarterly basis. We believe all concentrations are being managed appropriately. Overall, our bankers continue to experience competitive pressure from new market entrants as well as nontraditional providers of financing at terms inconsistent with our profitability and soundness profile in many cases. Our observation is that the market remains very frothy, reflecting slippage and discipline around pricing, covenants, leverage and general terms. As we said in the past, CapStar is not in the business of growth for the sake of growth, and we intend to maintain structural discipline. Advancing to Page 6, I will address credit quality for CapStar. In the top left quadrant, you will note that the ALLL is up slightly to 1.42%, which we believe is appropriate based upon our quarterly analysis. As I noted a moment ago, we had net recoveries of $32,000 for the quarter and net recoveries of $170,000 on a year-to-date basis. NPAs to loans plus OREO remained flat at 52 basis points during the quarter. In the bottom right quadrant, you will notice our seven quarter trends in asset quality broken into special mention and substandard categories as well as total impaired loans. Both substandard loans and total impaired loans remain unchanged at 80 basis points and 60 basis points, respectively. Special mention loans increased from 20 basis points to 70 basis points. These special mention loans consist of 3 relationships with approximately $7 million in outstanding balances. We have one impaired loan in the amount of $5.4 million with a specific reserve of $2.7 million. Again, we believe that we remain appropriately reserved with ALLL at 1.42%. With that, I'll turn it over to Rob for his comments.

[Rob Anderson:]

Thank you, Claire, and good morning, everyone. Our loan yield decreased four basis points to 5% for the quarter. There are several moving parts, so let me detail those out for you. First, the yield on our new loan production came in above our portfolio average at 5.24%. This impacted our overall portfolio yield by 1 basis point. Next, and as a reminder, 61% of our loan book is variable rate in nature and predominantly tied to 1-month LIBOR or prime. These loans provided a 3 basis point lift to the portfolio loan yield for the quarter as the LIBOR increased. In both Q1 and Q2 of this year, one-month LIBOR moved up well in advance of the actual date in which the Fed raised rates, providing a nice lift to loan yields. In Q3, however, 1-month LIBOR moved up much later in the quarter so our loan yields did not get as much of a benefit as in prior quarters. In addition, we saw a decrease in loan fees for our commercial real estate and SBA loans versus the prior quarter, which also impacted our overall loan yield. Let's move on to our deposits. Total deposits grew, on average, 3% for the quarter and 5% over prior year. Our overall deposit cost was up 11 basis points for the quarter to 1.22%, which reflects a 44% beta with the last rate increase. This is a marked improvement from the prior quarter in which we saw a 92% beta. And if you looked at our performance over the past 7 rate increases, we have experienced a 37% beta, which is below our own internal modeling. To provide further color on our deposits, we are seeing some of our current customers requesting rate increases, but most of the portfolio increase is being driven by new customer acquisition or gaining incremental deposits from current clients. In other words, there is an acquisition cost associated with new business. Also, I'd like to reinforce the point I made last quarter about our DDA deposits. Although they are down slightly from the second quarter and prior year, we typically see an offset in our Treasury Management fees. For our commercial clients that utilize our Treasury Management platform, they can pay us in compensating deposit balances or they can pay us in fees. As Claire mentioned, and as you'll see in a couple of slides, our Treasury Management fee business was up 95% from prior quarter and up 24% from the prior year. More on this in a bit. So let's see how all of this impacted our margin. Our net interest margin decreased 11 basis points from the second quarter and is the first quarter in some time that we have seen contraction in our margin. In large part, our margin is being impacted by the decrease in loan fees and the increase in our deposit cost. As mentioned previously, 1-month LIBOR moved late in the quarter, and the benefit that we have largely experienced in prior quarters has not yet materialized with this past rate increase. As you can see by the chart on the lower right, our balance sheet remains asset sensitive. So the Fed continues to raise rates, which is largely anticipated by the market, we expect to benefit from this action as we have done with previous rate increases. So let's move on to noninterest income. First, our noninterest income to average assets came in at 90 basis points. As mentioned previously, our Treasury Management fees grew substantially this quarter as clients chose to pay us in hard charges versus compensating balances. Additionally, we also brought on some new clients, which had helped this line item going forward. Our Tri-Net business has been a consistent performer for us, and the team produced another strong quarter of loan originations and then selling those loans for a premium in the marketplace. As noted on the slide, these loans sales can fluctuate from quarter-to-quarter so the results can be lumpy from time to time. From a modeling standpoint, we do have some seasonality in this business as the demand for loans late in the year slows down, so we would guide you to a slightly lower number in the fourth quarter. Mortgage fees came in higher than prior quarter but lower than prior year. If you look at the detail on the appendix, I believe it is on Page 23, you will notice that 90% of the origination volume in the third quarter was purchase volume. This is an indication that the refinance cycle is coming to an end. Let's move on to expenses. Excluding merger-related charges, our expense base is slightly down from prior quarter and in line with previous guidance. Our efficiency ratio is at 64.6%. And looking at the individual line items, our compensation expense is up from prior quarters but due to additional FTE but also a slight increase in our incentive accrual to align with our improved year-to-date performance. With other line items experiencing normal fluctuation, let's move on to taxes. As we have mentioned all year, we celebrated our 10-year anniversary this past summer. And with this milestone, we had a number of stock options and organizer warrants, which expire throughout 2018. We saw a rather large benefit to the tax line associated with this milestone that we don't expect to repeat going forward, so I have provided details as to why our effective tax rate has been running lower than normal all year. As you can see by the chart on the upper right, our effective tax rate has been 13.2% for the quarter and 14.1% year-to-date. We do have 33,000 stock options which will expire in the fourth quarter, so we will continue to see some benefit in the fourth quarter but not nearly to the extent that we experienced year-to-date. With that said, you should expect our tax rate to normalize back to the 23% range going forward. Let's touch base on capital. As you can see by the chart, all our capital ratios increased this past quarter. And this is a function of our earnings for the quarter but also managing our risk-weighted assets. Additionally, these ratios are reflective of the $0.04 dividend we paid in the third quarter to our shareholders. With that, let me turn it back to Claire for some closing comments.

[Claire Tucker:]

Thank you, Rob. On Page 14, we have provided an update on our transaction to merge with Athens Federal or Athens Bancshares, which was announced on June 11 and closed on October 1. As a reminder, the legacy Athens franchise stretches from Lenoir City to Cleveland, Tennessee and includes eight branches, two Southland finance offices and a residential mortgage title company. Athens, a bank with approximately $460 million in assets, has consistently reported core return on average assets of 1.25% or higher and return on average equity of 11% or higher over the past 4 quarters. The most recent quarter's cost of funds was 47 basis points. This partnership reflects the key M&A criteria that we have shared with you previously, including a strengthened funding profile with a lower cost of funds, expanded product capabilities and scale, which will help improve profitability. As we've begun the integration process, it is clear that we have a shared vision for customer service through a variety of product offerings and customer responsiveness. As we anticipated, the markets are proving to be complementary, and opportunities exist for deepening share of wallet across the franchise with this broader array of products. Given that we closed earlier than originally anticipated in our modeling, we are running ahead of schedule for the integration of the two companies. We believe the combination is financially compelling, and we are on track to produce double-digit earnings accretion, manageable tangible book value dilution and an enhanced capital position. Lastly, on Page 15, we have summarized the key takeaways. CapStar's strategy and vision remain focused on delivering sound profitable growth. Although we have posted solid loan growth of 11% from the second quarter, the level of transactions that we have considered but passed on has increased as our bankers maintained discipline in terms of pricing and deal structure requested by the borrowers. We continue to continue this tactic as we focus on pursuit of those opportunities that bring full relationships to CapStar. We routinely focus on delivering a successful integration with our Athens partners and capturing the deal economics in terms of onetime 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. This week, the CapStar Financial Holdings Board of Directors unanimously selected two former directors of Athens Bancshares to join the CapStar board. These individuals will add depth and experience in community banking to our board. We will be filing an 8-K to provide further detail about these directors in the next several days. Additionally, consistent with our merger agreement and reflective of our joint commitment to the communities in which we operate, CapStar will be making a $500,000 contribution to the Athens Federal Foundation before the end of this year. This is the first installment of our $1.5 million commitment to the foundation. We are appreciative of the investment that many of you on this call have made in CapStar and your continued support of our company. Operator, we are now ready to open the lines for questions from participants on the call. Thank you.

[Operator:]

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

[Stephen Scouten:]

So, really nice growth again this quarter. I'm curious if you can give some additional color on some of the trends you're seeing within the mix of the loan growth. Specifically, I didn't see the healthcare number in the presentation deck any longer, so I was wondering what that healthcare number was? And if we did kind of come off that bottom you talked about last quarter and then also maybe if you could comment on construction growth.

[Claire Tucker:]

Yes, as we mentioned in the second quarter, I think I used the term neater as we felt like we had really kind of bottomed out in Healthcare in terms of the runoff that we were experiencing since we had pivoted in our strategy. I feel very, very good with the progress that team is making. The C&I growth that we reported includes both growth in the healthcare and the core C&I sector. It's driven by some nice pickups in Healthcare. Additionally, in the construction and development component, as you know, that includes both our core CRE as well as some owner-occupied spaces. And so there was a mix of both of those types of loans that were included in that pickup in the C&D category. As a reminder and I've said this many times, the average cash equity going into those construction projects averages in excess of 30% going in before we ever fund the first dollar. So we feel good about the quality and the structure of the deals we're putting on the table.

[Stephen Scouten:]

And that construction growth looks like, ballpark, about 50% of the net growth year-over-year. And you're starting to get a little bit higher on those thresholds of 300% and 100% especially over the last couple of years. Are you -- is there a constraint in terms of how much further that can grow from here? Are we -- it's very close to that at least?

[ChristopherTietz:]

I'll point out a couple of things. One, our CRE book has a generally short duration of about 3 to 3.5 years. So what you're seeing is there's a lot going on and a lot coming off and we're constantly looking at that and gauging against where we're going relative to CRE concentration limits and so on. So right now, we're not overly concerned by it. If we were to tip over concentration limits, we think it'll be transactional for a relatively short period of time, well, something was in the pipeline to payoff.

[Stephen Scouten:]

And maybe looking at the NIM for a second. The move down, I guess, the one part that I was a little surprised by, obviously, the deviation on loan fees. And I'm wondering if any of that is kind of unusual in nature if we'll see those loan fees move back higher? Or this is a more stable rate for where we'll see loan fees in that competition from here?

[Rob Anderson:]

I would say, we're going to be more stable to where we are this quarter than past quarters. I think second quarter was a little bit more elevated, mainly on the margin that's attributed to the loan yields. And I would point to the late movement in 1-month LIBOR on our variable rate loans being a big piece of it but also the fees. But I would say from here on out, we're probably more indicative of what we booked this quarter in fees going forward.

[Stephen Scouten:]

And then just last housekeeping item. Rob, did you say 23% on the tax rate for 2019 is where you should trend towards? Because I was thinking we were looking more like 21% previously.

[Rob Anderson:]

Yes, I would say it's going to be at least 21% and probably around 23%, so it's going to go between those two. But I'd probably air on the upper end of that for right now.

[Claire Tucker:]

And Stephen, one thing I'll add too. Totally, Rob and I are synced up in terms of the expectation on loan fees. I would also point out though that we recently received our certification in SBA to enable us to do more of 7A type products that generates more fees up to this point, we've booked quite a few of the transactions that stay on the books and are certainly reflective in our loan yield. But I think there are opportunities that we will be able to avail ourselves of since we have the certification to do more of the fee-driven types of transactions that we would sell in the market.

[Operator:]

Our next question comes from Tyler Stafford of Stephens, Inc.

[Tyler Stafford:]

Claire, I actually just want to start off on your last comment there just about the SBA opportunities. How much or how much was the total SBA production this quarter? And this 7(a) approval, what do you think the opportunity is there for kind of go-forward production out of the 7(a)?

[Claire Tucker:]

The production has been steady throughout the year. We joined -- we brought that team on in January, and so first deal that they booked was really the end of March, the first of the second quarter. So we're seeing some volume come on at a very steady clip there. They've got a nice pipeline right now over $50 million that they're looking at so deals are in process. So I feel good about where we are with that. I think the opportunities on the fee generation type will be both in the legacy market here in Nashville as well as, as I mentioned, some opportunities over in East Tennessee since we'll have a new product to offer those clients, so very optimistic. I can't quantify it at this juncture because we're still doing a lot of prospecting and discussion with the bankers since this is relatively new thing.

[Tyler Stafford:]

Rob, maybe just going back to your margin comments. Obviously, the fourth quarter should be better from the LIBOR benefit. And then a nice from add from Athens for the full quarter margin. Just any expectations for kind of a launching point for those 2 dynamics on the fourth quarter margin?

[Rob Anderson:]

So certainly, we had the compression probably for the first time in our margin for some time with this last rate cycle. So I would attribute it basically to the movement in LIBOR and the fee. So I think we should see a pickup or stable in our net interest margin going forward on the legacy side. Obviously, with Athens, that's going to be accretable to our margin overall. I think when we model, we haven't given out a formal guidance, but I think if you model anywhere from 3.50% to 3.70% on the margin on a combined basis, you'll be in good shape. And then will be much better prepared to talk to you in January after the fourth quarter once we have our first quarter combined to give you more specifics for 2019.

[Tyler Stafford:]

Do you happen to have what the CDI amortization expense with Athens might be?

[Rob Anderson:]

Not yet. I mean we're closing on 10, 1 so we have all of our third parties and accountants looking at those numbers. And we'll be able to share more specific information when we close in the fourth quarter and report out all those numbers.

[Tyler Stafford:]

And then just last one for me and maybe I missed this in your prepared remarks. But just any more color you can share on the three special mention loans? What, I guess, drove the increases there? Just any color you can provide on those will be helpful.

[Christopher Tietz:]

The increase was related to one credit. It is a company with an ownership group that we're very close to. They have an -- and they had an event that simply caused them to lose money. As we learned about this, the ownership group also interjected an equivalent amount of capital to offset that, and it's actually trending favorably back on track with our expectations.

[Operator:]

And our next question comes from Daniel Cardenas of Raymond James. Your line is now open.

[Daniel Cardenas:]

A couple of things. As we start thinking about organic loan growth on a go-forward basis, can you give us a little bit of color as to how you see that trending in 2019, and we still looking at the high to mid-single digits? And then maybe some color on line utilizations during the quarter compared to 2Q.

[Rob Anderson:]

Sure. Daniel, it's Rob. So, I mean we've been guiding all year for the legacy CapStar piece, which is high single digits to low double digits. And we'll stick with that guidance for that portion of the business going forward. Certainly, we're going to add in Athens in the fourth quarter. And we'll have some expectations and further guidance on a combined basis in January. On the line utilization, the line utilization was down this past quarter. And I believe it was on the slide.

[Claire Tucker:]

Yes, it's on Page 5. The percentage -- while Rob look into this. The percentage was actually down but the absolute dollar usage was up because the amount of the lines also increased. So we still have, like I said, $497 million worth of unfunded facilities that we can expect some potential growth coming out of those.

[Daniel Cardenas:]

Okay, good. And then as you kind of think about growth going forward and given the competitive factors in Nashville, do you see perhaps greater opportunities in East Tennessee? Or is it pretty balanced in terms of your expectations for growth going forward?

[Claire Tucker:]

That's a great question, Daniel. I think certainly, we continue to rely on the legacy Middle Tennessee market for some good solid growth. And I think we feel comfortable with the high single, low double-digit growth coming out of that corridor. I do think we'll see some opportunities, the portfolio and the legacy Athens is comprised of smaller average deal size. Conceivably, particularly in some of the more metropolitan markets, say, Cleveland, we'll have an opportunity to potentially hold a greater percentage of loan than we might be leading over there. So I think we'll see some loan growth opportunities there. I do think that the team that's on the ground in Athens is extremely talented. And they haven't missed a beat in terms of really being out there, calling on the clients, so I would expect that we'll see some good growth coming out of that market as well.

[Daniel Cardenas:]

Okay, great. And then maybe just one last question off the back, more of housekeeping question anything. But how should I be thinking about to your share count for Q4?

[Rob Anderson:]

Sure. So certainly in our press release and the table, you have the legacy CapStar piece. Athens is about $1.8 million. We had a fixed exchange ratio on that deal at 2.864, so I think their share count will be about $5.2 million would be added to ours. And then on a -- so that would put you in the high 17s, and I think on a fully diluted basis, you should be in the high 18s.

[Operator:]

Our next question comes from Stuart Lotz of KBW. Your line is now open.

[Stuart Lotz:]

Rob, one follow-up question for you on the NIM, and I appreciate the color. But this 3.50% to 3.70% guidance that you've mentioned, is that on a core basis or is there some accretable yield baked into that number?

[Rob Anderson:]

We would say that would be more on a core basis. We got to add in Athens obviously, that's with Athens so on a combined basis. We'll be more able to discuss kind of the purchase accounting in January, what that will do in accretable yield. And certainly, we'll identify those pieces as we go forward because that will be a portion of our loan yield and our margin as well. So we'll identify that in the fourth quarter.

[Stuart Lotz:]

And then just one follow-up. I know you announced the dividend this quarter as well as you're just closing the deal. But given the weakness in both market and your shares as of late as well as your capital position, is it realistic to think or have you guys thought that was a forward around a potential buyback? Is that even an option at this point or is that just not on the table? Just curious.

[Claire Tucker:]

Yes, it's a great question, Stewart. And certainly, we've had discussions with our board. It's a strategic decision that you have to make based upon the highest and best use of your capital. We raised our capital in 2016, and we continue to believe that we can deploy that through further M&A activities as well as growth in our markets, but certainly is something that our board has an ongoing discussion about.

[Stuart Lotz:]

And sorry, just one last one from my end. As we think into the fourth quarter and then into 2019, I know you mentioned that Athens is bringing over about a 1.20% so 1.25% core ROA. And then the cost saves then will be coming through likely in the first quarter. How do we think about your profitability targets in the first half of 2019? And are you guys establishing any range? Any color there would be great.

[Rob Anderson:]

Yes, Stuart. I guess, what I would do is reiterate what we said when we announced the deal. We expect the deal to be 6% accretive in year 1 or 2019 and 10% thereafter. You'll see the majority of the cost saves phased in roughly after conversion. So we're going through that now and putting together our plans. But we identified cost saves about 25% on Athens expense base, and that was going to be phased in about 60% year 1 and 100% thereafter. So we're still confident in the deal economics. We're making a lot of progress with the Athens team. And I would just reiterate those comments that we made at announcement.

[Operator:]

[Operator Instructions] Our next question comes from Laurie Hunsicker of Compass Point. Your line is now open.

[Laurie Hunsicker:]

Rob, I just wanted to go back to margin because I want to make sure I understood that's right. I mean, obviously, Athens had a better margin at 4.11%. Was there any other restructuring that you did there to drive that higher?

[Rob Anderson:]

No.

[Laurie Hunsicker:]

And then if we think about the accretion income in dollars and obviously, it's very front end-loaded. But can you help us think about what the accretion in dollars will look like in your net interest income both for 2019 and 2020?

[Rob Anderson:]

Yes, Laurie. It's still early in the process. Like I said, we'll have that information more detailed out in January. So for right now, we're not making any specific comments on our purchase accounting, but we'll definitely detail out on the slides accretable yield going forward so that you can expect that in the fourth quarter's results.

[Laurie Hunsicker:]

Okay. If you were just to quantify that even in basis points, I mean, how should we be thinking about that?

[Rob Anderson:]

Yes, I wouldn't do that right now, it's preliminary. So I'd rather stay away from that.

[Laurie Hunsicker:]

Okay, fair enough. And then last question. Can you just give us an update on what your public funds are? And then what the time component of that is? And then if Athens brought anything into that number?

[Rob Anderson:]

Yes, I mean, our public funds is probably, on the legacy CapStar side, about $100 million, $125 million. We do have some good clients in our marketplace. On the Athens side, there's maybe $50 million. It's not a big piece of either side, it's deposit base. Those funds require a collateral and those are a little trickier than other core client deposits. But I would say in general, it's a small piece of both combined companies' overall deposit box.

[Claire Tucker:]

And Laurie, I would add. This is Claire. I'll add one thing about public funds too. Keep in mind that there are several situations that we have in the legacy CapStar as well as in Athens where we have requests for proposals that come from various municipalities that bring with them a complete relationships, and so you might see deposit show up as public funds, but you've got some underlying Treasury Management and core DDA deposits that come with that. So those relationships can be very valuable.

[Laurie Hunsicker:]

Got it, okay. And then what is the CD component of that?

[Rob Anderson:]

That's very small, negligible. I won't have that offhand but I can probably get back to you on that. But I would anticipate that to be negligible.

[Operator:]

And we do have a follow-up question from Daniel Cardenas of Raymond James.

[Daniel Cardenas:]

Rob, would it be possible for you to give us maybe a little bit of color as to where you think goodwill will land from the Athens deal, just given the pullback in the stock price?

[Rob Anderson:]

Yes, no. I wouldn't do that at this time. I mean, certainly, we closed on October 1 so we've got a room full of accountants and third parties going through all the different marks. So we'll be able to detail that out later. But unfortunately, we're not in a position to do that right now.

[Daniel Cardenas:]

So hopefully, when the fourth quarter numbers come out, you can give us a little bit more color?

[Claire Tucker:]

Yes, we'll be in much better position to do that, Daniel.

[Operator:]

And this does conclude our question-and-answer session. I would now like to turn the call back over to Ms. Claire Tucker for any closing remarks.

[Claire Tucker:]

Thank you, operator, and thanks to each of you who have participated today. We always appreciate the well-informed questions that come from our research analysts, so thank you all for participating as well. Again, we're pleased with the quarter. We are very excited about our partnership with the East Tennessee franchise. We think there's tremendous opportunity there, and we're really excited to be proceeding as quickly as we are on all of that. So again, thank you for your interest in CapStar. Thank you for participating today. And in the event that any of you have follow-up questions of Rob or me, please feel free to reach out to us. So with that, we'll end the call. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.