Earnings wrap: CapStar, Avenue, Iasis

Banks see profits drop on back of people investments; hospital operator posts loss but sees 'early benefits' of better economy

CapStar Bank earned a little more than $1 million in the second quarter, a drop from more than $1.6 million the year before, as higher personnel costs outweighed fee income and loan growth.

Downtown-based CapStar grew its net loan portfolio during the quarter by almost $11 million to $685 million. Year over year, loan growth was about 5 percent. Net interest income rose 2 percent from Q1 to $7.9 million but was down from last year. CFO Rob Anderson said two factors are at play: Price competition is squeezing lending margins — CapStar's net interest margin was 3.23 percent in Q2 versus 3.43 percent at the end of 2013 — and the purchase accounting of the company's 2012 acquisition of American Security Bank & Trust means CapStar is accreting less income from that operation. (See the bank's Q2 call report here.)

Fee income for the quarter nearly doubled to $1.8 million. Anderson said CapStar's acquisition of mortgage shop Farmington Financial and a strong performance from its treasury management group were the main drivers behind that rise. Anderson said the quarter was in line with expectations and that the Middle Tennessee economy is "still pretty robust." Looking ahead, Anderson said CapStar's plans call for it to finish 2014 with loan growth in the low double digits.

Fellow business-focused lender Avenue Bank also saw profits drop in Q2 because of higher salaries and benefits costs and a drop in gains on sales. The seven-year-old bank earned $1.2 million during the quarter versus $1.4 million a year earlier.

Avenue's growth story remained intact, though: Total loans ended the quarter at $678 million, up 6 percent from March 31 and 36 percent from the year before. Total assets, meanwhile, moved to $955 million, putting Avenue on track to reach the $1 billion landmark before year's end. President and COO Kent Cleaver said Avenue remains on track to meet its growth goals. The bank's staff has grown to 125 from 106 a year ago and Cleaver noted that most of those additions are in revenue-producing positions. (Read the call report here.)

Mortgage-related revenue was down about $900,000 in the first half of the year versus 2013 as the refinance market continues to dry up. Avenue also did not book a gain on the sale of securities year to date, where it booked $520,000 last year.

IASIS Healthcare posted a net loss in its fiscal third quarter of $6.8 million, compared to a profit of $3.1 million the year prior, largely because of higher salary and benefit costs as well as other operating expenses. The company reported revenues in the quarter of $673 million, an increase of 12 percent from Q3 2013.

Admissions in the quarter decreased 3.1 percent, but adjusted admissions increased 1.9 percent and revenue per adjusted admission increased 1.3 percent. Adjusted premium revenues at the company's Health Choice managed care subsidiary increased 40 percent and total lives enrolled rose almost 15 percent, but medical claims also jumped, climbing to $166 million from $117 million a year ago.

On the expense side, stock-based compensation climbed to $4.4 million this past quarter from less than $1 million a year earlier and the "other operating expenses" category climbed to $115 million from $106 million.

"We are pleased with these solid financial results, led by continued improvements and growth in our core operations and new investment growth in our Health Choice segment," Carl Whitmer, IASIS president and CEO, said in a release. "Improved margins in our major markets underscore early benefits of improving economic fundamentals, including positive results from Medicaid expansion for Health Choice and our Arizona hospitals. We continue to be intently focused on integrating our strong provider networks with Health Choice's proven managed care solution."