(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

AsIndicate the number of ~~October 16, 2017, there were 11,359,130~~ shares outstanding of each of the issuer’s classes of common stock, ~~$1.00 par value per share, issued and outstanding.~~as of the latest practicable date.

The terms “we,” “our,” “us,” “CapStar,” “the Company,” “CSTR” and ~~“CapStar”~~“CapStar Financial” that appear in this Quarterly Report on Form 10-Q (this “Report”) refer to CapStar Financial Holdings, Inc. and its wholly-owned subsidiary, CapStar ~~Bank. The terms~~Bank, which we sometimes refer to as “CapStar Bank,” “our bank subsidiary,” “the Bank” and “our Bank” ~~that appear in this Report refer to CapStar Bank.~~.

This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “aspire,” “roadmap,” “achieve,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to ~~predict.~~predict and that are beyond our control. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Report, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but ~~are~~ not limited to, the following:

Economic conditions (including interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation and deflation) that impact the financial services industry as a whole and/or our business; theThe concentration of our business in the Nashville metropolitan statistical area (“MSA”) and Tennessee, and the effect of changes in the economic, political and environmental conditions on this market; increased competition in the financial services industry, locally, regionally or nationally, which may adversely affect pricing and the other terms offered to our clients; an increase in the cost of deposits, loss of deposits or a change in the deposit mix, which could increase our cost of funding; an increase in the costs of capital, which could negatively affect our ability to borrow funds, successfully raise additional capital or participate in strategic acquisition opportunities; fluctuations or differences in interest rates on loans or deposits from those that we are modeling, the impact to our earnings from a change in interest rates and our overall management of interest rate risk; the acceptance by customers of Athens of the Company’s products and services; the ability of the Company to meet expectations regarding the benefits, costs, synergies and financial and operational impact of the Athens merger; the possibility that any of the anticipated benefits, costs, synergies and financial and operational improvements of the Athens merger will not be realized or will not be realized as expected; the opportunities to enhance market share in certain markets and the acceptance of the Company generally in new markets; economic conditions (including interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation and deflation) that impact the financial services industry as a whole and/or our business; our dependence on our management team and board of directors and changes in our management and board composition; our reputation in the community; our ability to execute our strategy ~~and~~ to achieve our loan, ROAA and efficiency ratio goals, hire seasoned bankers, and achieve deposit growth through organic growth and strategic acquisitions; credit risks related to the size of our borrowers and our ability to adequately identify, assess and limit our credit risk; our concentration of large loans to a small number of ~~borrowers;~~borrowers as well as to borrowers located within the Nashville MSA and Tennessee; the significant portion of our loan portfolio that originated during the past two years and therefore may less reliably predict future collectability than older loans; the adequacy of reserves (including our allowance for loan losses) and the appropriateness of our methodology for calculating such reserves; non-performing loans and leases; non-performing assets; charge-offs, non-accruals, ~~troubled-debt~~troubled debt restructurings, impairments and other ~~credit~~credit-related issues; adverse trends in the healthcare service industry, which is an integral component of our market’s economy; our management of risks inherent in our commercial real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure; governmental legislation and regulation, including changes in the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act of 2010, as amended, the Tax Cuts and Jobs Act of 2017, as amended, Basel guidelines, capital requirements, accounting regulation or standards and other applicable laws and regulations; the loss of large depositor relationships, which could force us to fund our business through more expensive and less stable sources; operational and liquidity risks associated with our business, including liquidity risks inherent in correspondent banking; volatility in interest rates and our overall management of interest rate risk, including managing the sensitivity of our interest-earning assets and interest-bearing liabilities to interest rates, and the impact to our earnings from a change in interest rates; the potential for our Bank’s regulatory lending limits and other factors related to our size to restrict our growth and prevent us from effectively implementing our business strategy; the ability to identify and consummate strategic acquisitions ~~we may undertake to achieve~~consistent with our goals; the sufficiency of our capital, including sources of capital and the extent to which we may be required to raise additional capital to meet our goals; fluctuations toin the fair value of our investment securities that are beyond our control; deterioration in the fiscal position of the U.S. government and downgrades in Treasury and federal agency securities; potential exposure to fraud, negligence, computer theft and cyber-crime; the adequacy of our risk management framework; our dependence on our information technology and

telecommunications systems and the potential for any systems failures or interruptions; threats to and breaches of our information technology systems and data security, including cyber-attacks; our dependence upon outside third parties for the processing and handling of our records and data; our ability to adapt to technological change; the financial soundness of other financial institutions; our exposure to environmental liability risk associated with our lending activities; our engagement in derivative transactions; our involvement from time to time in legal proceedings and examinations and remedial actions by regulators; our involvement from time to time in litigation or other proceedings instituted by or against shareholders, customers, employees or third parties and the cost of legal fees associated with such litigation or proceedings; the susceptibility of our market to natural disasters and acts of God; and the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting.

The foregoing factors should not be construed as exhaustive and should be read in conjunction withthose factors that are detailed from time to time in the Company’s periodic and current reports filed with the Securities and Exchange Commission (the “SEC”), including those factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 under the ~~headings~~heading “Item 1A. Risk Factors” ~~and “Cautionary Note Regarding Forward-Looking Statements”~~ and in the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this Report, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

	September 30, 2017						September 30, 2019
	(unaudited)			December 31, 2016			(unaudited)			December 31, 2018
Assets
Cash and due from banks	$	10,796		$	9,134		$	24,289		$	17,967
Interest-bearing deposits in financial institutions		58,993			54,323			129,732			76,714
Federal funds sold		—			16,654			—			10,762
Total cash and cash equivalents		69,789			80,111			154,021			105,443
Securities available-for-sale, at fair value		146,600			182,355			203,500			243,808
Securities held-to-maturity, fair value of $48,980, and $49,731 at September 30, 2017 and December 31, 2016, respectively		45,635			46,864
Loans held for sale		53,225			42,111
Securities held-to-maturity, fair value of $3,412, and $3,785 at September 30, 2019 and December 31, 2018, respectively								3,319			3,734
Loans held for sale (includes $45,988 and $0 measured at fair value at September 30, 2019 and December 31, 2018, respectively)								129,613			57,618
Loans		974,530			935,251			1,411,768			1,429,794
Less allowance for loan losses		(14,122	)		(11,634	)		(12,828	)		(12,113	)
Loans, net		960,408			923,617			1,398,940			1,417,681
Premises and equipment, net		5,978			5,350			19,416			18,821
Restricted equity securities		8,799			6,032			13,900			12,038
Accrued interest receivable		3,849			3,942			5,780			5,964
Goodwill		6,219			6,219			37,510			37,510
Core deposit intangible		33			71
Deferred tax assets		12,472			12,956
Bank owned life insurance		22,335			21,900
Core deposit intangible, net								7,280			8,538
Other real estate owned, net								914			988
Other assets		3,217			2,147			59,718			51,740
Total assets	$	1,338,559		$	1,333,675		$	2,033,911		$	1,963,883
Liabilities and Shareholders’ Equity
Deposits:
Non-interest-bearing	$	250,007		$	197,788		$	352,266		$	289,552
Interest-bearing		303,756			299,621			562,516			434,921
Savings and money market accounts		338,391			447,686			509,753			497,108
Time		199,341			183,628			307,228			348,427
Total deposits		1,091,495			1,128,723			1,731,763			1,570,008
Federal Home Loan Bank advances		95,000			55,000			10,000			125,000
Accrued interest payable		305			212
Other liabilities		7,555			10,533			24,066			14,496
Total liabilities		1,194,355			1,194,468			1,765,829			1,709,504
Shareholders’ equity:
Series A convertible preferred stock, $1 par value; 5,000,000 shares authorized; 878,049 shares issued and outstanding at September 30, 2017 and December 31, 2016		878			878
Common stock, voting, $1 par value; 20,000,000 shares authorized; 11,346,498 and 11,204,515 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		11,347			11,205
Series A convertible preferred stock, $1 par value; 5,000,000 shares authorized; 0 and 878,048 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								—			878
Common stock, voting, $1 par value; 20,000,000 shares authorized; 18,343,403 and 17,592,160 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								18,343			17,592
Common stock, nonvoting, $1 par value; 5,000,000 shares authorized; 0 and 132,561 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								—			133
Additional paid-in capital		117,617			116,143			206,757			211,789
Retained earnings		18,541			17,132			41,710			27,303
Accumulated other comprehensive loss, net of income tax		(4,179	)		(6,151	)
Accumulated other comprehensive income (loss), net of income tax								1,272			(3,316	)
Total shareholders’ equity		144,204			139,207			268,082			254,379
Total liabilities and shareholders’ equity	$	1,338,559		$	1,333,675		$	2,033,911		$	1,963,883

	Three Months Ended						Nine Months Ended				Three Months Ended						Nine Months Ended
	September 30,						September 30,				September 30,						September 30,
	2017			2016			2017		2016		2019			2018			2019			2018
Interest income:
Loans, including fees	$	12,095		$	10,659		$	33,935	$	29,532	$	21,005		$	14,167		$	62,596		$	40,197
Securities:
Taxable		838			787			2,827		2,596		1,028			951			3,540			2,775
Tax-exempt		304			291			944		841		354			248			1,093			784
Federal funds sold		7			4			26		12		1			17			26			56
Restricted equity securities		108			71			271		210		183			132			584			389
Interest-bearing deposits in financial institutions		169			63			387		197		645			267			1,502			679
Total interest income		13,521			11,875			38,390		33,388		23,216			15,782			69,341			44,880
Interest expense:
Interest-bearing deposits		635			404			1,839		1,096		2,102			1,146			5,523			2,793
Savings and money market accounts		772			689			2,360		2,141		1,944			1,409			5,445			3,827
Time deposits		706			546			1,750		1,566		1,887			985			5,917			2,468
Federal funds purchased		2			13			13		21		—			1			4			3
Securities sold under agreements to repurchase		—			—			—		1		—			—			5			—
Federal Home Loan Bank advances		563			97			1,083		280		127			698			1,281			1,813
Total interest expense		2,678			1,749			7,045		5,105		6,060			4,239			18,175			10,904
Net interest income		10,843			10,126			31,345		28,283		17,156			11,543			51,166			33,976
Provision for loan losses		(195	)		1,639			12,900		2,759		(125	)		481			761			1,328
Net interest income after provision for loan losses		11,038			8,487			18,445		25,524		17,281			11,062			50,405			32,648
Noninterest income:
Treasury management and other deposit service charges		427			277			1,097		805		788			528			2,399			1,357
Loan commitment fees		223			329			646		901
Net gain (loss) on sale of securities		9			(4	)		42		121		—			(1	)		(108	)		2
Tri-Net fees		367			—			748		—		847			373			2,511			1,227
Mortgage banking income		2,030			2,339			4,617		5,342		2,679			1,634			7,151			4,329
Other noninterest income		316			250			1,021		961		2,474			684			6,602			2,157
Total noninterest income		3,372			3,191			8,171		8,130		6,788			3,218			18,555			9,072
Noninterest expense:
Salaries and employee benefits		5,119			5,119			14,989		15,275		9,229			6,514			26,224			19,111
Data processing and software		709			627			2,040		1,831		1,790			803			5,126			2,411
Professional fees		336			391			1,050		1,148		528			255			1,571			1,074
Occupancy		531			352			1,518		1,133		858			544			2,550			1,600
Equipment		564			458			1,604		1,301		1,012			520			2,890			1,661
Regulatory fees		270			250			877		742		18			228			564			664
Merger related expenses												187			540			2,491			875
Amortization of intangibles												408			3			1,258			23
Other operating		946			1,330			2,988		3,057		1,501			663			4,054			2,236
Total noninterest expense		8,475			8,527			25,066		24,487		15,531			10,070			46,728			29,655
Income before income taxes		5,935			3,151			1,550		9,167		8,538			4,210			22,232			12,065
Income tax expense		1,516			1,042			141		2,998		2,072			554			5,231			1,702
Net income	$	4,419		$	2,109		$	1,409	$	6,169	$	6,466		$	3,656		$	17,001		$	10,363
Per share information:
Basic net income per share of common stock	$	0.39		$	0.24		$	0.13	$	0.71	$	0.36		$	0.30		$	0.96		$	0.87
Diluted net income per share of common stock	$	0.35		$	0.20		$	0.11	$	0.58	$	0.35		$	0.28		$	0.91		$	0.79
Weighted average shares outstanding:
Basic		11,279,364			8,792,665			11,239,093		8,701,596		17,741,778			12,040,229			17,729,518			11,851,476
Diluted		12,750,423			10,799,536			12,758,091		10,682,976		18,532,479			13,113,775			18,670,280			13,052,758

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Net income	$	4,419		$	2,109		$	1,409		$	6,169		$	6,466		$	3,656		$	17,001		$	10,363
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period		526			(744	)		2,433			2,829			1,112			(1,193	)		6,502			(6,120	)
Reclassification adjustment for gains (losses) included in net income		(9	)		4			(42	)		(121	)
Reclassification adjustment for (gains) losses included in net income														—			1			108			(2	)
Tax effect		(198	)		283			(915	)		(1,037	)		(291	)		312			(1,729	)		1,600
Net of tax		319			(457	)		1,476			1,671			821			(880	)		4,881			(4,522	)
Unrealized losses on securities transferred to held-to-maturity:
Reclassification adjustment for losses included in net income		79			42			162			125			—			—			—			14
Tax effect		(30	)		(16	)		(62	)		(48	)		—			—			—			(4	)
Net of tax		49			26			100			77			—			—			—			10
Unrealized gains (losses) on cash flow hedges:
Unrealized holding gains (losses) arising during the period		(29	)		87			(242	)		(1,760	)		—			129			(702	)		697
Reclassification adjustment for losses included in net income		278			88			589			261			265			224			627			698
Tax effect		(34	)		(33	)		49			674			—			(50	)		(218	)		(237	)
Net of tax		215			142			396			(825	)		265			303			(293	)		1,158
Other comprehensive income (loss)		583			(289	)		1,972			923			1,086			(577	)		4,588			(3,354	)
Comprehensive income	$	5,002		$	1,820		$	3,381		$	7,092		$	7,552		$	3,079		$	21,589		$	7,009

Preferred

Common Stock

Additional
paid-in

Retained

Accumulated
other
comprehensive

Total
shareholders’

stock

Shares

Amount

capital

earnings

loss

equity

Balance December 31, 2015

$
1,610

8,577,051

$
8,577

$
95,277

$
8,036

$
(4,914
)

$
108,586

Issuance of restricted common
   stock, net of forfeitures and
   withholdings to satisfy
   employee tax obligations

—

106,548

107

(123
)

—

—

(16
)
Stock-based compensation
   expense

—

—

—

643

—

—

643

Excess tax benefit from stock
   compensation

—

—

—

29

—

—

29

Issuance of common stock

—

1,688,049

1,688

20,240

—

—

21,928

Conversion of preferred stock

(732
)

731,707

732

—

—

—

—

Exercise of common stock
   warrants

—

87,666

88

77

—

—

165

Net income

—

—

—

—

6,169

—

6,169

Other comprehensive income

—

—

—

—

—

923

923

Balance September 30, 2016

$
878

11,191,021

$
11,192

$
116,143

$
14,205

$
(3,991
)

$
138,427

Balance December 31, 2016

$
878

11,204,515

$
11,205

$
116,143

$
17,132

$
(6,151
)

$
139,207

Issuance of restricted common
   stock, net of forfeitures and
   withholdings to satisfy
   employee tax obligations

—

21,480

21

(285
)

—

—

(264
)
Stock-based compensation
   expense

—

—

—

771

—

—

771

Exercise of employee
   common stock options, net
   of withholdings to satisfy
   employee tax obligations

—

71,517

72

572

—

—

644

Exercise of common stock
   warrants

—

48,986

49

416

—

—

465

Net income

—

—

—

—

1,409

—

1,409

Other comprehensive income

—

—

—

—

—

1,972

1,972

Balance September 30, 2017

$
878

11,346,498

$
11,347

$
117,617

$
18,541

$
(4,179
)

$
144,204

	Preferred			Common Stock, voting						Common Stock, nonvoting						Additional paid-in			Retained			Accumulated other comprehensive			Total shareholders’
	stock			Shares			Amount			Shares			Amount			capital			earnings			income (loss)			equity
Balance December 31, 2018	$	878			17,592,160		$	17,592			132,561		$	133		$	211,789		$	27,303		$	(3,316	)	$	254,379
Net issuance of restricted common stock		—			13,801			14			—			—			(182	)		—			—			(168	)
Stock-based compensation expense		—			—			—			—			—			344			—			—			344
Net exercise of common stock options		—			182,002			182			—			—			998			—			—			1,180
Repurchase of common stock		—			(155,400	)		(155	)		—			—			(2,276	)		—			—			(2,431	)
Common and preferred dividends declared		—			—			—			—			—			—			(744	)		—			(744	)
Net income		—			—			—			—			—			—			4,779			—			4,779
Other comprehensive income		—			—			—			—			—			—			—			2,412			2,412
Balance March 31, 2019		878			17,632,563			17,633			132,561			133			210,673			31,338			(904	)		259,751
Net issuance of restricted common stock		—			(6,826	)		(7	)		—			—			(6	)		—			—			(13	)
Stock-based compensation expense		—			—			—			—			—			340			—			—			340
Net exercise of common stock options		—			22,778			23			—			—			51			—			—			74
Repurchase of common stock		—			(219,600	)		(220	)		—			—			(3,185	)		—			—			(3,405	)
Common and preferred dividends declared		—			—			—			—			—			—			(929	)		—			(929	)
Net income		—			—			—			—			—			—			5,756			—			5,756
Other comprehensive income		—			—			—			—			—			—			—			1,090			1,090
Balance June 30, 2019		878			17,428,915			17,429			132,561			133			207,873			36,165			186			262,664
Net issuance of restricted common stock		—			(5,335	)		(6	)		—			—			(28	)		—			—			(34	)
Stock-based compensation expense		—			—			—			—			—			351			—			—			351
Net exercise of common stock options		—			39,000			39			—			—			431			—			—			470
Conversion of preferred stock to common stock		(878	)		878,048			878			—			—			—			—			—			—
Conversion of non-voting common stock to common stock		—			132,561			133			(132,561	)		(133	)		—			—			—			—
Repurchase of common stock		—			(129,786	)		(130	)		—			—			(1,870	)		—			—			(2,000	)
Common and preferred dividends declared		—			—			—			—			—			—			(921	)		—			(921	)
Net income		—			—			—			—			—			—			6,466			—			6,466
Other comprehensive income		—			—			—			—			—			—			—			1,086			1,086
Balance September 30, 2019	$	—			18,343,403		$	18,343			—		$	—		$	206,757		$	41,710		$	1,272		$	268,082

	Preferred		Common Stock, voting						Common Stock, nonvoting				Additional paid-in			Retained			Accumulated other comprehensive			Total shareholders’
	stock		Shares			Amount			Shares		Amount		capital			earnings			income (loss)			equity
Balance December 31, 2017	$	878		11,449,465		$	11,450			132,561	$	133	$	118,120		$	18,892		$	(2,527	)	$	146,946
Net issuance of restricted common stock		—		24,729			25			—		—		(354	)		—			—			(329	)
Stock-based compensation expense		—		—			—			—		—		305			—			—			305
Net exercise of common stock options		—		61,822			62			—		—		238			—			—			300
Exercise of common stock warrants		—		104,781			104			—		—		838			—			—			942
Net income		—		—			—			—		—		—			3,194			—			3,194
Other comprehensive loss		—		—			—			—		—		—			—			(2,666	)		(2,666	)
Balance March 31, 2018		878		11,640,797			11,641			132,561		133		119,147			22,086			(5,193	)		148,692
Net issuance of restricted common stock		—		5,419			5			—		—		(29	)		—			—			(24	)
Stock-based compensation expense		—		—			—			—		—		325			—			—			325
Net exercise of common stock options		—		106,550			106			—		—		791			—			—			897
Exercise of common stock warrants		—		45,804			47			—		—		321			—			—			368
Common and preferred dividends declared		—		—			—			—		—		—			(514	)		—			(514	)
Net income		—		—			—			—		—		—			3,513			—			3,513
Other comprehensive loss		—		—			—			—		—		—			—			(111	)		(111	)
Balance June 30, 2018		878		11,798,570			11,799			132,561		133		120,555			25,085			(5,304	)		153,146
Net issuance of restricted common stock		—		(6,953	)		(7	)		—		—		(60	)		—			—			(67	)
Stock-based compensation expense		—		—			—			—		—		310			—			—			310
Net exercise of common stock options		—		165,354			166			—		—		580			—			—			746
Exercise of common stock warrants		—		35,590			35			—		—		261			—			—			296
Common and preferred dividends declared		—		—			—			—		—		—			—			—			—
Net income		—		—			—			—		—		—			3,656			—			3,656
Other comprehensive loss		—		—			—			—		—		—			—			(577	)		(577	)
Balance September 30, 2018	$	878		11,992,561		$	11,993			132,561	$	133	$	121,646		$	28,741		$	(5,881	)	$	157,510

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2019			2018
Cash flows from operating activities:
Net income	$	1,409		$	6,169		$	17,001		$	10,363
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		12,900			2,759			761			1,328
Accretion of discounts on acquired loans and deferred fees		(537	)		(1,232	)		(1,908	)		(948	)
Depreciation and amortization		345			324			2,192			303
Net amortization of premiums on investment securities		984			1,106			577			803
Securities gains, net		(42	)		(121	)
Net (gain) loss on sale of securities								108			(2	)
Mortgage banking income		(4,617	)		(5,342	)		(7,151	)		(4,329	)
Tri-Net fees		(748	)		—			(2,511	)		(1,227	)
Net gain on sale of loans		(67	)		—			(823	)		(6	)
Net loss on disposal of premises and equipment		137			—
Net gain on sale of other real estate owned		—			(157	)		(3	)		—
Stock-based compensation		771			643			1,035			940
Excess tax benefit from stock compensation		—			(29	)
Deferred income tax expense		(445	)		63			874			406
Origination of loans held for sale		(409,179	)		(393,378	)		(594,982	)		(395,851	)
Proceeds from loans held for sale		403,497			370,374			532,649			425,007
Net increase in accrued interest receivable and other assets		(1,320	)		(2,021	)		(10,625	)		(1,974	)
Net increase (decrease) in accrued interest payable and other liabilities		(2,630	)		1,077
Net increase in accrued interest payable and other liabilities								10,979			1,766
Net cash provided by (used in) operating activities		458			(19,765	)		(51,827	)		36,579
Cash flows from investing activities:
Activities in securities available for sale:
Activities in securities available-for-sale:
Purchases		(11,754	)		(55,862	)		(27,342	)		(22,127	)
Sales		34,299			46,700			54,133			5,778
Maturities, prepayments and calls		14,718			17,113			19,460			14,611
Activities in securities held to maturity:
Purchases		—			(4,300	)
Activities in securities held-to-maturity:
Maturities, prepayments and calls		1,332			1,233			396			—
Purchase of restricted equity securities		(2,767	)		(112	)		(1,862	)		(11	)
Net increase in loans		(49,154	)		(112,961	)
Net decrease (increase) in loans								20,661			(125,216	)
Purchase of premises and equipment		(1,074	)		(103	)		(1,520	)		(3,980	)
Proceeds from the sale of premises and equipment		3			—
Proceeds from sale of other real estate		—			373
Net cash used in investing activities		(14,397	)		(107,919	)
Proceeds from sale of other real estate owned								127			—
Net cash provided by (used in) investing activities								64,053			(130,945	)
Cash flows from financing activities:
Net increase (decrease) in deposits		(37,228	)		97,599
Net increase in deposits								161,755			6,537
Proceeds from Federal Home Loan Bank advances		135,000			15,000			75,000			110,000
Payments on Federal Home Loan Bank advances		(95,000	)		(30,000	)		(190,000	)		(55,000	)
Issuance of common stock		—			21,928
Repurchase of common stock								(7,836	)		—
Exercise of common stock options and warrants, net of repurchase of restricted shares		845			149			1,509			3,129
Excess tax benefit from stock compensation		—			29
Net decrease in repurchase agreements		—			(3,755	)
Common and preferred stock dividends paid								(2,573	)		(508	)
Termination of interest rate swap agreement								(1,503	)		—
Net cash provided by financing activities		3,617			100,950			36,352			64,158
Net decrease in cash and cash equivalents		(10,322	)		(26,734	)
Net increase (decrease) in cash and cash equivalents								48,578			(30,208	)
Cash and cash equivalents at beginning of period		80,111			100,185			105,443			82,797
Cash and cash equivalents at end of period	$	69,789		$	73,451		$	154,021		$	52,589
Supplemental disclosures of cash paid:
Interest paid	$	6,951		$	5,079		$	18,565		$	10,624
Income taxes		2,142			2,545			314			942
Cash paid for operating lease liabilities								1,338			1,216
Supplemental disclosures of noncash transactions:
Transfer of loans to other real estate							$	50		$	—
Loans charged off to the allowance for loan losses	$	12,369		$	1,452			532			251
Loans transferred from held for sale to held for investment		—			2,823
Conversion of preferred stock and non-voting common stock								1,011			—

The accompanying unaudited consolidated financial statements as of and for the period ended September 30, ~~2017~~2019 include CapStar Financial Holdings, Inc. and its wholly owned subsidiary, CapStar Bank (the “Bank”, together referred to as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation. On February 5, 2016, CapStar Financial Holdings, Inc. acquired all of the Bank’s issued and outstanding shares of common stock, preferred stock, common stock options and warrants, and the Bank became the wholly owned subsidiary of CapStar Financial Holdings, Inc.

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

On September 21, 2016, the Securities and Exchange Commission (“SEC”) declared effective our registration statement on Form S-1 registering the shares of our common stock. On September 27, 2016, we completed the initial public offering of 2,972,750 shares of our common stock. Of the 2,972,750 shares sold, 1,688,049 shares were sold by us and 1,284,701 shares were sold by certain selling shareholders. Of the 1,284,701 shares sold by certain selling shareholders, 731,707 were from preferred shares converted to common shares and 79,166 from the cashless exercise of 250,000 common share warrants. We received net proceeds of approximately $21.9 million from the offering, after deducting the underwriting discounts and commissions and estimated offering expenses. We did not receive any proceeds from the sale of shares by the selling shareholders.2018.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, determination of impairment of intangible assets, including goodwill, the valuation of our investment portfolio, loans held for sale, derivative assets and liabilities, deferred tax assets and estimated liabilities. ~~There have been no significant~~

The Company classifies loans as loans held for sale when originated with the intent to sell. As of April 1, 2019, the Company elected the fair value option for all residential mortgage loans originated with the intent to sell. This election allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the ~~Company’s critical accounting policies as disclosed in~~burden of complying with the ~~Company’s Annual Report on Form 10-K~~requirements for hedge accounting. The Company has not elected the ~~year ended December 31, 2016.~~

~~Tri-Net fees represent a new line~~fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments. The fair value of ~~business, implemented in the fourth quarter of 2016, which originates,~~residential mortgage loans originated with the intent to sell ~~commercial real estate~~is based on traded market prices of similar assets. Other loans to third-party investors. All of these loan sales transfer servicing rights to the buyer. Realized gains and losses are recognized when legal title of the loan has transferred to the investor and sales proceeds have been received and are reflected in the accompanying statement of income in Tri-Net fees, net of related costs such as commission expenses. Loans that have not been sold at period end are classified as held for sale ~~on the balance sheet and~~that are recorded at ~~the~~ lower of ~~aggregate~~ cost or fair ~~value. Net unrealized losses, if any,~~value may be carried at fair value on a nonrecurring basis when the fair value is less than cost. For further information, see Note 13 - Fair Value. The Company does not securitize mortgage loans. If the Company sells loans with servicing rights retained, the carrying value of the mortgage loan sold is reduced by the amount allocated to the servicing right. Fair values of residential mortgage loans held for sale are based on traded market prices of similar assets. The changes in fair value are recorded as a ~~valuation allowance~~component of mortgage banking income and ~~charged to earnings.~~ included gains (losses) of $(0.2) million and $0.7 million for the three and nine months ended September 30, 2019, respectively. There were no loans held for sale recorded at fair value as of December 31, 2018. The following table summarizes the difference between the fair value and the aggregate unpaid principal balance for residential real estate loans held for sale as of September 30, 2019 (dollars in thousands):

$0.2 million of residential mortgage loans held for sale were greater than 89 days past due and accruing or on nonaccrual status as of September 30, 2019. There were no residential mortgage loans held for sale greater than 89 days past due and accruing or on nonaccrual status as of December 31, 2018.

Accounting Standards Codification (“ASC”) 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company evaluated all events or transactions that occurred after September 30, ~~2017~~2019 through the date of the issued financial statements.

The amortized cost and fair value of securities available-for-sale and held-to-maturity at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 are summarized as follows (dollars in thousands):

	September 30, 2017									December 31, 2016									September 30, 2019									December 31, 2018
	Amortized Cost		Gross unrealized gains		Gross unrealized (losses)			Estimated fair value		Amortized Cost		Gross unrealized gains		Gross unrealized (losses)			Estimated fair value		Amortized Cost		Gross unrealized gains		Gross unrealized (losses)			Estimated fair value		Amortized Cost		Gross unrealized gains		Gross unrealized (losses)			Estimated fair value
Securities available-for-sale:
U. S. government agency securities	$	11,434	$	18	$	(153	)	$	11,299	$	9,517	$	—	$	(143	)	$	9,374	$	9,241	$	13	$	(24	)	$	9,230	$	11,053	$	—	$	(347	)	$	10,706
State and municipal securities		19,031		172		(136	)		19,067		28,480		65		(632	)		27,913		49,369		2,094		(20	)		51,443		62,142		765		(981	)		61,926
Mortgage-backed securities		96,975		14		(1,166	)		95,823		126,637		17		(2,059	)		124,595		128,332		1,828		(469	)		129,691		146,547		776		(3,165	)		144,158
Asset-backed securities		20,668		—		(257	)		20,411		21,620		—		(1,147	)		20,473		3,369		—		(136	)		3,233		15,437		4		(157	)		15,284
Other debt securities																				9,813		106		(16	)		9,903		11,863		71		(200	)		11,734
Total	$	148,108	$	204	$	(1,712	)	$	146,600	$	186,254	$	82	$	(3,981	)	$	182,355	$	200,124	$	4,041	$	(665	)	$	203,500	$	247,042	$	1,616	$	(4,850	)	$	243,808
Securities held-to-maturity:
State and municipal securities	$	36,469	$	3,138	$	—		$	39,607	$	36,842	$	2,784	$	—		$	39,626	$	3,319	$	93	$	—		$	3,412	$	3,734	$	54	$	(3	)	$	3,785
Mortgage-backed securities		3,837		77		—			3,914		4,687		79		—			4,766
Other debt securities		5,329		130		—			5,459		5,335		11		(7	)		5,339
Total	$	45,635	$	3,345	$	—		$	48,980	$	46,864	$	2,874	$	(7	)	$	49,731	$	3,319	$	93	$	—		$	3,412	$	3,734	$	54	$	(3	)	$	3,785

Security fair values are established by an independent pricing service as of the dates indicated. The difference between amortized cost and fair value reflects current interest rates and represents the potential gain (loss) had the portfolio been liquidated on those dates. Security gains (losses) are realized only in the event of dispositions prior to maturity or other-than-temporary impairment. Securities with unrealized losses as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, and the length of time they were in continuous loss positions as of such dates are as follows ~~(in~~(dollars in thousands):

	Less than 12 months					12 months or more					Total					Less than 12 months						12 months or more					Total
September 30, 2017	Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses
U. S. government agency securities	$	9,303	$	(153	)	$	—	$	—		$	9,303	$	(153	)
State and municipal securities		4,968		(19	)		6,103		(117	)		11,071		(136	)
Mortgage-backed securities		61,997		(591	)		30,360		(575	)		92,357		(1,166	)
Asset-backed securities		—		—			20,410		(257	)		20,410		(257	)
Total temporarily impaired securities	$	76,268	$	(763	)	$	56,873	$	(949	)	$	133,141	$	(1,712	)

December 31, 2016
September 30, 2019																Estimated fair value		Gross unrealized losses				Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses
U. S. government agency securities	$	9,374	$	(143	)	$	—	$	—		$	9,374	$	(143	)	$	1,990	$	(3	)		$	1,660	$	(21	)	$	3,650	$	(24	)
State and municipal securities		20,279		(632	)		—		—			20,279		(632	)		2,358		(11	)			816		(9	)		3,174		(20	)
Mortgage-backed securities		110,563		(1,955	)		4,150		(104	)		114,713		(2,059	)		16,791		(51	)			36,151		(418	)		52,942		(469	)
Asset-backed securities		—		—			20,473		(1,147	)		20,473		(1,147	)		3,233		(136	)			—		—			3,233		(136	)
Other debt securities		2,029		(7	)		—		—			2,029		(7	)		—		—				1,487		(16	)		1,487		(16	)
Total temporarily impaired securities	$	142,245	$	(2,737	)	$	24,623	$	(1,251	)	$	166,868	$	(3,988	)	$	24,372	$	(201	)		$	40,114	$	(464	)	$	64,486	$	(665	)

December 31, 2018
U. S. government agency securities																$	—	$	—			$	10,706	$	(347	)	$	10,706	$	(347	)
State and municipal securities																	13,455		(212	)			17,376		(772	)		30,831		(984	)
Mortgage-backed securities																	7,075		(17	)			87,232		(3,148	)		94,307		(3,165	)
Asset-backed securities																	8,262		(145	)			2,439		(12	)		10,701		(157	)
Other debt securities																	5,362		(200	)	��		—		—			5,362		(200	)
Total temporarily impaired securities																$	34,154	$	(574	)		$	117,753	$	(4,279	)	$	151,907	$	(4,853	)

As noted in the table above, as of September 30, ~~2017,~~2019, the Company had unrealized losses of ~~$1.7~~$0.7 million in its investment securities portfolio. The unrealized losses associated with these investment securities are driven by changes in interest rates and are recorded as a component of equity. These investment securities will continue to be monitored as a part of our ongoing impairment analysis. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments. If a shortfall in future cash flows is identified, a credit loss will be deemed to have occurred and will be recognized as a charge to earnings and a new cost basis for the security will be established. At September 30, 2019 and December 31, 2018, the Company had 45 and 127, respectively of securities in an unrealized loss position.

Because the Company currently does not intend to sell any investment securities that have an unrealized loss at September 30, ~~2017,~~2019, and it is not more-likely-than-not that we will be required to sell these investment securities before recovery of their amortized cost bases, which may be at maturity, we do not consider these securities to be other-than-temporarily impaired at September 30, ~~2017.~~2019.

Securities with a ~~carrying~~market value of ~~$127.1~~$80.6 million at September 30, ~~2017~~2019 were pledged to collateralize public deposits, derivative positions and Federal Home Loan Bank advances.

~~The proceeds~~Results from sales of debt and equity securities ~~and the associated gains and losses are listed below~~were as follows (dollars in thousands):

The amortized cost and fair value of securities at September 30, ~~2017,~~2019, by contractual maturity, are shown below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

A summary of the loan portfolio as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 follows (dollars in thousands):

The adequacy of the allowance for loan losses (ALL) is assessed at the end of each quarter. The ALL includes a specific component related to loans that are individually evaluated for impairment and a general component related to loans that are segregated into ~~homogenous~~homogeneous pools and collectively evaluated for impairment. The ALL factors applied to these pools are an estimate of probable incurred losses based on management’s evaluation of historical net losses from loans with similar characteristics, which are adjusted by management to reflect current events, trends, and conditions. The adjustments include consideration of the following: changes in lending policies and procedures, economic conditions, nature and volume of the portfolio, experience of lending management, volume and severity of past due loans, quality of the loan review system, value of underlying collateral for collateral dependent loans, concentrations, and other external factors.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes all commercial loans, and consumer relationships with an outstanding balance greater than $500,000, individually and assigns each loan a risk rating. This analysis is performed on a continual basis by the relationship managers and credit department personnel. On at least an annual basis an independent party performs a formal credit risk review of a sample of the loan portfolio. Among other things, this review assesses the appropriateness of the loan’s risk rating. The Company uses the following definitions for risk ratings:

Special Mention – A special mention asset possesses deficiencies or potential weaknesses deserving of management’s attention. If uncorrected, such weaknesses or deficiencies may expose the Company to an increased risk of loss in the future.

Substandard – A substandard asset is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard.

Doubtful – A doubtful asset has all weaknesses inherent in one classified substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of existing facts, conditions, and values, highly questionable and improbable. The probability of loss is extremely high, but certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset exist, therefore, its classification as an estimated loss is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.

Loans not falling into the criteria above are considered to be pass-rated loans. The Company utilizes six loan grades within the pass risk rating.

The following tables present the loan balances by category as well as risk rating (dollars in thousands):

	Performing Loans												Non-impaired Loans
September 30, 2017	Pass/Watch		Special Mention		Substandard		Total Performing		Total Impaired Loans		Total
September 30, 2019													Pass/Watch		Special Mention		Substandard		Total Non-impaired		Total Impaired Loans		Total
Commercial real estate	$	365,545	$	—	$	—	$	365,545	$	1,233	$	366,778	$	563,862	$	6,631	$	3,635	$	574,128	$	2,620	$	576,748
Consumer real estate		100,522		—		289		100,811		—		100,811		249,952		1,656		1,806		253,414		1,322		254,736
Construction and land development		79,951		—		—		79,951		—		79,951		132,036		49		17		132,102		120		132,222
Commercial and industrial		370,657		16,443		5,568		392,668		1,932		394,600		364,003		12,950		4,285		381,238		1,578		382,816
Consumer		6,276		—		13		6,289		—		6,289		28,997		7		20		29,024		35		29,059
Other		26,460		—		—		26,460		—		26,460		36,187		—		—		36,187		—		36,187
Total	$	949,411	$	16,443	$	5,870	$	971,724	$	3,165	$	974,889	$	1,375,037	$	21,293	$	9,763	$	1,406,093	$	5,675	$	1,411,768

December 31, 2016
December 31, 2018
Commercial real estate	$	301,012	$	—	$	—	$	301,012	$	1,310	$	302,322	$	547,616	$	177	$	1,262	$	549,055	$	1,391	$	550,446
Consumer real estate		96,722		—		293		97,015		—		97,015		249,273		1,676		1,691		252,640		922		253,562
Construction and land development		94,491		—		—		94,491		—		94,491		174,591		52		19		174,662		8		174,670
Commercial and industrial		349,857		11,035		16,419		377,311		2,309		379,620		388,719		7,790		6,545		403,054		1,546		404,600
Consumer		5,958		—		16		5,974		—		5,974		25,556		1		27		25,584		31		25,615
Other		56,796		—		—		56,796		—		56,796		20,901		—		—		20,901		—		20,901
Total	$	904,836	$	11,035	$	16,728	$	932,599	$	3,619	$	936,218	$	1,406,656	$	9,696	$	9,544	$	1,425,896	$	3,898	$	1,429,794

~~None of the Company’s loans had a risk rating of “Doubtful” as of September 30, 2017 or December 31, 2016.~~

The following tables detail the changes in the ALL for the three and nine months ended September 30, ~~2017~~2019 and ~~2016 (in~~2018 (dollars in thousands):

	Commercial real estate			Consumer real estate			Construction and land development		Commercial and industrial			Consumer			Other			Total			Commercial real estate			Consumer real estate			Construction and land development		Commercial and industrial			Consumer			Other			Total
Three Months Ended September 30, 2017
Three Months Ended September 30, 2019
Balance, beginning of period	$	3,533		$	1,081		$	911	$	6,395		$	57		$	477		$	12,454		$	3,922		$	1,142		$	1,733	$	5,518		$	166		$	422		$	12,903
Charged-off loans		—			—			—		—			—			—			—			—			—			—		(282	)		(30	)		(20	)		(332	)
Recoveries		3			—			—		1,860			—			—			1,863			4			2			—		356			18			2			382
Provision for loan losses		(242	)		(97	)		576		(306	)		22			(148	)		(195	)		(36	)		101			209		(468	)		53			16			(125	)
Balance, end of period	$	3,294		$	984		$	1,487	$	7,949		$	79		$	329		$	14,122		$	3,890		$	1,245		$	1,942	$	5,124		$	207		$	420		$	12,828

Three Months Ended September 30, 2016
Three Months Ended September 30, 2018
Balance, beginning of period	$	2,596		$	968		$	943	$	5,037		$	104		$	806		$	10,454		$	3,551		$	1,057		$	1,764	$	7,779		$	120		$	434		$	14,705
Charged-off loans		—			—			—		(645	)		—						(645	)		—			—			—		—			—			—			—
Recoveries		52			—			—		10			—			—			62			6			1			—		22			3			—			32
Provision for loan losses		(228	)		4			721		1,166			(18	)		(6	)		1,639			(412	)		(75	)		449		767			(30	)		(218	)		481
Balance, end of period	$	2,420		$	972		$	1,664	$	5,568		$	86		$	800		$	11,510		$	3,145		$	983		$	2,213	$	8,568		$	93		$	216		$	15,218

	Commercial real estate			Consumer real estate			Construction and land development			Commercial and industrial			Consumer			Other			Total			Commercial real estate			Consumer real estate			Construction and land development			Commercial and industrial			Consumer			Other			Total
Nine Months Ended September 30, 2017
Nine Months Ended September 30, 2019
Balance, beginning of period	$	2,655		$	1,013		$	1,574		$	5,618		$	76		$	698		$	11,634		$	3,309		$	1,005		$	2,431		$	5,036		$	105		$	227		$	12,113
Charged-off loans		—			—			—			(12,369	)		—			—			(12,369	)		—			—			—			(308	)		(109	)		(115	)		(532	)
Recoveries		4			—			—			1,862			91			—			1,957			16			18			—			371			60			21			486
Provision for loan losses		635			(29	)		(87	)		12,838			(88	)		(369	)		12,900			565			222			(489	)		25			151			287			761
Balance, end of period	$	3,294		$	984		$	1,487		$	7,949		$	79		$	329		$	14,122		$	3,890		$	1,245		$	1,942		$	5,124		$	207		$	420		$	12,828

Nine Months Ended September 30, 2016
Nine Months Ended September 30, 2018
Balance, beginning of period	$	2,879		$	968		$	914		$	4,693		$	103		$	575		$	10,132		$	3,324		$	1,063		$	1,628		$	7,209		$	91		$	406		$	13,721
Charged-off loans		(350	)		—			—			(956	)		(146	)		—			(1,452	)		—			—			—			(226	)		(25	)		—			(251	)
Recoveries		52			—			—			18			1			—			71			16			4			—			348			52			—			420
Provision for loan losses		(161	)		4			750			1,813			128			225			2,759			(195	)		(84	)		585			1,237			(25	)		(190	)		1,328
Balance, end of period	$	2,420		$	972		$	1,664		$	5,568		$	86		$	800		$	11,510		$	3,145		$	983		$	2,213		$	8,568		$	93		$	216		$	15,218

A breakdown of the ALL and the loan portfolio by loan category at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 follows (dollars in thousands):

	Commercial real estate		Consumer real estate		Construction and land development		Commercial and industrial		Consumer		Other		Total		Commercial real estate		Consumer real estate		Construction and land development		Commercial and industrial		Consumer		Other		Total
September 30, 2017
September 30, 2019
Allowance for Loan Losses:
Collectively evaluated for impairment	$	3,294	$	984	$	1,487	$	7,449	$	79	$	329	$	13,622	$	3,890	$	1,245	$	1,942	$	5,124	$	207	$	420	$	12,828
Individually evaluated for impairment		—		—		—		500		—		—		500		—		—		—		—		—		—		—
Acquired with deteriorated credit quality																—		—		—		—		—		—		—
Balances, end of period	$	3,294	$	984	$	1,487	$	7,949	$	79	$	329	$	14,122	$	3,890	$	1,245	$	1,942	$	5,124	$	207	$	420	$	12,828
Loans:
Collectively evaluated for impairment	$	365,545	$	100,811	$	79,951	$	392,668	$	6,289	$	26,460	$	971,724	$	574,128	$	253,414	$	132,102	$	381,238	$	29,024	$	36,187	$	1,406,093
Individually evaluated for impairment		1,233		—		—		1,932		—		—		3,165		2,510		664		115		740		11		—		4,040
Acquired with deteriorated credit quality																110		658		5		838		24		—		1,635
Balances, end of period	$	366,778	$	100,811	$	79,951	$	394,600	$	6,289	$	26,460	$	974,889	$	576,748	$	254,736	$	132,222	$	382,816	$	29,059	$	36,187	$	1,411,768

December 31, 2016
December 31, 2018
Allowance for Loan Losses:
Collectively evaluated for impairment	$	2,655	$	1,013	$	1,574	$	5,118	$	76	$	698	$	11,134	$	3,309	$	1,005	$	2,431	$	5,036	$	105	$	227	$	12,113
Individually evaluated for impairment		—		—		—		500		—		—		500		—		—		—		—		—		—		—
Acquired with deteriorated credit quality																—		—		—		—		—		—		—
Balances, end of period	$	2,655	$	1,013	$	1,574	$	5,618	$	76	$	698	$	11,634	$	3,309	$	1,005	$	2,431	$	5,036	$	105	$	227	$	12,113
Loans:
Collectively evaluated for impairment	$	301,012	$	97,015	$	94,491	$	377,311	$	5,974	$	56,796	$	932,599	$	549,055	$	252,640	$	174,662	$	403,054	$	25,584	$	20,901	$	1,425,896
Individually evaluated for impairment		1,310		—		—		2,309		—		—		3,619		1,278		183		—		817		—		—		2,278
Acquired with deteriorated credit quality																113		739		8		729		31		—		1,620
Balances, end of period	$	302,322	$	97,015	$	94,491	$	379,620	$	5,974	$	56,796	$	936,218	$	550,446	$	253,562	$	174,670	$	404,600	$	25,615	$	20,901	$	1,429,794

The following table presents the allocation of the ALL for each respective loan category with the corresponding percentage of the ALL in each category to total loans, net of deferred fees as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 (dollars in thousands):

The following table presents the Company’s impaired loans that were evaluated for specific loss allowance as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 (dollars in thousands):


	September 30, 2017						December 31, 2016						September 30, 2019						December 31, 2018
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Commercial real estate	$	1,233	$	1,660	$	—	$	1,310	$	1,686	$	—	$	2,620	$	2,937	$	—	$	1,391	$	1,775	$	—
Consumer real estate		—		—		—		—		—		—		1,322		1,747		—		922		1,204		—
Construction and land development		—		—		—		—		—		—		120		149		—		8		18		—
Commercial and industrial		—		—		—		—		—		—		1,578		7,009		—		1,546		6,350		—
Consumer		—	��	—		—		—		—		—		35		64		—		31		56		—
Other		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		1,233		1,660		—		1,310		1,686		—		5,675		11,906		—		3,898		9,403		—
With an allowance recorded:
Commercial real estate		—		—		—		—		—		—		—		—		—		—		—		—
Consumer real estate		—		—		—		—		—		—		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		1,932		2,770		500		2,309		2,921		500		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		1,932		2,770		500		2,309		2,921		500		—		—		—		—		—		—
Total	$	3,165	$	4,430	$	500	$	3,619	$	4,607	$	500	$	5,675	$	11,906	$	—	$	3,898	$	9,403	$	—

The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 (dollars in thousands):

	Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended				Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2016				September 30, 2017				September 30, 2016				September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	1,245	$	—	$	—	$	—	$	1,272	$	—	$	—	$	—	$	2,578	$	42	$	1,159	$	15	$	2,588	$	125	$	1,189	$	25
Consumer real estate		—		—		—		—		—		—		—		—		1,175		10		92		—		1,230		43		92		3
Construction and land development		—		—		—		—		—		—		—		—		115		—		—		—		124		4		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		1,257		18		—		—		1,553		63		—		—
Consumer		—		—		—		—		—		—		—		—		25		—		100		—		37		2		100		3
Other		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		1,245		—		—		—		1,272		—		—		—		5,150		70		1,351		15		5,532		237		1,381		31
With an allowance recorded:
Commercial real estate		—		—		1,685		—		—		—		1,742		—		—		—		—		—		—		—		—		—
Consumer real estate		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		1,941		—		3,411		—		2,141		—		3,534		30		—		—		5,419		—		—		—		5,369		118
Consumer		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		1,941		—		5,096		—		2,141		—		5,276		30		—		—		5,419		—		—		—		5,369		118
Total	$	3,186	$	—	$	5,096	$	—	$	3,413	$	—	$	5,276	$	30	$	5,150	$	70	$	6,770	$	15	$	5,532	$	237	$	6,750	$	149

~~There was no interest~~Interest income recognized on a cash basis for impaired loans amounted to $15,000 and $25,000 for the three and nine months ended September 30, 2018. No interest income was recognized on a cash basis for impaired loans during the three or nine months ended September 30, ~~2017 or 2016.~~2019.

The following table presents the aging of the recorded investment in past-due loans as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 by class of loans (dollars in thousands):

	30 - 59		60 - 89		Greater Than								30 - 59		60 - 89		Greater Than
	Days		Days		89 Days		Total		Loans Not				Days		Days		89 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total		Past Due		Past Due		Past Due		Past Due		Past Due		Total
September 30, 2017
September 30, 2019
Commercial real estate	$	—	$	—	$	—	$	—	$	366,778	$	366,778	$	216	$	1,227	$	—	$	1,443	$	575,305	$	576,748
Consumer real estate		506		279		—		785		100,026		100,811		885		403		1,083		2,371		252,365		254,736
Construction and land development		—		—		—		—		79,951		79,951		—		—		—		—		132,222		132,222
Commercial and industrial		1,154		218		27		1,398		393,202		394,600		4,459		18		591		5,068		377,748		382,816
Consumer		—		1		—		1		6,288		6,289		129		6		13		148		28,911		29,059
Other		—		—		—		—		26,460		26,460		293		—		—		293		35,894		36,187
Total	$	1,660	$	497	$	27	$	2,184	$	972,705	$	974,889	$	5,982	$	1,654	$	1,687	$	9,323	$	1,402,445	$	1,411,768

December 31, 2016
December 31, 2018
Commercial real estate	$	—	$	—	$	—	$	—	$	302,322	$	302,322	$	300	$	227	$	—	$	527	$	549,919	$	550,446
Consumer real estate		81		282		—		363		96,652		97,015		69		75		775		919		252,643		253,562
Construction and land development		—		—		—		—		94,491		94,491		—		—		—		—		174,670		174,670
Commercial and industrial		—		—		—		—		379,620		379,620		54		—		—		54		404,546		404,600
Consumer		—		—		—		—		5,974		5,974		52		—		43		95		25,520		25,615
Other		—		—		—		—		56,796		56,796		—		—		—		—		20,901		20,901
Total	$	81	$	282	$	—	$	363	$	935,855	$	936,218	$	475	$	302	$	818	$	1,595	$	1,428,199	$	1,429,794

The following table presents the recorded investment in non-accrual loans, past due loans over 9089 days outstanding and accruing and troubled debt restructurings (“TDR”) by class of loans as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 (dollars in thousands):

	Non-Accrual		Past Due Over 90 Days and Accruing		Troubled Debt Restructurings		Non-Accrual		Past Due Over 89 Days and Accruing		Troubled Debt Restructurings
September 30, 2017
September 30, 2019
Commercial real estate	$	1,233	$	—	$	1,222	$	—	$	—	$	2,454
Consumer real estate		—		—		—		1,098		293		—
Construction and land development		—		—		—		120		—		—
Commercial and industrial		1,932		27		—		458		258		271
Consumer		—		—		—		25		—		—
Other		—		—		—		—		—		—
Total	$	3,165	$	27	$	1,222	$	1,701	$	551	$	2,725

December 31, 2016
December 31, 2018
Commercial real estate	$	1,310	$	—	$	1,272	$	—	$	—	$	1,391
Consumer real estate		—		—		—		1,187		214		—
Construction and land development		—		—		—		19		—		—
Commercial and industrial		2,309		—		—		817		—		—
Consumer		—		—		—		55		—		—
Other		—		—		—		—		—		—
Total	$	3,619	$	—	$	1,272	$	2,078	$	214	$	1,391

As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, all loans classified as nonperforming were deemed to be impaired.

As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company had a recorded investment in TDR of ~~$1.2~~$2.7 million and ~~$1.3~~$1.4 million, respectively. The Company had no specific allowance for those loans at September 30, ~~2017~~2019 or December 31, ~~2016~~2018 and there were no commitments to lend additional amounts. Loans accounted for as TDR include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s loan policy. Loans accounted for as TDR are individually evaluated for impairment.

The following table presents loans by class modified as TDR that occurred during the three and nine months ended September 30, ~~2016~~2019 (dollars in thousands). There were no new TDR identified during the three or nine months ended September 30, ~~2017.~~2018.

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	Number of contracts		Pre modification outstanding recorded investment		Post modification outstanding recorded investment, net of related allowance		Number of contracts		Pre modification outstanding recorded investment		Post modification outstanding recorded investment, net of related allowance		Number of contracts		Pre modification outstanding recorded investment		Post modification outstanding recorded investment, net of related allowance		Number of contracts		Pre modification outstanding recorded investment		Post modification outstanding recorded investment, net of related allowance
2016
2019
Commercial real estate		—	$	—	$	—		1	$	1,948	$	1,170		1	$	1,228	$	1,228		1	$	1,228	$	1,228
Consumer real estate		—		—		—		—		—		—		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		1		271		271		1		271		271
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—
Total		—	$	—	$	—		1	$	1,948	$	1,170		2	$	1,499	$	1,499		2	$	1,499	$	1,499

The following table presents loans by class modified as TDR for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2016 (dollars in thousands). There were no TDR for which there was a payment default within twelve months following the modification during the three or nine months ended September 30, ~~2017.~~

~~The consumer loan TDR that subsequently defaulted during the nine months ended September 30, 2016 had no specific reserve in the allowance for loan losses and resulted in a $0.1 million charge-off.~~ 2019 or 2018.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The following table presents changes in the carrying value of purchased credit impaired (“PCI”) loans (in thousands):

The following table presents changes in the accretable yield for PCI loans (in thousands):

PCI loans had no impact on the ALL for the three or nine months ended September 30, 2019 or 2018.

The Company leases certain premises and equipment under operating leases. At September 30, 2019, the Company had lease liabilities totaling $12.6 million and right-of-use assets totaling $11.9 million related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At September 30, 2019, the weighted average remaining lease term for operating leases was 10.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.53%.

Rent expense for the three and nine months ended September 30, 2018, prior to the adoption of ASU 2016-02 was $407,000 and $1,216,000, respectively.

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the three or nine months ended September 30, 2019 or 2018.

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows (in thousands):

The Company had outstanding borrowings totaling ~~$95.0~~of $10.0 million and ~~$55.0~~$125.0 million at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, via various advances. These advances are non-callable; interest payments are due monthly, with principal due at maturity.

The following is a summary of the contractual maturities and average effective rates of outstanding advances (dollars in thousands):

Advances from the FHLB are collateralized by investment securities with a market value of $4.1 million, FHLB stock and certain commercial and residential real estate mortgage loans totaling ~~$367.0~~$695.3 million under a blanket mortgage collateral agreement. At September 30, ~~2017,~~2019, the amount of available credit from the FHLB totaled ~~$108.0~~$212.4 million.

The following were changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 (dollars in thousands):

				Unrealized Gains			Unrealized									Unrealized Gains			Unrealized
	Gains and			and Losses			Losses on						Gains and			and Losses			Losses on
	Losses on			on Available			Securities						Losses on			on Available			Securities
	Cash Flow			for Sale			Transferred to						Cash Flow			for Sale			Transferred to
	Hedges			Securities			Held to Maturity			Total			Hedges			Securities			Held to Maturity			Total
Nine Months Ended September 30, 2017
Nine Months Ended September 30, 2019
Beginning Balance	$	(4,241	)	$	(698	)	$	(1,212	)	$	(6,151	)	$	(2,636	)	$	(680	)	$	—		$	(3,316	)
Other comprehensive income (loss) before reclassification, net of tax		(193	)		1,502			—			1,309			325			4,961			—			5,286
Amounts reclassified from accumulated other comprehensive income (loss), net of tax		589			(26	)		100			663			(618	)		(80	)		—			(698	)
Net current period other comprehensive income (loss)		396			1,476			100			1,972			(293	)		4,881			—			4,588
Ending Balance	$	(3,845	)	$	778		$	(1,112	)	$	(4,179	)	$	(2,929	)	$	4,201		$	—		$	1,272

Nine Months Ended September 30, 2016
Nine Months Ended September 30, 2018
Beginning Balance	$	(3,704	)	$	105		$	(1,315	)	$	(4,914	)	$	(3,679	)	$	1,162		$	(10	)	$	(2,527	)
Other comprehensive income (loss) before reclassification, net of tax		(1,086	)		1,746			—			660			1,800			(4,521	)		—			(2,721	)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax		261			(75	)		77			263			(642	)		(1	)		10			(633	)
Net current period other comprehensive income (loss)		(825	)		1,671			77			923			1,158			(4,522	)		10			(3,354	)
Ending Balance	$	(4,529	)	$	1,776		$	(1,238	)	$	(3,991	)	$	(2,521	)	$	(3,360	)	$	—		$	(5,881	)

The following were significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 (dollars in thousands):

Affected Line Item
Details about Accumulated Other

Three Months Ended September 30,

Nine Months Ended September 30,

in the Statement Where
Comprehensive Income Components

2017

2016

2017

2016

Net Income is Presented
Unrealized losses on cash flow hedges

$
109

$
38

$
322

$
113

Interest expense - money market

168

50

267

148

Interest expense - Federal Home Loan Bank advances

$
277

$
88

$
589

$
261

Net of tax
Unrealized (gains) and losses on
available for sale securities

$
(9
)

$
4

$
(42
)

$
(121
)
Net (gain) loss on sale of securities

3

(2
)

16

46

Income tax expense (benefit)

$
(6
)

$
2

$
(26
)

$
(75
)
Net of tax
Unrealized losses on securities
transferred to held to maturity

$
79

$
42

$
162

$
125

Interest income - securities

(30
)

(16
)

(62
)

(48
)
Income tax benefit

$
49

$
26

$
100

$
77

Net of tax

													Affected Line Item
Details about Accumulated Other	Three Months Ended September 30,						Nine Months Ended September 30,						in the Statement Where
Comprehensive Income (Loss) Components	2019			2018			2019			2018			Net Income is Presented
Unrealized losses on cash flow hedges	$	(212	)	$	(111	)	$	(436	)	$	(330	)	Interest expense - money market
		(53	)		(108	)		(191	)		(368	)	Interest expense - Federal Home Loan Bank advances
		—			16			9			56		Income tax benefit
	$	(265	)	$	(203	)	$	(618	)	$	(642	)	Net of tax
Unrealized gains (losses) on available- for-sale securities	$	—		$	(1	)	$	(108	)	$	2		Net gain (loss) on sale of securities
		—			—			28			(1	)	Income tax benefit
	$	—		$	(1	)	$	(80	)	$	1		Net of tax
Unrealized losses on securities transferred to held-to-maturity	$	—		$	—		$	—		$	14		Interest income - securities
		—			—			—			(4	)	Income tax benefit
	$	—		$	—		$	—		$	10		Net of tax

The Company’s effective tax rate for the three and nine months ended September 30, ~~2017~~2019 was ~~25.5%~~24.3% and ~~9.1%~~23.5% compared to ~~33.1%~~13.2% and ~~32.7%~~14.1% for the three and nine months ended September 30, ~~2016.~~2018. In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions, including income tax consequences. In addition to other changes, the guidance changes the accounting for excess tax benefits and tax deficiencies from generally being recognized in additional paid-in capital to recognition as income tax expense or benefit in the period they occur. The Company adopted the new guidance in the first quarter of 2017. As a result, the Company’s income tax expense was ~~reduced~~decreased by ~~$144,000~~$23,000 and ~~$310,000~~$54,000 for the three and nine months ended September 30, ~~2017.~~2019, respectively, and decreased by $422,000 and $1,062,000 for the three and nine months ended September 30, 2018, respectively.

The effective tax rate compared favorably to the statutory federal rate of ~~34%~~21% and Tennessee excise tax rate of 6.5% primarily due to investments in qualified municipal securities, company owned life insurance, state tax credits, net of the effect of certain non-deductible expenses and the recognition of excess tax benefits related to stock compensation.

In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheet.

The following table sets forth outstanding financial instruments whose contract amounts represent credit risk as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 (dollars in thousands):

The Company is party to litigation and claims arising in the normal course of business. Management believes that the liabilities, if any, arising from such litigation and claims as of September 30, ~~2017,~~2019, will not have a material impact on the financial statements of the Company.

The Company utilizes derivative financial instruments, interest rate ~~swap agreements~~swaps and mortgage banking related derivatives, as part of its ~~asset liability management strategy~~ongoing efforts to ~~help~~ manage its interest rate risk ~~position.~~exposure as well as the exposure for its customers. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

There were no interest rate swaps designated as cash flow hedges as of September 30, 2019. Forward starting interest rate swaps with notional amounts totaling $20 million ~~and $20 million~~ as of ~~September 30, 2017 and~~ December 31, ~~2016, respectively,~~2018 were designated as cash flow hedges of certain liabilities and were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness ~~has been~~was included in net income. Therefore, the aggregate fair value of the swaps is recorded in other ~~assets (liabilities)~~liabilities with changes in fair value recorded in other comprehensive ~~income (loss).~~income. The Company terminated an interest rate swap during the second quarter of 2019 with a notional amount of $20 million, which resulted in a termination fee of $1.5 million. Cash flow swaps that have been terminated resulting in cash settlement equal to previously unrealized gains or losses are included in accumulated other comprehensive income ~~(loss) would be reclassified~~and are being amortized to ~~current earnings should~~net income over the ~~hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the~~ remaining contractual terms of the swaps.

Summary information about the interest-rate swaps designated as cash flow hedges was as follows (dollars in thousands):

Pursuant to its interest rate swap agreements, the Company pledged collateral to the counterparties in the form of investment securities with a ~~carrying~~market value of ~~$2.7~~$2.0 million at ~~September 30, 2017.~~December 31, 2018. There was no collateral posted from the counterparties to the Company as of September 30, ~~2017. It is possible that the Company may need to post additional collateral in the future or that the counterparties may be required to post collateral to the Company in the future.~~2019.

The Company also enters into swaps to facilitate customer transactions and meet their financing needs. Upon entering into these transactions the Company enters into offsetting positions with large U.S. financial institutions in order to minimize risk to the Company. A summary of the Company’s customer related interest rate swaps was as follows (dollars in thousands):

The Company enters into various derivative agreements with customers in the form of interest-rate lock commitments which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The derivatives are valued using a model that utilizes market interest rates and other unobservable inputs. Changes in the fair value of these commitments due to fluctuations in interest rates that are to be originated to our loans held for sale portfolio are economically hedged through the use of forward sale commitments of mortgage-backed securities. The gains and losses arising from this derivative activity are reflected in current period earnings under mortgage banking income. Interest rate lock commitments are valued using a model with significant unobservable market parameters. Forward sale commitments are valued based on quoted prices for similar assets in an active market with inputs that are observable.

The net gains (losses) relating to mortgage banking derivative instruments included in mortgage banking income were as follows (dollars in thousands):

There were no gains or losses relating to mortgage banking derivative instruments for the three or nine months ended September 30, 2018.

The amount and fair value of mortgage banking derivatives included in the consolidated balance sheets was as follows (dollars in thousands):

During 2008, the board of directors of the Bank approved the CapStar Bank 2008 Stock Incentive Plan (the Plan). The Plan was intended to provide incentives to certain officers, employees, and directors to stimulate their efforts toward the continued success of the Bank and to operate and manage the business in a manner that will provide for the long‑term growth and profitability of the Bank. Additionally the Plan was intended to encourage stock ownership to align the interests of employees and shareholders and to provide a means of obtaining, rewarding and retaining officers, employees, and directors.

Plan. Following the formation of CapStar Financial Holdings, Inc. in 2016, and in connection with the Share Exchange, the outstanding awards of restricted stock and stock options under the CapStar Bank 2008 Stock Incentive Plan were exchanged for similar awards of restricted stock and stock options issued by CapStar Financial Holdings, Inc. under the CapStar Financial Holdings, Inc. Stock Incentive Plan (the “Plan”), which the board of directors adopted in 2016. The Stock Incentive Plan provides for the grant of stock-based incentives, including stock options, restricted stock units, performance awards and restricted stock, to employees, directors and service providers that are subject to forfeiture until vesting conditions have been satisfied by the award recipient under the terms of the award. The Plan is intended to help align the interests of employees and our shareholders and reward our employees for improved Company performance. The Plan reserved 1,569,475 shares of stock for issuance of stock incentives. In April 2018 the board of directors reserved an additional 400,000 shares of stock for issuance of stock incentives. Stock incentives include both restricted share and stock option grants. Total shares issuable under the plan were ~~169,867~~357,852 at September 30, ~~2017.~~2019.

The Company has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other non-interest expense for directors, in the consolidated statements of income as follows (dollars in thousands):

Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the issue date. The fair value of each restricted stock grant is based on valuations performed by independent consultants. The recipients have the right to vote and receive dividends but cannot sell, transfer, assign, pledge, hypothecate, or otherwise encumber the restricted stock until the shares have vested. Restricted shares fully vest on the third anniversary of the grant date. A summary of the changes in the Company’s nonvested restricted shares for the nine months ended September 30, ~~2017~~2019 follows:

As of September 30, ~~2017,~~2019, there was ~~$1.6~~$2.2 million of unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of ~~1.9~~1.7 years. The total fair value of shares vested during the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 was ~~$1.1~~$1.0 million and ~~$0.5~~$1.9 million, respectively.

Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Option awards generally have a ~~three~~four year vesting period and a ten year contractual term.

The fair value of each option grant is estimated on the date of grant using the ~~Black Scholes~~Black-Scholes option pricing model that uses the assumptions noted in the table below. Expected volatility is based on ~~calculations performed by management using industry data. The~~historical volatilities of the Company’s ~~expected dividend yield is 0.00% because the Company has not paid dividends in the past.~~common stock. The expected term of options granted was calculated using the “simplified” method for plain vanilla ~~options as permitted under authoritative literature.~~options. The ~~risk free~~risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. There were no options granted in ~~2017.~~2018. The Company granted 50,000 options during 2019.

The fair value of options granted during 2019 was determined using the following weighted average assumptions as of the grant ~~date:~~date.

A summary of the activity in stock options for the nine months ended September 30, ~~2017~~2019 follows:

As of September 30, ~~2017,~~2019, there was ~~$0.1~~$0.2 million of unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of ~~1.8~~2.6 years.

The Company and the Bank are subject to regulatory capital requirements administered by the Federal Reserve and the Bank is also subject to the regulatory capital requirements of the Tennessee Department of Financial Institutions. Failure to meet capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that could, in that event, have a material adverse effect on the institutions’ financial statements. The relevant regulations require the Company and the Bank to meet specific capital adequacy guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting principles. The capital classifications of the Company and the Bank are also subject to qualitative judgments by their regulators about components, risk weightings, and other factors. Those qualitative judgments could also affect the capital status of the Company and the Bank and the amount of dividends the Company and the Bank may distribute. The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, ~~2017,~~2019, the Company and the Bank met all regulatory capital adequacy requirements to which they are subject.

The Company’s and the Bank’s capital amounts and ratios as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 are presented in the following table (dollars in thousands).

	Actual					Minimum capital requirement (1)					Minimum to be well-capitalized (2)				Actual					Minimum capital requirement (1)					Minimum to be well-capitalized (2)
	Amount		Ratio			Amount		Ratio			Amount		Ratio		Amount		Ratio			Amount		Ratio			Amount		Ratio
At September 30, 2017:
At September 30, 2019:
Total capital to risk-weighted assets:
CapStar Financial Holdings, Inc.	$	155,426		12.42	%	$	100,130		8.00	%	N/A		N/A		$	232,896		13.46	%	$	138,398		8.00	%	N/A		N/A
CapStar Bank		141,843		11.33			100,118		8.00		$	125,147		10.00		219,513		12.69			138,351		8.00		$	172,939		10.00
Tier I capital to risk-weighted assets:
CapStar Financial Holdings, Inc.		141,125		11.28			75,098		6.00		N/A		N/A			219,889		12.71			103,799		6.00		N/A		N/A
CapStar Bank		127,542		10.19			75,088		6.00			100,118		8.00		206,506		11.94			103,763		6.00			138,351		8.00
Common equity Tier 1 capital to risk weighted assets:
CapStar Financial Holdings, Inc.		132,417		10.58			56,323		4.50		N/A		N/A			219,889		12.71			77,849		4.50		N/A		N/A
CapStar Bank		111,334		8.90			56,316		4.50			81,346		6.50		190,006		10.99			77,822		4.50			112,410		6.50
Tier I capital to average assets:
CapStar Financial Holdings, Inc.		141,125		10.36			54,464		4.00		N/A		N/A			219,889		11.24			78,232		4.00		N/A		N/A
CapStar Bank		127,542		9.37			54,463		4.00			68,079		5.00		206,506		10.56			78,206		4.00			97,757		5.00

At December 31, 2016:
At December 31, 2018:
Total capital to risk-weighted assets:
CapStar Financial Holdings, Inc.	$	149,616		12.60	%	$	95,028		8.00	%	N/A		N/A		$	222,030		12.84	%	$	138,336		8.00	%	N/A		N/A
CapStar Bank		126,718		10.67			95,028		8.00		$	118,785		10.00		201,972		11.68			138,294		8.00		$	172,868		10.00
Tier I capital to risk-weighted assets:
CapStar Financial Holdings, Inc.		137,909		11.61			71,271		6.00		N/A		N/A			209,738		12.13			103,752		6.00		N/A		N/A
CapStar Bank		115,011		9.68			71,271		6.00			95,028		8.00		189,680		10.97			103,721		6.00			138,294		8.00
Common equity Tier 1 capital to risk weighted assets:
CapStar Financial Holdings, Inc.		129,528		10.90			53,453		4.50		N/A		N/A			200,738		11.61			77,814		4.50		N/A		N/A
CapStar Bank		99,130		8.35			53,453		4.50			77,210		6.50		173,180		10.02			77,791		4.50			112,364		6.50
Tier I capital to average assets:
CapStar Financial Holdings, Inc.		137,909		10.46			52,727		4.00		N/A		N/A			209,738		11.06			75,867		4.00		N/A		N/A
CapStar Bank		115,011		8.72			52,727		4.00			65,909		5.00		189,680		10.01			75,828		4.00			94,785		5.00

The following is a summary of the basic and diluted earnings per share calculation for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 (dollars in thousands, except share data):

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

The Bank used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded and, values debt securities by relying on quoted prices for the specific securities and the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). See below for additional discussion of Level 3 valuation methodologies and significant inputs. The fair values of all securities are determined from third party pricing services without adjustment.

~~Derivatives-Interest Rate Swaps~~: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Bank’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third party pricing services without adjustment.

~~Impaired Loans~~: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on at least a quarterly basis for additional impairment and adjusted in accordance with the loan policy.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Appraisals may be adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and/or management’s expertise and knowledge of the collateral. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The Company had no other real estate owned carried at fair value as of September 30, ~~2017~~2019 or December 31, ~~2016.~~2018.

Loans Held For Sale: Loans held for sale are carried at either fair value, if elected, or the lower of cost or fair value ~~which is evaluated~~ on a pool-level basis. ~~The fair value of~~Origination fees and costs for loans held for sale recorded at lower of cost or market are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for loans held for sale that are recorded at fair value. Fair value is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2). There were no loans held for sale carried at fair value at ~~September 30, 2017 or~~ December 31, ~~2016.~~2018.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on at least a quarterly basis for additional impairment and adjusted in accordance with the loan policy.

Derivatives-Interest Rate Swaps: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Bank’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third party pricing services without adjustment.

Derivatives-Mortgage Loan Interest Rate Lock Commitments: Interest rate lock commitments that relate to the origination of mortgage loans that will be held for sale are recorded at fair value, determined as the amount that would be required to settle each derivative instrument at the balance sheet date. The fair value of the interest rate lock commitment is derived from the fair value of related mortgage loans, which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. In estimating the fair value of an interest rate lock commitment, the Company assigns a probability to the interest rate lock commitment based on an expectation that it will be exercised and the loan will be funded (a “pull through” rate). The expected pull through rates are applied to the fair value of the unclosed mortgage pipeline, resulting in a Level 3 fair value classification. The pull through rate is a statistical analysis of our actual rate lock fallout history to determine the sensitivity of the residential mortgage loan pipeline compared to interest rate changes and other deterministic values. New market prices are applied based on updated loan characteristics and new fallout ratios (i.e., the inverse of the pull through rate) are applied accordingly. Significant increases (decreases) in the pull through rate in isolation result in a significantly higher (lower) fair value measurement. Changes to the fair value of interest rate lock commitments are recognized based on interest rate changes, changes in the probability that the commitment will be exercised, and the passage of time.

Derivatives-Mortgage-Backed Securities Forward Sales Commitments: The Company utilizes mortgage-backed securities forward sales commitments to hedge mortgage loan interest rate lock commitments. Mortgage-backed securities forward sales commitments are recorded at fair value based on quoted prices for similar assets in an active market with inputs that are observable, resulting in a Level 2 fair value classification.

Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands):

	Fair value measurements at September 30, 2017										Fair value measurements at September 30, 2019
				Quoted prices										Quoted prices
				in active		Significant								in active		Significant
				markets for		other			Significant					markets for		other			Significant
				identical		observable			unobservable					identical		observable			unobservable
	Carrying			assets		inputs			inputs		Carrying			assets		inputs			inputs
	Value			(Level 1)		(Level 2)			(Level 3)		Value			(Level 1)		(Level 2)			(Level 3)
Assets:
Securities available for sale:
Securities available-for-sale:
U.S. government-sponsored agencies	$	11,299		$	—	$	11,299		$	—	$	9,230		$	—	$	9,230		$	—
Obligations of states and political subdivisions		19,067			—		19,067			—		51,443			—		51,443			—
Mortgage-backed securities-residential		95,823			—		95,823			—		129,691			—		129,691			—
Asset-backed securities		20,411			—		20,411			—		3,233			—		3,233			—
Total securities available for sale	$	146,600		$	—	$	146,600		$	—
Derivatives:
Other debt securities												9,903			—		9,903			—
Loans held for sale												45,988			—		45,988			—
Derivative assets:
Non-hedging derivatives:
Interest rate swaps - customer related	$	352		$	—	$	352		$	—		909			—		909			—
Mortgage loan interest rate lock commitments												807			—		—			807
Liabilities:
Derivatives:
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps - customer related	$	(352	)	$	—	$	(352	)	$	—		(909	)		—		(909	)		—
Interest rate swaps - cash flow hedges		(1,658	)		—		(1,658	)		—
Total derivatives	$	(2,010	)	$	—	$	(2,010	)	$	—
Mortgage-backed securities forward sales commitments												83			—		83			—

	Fair value measurements at December 31, 2016										Fair value measurements at December 31, 2018
				Quoted prices										Quoted prices
				in active		Significant								in active		Significant
				markets for		other			Significant					markets for		other			Significant
				identical		observable			unobservable					identical		observable			unobservable
	Carrying			assets		inputs			inputs		Carrying			assets		inputs			inputs
	Value			(Level 1)		(Level 2)			(Level 3)		Value			(Level 1)		(Level 2)			(Level 3)
Assets:
Securities available for sale:
Securities available-for-sale:
U.S. government-sponsored agencies	$	9,374		$	—	$	9,374		$	—	$	10,706		$	—	$	10,706		$	—
Obligations of states and political subdivisions		27,913			—		27,913			—		61,926			—		61,926			—
Mortgage-backed securities-residential		124,595			—		124,595			—		144,158			—		144,158			—
Asset-backed securities		20,473			—		20,473			—		15,284			—		15,284			—
Total securities available for sale	$	182,355		$	—	$	182,355		$	—
Derivatives:
Other debt securities												11,734			—		11,734			—
Derivative assets:
Non-hedging derivatives:
Interest rate swaps - customer related	$	460		$	—	$	460		$	—		494			—		494			—
Liabilities:
Derivatives:
Derivative liabilities:
Cash flow hedges:
Interest rate swaps - cash flow hedges												(836	)		—		(836	)		—
Non-hedging derivatives:
Interest rate swaps - customer related	$	(460	)	$	—	$	(460	)	$	—		(494	)		—		(494	)		—
Interest rate swaps - cash flow hedges		(1,535	)		—		(1,535	)		—
Total derivatives	$	(1,995	)	$	—	$	(1,995	)	$	—

The table below presents a reconciliation of all assets measured at fair value on a ~~nonrecurring~~recurring basis ~~are summarized below~~using significant unobservable inputs (Level 3) for the nine months ended September 30, 2019 and 2018 (dollars in thousands):

The following table presents quantitative information about recurring Level 3 fair value measurements ~~for~~at September 30, 2019 (dollars in thousands). There were no Level 3 fair value measurements at December 31, 2018.

There were no assets measured at fair value on a ~~non-recurring~~nonrecurring basis at September 30, ~~2017~~2019 and December 31, ~~2016 (dollars in thousands):~~2018.

The carrying value and estimated fair values of the Bank’s financial instruments at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 were as follows (dollars in thousands):

	September 30, 2017				December 31, 2016					September 30, 2019				December 31, 2018
	Carrying				Carrying				Fair value	Carrying				Carrying				Fair value
	amount		Fair value		amount		Fair value		level of input	amount		Fair value		amount		Fair value		level of input
Financial assets:
Cash and due from banks, interest-bearing deposits in financial institutions	$	69,789	$	69,789	$	63,456	$	63,456	Level 1	$	154,021	$	154,021	$	94,681	$	94,681	Level 1
Federal funds sold		—		—		16,654		16,654	Level 1		—		—		10,762		10,762	Level 1
Securities available for sale		146,600		146,600		182,355		182,355	Level 2
Securities held to maturity		45,635		48,980		46,864		49,731	Level 2
Securities available-for-sale											203,500		203,500		243,808		243,808	Level 2
Securities held-to-maturity											3,319		3,412		3,734		3,785	Level 2
Loans held for sale		53,225		54,407		42,111		42,302	Level 2		129,613		131,156		57,618		58,596	Level 2
Restricted equity securities		8,799	N/A			6,032	N/A		N/A		13,900	N/A			12,038	N/A		N/A
Loans, net of unearned income		974,530		974,551		935,251		934,628	Level 3
Loans											1,411,768		1,405,664		1,429,794		1,442,082	Level 3
Accrued interest receivable		3,849		3,849		3,942		3,942	Level 2		5,780		5,780		5,964		5,964	Level 2
Bank owned life insurance		22,335		22,335		21,900		21,900	Level 2
Other assets		352		352		460		460	Level 2		35,523		35,523		34,489		34,489	Level 2 / Level 3
Financial liabilities:
Deposits		1,091,495		1,050,801		1,128,723		1,088,758	Level 3		1,731,763		1,733,122		1,570,008		1,572,880	Level 3
Federal Home Loan Bank advances		95,000		94,980		55,000		54,989	Level 2		10,000		10,030		125,000		126,548	Level 2
Accrued interest payable		305		305		212		212	Level 2
Other liabilities		3,800		3,800		5,349		5,349	Level 3		1,552		1,552		2,753		2,753	Level 3

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

For these short‑term instruments, the carrying amount is a reasonable estimate of fair value.

Federal funds sold clear on a daily basis. For this reason, the carrying amount is a reasonable estimate of fair value.

It is not practical to determine the fair value of restricted securities due to restrictions placed on their transferability.

~~The fair value~~In accordance with the adoption of ~~the Bank’s loan portfolio includes a credit risk assumption in the determination of~~ASU 2016-01, the fair value of ~~its loans. This credit risk assumption~~loans is ~~intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Bank’s loan portfolio is initially fair valued~~measured using a segmented approach. The Bank divides its loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk. For variable‑rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values.an exit price notion. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Included in other assets are bank owned life insurance and certain interest rate swap agreements. The fair values of interest rate swap agreements are based on independent pricing services that utilize pricing models with observable market inputs. For bank owned life insurance, the carrying amount is based on the cash surrender value and is a reasonable estimate of fair value.

Included in other assets are certain interest rate swap agreements and the cash flow hedge relationships. The fair values of interest rate swap agreements and the cash flow hedge relationships are based on independent pricing services that utilize pricing models with observable market inputs.

The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounted cash flow models, using current market interest rates offered on certificates with similar remaining maturities.

The fair value of fixed rate Federal Home Loan Bank Advances is estimated using discounted cash flow models, using current market interest rates offered on certificates, advances and other borrowings with similar remaining maturities.

Included in other liabilities are accrued interest payable and certain interest rate swap ~~agreements, the cash flow hedge relationships and contingent consideration.~~agreements. The fair values of interest rate swap agreements ~~and the cash flow hedge relationships~~ are based on independent pricing services that utilize pricing models with observable market inputs. The carrying amounts of accrued interest approximate fair ~~value of contingent consideration is estimated by a discounted cash flow model that utilizes various unobservable inputs.~~value.

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on estimating on and off‑balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, fixed assets are not considered financial instruments and their value has not been incorporated into the fair value estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Item 2.~~Item 2.~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion of our financial condition at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 and our results of operations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018. The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements. The following discussion and analysis should be read along with our consolidated financial statements and the related notes included elsewhere in this Report and our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. Annualized results for interim periods may not be indicative of results for the full year or future periods. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our current expectations. Factors that could cause such differences are discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Report and the ~~sections~~section entitled “Item 1A. Risk Factors” ~~and “Cautionary Note Regarding Forward-Looking Statements”~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. We assume no obligation to update any of these forward-looking statements except to the extent required by applicable law.

The following discussion and analysis pertains to our historical results on a consolidated basis. However, because we conduct all of our material business operations through our ~~wholly-owned~~wholly owned subsidiary, CapStar Bank, the following discussion and analysis relates to activities primarily conducted at the subsidiary level.

All dollar amounts in the tables in this section are in thousands of dollars, except per share data or when otherwise specifically noted.

~~We completed the first nine months~~The third quarter of ~~2017 with net income of $1.4 million, a 77.2% decrease~~2019 resulted in net income from the comparable period of 2016. The decrease in our net income was primarily due to a higher provision for loan losses, resulting from $12.4 million of charged-off loans recognized during the first nine months of 2017. The decrease in our net income was partially offset by higher net interest income resulting from continued loan growth. Fully$0.35 diluted net income per share of common stock, an increase of 25.1% compared to the third quarter of 2018. Annualized return on average assets was 1.28% for the ~~first~~third quarter of 2019 compared to 1.02% for the same period in 2018.

For the nine months ended September 30, 2019, diluted net income per share of ~~2017~~common stock was ~~$0.11,~~$0.91, an increase of 14.7% compared ~~with $0.58~~to the same period in 2018. Annualized return on average assets was 1.14% for the ~~first~~ nine months ~~of 2016. Average loans~~ended September 30, 2019 compared to 1.00% for the ~~first nine months of 2017 were $998.2 million, a 14.5% increase over the comparable~~same period ~~of 2016. Average~~in 2018.

At September 30, 2019, loans decreased to $1.41 billion, as compared to $1.43 billion at December 31, 2018. Total deposits ~~for the first nine months of 2017 were $1.12~~increased to $1.73 billion ~~a 2.9% increase over the comparable period of 2016.~~at September 30, 2019 from $1.57 billion at December 31, 2018.

The ~~Company’s~~comparability of our financial condition and performance has been impacted by our acquisition of Athens Bancshares Corporation (“Athens”) which we completed in 2018.

Our primary revenue sources are net interest income and fees from various financial services provided to customers. Net interest income is the difference between interest income earned on loans, investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities. Loan volume and interest rates earned on those loans are critical to ~~our~~ overall profitability. Similarly, deposit volume is crucial to funding loans, and rates paid on deposits directly impact ~~our~~ profitability. Business volumes are influenced by competition, new business acquisition efforts and economic factors including market interest rates, business spending and consumer confidence.

Net interest income increased ~~$3.1~~$5.6 million, or ~~10.8%~~48.6%, for the ~~first nine~~three months ~~of 2017,~~ended September 30, 2019 compared ~~with~~to the same period in ~~2016.~~2018 and increased $17.2 million, or 50.6%, for the nine months ended September 30, 2019 compared to the same period in 2018. Net interest margin increased to 3.66% for the three months ended September 30, 2019, compared with 3.35% for the same period of 2018 and increased to 3.70% for the nine months ended September 30, 2019, compared with 3.40% for the same period of 2018. The positive effects of increased ~~volume and~~ yields on earning assets were partially offset by the negative ~~effect~~effects of increasing deposit costs. ~~Net interest margin increased to 3.18% for the first nine months of 2017, compared with 3.17% for the same period of 2016.~~

In response to anthe assessment of risk in the loan portfolio, including net loan growth and charge-offs, we recorded a ~~$12.9~~$(0.1) million provision for loan losses infor the ~~first~~third quarter of 2019 compared to $0.5 million during the comparable period of 2018. Provision for loan losses for the nine months ~~of 2017, compared with a $2.8~~ended September 30, 2019 and 2018 were $0.8 million ~~provision in the first nine months of 2016.~~and $1.3 million, respectively. The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for the estimated probable inherent losses on outstanding loans. Our allowance for loan losses at September 30, 2019 was 0.91% of total loans, compared with 0.85% of total loans at December 31, 2018.

Total non-interest income for the ~~first nine months~~third quarter of ~~2017 was comparable with the same period in 2016, and comprised 18% of total revenues.~~

~~Total non-interest expense in the first nine months of 2017~~2019 increased ~~$0.6~~$3.6 million, or ~~2.4%~~110.9%, compared with the same period in ~~2016. Our efficiency ratio in~~2018, and comprised 23% of total revenues. For the ~~first~~ nine months ~~of 2017 was 63.4%~~ended September 30, 2019, total non-interest income increased $9.5 million, or 104.5%, compared ~~to 67.2% in~~with the same period in ~~2016.~~2018, and comprised 21% of total revenues. These increases were primarily the result of higher mortgage banking income, Tri-Net fees and interchanges fees resulting from our acquisition of Athens.

As we grew our team and expanded into East Tennessee with the Athens acquisition, total non-interest expense for the three and nine months ended September 30, 2019 increased $5.5 million, or 54.2%, and $17.1 million, or 57.6%, respectively, compared with the same periods in 2018. Included in noninterest expense for the three and nine months ended September 30, 2019 were $0.2 million and $2.5 million, respectively, of pretax merger related charges related to the acquisition of Athens compared to $0.5 million and $0.9 million for the three and nine months ended September 30, 2018, respectively. Our efficiency ratio for the three months ended September 30, 2019 was 64.9% compared to 68.2% for the same period in 2018. For the nine months ended September 30, 2019 our efficiency ratio was 67.0% compared to 68.9% for the same period in 2018.

Our effective tax rate ~~decreased to 9.1%~~ for the ~~first~~three and nine months ~~of 2017 from 32.7%~~ended September 30, 2019 was 24.3% and 23.5%, respectively, compared to 13.2% and 14.1% for the same ~~period~~periods in ~~2016.~~2018. The ~~decrease~~increase in the effective tax rate is largely the result of the ~~effectiveness of Accounting Standards Update (ASU) 2016-09, Compensation – Stock Compensation, which, among other things, amended existing guidance for the accounting~~decreasing ratio of excess tax benefits from stock ~~compensation.~~compensation to income before income taxes.

Tangible common equity, ~~(TCE),~~ a non-GAAP measure, is a measure of a company's capital which is useful in evaluating the quality and adequacy of capital. The ratio of tangible common equity to total tangible assets was ~~9.7%~~11.23% as of September 30, ~~2017,~~2019, compared with ~~9.3%~~10.39% at December 31, ~~2016.~~ 2018. See ~~“Management’s~~“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations —~~ Operations—Non-GAAP Financial Measures” for details on reconciliations to the most directly comparable U.S. GAAP measures.

The following sections provide more details on subjects presented in this overview.

						2017 - 2016							2017 - 2016								2019 - 2018							2019 - 2018
	Three Months Ended					Percent			Nine Months Ended				Percent			Three Months Ended					Percent			Nine Months Ended				Percent
	September 30,					Increase			September 30,				Increase			September 30,					Increase			September 30,				Increase
	2017			2016		(Decrease)			2017		2016		(Decrease)			2019			2018		(Decrease)			2019		2018		(Decrease)
Interest income	$	13,521		$	11,875		13.9	%	$	38,390	$	33,388		15.0	%	$	23,216		$	15,782		47.1	%	$	69,341	$	44,880		54.5	%
Interest expense		2,678			1,749		53.1	%		7,045		5,105		38.0	%		6,060			4,239		42.9	%		18,175		10,904		66.7	%
Net interest income		10,843			10,126		7.1	%		31,345		28,283		10.8	%		17,156			11,543		48.6	%		51,166		33,976		50.6	%
Provision for loan losses		(195	)		1,639		(111.9	)%		12,900		2,759		367.6	%		(125	)		481		(126.0	)%		761		1,328		(42.7	)%
Net interest income after provision for loan losses		11,038			8,487		30.1	%		18,445		25,524		(27.7	)%		17,281			11,062		56.2	%		50,405		32,648		54.4	%
Noninterest income		3,372			3,191		5.7	%		8,171		8,130		0.5	%		6,788			3,218		110.9	%		18,555		9,072		104.5	%
Noninterest expense		8,475			8,527		(0.6	)%		25,066		24,487		2.4	%		15,531			10,070		54.2	%		46,728		29,655		57.6	%
Net income before income taxes		5,935			3,151		88.3	%		1,550		9,167		(83.1	)%		8,538			4,210		102.8	%		22,232		12,065		84.3	%
Income tax expense		1,516			1,042		45.5	%		141		2,998		(95.3	)%		2,072			554		274.1	%		5,231		1,702		207.4	%
Net income	$	4,419		$	2,109		109.5	%	$	1,409	$	6,169		(77.2	)%	$	6,466		$	3,656		76.9	%	$	17,001	$	10,363		64.1	%

Basic net income per share of common stock	$	0.39		$	0.24		63.3	%	$	0.13	$	0.71		(82.3	)%	$	0.36		$	0.30		20.0	%	$	0.96	$	0.87		9.7	%
Fully diluted net income per share of common stock	$	0.35		$	0.20		77.4	%	$	0.11	$	0.58		(80.9	)%	$	0.35		$	0.28		25.1	%	$	0.91	$	0.79		14.7	%

We recorded net income of $4.4 million for the third quarter of 2017, an increase of $2.3 million, or 109.5%, from net income of $2.1 million for the third quarter of 2016. Basic net income per share of common stock was $0.39 and $0.24 for the third quarter of 2017 and 2016, respectively. Fully diluted net income per share of common stock was $0.35 and $0.20 for the third quarter of 2017 and 2016, respectively. We recorded a negative $0.2 million provision for loan losses in the third quarter of 2017, compared with $1.6 million for the same period of 2016.

Annualized return on average assets and annualized return on average shareholders’ equity were 1.28% and ~~12.38%~~9.63%, respectively, for the third quarter of ~~2017,~~2019, compared with ~~0.65%~~1.02% and ~~7.15%~~9.28%, respectively, for the same period in ~~2016.~~

Our net income of $1.4 million for the nine months ended September 30, 2017 represented a $4.8 million, or 77.2%, decrease from net income of $6.2 million for the comparable 2016 period. Basic net income per share was $0.13 for the first nine months of 2017, a decrease of 82.3% from the $0.71 for the first nine months of 2016. Net income per share on a diluted basis was $0.11 for the first nine months of 2017, a decrease of 80.9% from the $0.58 for the first nine months of 2016. We recorded a $12.9 million provision for loan losses in the first nine months of 2017, compared with $2.8 million in the same period of 2016.2018.

Annualized return on average assets and annualized return on average ~~stockholders’~~shareholders’ equity were ~~0.14%~~1.14% and ~~1.33%~~8.69%, respectively, for the ~~first~~ nine months ~~of 2017,~~ended September 30, 2019, compared with ~~0.66%~~1.00% and ~~7.25%~~9.11%, respectively, for the same period in ~~2016.~~2018.

The largest component of our net income is net interest income – the difference between the income earned on interest-earning assets and the interest paid on deposits and borrowed funds used to support our assets. Net interest income divided by total average interest-earning assets represents our net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our margin can also be affected by economic conditions, the competitive environment, loan demand and deposit flow. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and our net interest income.

The following tables set forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest spread and net interest margin for the three and nine months ended September 30, ~~2017~~2019 and ~~2016:~~2018:

	For the Three Months Ended September 30,														For the Three Months Ended September 30,
	2017							2016							2019							2018
	Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate
Interest-Earning Assets
Loans (1)	$	991,238	$	11,375		4.55	%	$	918,302	$	10,072		4.36	%	$	1,445,755	$	19,955		5.48	%	$	1,070,060	$	13,484		5.00	%
Loans held for sale		67,886		720		4.21	%		63,640		587		3.67	%		101,835		1,050		4.09	%		54,701		683		4.96	%
Securities:
Taxable investment securities (2)		156,979		946		2.41	%		170,382		858		2.01	%		160,528		1,211		3.02	%		154,570		1,083		2.80	%
Investment securities exempt from federal income tax (3)		50,947		304		2.39	%		48,081		291		2.42	%		50,932		354		3.52	%		41,461		248		3.03	%
Total securities		207,926		1,250		2.40	%		218,463		1,149		2.10	%		211,460		1,565		3.14	%		196,031		1,331		2.85	%
Cash balances in other banks		49,151		169		1.36	%		45,122		63		0.56	%		110,690		645		2.31	%		50,844		267		2.08	%
Funds sold		1,711		7		1.67	%		1,510		4		0.95	%		144		1		3.46	%		2,475		17		2.73	%
Total interest-earning assets		1,317,912		13,521		4.07	%		1,247,037		11,875		3.79	%		1,869,884		23,216		4.95	%		1,374,111		15,782		4.58	%
Noninterest-earning assets		50,081							49,834							136,066							47,762
Total assets	$	1,367,993						$	1,296,871						$	2,005,950						$	1,421,873
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts	$	291,250		635		0.87	%	$	303,727		404		0.53	%	$	527,759		2,102		1.58	%	$	318,586		1,146		1.43	%
Savings and money market deposits		354,972		772		0.86	%		437,827		689		0.63	%		494,183		1,944		1.56	%		391,107		1,409		1.43	%
Time deposits		211,122		706		1.32	%		203,240		546		1.07	%		349,046		1,887		2.14	%		203,841		985		1.92	%
Total interest-bearing deposits		857,344		2,113		0.98	%		944,794		1,639		0.69	%		1,370,988		5,933		1.72	%		913,534		3,540		1.54	%
Borrowings and repurchase agreements		123,859		565		1.81	%		34,946		110		1.25	%		12,174		127		4.12	%		109,891		699		2.53	%
Total interest-bearing liabilities		981,203		2,678		1.08	%		979,740		1,749		0.71	%		1,383,162		6,060		1.74	%		1,023,425		4,239		1.64	%
Noninterest-bearing deposits		237,156							187,244							333,885							233,739
Total funding sources		1,218,359							1,166,984							1,717,047							1,257,164
Noninterest-bearing liabilities		8,078							12,497							22,462							8,445
Shareholders’ equity		141,556							117,390							266,441							156,264
Total liabilities and shareholders’ equity	$	1,367,993						$	1,296,871						$	2,005,950						$	1,421,873
Net interest spread (4)						2.99	%						3.08	%						3.21	%						2.93	%
Net interest income/margin (5)			$	10,843		3.26	%			$	10,126		3.23	%			$	17,156		3.66	%			$	11,543		3.35	%

	For the Nine Months Ended September 30,														For the Nine Months Ended September 30,
	2017							2016							2019							2018
	Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate
Interest-Earning Assets
Loans (1)	$	998,247	$	32,580		4.36	%	$	871,637	$	28,252		4.33	%	$	1,458,828	$	59,673		5.47	%	$	1,032,114	$	38,058		4.93	%
Loans held for sale		43,790		1,355		4.14	%		45,564		1,280		3.75	%		86,895		2,923		4.50	%		60,312		2,139		4.74	%
Securities:
Taxable investment securities (2)		170,810		3,098		2.42	%		178,388		2,806		2.10	%		176,951		4,124		3.11	%		155,331		3,164		2.72	%
Investment securities exempt from federal income tax (3)		53,230		944		2.36	%		45,370		841		2.47	%		53,360		1,093		3.46	%		43,722		784		3.03	%
Total securities		224,040		4,042		2.41	%		223,758		3,647		2.17	%		230,311		5,217		3.19	%		199,053		3,948		2.78	%
Cash balances in other banks		48,980		387		1.06	%		49,430		197		0.53	%		84,333		1,502		2.38	%		49,930		679		1.82	%
Funds sold		2,359		26		1.46	%		2,053		12		0.79	%		990		26		3.52	%		2,967		56		2.50	%
Total interest-earning assets		1,317,416		38,390		3.90	%		1,192,442		33,388		3.74	%		1,861,357		69,341		5.00	%		1,344,376		44,880		4.48	%
Noninterest-earning assets		49,873							49,550							138,252							45,671
Total assets	$	1,367,289						$	1,241,992						$	1,999,609						$	1,390,047
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts	$	307,992		1,839		0.80	%	$	263,251		1,096		0.56	%	$	476,755		5,523		1.55	%	$	294,994		2,793		1.27	%
Savings and money market deposits		389,425		2,360		0.81	%		442,740		2,141		0.65	%		487,743		5,445		1.49	%		399,698		3,827		1.28	%
Time deposits		193,436		1,750		1.21	%		191,440		1,566		1.09	%		380,566		5,917		2.08	%		190,735		2,468		1.73	%
Total interest-bearing deposits		890,853		5,949		0.89	%		897,431		4,803		0.71	%		1,345,064		16,885		1.68	%		885,427		9,088		1.37	%
Borrowings and repurchase agreements		100,221		1,096		1.46	%		31,926		302		1.26	%		57,472		1,290		3.00	%		98,033		1,816		2.48	%
Total interest-bearing liabilities		991,074		7,045		0.95	%		929,357		5,105		0.73	%		1,402,536		18,175		1.73	%		983,460		10,904		1.48	%
Noninterest-bearing deposits		225,623							187,058							312,505							246,991
Total funding sources		1,216,697							1,116,415							1,715,041							1,230,451
Noninterest-bearing liabilities		8,627							11,970							22,953							7,542
Shareholders’ equity		141,965							113,607							261,615							152,054
Total liabilities and shareholders’ equity	$	1,367,289						$	1,241,992						$	1,999,609						$	1,390,047
Net interest spread (4)						2.95	%						3.01	%						3.27	%						3.00	%
Net interest income/margin (5)			$	31,345		3.18	%			$	28,283		3.17	%			$	51,166		3.70	%			$	33,976		3.40	%

Our net interest margin was ~~3.26%~~3.66% and ~~3.23%~~3.35% for the third quarter of ~~2017~~2019 and ~~2016,~~2018, respectively. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, our net interest margin was ~~3.18%~~3.70% and ~~3.17%~~3.40%, respectively. The increase in net interest margin for both periods iswas primarily due to ~~growth of our interest~~rising yields on earning assets ~~at a higher pace than~~partially offset by rising deposit costs and our ~~interest bearing liabilities.~~acquisition of Athens.

For the third quarter of ~~2017~~2019 and ~~2016,~~2018, average loan yields increased from ~~4.36%~~5.00% to ~~4.55%~~5.48% which was primarily driven by increases in short-term interest rate indexes affecting the variable rate portion of our loan portfolio and the acquisition of Athens, partially offset by competitive pricing pressures. ~~From~~For the nine months ended September 30, ~~2016~~2019 and 2018, average loan yields increased from 4.93% to 5.47%. From December 31, 2017 to September 30, ~~2017,~~2019, the LIBOR – 1 month interest rate increased from ~~0.53%~~1.56% to ~~1.23%~~2.04%. Approximately ~~65%~~53% of our loan portfolio is variable in ~~nature~~nature.

Average loans for the three and ~~indexed to 1 month LIBOR. For the~~ nine months ended September 30, ~~2017~~2019 increased 35.1% and ~~2016, average loan yields increased from 4.33% to 4.36%. Average loans for the first nine months of 2017 increased 14.5%~~41.3%, respectively compared to the ~~same period~~similar periods in ~~2016~~2018 as a result of ~~our~~the Athens acquisition, adding new bankers in the Nashville MSA and continued focus on attracting new ~~clients to our Company.~~clients.

For the third quarter of ~~2017~~2018 and ~~2016,~~2019, average security yields increased from ~~2.10%~~2.85% to ~~2.40%~~3.14% and from ~~2.17%~~2.78% to ~~2.41%~~3.19% for the nine months ended September 30, ~~2016~~2018 and ~~2017,~~2019, respectively, primarily due to increases in the LIBOR rate on the variable rate portion of our securities portfolio. The resulting yield on average interest-earning assets increased 2837 basis points for the third quarter of ~~2017~~2019 compared to the similar period in ~~2016~~2018 and 1652 basis points for the nine months ended September 30, ~~2017~~2019 compared to the similar period of ~~2016.~~2018.

We funded our growth in loans through an increase in ~~our~~ funding sources of ~~9.0%~~36.6% and 39.4% for the three and nine months ended September 30, ~~2017~~2019 compared to the similar periods in 2018. The primary driver of our increased funding sources was growth in our average interest-bearing deposits of 50.1% and 51.9% for the three and nine months ended September 30, 2019 compared to the similar periods in 2018 which was largely driven by the acquisition. Average non-interest bearing deposits increased 42.8% and 26.5% for the three and nine months ended September 30, 2019 compared to the similar period in ~~2016. For the first nine months of 2017, average interest-bearing liabilities increased $61.8 million, or 6.6%, from the same period in 2016.~~ 2018.

The average rate paid on interest-bearing liabilities was ~~0.95%~~1.74% for the ~~first nine months~~third quarter of ~~2017,~~2019, as compared to ~~0.73%~~1.64% for the same period in ~~2016. A portion of~~2018. For the ~~increase~~nine months ended September 30, 2019 and 2018, the average rate paid on interest-bearing liabilities was 1.73% and 1.48%, respectively. These increases were due to the increases in the Fed Funds rate ~~during the period. The Fed Funds rate~~which increased from ~~0.50%~~1.33% at December 31, 2017 to 1.90% at September 30, ~~2016 to 1.25% at September 30, 2017.~~2019. We passed along a portion of ~~these~~this 57 basis point rate ~~increases~~increase to our clients.

Managing interest rate risk is fundamental for the financial services industry. By considering both on and off-balance sheet financial instruments, management evaluates interest rate sensitivity while attempting to optimize net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.

~~The Company uses~~We use earnings at risk, or EAR, simulations to assess the impact of changing rates on earnings under a variety of scenarios and time horizons. The simulation model is designed to reflect the dynamics of interest earning assets, interest bearing liabilities and off-balance sheet financial instruments. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as non-parallel changes such as changing slopes and twists of the yield curve. Static simulation models are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation models are also utilized that rely on detailed assumptions regarding changes in existing lines of business, new business, and changes in management and client behavior. By estimating the effects of interest rate increases and decreases, the model can reveal approximate interest rate risk exposure. The simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time. The model is therefore a tool to indicate earnings trends in given interest rate scenarios and does not indicate actual expected results.

At September 30, ~~2017,~~2019, our EAR static simulation results indicated that our balance sheet is asset sensitive to parallel shifts in interest rates. This indicates that our assets generally reprice faster than our liabilities, which results in a favorable impact to net interest income when market interest rates increase. Many assumptions are used to calculate the impact of interest rate fluctuations on our net interest income, such as asset prepayments, non-maturity deposit price sensitivity and decay rates, and key rate drivers. Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely will, differ from our static EAR results. In addition, static EAR results do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates or client behavior. For example, as part of our asset/liability management strategy, management has the ability to increase asset duration and/or decrease liability duration in order to reduce asset sensitivity, or to decrease asset duration and/or increase liability duration in order to increase asset sensitivity.

The following table illustrates the results of our EAR analysis to determine the extent to which our net interest income over the next 12 months would change if prevailing interest rates increased or decreased by the specified amounts.

Our policy is to maintain an allowance for loan losses at a level sufficient to absorb probable incurred losses inherent in the loan portfolio. The allowance is increased by a provision for loan losses, which is a charge to earnings, is decreased by charge-offs and is increased by loan recoveries. Our allowance for loan losses as a percentage of total loans was ~~1.45%~~0.91% and ~~1.24%~~0.85% at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

The provision for loan losses amounted to ~~$(0.2)~~$(0.1) million and ~~$12.9~~$0.8 million, respectively, for the three and nine months ended September 30, ~~2017~~2019 compared to ~~$1.6~~$0.5 million and ~~$2.8~~$1.3 million, respectively, for the three and nine months ended September 30, ~~2016.~~2018. Provision expense is impacted by the absolute level of loans, loan growth, the credit quality of the loan portfolio and the amount of net charge-offs.

Provision expense increased for the nine months ended September 30, 2017 compared to the same period in 2016 due to increased charge-offs. Charge-offs for the nine months ended September 30, 2017 were $12.4 million compared to $1.5 million for the same period in 2016. These increases were caused primarily by deterioration in the credit quality of commercial and industrial loans to one borrower. In particular, during the second quarter of 2017 we charged-off the loans associated with this borrower because issues emerged which undermined our assessment that an expedient and positive outcome was possible. This particular charge-off amounted to $11.0 million in the aggregate. These loans experienced weakness due to the borrower’s declining financial condition, which led to falling values of the collateral securing these loans. Our primary collateral for these loans are the enterprise value of the borrower as determined by an Asset Purchase Agreement that was subsequently withdrawn. As the financial condition of the borrower deteriorated, ultimate repayment became increasingly difficult. We determined that timely repayment of these loans was unlikely and charged-off the loans. As a result, our provision expense increased during the nine months ended September 30, 2017 compared to the similar period in 2016.

Our allowance for loan losses as a percentage of total loans increased from 1.24% at December 31, 2016 to 1.45% at September 30, 2017. This increase was largely due to our assessment of risk inherent in the commercial and industrial loan portfolio generally related to macro-economic, geo-political conditions and, in particular, uncertainty in the healthcare industry. In addition, during the third quarter of 2017, we increased the look-back period, from which we calculate peer bank historical loss experience, from seven years to eight years. Our look-back period is utilized to calculate peer historical loss experience, adjusted for current factors, to comprise the general component of the allowance for loan losses. In the current economic environment, management believes the extension of the look-back period is necessary in order to capture sufficient loss observations to develop a reliable loss estimate of credit losses. The extension of the historical look-back period to capture the historical loss experience of peer banks was applied to all classes and segments of our loan portfolio. During the third quarter of 2017, we recovered approximately $1.86 million of the previous second quarter charge-off related to the non-performing borrower referenced in the previous paragraph, which reduced our need to take additional provision expense.

Based upon our evaluation of the loan portfolio, we believe the allowance for loan losses to be adequate to absorb our estimate of probable losses existing in the loan portfolio at September 30, ~~2017.~~2019. While our policies and procedures used to estimate the allowance for loan losses, as well as the resultant provision for loan losses charged to operations, are considered adequate by management, they are necessarily approximate and imprecise. There are factors beyond our control, such as conditions in the local and national economy, ~~legislation and regulation,~~ local real estate markets, or particular industry or borrower-specific conditions, which may materially negatively impact our asset quality and the adequacy of our allowance for loan losses and, thus, the resulting provision for loan losses. See ~~our Annual Report on Form 10-K for the year ended December 31, 2016 “Notes to Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies” and~~ “Notes to Consolidated Financial Statements (Unaudited) — Note 3 — Loans and Allowance for Loan Losses” for additional information on our allowance for loan losses.

In addition to net interest income, we generate other types of recurring noninterest income from our lines of business. Our banking operations generate revenue from service charges and fees on deposit accounts. We have a mortgage banking ~~line of business~~division that generates revenue from originating and selling mortgages, a ~~line of business~~division that originates and sells commercial real estate loans (Tri-Net), and we have a revenue-sharing relationship with a registered broker-dealer, which generates wealth management fees. In addition to these types of recurring noninterest income, we own insurance on several key employees and record income on the increase in the cash surrender value of these policies.

The following table sets forth the principal components of noninterest income for the periods indicated.

						2017-2016							2017-2016								2019 - 2018								2019 - 2018
	Three Months Ended					Percent			Nine Months Ended				Percent			Three Months Ended					Percent			Nine Months Ended					Percent
	September 30,					Increase			September 30,				Increase			September 30,					Increase			September 30,					Increase
	2017		2016			(Decrease)			2017		2016		(Decrease)			2019		2018			(Decrease)			2019			2018		(Decrease)
Noninterest income:
Treasury management and other deposit service charges	$	427	$	277			54.2	%	$	1,097	$	805		36.2	%	$	788	$	528			49.2	%	$	2,399		$	1,357		76.8	%
Loan commitment fees		223		329			(32.0	)%		646		901		(28.3	)%
Net gain (loss) on sale of securities		9		(4	)		(319.8	)%		42		121		(65.0	)%		—		(1	)		(100.0	)%		(108	)		2		(5154.4	)%
Tri-Net fees		367		—			100.0	%		748		—		100.0	%		847		373			126.7	%		2,511			1,227		104.7	%
Mortgage banking income		2,030		2,339			(13.2	)%		4,617		5,342		(13.6	)%		2,679		1,634			64.0	%		7,151			4,329		65.2	%
Other noninterest income		316		250			26.2	%		1,021		961		6.2	%		2,474		684			262.2	%		6,602			2,157		206.1	%
Total noninterest income	$	3,372	$	3,191			5.7	%	$	8,171	$	8,130		0.5	%	$	6,788	$	3,218			110.9	%	$	18,555		$	9,072		104.5	%

The increase in treasury management and other deposit service charges for the three and nine months ended September 30, ~~2017~~2019 compared to the same periods in ~~2016 are~~2018 was driven primarily ~~related~~by our acquisition of Athens and by transaction volume, which can fluctuate from period to ~~increased analysis fees due to an increase~~period. Growth in the volume of our commercial ~~accounts.~~

~~Loan commitment fees vary from period~~and consumer deposit accounts was the primary contributor to ~~period based on~~ the ~~timing of one-time, transaction related loan fees.~~increase.

Tri-Net fees ~~represent a new line of business, implemented in the fourth quarter of 2016, which originates~~are generated from originating and ~~sells~~selling commercial real estate loans to third-party investors. All of these loan sales transfer servicing rights to the buyer. The volume of loan sales fluctuates from period to period based on various factors, including, but not limited to, market conditions and our need for liquidity.

Mortgage banking income consists of mortgage fee income from the origination and sale of mortgage loans. These mortgage fees are for loans that we originated ~~and~~in our markets that are subsequently sold to third-party investors. ~~All of these loan sales transfer servicing rights to the buyer.~~ Mortgage origination fees will fluctuate from quarter to quarter as the interest rate environment changes. ~~Mortgage~~During the second quarter of 2019 we implemented a hedging program for residential mortgage loans originated with the intent to sell. In connection with this program, we elected the fair value option for this portfolio resulting in additional gains (losses) of $(0.2) million and $0.7 million included in mortgage banking income ~~decreased 13.2% and 13.6%~~ for the three and nine months ended September 30, ~~2017, respectively, compared~~2019, respectively.

Other noninterest income primarily consists of loan related fees, interchange income and wealth management income. The increase from 2018 to ~~the similar periods in 2016~~2019 was primarily due to ~~declining volumes~~organic growth and ~~margins on mortgage loans sold.~~our acquisition of Athens.

Our total noninterest expense increase reflects expenses that we have incurred as we build the foundation to support our recent growth and enable us to execute our growth strategy. The following table presents the primary components of noninterest expense for the periods indicated.

					2017-2016							2017-2016							2019 - 2018							2019 - 2018
	Three Months Ended				Percent			Nine Months Ended				Percent			Three Months Ended				Percent			Nine Months Ended				Percent
	September 30,				Increase			September 30,				Increase			September 30,				Increase			September 30,				Increase
	2017		2016		(Decrease)			2017		2016		(Decrease)			2019		2018		(Decrease)			2019		2018		(Decrease)
Noninterest expense:
Salaries and employee benefits	$	5,119	$	5,119		(0.0	)%	$	14,989	$	15,275		(1.9	)%	$	9,229	$	6,514		41.7	%	$	26,224	$	19,111		37.2	%
Data processing and software		709		627		13.0	%		2,040		1,831		11.4	%		1,790		803		122.8	%		5,126		2,411		112.6	%
Professional fees		336		391		(14.1	)%		1,050		1,148		(8.5	)%		528		255		106.5	%		1,571		1,074		46.3	%
Occupancy		531		352		51.0	%		1,518		1,133		34.0	%		858		544		57.7	%		2,550		1,600		59.4	%
Equipment		564		458		23.1	%		1,604		1,301		23.3	%		1,012		520		94.6	%		2,890		1,661		73.9	%
Regulatory fees		270		250		7.6	%		877		742		18.2	%		18		228		(92.2	)%		564		664		(15.1	)%
Merger related expenses																187		540		(65.5	)%		2,491		875		184.8	%
Amortization of intangibles																408		3		12359.8	%		1,258		23		5382.7	%
Other operating		946		1,330		(28.8	)%		2,988		3,057		(2.3	)%		1,501		663		127.2	%		4,054		2,236		81.4	%
Total noninterest expense	$	8,475	$	8,527		(0.6	)%	$	25,066	$	24,487		2.4	%	$	15,531	$	10,070		54.2	%	$	46,728	$	29,655		57.6	%

The largest increase between periods within noninterest expense was related to a new lease of our corporate headquarters which we moved into in the first quarter of 2017. This new lease resulted in an increase in occupancy expense of 51.0%Salaries and ~~34.0%~~employee benefits increased 41.7% and 37.2%, respectively, for the three and nine months ended September 30, ~~2017, respectively, compared to the same periods in 2016.~~

~~Salaries and employee benefits was flat and declined 1.9% for the three and nine months ended September 30, 2017, respectively,~~2019 compared to the similar periods in ~~2016~~2018. The increase is primarily ~~due~~related to ~~reduced incentive compensation for~~ the ~~2017 periods.~~addition of personnel associated with our acquisition of Athens and continued expansion in the Nashville MSA. The number of full-time employees increased from 175 at January 1, 2018 to 290 at September 30, 2019.

Data processing and software expense increased during the periods presented due to an increase in the volume of transactions from organic growth and ~~implementation of new software in our mortgage banking line of business.~~

~~Professional fees expense decreased during the periods presented primarily due to fees~~costs associated with ~~going public in 2016 and~~running dual systems related to our ~~change in external audit firms for 2017.~~acquisition of Athens. The Athens related systems conversion occurred during April 2019.

The ~~increases~~increase in occupancy expense and equipment expense for each ~~period~~of the periods presented is due to our acquisition of Athens and relocating our Brentwood branch location at the beginning of 2019.

Merger related expenses are the result of our acquisition with Athens. Amortization of intangibles increased from 2018 to 2019 due to the ~~increasing cost of managing our IT network.~~

~~Regulatory fees expense increased primarily due to changes in the FDIC’s assessment methodology.~~

Other operating expenses for the third quarter of 2017 decreased 28.8% from the similar 2016 period primarily due to decreased contingent consideration expenses associated with our mortgage line of business. As mortgage origination volumes differ from our original estimates the resulting difference in contingent consideration isnew core deposit intangible recorded in ~~other noninterest expense. For~~connection with the nine months ended September 30, 2017 compared to the similar period in 2016, the lower contingent consideration expense was offset by increased expenses related to one non-performing borrower, resulting in a 2.3% decrease of other operating expenses.Athens acquisition.

Our efficiency ratio (ratio of noninterest expense to the sum of net interest income and noninterest income) was ~~59.6%~~64.9% for the three months ended September 30, ~~2017~~2019 compared to ~~64.0%~~68.2% for the same period ~~2016.~~2018. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, our efficiency ratio was ~~63.4%~~67.0% and ~~67.2%~~68.9%, respectively. The efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue. ~~The efficiency ratio for both periods was positively impacted by growth in our net interest income that outpaced increases in our expenses.~~ For the nine months ended September 30, ~~2017,~~2019, our revenue base (net interest income plus noninterest income) grew at a rate of approximately ~~3.6~~1.1 times our noninterest expense.

During the three and nine months ended September 30, ~~2017,~~2019, we recorded income tax expense of ~~$1.5~~$2.1 million and ~~$0.1~~$5.2 million, respectively, compared to ~~$1.0~~$0.6 million and ~~$3.0~~$1.7 million, respectively, for the three and nine months ended September 30, ~~2016.~~2018. Our income tax expense for the nine months ended September 30, ~~2017~~2019 reflects an effective income tax rate of ~~9.1%~~23.5% compared to ~~32.7%~~14.1% for the same period in ~~2016.~~2018. Our effective tax rate differs from the statutory tax rate by our investments in municipal securities, company owned life insurance, state tax credits, ~~net of the effect of~~ certain non-deductible expenses, and the recognition of excess tax benefits related to stock compensation.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions, including income tax consequences. In addition to other changes, the guidance changes the accounting for excess tax benefits and tax deficiencies from generally being recognized in additional paid-in capital to recognition as income tax expense or benefit in the period they occur. ~~The Company adopted the new guidance in the first quarter of 2017.~~ As a result, the Company’s income tax expense was ~~reduced~~decreased by ~~$310,000~~$23,000 and $54,000 for the three and nine months ended September 30, ~~2017.~~2019, respectively, and decreased by $422,000 and $1,062,000 for the three and nine months ended September 30, 2018, respectively.

Total assets increased ~~$4.9~~$70.0 million, or ~~0.4%~~3.6%, from ~~$1.33~~$1.96 billion on December 31, ~~2016~~2018 to ~~$1.34~~$2.03 billion on September 30, ~~2017.~~2019. Loans ~~and leases grew $39.3~~decreased $18.0 million, or ~~4.2%~~1.3%, induring the ~~first~~ nine months ~~of 2017,~~ended September 30, 2019, cash increased $48.6 million, or 46.1%, offset by a decrease in ~~cash~~securities of ~~$10.3~~$40.7 million, or ~~12.9%~~16.5% for the same period. ~~Securities decreased $35.8 million, or 19.6% as we sold out of lower yielding securities to fund loan growth.~~ Loans held for sale increased ~~$11.1~~$72.0 million, or ~~26.4%~~125%, during the ~~first~~ nine months ~~of 2017 as we implemented a new line of business related to originating and selling commercial real estate loans.~~ended September 30, 2019.

Total liabilities ~~were $1.19~~increased $56.3 million, or 3.3%, from $1.71 billion on December 31, ~~2016 and~~2018 to $1.77 billion on September 30, ~~2017.~~2019. Deposits ~~decreased $37.2~~increased $161.8 million, or ~~3.3%, due primarily~~10.3% over the same period of time. We utilized this growth in deposits to ~~decreases in our correspondent banking deposits. We increased~~decrease our Federal Home Loan Bank advances ~~$40.0~~$115.0 million during the ~~first~~ nine months of 2017 to help fund our loan growth and declining deposits. Other liabilities decreased $3.0 million, or 28.3%, largely due to the scheduled payout of incentives and the earn-out related contingent liability.ended September 30, 2019.

The composition of loans and leases at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 and the percentage of each classification to total loans are summarized as follows:

At September 30, ~~2017,~~2019, our loan portfolio composition remained relatively consistent with the composition at December 31, ~~2016.~~2018. The commercial real estate category ~~includes~~contains owner-occupied ~~commercial real estate~~ loans which isare similar in many ways to our commercial and industrial lending in that these loans are generally made to businesses on the basis of the cash flows of the business rather than on the valuation of the real estate. AtAs of September 30, ~~2017, approximately 28.1% of the outstanding principal balance of our~~2019 and December 31, 2018, owner-occupied commercial real estate loans ~~was secured by owner-occupied properties. Growth in the commercial real estate segment reflects the growth~~were $169.4 million and ~~development of the Nashville MSA in which we operate.~~$141.9 million, respectively.

Information summarizing non-performing assets, including non-accrual loans follows:

Liquidity risk is the risk that we will be unable to meet our obligations as they become due because of an inability to liquidate assets or obtain adequate funding. To manage liquidity risk, management has established a comprehensive management process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business activities of the Bank; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the institution’s liquidity risk management process.

The role of liquidity management is to ensure funds are available to meet depositors’ withdrawal and borrowers’ credit demands while at the same time ~~optimizing~~maximizing financial ~~results within our corporate guidelines.~~results. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity is provided by short-term liquid assets that can be converted to cash, investment securities available-for-sale, various lines of credit available to us, and the ability to attract funds from external sources, principally deposits.

Our most liquid assets are comprised of cash and due from banks, available-for-sale marketable investment securities and federal funds sold. The fair value of the available-for-sale investment portfolio was ~~$146.6~~$203.5 million at September 30, ~~2017.~~2019. We pledge portions of our investment securities portfolio to secure public fund deposits, derivative positions and Federal Home Loan Bank (“FHLB”) advances. At September 30, ~~2017,~~2019, total investment securities pledged for these purposes comprised ~~65%~~39% of the estimated fair value of the entire investment portfolio, leaving ~~$68.5~~$126.3 million of unpledged securities.

We have a large base of non-maturity customer deposits, defined as demand, savings, and money market deposit accounts. At September 30, ~~2017,~~2019, such deposits totaled ~~$892.2 million~~$1.4 billion and represented 82% of our total deposits. ~~Because these deposits are less volatile and are often tied to other products through long lasting relationships they do not put heavy pressure on liquidity.~~

Other sources of funds available to meet daily needs include FHLB advances. As a member of the FHLB of Cincinnati, the Company has access to credit products offered by the FHLB. The Company views these borrowings as a low cost alternative to other time deposits. At September 30, ~~2017,~~2019, available credit from the FHLB totaled ~~$108.0~~$212.4 million. Additionally, we had available federal funds purchased lines with correspondent banks totaling $110.0 million at September 30, ~~2017.~~2019.

The principal source of cash for CapStar Financial Holdings, Inc. (the “Parent Company”) is dividends paid to it as the sole shareholder of the Bank. At September 30, ~~2017,~~2019, the Bank was able to pay up to ~~$19.2~~$33.4 million in dividends to the Parent Company without regulatory approval subject to the ongoing capital requirements of the Bank.

Accordingly, management believes that our funding sources are at sufficient levels to satisfy our expected short-term and long-term liquidity needs.

At September 30, ~~2017,~~2019, shareholders’ equity totaled ~~$144.2~~$268.1 million, an increase of ~~$5.0~~$13.7 million since December 31, ~~2016.~~2018. Accordingly, as of September 30, ~~2017,~~2019, the Company and the Bank were well-capitalized under the regulatory framework for prompt corrective action. During the third quarter of 2019, we converted all of our outstanding preferred stock and non-voting common stock to voting common stock in connection with the successful exit of our founding shareholder and largest investor, Corsair Capital. See the Consolidated Statement of Changes in Shareholders’ Equity ~~and Note 10 of the consolidated financial statements~~ for further detail of the changes in equity since the end of ~~2016.~~2018.

In the normal course of business, we enter into various transactions that, in accordance with GAAP, are not included in our consolidated balance sheet. We enter into these transactions to meet the financing needs of our clients. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets. Most of these commitments mature within two years and are expected to expire without being drawn upon. Standby letters of credit are included in the determination of the amount of risk-based capital that the Company and the Bank are required to hold.

We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon clients maintaining specific credit standards until the time of loan funding.

Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a client to a third party. In the event that the client does not perform in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the client. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

We minimize our exposure to loss under loan commitments and standby letters of credit by subjecting them to the same credit approval and monitoring procedures as we do for on-balance sheet instruments. We assess the credit risk associated with certain commitments to extend credit and establish a liability for probable credit losses. The effect on our revenue, expenses, cash flows and liquidity of the unused portions of these commitments cannot be reasonably predicted because there is no guarantee that the lines of credit will be used.

Our off-balance sheet arrangements are summarized in Note 78 of the consolidated financial statements.

This Report includes the following financial measures that have been prepared other than in accordance with generally accepted accounting principles in the United States (“non-GAAP financial measures”): tangible common equity, tangible common equity to total tangible assets and tangible common equity per share. The Company believes that these non-GAAP financial measures (i) provide useful information to management and investors that is supplementary to its financial condition, results of operations and cash flows computed in accordance with GAAP, (ii) enable a more complete understanding of factors and trends affecting the Company’s business, and (iii) allow investors to evaluate the Company’s performance in a manner similar to management, the financial services industry, bank stock analysts and bank regulators; however, the Company acknowledges that its non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.

The following table presents a reconciliation of tangible common equity, tangible common equity to total tangible assets and tangible common equity per share to the most directly comparable GAAP financial measures.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance. The ASU was originally effective for fiscal years and interim periods beginning after December 15, 2016. In August 2015, FASB issued ASU 2015-14 which delays the effective date. The effective date will be annual reporting periods beginning after December 15, 2017, and the interim periods within that year. The Company is evaluating the potential impact of adoption of ASU 2014-09.

In February 2016, the FASB ~~issued guidance in~~amended the form of a FASB ASU, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginningtopic of the ~~earliest comparative period presented in the financial statements, with~~Accounting Standards Codification to revise certain ~~optional practical expedients available.~~aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The ~~new standard is~~amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.

The Company ~~is evaluating~~adopted the ~~impact of~~guidance using the ~~pending adoption of~~modified retrospective method and practical expedients for transition. The practical expedients allow the Company to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. The Company evaluated the new ~~standard~~guidance and its impact on the Company’s financial ~~statements~~statements. Based on leases outstanding at December 31, 2018, the impact of adoption on January 1, 2019 was recording a lease liability of approximately $13.4 million, a right-of-use asset of approximately $12.8 million, and ~~disclosures.~~elimination of deferred rent of approximately $0.6 million. The leasing liability and right-of-use asset are recorded in other liabilities and other assets, respectively.

In June 2016, the FASB issued ~~ASU No. 2016-13, Financial Instruments-Credit Losses, which outlines changes~~guidance to ~~replace~~change the ~~incurred loss impairment methodology currently in place with a methodology that reflects expected~~accounting for credit losses and ~~requires consideration of a broader range of reasonable and supportable information~~modify the impairment model for certain debt securities. The amendments were originally supposed to ~~estimate credit losses. The ASU is~~be effective for ~~fiscal years and interim~~the Company for reporting periods beginning after December 15, ~~2019.~~2019 with early adoption permitted for all organizations for periods beginning after December 15, 2018. However, on July 17, 2019, the FASB issued a proposal draft to extend the implementation date for certain smaller reporting companies to include SEC registrants classified as a Smaller Reporting Company. On October 16, 2019, the FASB voted to delay the implementation date for SEC registrants classified as a Smaller Reporting Company to fiscal years beginning after December 15, 2022. The ~~adoption of~~FASB has directed its staff to draft an ASU ~~2016-13~~that will change the implementation dates, which should be issued following a formal written ballot by the FASB, which is expected to ~~have a significant impact on~~take place in November 2019. Once issued, the ~~Bank’s operations and financial statements.~~Company will delay implementation of the new standard until 2023.

In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019.

In May 2017, the FASB amended the requirements in the Compensation—Stock Compensation Topic of the Accounting Standards Codification related to changes to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU ~~2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities~~2018-07, Compensation – Stock Compensation

In ~~August 2017,~~June 2018, the FASB amended the ~~requirements of the Derivatives and Hedging~~Compensation—Stock Compensation Topic of the Accounting Standards ~~Codification to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements.~~Codification. The amendments ~~will be~~expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments are effective for ~~the Company for interim and annual periods~~years beginning after December 15, ~~2018.~~2018, including interim periods within that year. Early adoption is ~~permitted. The Company does~~permitted, but no earlier than an entity’s adoption date of Topic 606. These amendments did not ~~expect these amendments to~~ have a material effect on ~~its~~the Company’s financial statements.

The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with U.S. GAAP and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation.

Information required by this item is included in ~~Item 2, “Management’s~~“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Interest Rate Simulation Sensitivity ~~Analysis.”~~Analysis” of this Report.

The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the Company’s filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

From time to time, the Company is party to legal actions that are routine and incidental to its business. Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to the Company’s business, including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws, the Company, like all banking organizations, is subject to heightened legal and regulatory compliance and litigation risk. ~~There are currently no~~However, based upon available information and in consultation with legal counsel, management does not expect the ultimate disposition of any or a combination of these actions to have a material ~~pending legal proceedings~~adverse effect on the Company’s assets, business, cash flow, condition (financial or otherwise), liquidity, prospects and\or results of operations.

On October 31, 2017, CapStar filed a complaint, captioned CapStar Financial Holdings, Inc. v. Gaylon M. Lawrence & The Lawrence Group, Case No. 3:17-cv-01421, in the U.S. District Court for the Middle District of Tennessee, in connection with Mr. Lawrence and The Lawrence Group's acquisition of CapStar stock. The complaint alleges that defendants violated Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") by filing materially false and misleading Schedules 13D regarding defendants' acquisition of a minority stake (1,156,675 shares) of CapStar stock. It also alleged that defendants violated the Change in Bank Control Act, 12 U.S.C. § 1817(j) (the "CBCA"), by attempting to acquire control of CapStar without first receiving approval from the Federal Reserve, and also that defendants violated Tennessee Code Section 45-2-107 by controlling banks without having registered as a bank holding company.

By order dated December 18, 2017, the court granted CapStar's motion for expedited discovery, which is presently underway. Defendants have filed a motion to dismiss the action as well as a separate motion to stay. The motion to stay was denied by the court on May 21, 2018. On September 24, 2018, the court denied in part and granted in part defendants' motion to dismiss, permitting CapStar's claims that defendants violated Tennessee Code Section 45-2-107 under Section 13(d) of the Exchange Act to proceed.

Mr. Lawrence has also filed an Interagency Notice of Change in Control pursuant to the CBCA with the Federal Reserve on October 30, 2017, seeking permission to acquire up to 15% of the outstanding voting shares of CapStar's common stock. At the Federal Reserve's direction, on March 13, 2018, Mr. Lawrence requested that the Federal Reserve suspend processing of this notice. On November 6, 2018, the Federal Reserve notified the Company orthat it has determined not to disapprove the ~~Bank is a party or of which any of their property is~~notice, subject to compliance by Mr. Lawrence and his affiliates with extensive representations and commitments set forth in correspondence between Mr. Lawrence and the ~~subject.~~Federal Reserve.

In evaluating an investment in the Company’s securities, investors should consider carefully, among other things, information under the heading “Cautionary Note Regarding Forward-Looking Statements” in this Report as well as those factors that are detailed from time to time in the Company’s periodic and current reports filed with the SEC, including those factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 under the ~~headings~~heading “Item 1A. Risk Factors” ~~and “Cautionary Note Regarding Forward-Looking Statements”~~ and in the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

The following table shows information relating to the repurchase of shares of common stock by the Company during the three months ended September 30, ~~2017.~~2019.

On September 27, 2016, the Company sold 1,688,049 shares of its common stock, including 387,750 shares purchased by the underwriters pursuant to the full exercise of their purchase option, in its initial public offering (“IPO”). In addition, certain selling shareholders participated in the IPO and sold an aggregate of 1,284,701 shares of the Company’s common stock.

The shares were sold at a public offering price of $15.00 per share, resulting in aggregate gross proceeds of approximately $44.6 million. The aggregate offering price for the shares sold by the Company was approximately $25.3 million, and after deducting approximately $1.6 million for the underwriting discount and approximately ~~$1.7~~$2.1 million of offering expenses paid to third parties, the Company received net proceeds of approximately ~~$21.9~~$21.6 million. The aggregate offering price for the shares sold by the selling shareholders was approximately $19.3 million.

All of the shares were sold pursuant to our Registration Statement on Form S-1, as amended (File No. 333-213367), which was declared effective by the SEC on September 21, 2016. The offering did not terminate until all of the shares offered were sold. The Company made no payments to its directors, officers or persons owning ten percent or more of its common stock or to their associates, or to its affiliates in connection with the issuance and sale of the common ~~stock.~~stock or in connection with the use of IPO proceeds. Keefe, Bruyette & Woods, Inc. and Sandler O’Neill & Partners, L.P. acted as lead book-running managers for the ~~IPO.~~initial public offering. Our common stock is currently trading on the NASDAQ Global Select Market under the symbol “CSTR.”

There has been no material change in the planned use of proceeds from our IPO as described in our prospectus filed with the SEC on September 23, 2016 pursuant to Rule 424(b)(4) under the Securities Act. Pending application of the IPO proceeds, we have investedthe net proceeds in short-term investments. During 2017, the Company provided $10.0 million of the IPO proceeds as a capital contribution to the Bank for working capital purposes.

On September 12, 2019, the Company was advised by the funds managed by Corsair Investments, L.P. (“Corsair”) that Corsair entered into arrangements to fully exit its position in the Company through the sale of all of its remaining shares of Company common stock.

On October 24, 2019, the board of directors of the Company (the “Board”) approved an amendment and restatement of the Company’s bylaws (the “Bylaws” and as further amended and restated, the “Amended and Restated Bylaws”). The Amended and Restated Bylaws clarified and implemented additional disclosure requirements for shareholder nominees of individuals for election to the Board. The amendments include the following changes, among others:

This description of the Amended and Restated Bylaws is qualified in its entirety by reference to the text of the Amended and Restated Bylaws.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Tennessee	81-1527911
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1201 Demonbreun Street, Suite 700 Nashville, Tennessee (Address of principal executive ~~office)~~offices)	37203 (~~zip code)~~Zip Code)

Large Accelerated Filer	☐		Accelerated Filer	☐☒
Non-Accelerated Filer	☒☐	~~(Do not check if a smaller reporting company)~~	Smaller Reporting Company	☐☒
			Emerging Growth Company	☒

Item		Page

PART I – FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	5

	Consolidated Balance Sheets as of September 30, ~~2017~~2019 (Unaudited) and December 31, ~~2016~~2018	5

	Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	6

	Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	7

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	8

	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	9 10

	Notes to Consolidated Financial Statements (Unaudited)	1011

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3032

Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	4243

Item 4.	Controls and Procedures	4244

PART II – OTHER INFORMATION		4345

Item 1.	Legal Proceedings	4345

Item 1A.	Risk Factors	4345

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4346

Item 5.	Other Information	47

Item 6.	Exhibits	4447

SIGNATURES		4549

	September 30, 2019
Lease payments due:
2019 (excluding the nine months ended September 30, 2019)	$	382
2020		1,539
2021		1,567
2022		1,453
2023		1,402
2024 and thereafter		8,820
Total undiscounted cash flows		15,163
Discount on cash flows		(2,545	)
Total lease liability	$	12,618

	Contract or notional amount				Contract or notional amount
	September 30, 2017		December 31, 2016		September 30, 2019		December 31, 2018
Financial instruments whose contract amounts represent credit risk:
Unused commitments to extend credit	$	575,558	$	508,990	$	707,228	$	707,675
Standby letters of credit		11,535		10,886		10,415		12,273
Total	$	587,093	$	519,876	$	717,643	$	719,948

	Shares outstanding as of October 31, 2019
Common Stock, par value $1.00 per share	18,357,921

	Preferred			Common Stock				Additional paid-in			Retained		Accumulated other comprehensive			Total shareholders’
	stock			Shares		Amount		capital			earnings		loss			equity
Balance December 31, 2015	$	1,610			8,577,051	$	8,577	$	95,277		$	8,036	$	(4,914	)	$	108,586
Issuance of restricted common stock, net of forfeitures and withholdings to satisfy employee tax obligations		—			106,548		107		(123	)		—		—			(16	)
Stock-based compensation expense		—			—		—		643			—		—			643
Excess tax benefit from stock compensation		—			—		—		29			—		—			29
Issuance of common stock		—			1,688,049		1,688		20,240			—		—			21,928
Conversion of preferred stock		(732	)		731,707		732		—			—		—			—
Exercise of common stock warrants		—			87,666		88		77			—		—			165
Net income		—			—		—		—			6,169		—			6,169
Other comprehensive income		—			—		—		—			—		923			923
Balance September 30, 2016	$	878			11,191,021	$	11,192	$	116,143		$	14,205	$	(3,991	)	$	138,427

Balance December 31, 2016	$	878			11,204,515	$	11,205	$	116,143		$	17,132	$	(6,151	)	$	139,207
Issuance of restricted common stock, net of forfeitures and withholdings to satisfy employee tax obligations		—			21,480		21		(285	)		—		—			(264	)
Stock-based compensation expense		—			—		—		771			—		—			771
Exercise of employee common stock options, net of withholdings to satisfy employee tax obligations		—			71,517		72		572			—		—			644
Exercise of common stock warrants		—			48,986		49		416			—		—			465
Net income		—			—		—		—			1,409		—			1,409
Other comprehensive income		—			—		—		—			—		1,972			1,972
Balance September 30, 2017	$	878			11,346,498	$	11,347	$	117,617		$	18,541	$	(4,179	)	$	144,204

	Fair Value		Aggregate Unpaid Principal Balance		Difference
September 30, 2019
Residential mortgage loans held for sale	$	45,988	$	45,296	$	692

	Available-for-sale				Held-to-maturity				Available-for-sale				Held-to-maturity
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value		Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Due in less than one year									$	7,881	$	7,963	$	881	$	884
Due one to five years	$	11,388	$	11,511	$	27,299	$	29,448		28,994		29,698		2,438		2,528
Due five to ten years		17,970		17,788		14,069		15,129		31,353		32,721		—		—
Due beyond ten years		1,107		1,067		430		489		195		194		—		—
Mortgage-backed securities		96,975		95,823		3,837		3,914		128,332		129,691		—		—
Asset-backed securities		20,668		20,411		—		—		3,369		3,233		—		—
	$	148,108	$	146,600	$	45,635	$	48,980
Total									$	200,124	$	203,500	$	3,319	$	3,412

	September 30, 2019					December 31, 2018
	Notional		Estimated			Notional		Estimated
	amount		fair value			amount		fair value
Included in other assets:
Mortgage loan interest rate lock commitments	$	67,565	$	807		$	—	$	—
Included in other liabilities:
Mortgage-backed securities forward sales commitments	$	53,500	$	(83	)	$	—	$	—

				Weighted					Weighted
				Average					Average
	Restricted			Grant Date		Restricted			Grant Date
Nonvested Shares	Shares			Fair Value		Shares			Fair Value
Nonvested at beginning of period		199,641		$	12.34		157,616		$	17.00
Granted		37,233			18.05		31,683			15.86
Vested		(58,921	)		12.24		(64,178	)		15.17
Forfeited		(3,600	)		13.57		(16,635	)		17.87
Nonvested at end of period		174,353		$	13.56		108,486		$	17.62

	2019
Dividend yield		1.35	%
Expected term (in years)		6.50
Expected stock price volatility		29.55	%
Risk-free interest rate		2.25	%

	Mortgage Loan Interest Rate
	Lock Commitments
	2019		2018

Balance of recurring Level 3 assets at January 1st	$	—	$	—
Total gains or losses for the period:
Included in mortgage banking income		807		—
Balance of recurring Level 3 assets at September 30th	$	807	$	—

					Range
	Fair		Valuation		(Weighted-
September 30, 2019	Value		Technique(s)	Unobservable Input(s)	Average)
Assets:
Non-hedging derivatives:
Mortgage loan interest rate lock commitments	$	807	Consensus pricing	Origination pull-through rate	69% - 98% (85%)

	Net interest income change
Increase 200bp	~~6.2%~~	3.3	%
Increase 100bp	~~2.7~~	1.8
Decrease 100bp	~~(8.8)~~	(3.5	)
Decrease 200bp	~~(13.8)~~	(9.5	)

(Dollars in thousands)	September 30, 2017			December 31, 2016
							September 30, 2019			December 31, 2018
Non-accrual loans	$	3,165		$	3,619		$	1,701		$	2,078
Troubled debt restructurings		1,222			1,272			2,725			1,391
Loans past due 90 days or more and still accruing		27			—
Loans past due over 89 days and still accruing								551			214

Non-performing loans		3,165			3,619			1,701			2,078
Foreclosed real estate		—			—
Other real estate owned								914			988
Non-performing assets	$	3,165		$	3,619		$	2,615		$	3,066
Non-performing loans as a percentage of total loans		0.32	%		0.39	%		0.12	%		0.15	%
Non-performing assets as a percentage of total assets		0.24	%		0.27	%		0.13	%		0.16	%

(dollars in thousands, except per share data)	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018
Total equity	$	144,204		$	139,207		$	268,082		$	254,379
Less core deposit intangible		(33	)		(71	)		(7,280	)		(8,538	)
Less goodwill		(6,219	)		(6,219	)		(37,510	)		(37,510	)
Less preferred equity		(9,000	)		(9,000	)
Less preferred stock								—			(878	)
Less preferred stock additional paid-in capital								—			(8,122	)
Tangible common equity	$	128,952		$	123,917		$	223,292		$	199,331

Total assets	$	1,338,559		$	1,333,675		$	2,033,911		$	1,963,883
Less core deposit intangible		(33	)		(71	)		(7,280	)		(8,538	)
Less goodwill		(6,219	)		(6,219	)		(37,510	)		(37,510	)
Total tangible assets	$	1,332,307		$	1,327,385		$	1,989,121		$	1,917,835

Total shareholders' equity to total assets		10.77	%		10.44	%		13.18	%		12.95	%
Tangible common equity ratio		9.68	%		9.34	%		11.23	%		10.39	%
Total shares of common stock outstanding		11,346,498			11,204,515			18,343,403			17,724,721
Book value per share of common stock	$	11.92		$	11.62		$	14.61		$	13.84
Tangible book value per share of common stock		11.36			11.06			12.17			11.25

	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plan		Maximum number of shares that may yet be purchased under the plan		Total number of shares purchased (1)			Average price paid per share		Total number of shares purchased as part of publicly announced plan (2)		Maximum number (or approximate dollar value) of shares that may yet be purchased under the plan
July 1 - July 31		1,236	$	18.15		—		—		—		$	—		—	$2.15 million
August 1 - August 31		543		17.17		—		—		1,305	(3)		15.97		—	$2.15 million
September 1 - September 30		1,428		17.32		—		—		130,615	(3)		15.41		129,786	$9.00 million
Total		3,207	$	17.61		—		—		131,920	(3)	$	15.42		129,786	$9.00 million

Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated as of June 11, 2018, by and between CapStar Financial Holdings, Inc. and Athens Bancshares Corporation (incorporated by reference herein to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 14, 2018)

Exhibit Number3.1		~~Description~~Charter of CapStar Financial Holdings, Inc. (incorporated by reference herein to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File Number 333-213367) filed on August 29, 2016)

3.2		Amended and Restated Bylaws of CapStar Financial Holdings, Inc. (incorporated by reference herein to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 28, 2019)

4.1		Form of Common Stock Certificate (incorporated by reference herein to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File Number 333-213367) filed on September 20, 2016)

4.2		Second Amended and Restated Shareholders’ Agreement, dated as of August 22, 2016, among CapStar Financial Holdings, Inc., CapStar Bank, Corsair III Financial Services Capital Partners, L.P., Corsair III Financial Services Offshore 892 Partners, L.P., North Dakota Investors, LLC and certain other persons named therein (incorporated by reference herein to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (File Number 333-213367) filed on August 29, 2016)

10.1		Securities Purchase Agreement, dated as of September 9, 2019, by and among Corsair, CapStar Financial Holdings, Inc. and those directors and officers of CapStar Financial Holdings, Inc. identified on Schedule I thereto (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 9, 2019)

31.1		Certification of Chief Executive Officer of CapStar Financial Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.*

31.2		Certification of Chief Financial Officer of CapStar Financial Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.*

32.1		Certification of Chief Executive Officer of CapStar Financial Holdings, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.**

32.2		Certification of Chief Financial Officer of CapStar Financial Holdings, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.**

101.INS		XBRL Instance Document.*

101.SCH		XBRL Taxonomy Extension Schema Document.*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

101.DEF		XBRL Taxonomy Extension Definition Document.*

		CAPSTAR FINANCIAL HOLDINGS, INC.
By:		/s/ Robert B. Anderson
		Robert B. Anderson
		Chief Financial Officer and Chief Administrative Officer
		(Duly Authorized Officer and Principal Financial Officer)
~~Date:~~		~~October 18, 2017~~