CBNK - Capital Bancorp Reports Record Third Quarter 2019 Earnings

ROCKVILLE, Md., Oct. 22, 2019 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $4.5 million, or $0.32 per diluted share, for the third quarter of 2019. By comparison, net income was $3.1 million, or $0.26 per diluted share, for the third quarter of 2018.  Return on average assets was 1.42% and return on average equity was 14.04% for the third quarter of 2019.

"The third quarter saw continued robust growth in commercial loans and deposits.  Despite fierce competition and a declining rate environment, our margin remained stable, which is a testament to our solutions-driven approach, sales discipline and quality hirings.  The mortgage and credit card businesses continue to experience higher than anticipated growth and profits to complement and enhance the commercial franchise," said Ed Barry, CEO of Capital Bancorp.

2019 Third Quarter Highlights

• Record Net Income - Net income for the third quarter of 2019 increased 11% to $4.5 million compared to $4.0 million for the second quarter of 2019. Diluted earnings per share for the three months ended September 30, 2019 was $0.32, compared to $0.29 per share for the three months ended June 30, 2019.  Return on average assets was 1.42%, an increase of 3 basis points compared to the second quarter of 2019.  Return on average equity for the third quarter of 2019 was 14.04%, compared to 13.23% for the previous quarter.
  

• Robust Loan Growth - For the quarter ended September 30, 2019, total loans increased $84.0 million, or 8%, to $1.14 billion compared to $1.06 billion at June 30, 2019.  Loans increased year over year with growth of $184.9 million, or 19%, from $955.4 million at September 30, 2018.  Average loan balances have increased 15% year over year, with the largest growth from residential real estate and commercial loans.

• Strong Core Deposit Growth and Improving Deposit Profile - The Company continues to execute on its strategic initiative to improve the deposit portfolio mix away from wholesale time deposits.  Accordingly, at September 30, 2019, noninterest bearing deposits increased by $13.9 million, or 20% annualized, compared to June 30, 2019.  The growth was partially driven by a 5% increase in OpenSky^® deposits of $4.0 million for the three months ended September 30, 2019.  Noninterest bearing deposits increased 25% to $293.4 million at September 30, 2019, compared to $234.1 million at September 30, 2018. The cost of interest bearing deposits declined 1 basis point to 1.83% compared to the second quarter of 2019, and the cost of borrowed funds decreased 39 basis points to 3.19% due to in part to two market rate decreases in the third quarter.

• Stable Net Interest Margin - The net interest margin improved 4 basis points to 5.83% for the third quarter of 2019 compared to the prior quarter, and increased 27 basis points from 5.56% in the same quarter of the previous year. The quarter over quarter increase this year was primarily due to an increase in loan yield.  Excluding credit card loans, the net interest margin remained flat for the three months ended September 30, 2019 at 4.37% compared to the prior quarter, and increased from 4.26% in the same quarter of 2018.

• Credit Card Issuances Continue at a Record Pace - OpenSky^® credit card issuances continue at higher levels with new originations for the quarter totaling 31,400, compared to 36,700 in the prior quarter due to seasonal factors.  New originations increased 11,700, or 59%, from 19,700 in the third quarter of 2018.  Our enhanced customer application and improved mobile servicing functionality contributed to an increase in customer accounts of approximately 52,000, or 30%, from September 30, 2018, and exceeded 220,000 at September 30, 2019.

• Profitable Mortgage Business - The Bank's residential mortgage banking division increased the number of loans originated by 40% compared to the previous quarter, and continued to contribute to the Company's results of operations for the quarter with higher gains on sales.  The decline in gain-on-sale margin during the third quarter is attributable to the large increase in price sensitive refinance activity driven by the lower rate environment.

• Sound Asset Quality - Non-performing assets as a percentage of total assets decreased to 0.51% at September 30, 2019, compared to 0.57% at June 30, 2019, and increased 9 basis points from 0.42% at September 30, 2018.  The quarterly decrease is due to a reduction of non-performing loans of approximately $302 thousand. The increase from the previous year is attributable to a single borrower relationship totaling $2.1 million that is well secured, on which no impairment is expected.  As such, there have been no losses related to this increase in non-performing assets.  Net charge-offs for the nine months ended September 30, 2019 were $369 thousand, a decrease from $781 thousand for the same period last year.

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⁽¹⁾ Loans are reflected net of deferred fees and costs.

Operating Results - three months ended September 30, 2019 compared to three months ended September 30, 2018

Net interest income increased $3.7 million, or 25%, to $18.2 million for the three months ended September 30, 2019 compared to the same period in 2018.  Net interest margin increased 27 basis points to 5.83% for the three months ended September 30, 2019 from 5.56% for the three months ended September 30, 2018. For the three months ended September 30, 2019, our average interest-earning assets increased by $202.3 million, or 20%, compared to the three months ended September 30, 2018, and the average yield on our interest-earning assets increased by 48 basis points. In comparison, our average interest-bearing liabilities increased $117.0 million, or 16%, from the third quarter of 2018 to the third quarter of 2019, with the respective average rate increasing by 35 basis points.

Strong loan growth during the three months ended September 30, 2019 led to a provision for loan losses of $1.1 million, compared to $495 thousand during the three months ended September 30, 2018.  Net charge-offs for the third quarter of 2019 were $188 thousand, or 0.07% of average loans, annualized.  Net charge-offs for the third quarter of 2018 were $50 thousand, or 0.04% of average loans, annualized.

Noninterest income increased by $3.0 million, or 70% from $4.2 million for the three months ended September 30, 2018 to $7.2 million for the three months ended September 30, 2019, due to increased credit card fees and mortgage banking revenues.

Noninterest expense was $18.2 million and $13.9 million for the three months ended September 30, 2019 and 2018, respectively. The increase in noninterest expense was driven primarily by increases in salaries and benefits, which include commissions paid on mortgage originations, and to a lesser degree by increases in data processing expenses, advertising, and other operating expenses. Other operating expenses were also impacted by a $216 thousand credit to our FDIC assessment expense in the third quarter of 2019 as a result of the FDIC Deposit Insurance Fund exceeding 1.38% of insured deposits at June 30, 2019.

Operating Results - nine months ended September 30, 2019 compared to nine months ended September 30, 2018

Net interest income increased $6.5 million, or 15%, to $49.5 million for the nine months ended September 30, 2019 compared to the same period in 2018.  Net interest margin increased 7 basis points to 5.70% for the nine months ended September 30, 2019 from 5.63% for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, our average interest-earning assets increased by $138.1 million, compared to the nine months ended September 30, 2018, and the average yield on our interest-earning assets increased by 37 basis points. In comparison, our average interest-bearing liabilities increased $63.0 million from the third quarter of 2018 to the third quarter of 2019, with the respective average rate increasing by 50 basis points.

During the nine months ended September 30, 2019, we recorded a provision for loan losses of $1.9 million, compared to $1.6 million during the nine months ended September 30, 2018.  Net charge-offs for the nine months ended September 30, 2019 were $369 thousand, or 0.05% of average loans, annualized.  Net charge-offs for the same period in 2018 were $781 thousand, or 0.11% of average loans, annualized.

Noninterest income increased by $4.6 million, or 36% from $12.7 million for the nine months ended September 30, 2018 to $17.2 million for the nine months ended September 30, 2019, due largely to increased mortgage banking revenue.

Noninterest expense was $48.8 million and $41.0 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in noninterest expense was driven primarily by increases in salaries and benefits, which include commissions paid on mortgage originations, professional fees and other expenses.

Financial Condition

Total assets at September 30, 2019 were $1.3 billion, up 22% as compared to $1.1 billion at September 30, 2018. Gross loans, excluding mortgage loans held for sale, were $1.1 billion as of September 30, 2019, compared to $955.4 million at September 30, 2018, an increase of 19%.  Deposits were $1.1 billion at September 30, 2019, an increase of 22%, as compared to $911.1 million at September 30, 2018.

Our allowance for loan losses was $12.8 million, or 1.12% of loans, at September 30, 2019, which provided approximately 196% coverage of nonperforming loans at such date, compared to $10.9 million, or 1.14% of loans, and approximately 258% coverage of nonperforming loans at September 30, 2018.  Nonperforming assets were $6.7 million, or 0.51% of total assets, as of September 30, 2019. Comparatively, nonperforming assets were $4.5 million, or 0.42% of total assets, at September 30, 2018. Of the $6.7 million in total nonperforming assets as of September 30, 2019, nonperforming loans represented $6.5 million and other real estate owned totaled $149 thousand.  Included in nonperforming loans at September 30, 2019 are troubled debt restructurings of $465 thousand, and one borrower relationship totaling $2.1 million that is well secured, on which no impairment is expected.

Stockholders’ equity totaled $127.8 million as of September 30, 2019, compared to $106.7 million at September 30, 2018. The increase was due to increased earnings and the net underwriter overallotment purchase of $3.4 million in October 2018 following the Company's initial public offering on September 28, 2018.  Shares repurchased and retired for the third quarter of 2019 as part of the Company's stock repurchase program totaled 21,130 shares at a weighted average price of $12.44, for a total cost of $263 thousand including commissions.  As of September 30, 2019, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

The following table shows the average outstanding balance of each principal category of our assets, liabilities and stockholders’ equity, together with the average yields on our assets and the average costs of our liabilities for the periods indicated.  Such yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.

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⁽¹⁾       Annualized.
⁽²⁾       Includes nonaccrual loans.
⁽³⁾       Interest income includes amortization of deferred loan fees, net of deferred loan costs.
⁽⁴⁾       Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
⁽⁵⁾       Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.

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⁽¹⁾       Annualized.
⁽²⁾       Includes nonaccrual loans.
⁽³⁾       Interest income includes amortization of deferred loan fees, net of deferred loan costs.
⁽⁴⁾       Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
⁽⁵⁾       Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.

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⁽¹⁾         Annualized.
⁽²⁾         Gives effect to a four-for-one common stock split completed effective August 15, 2018.
⁽³⁾         Loans are reflected net of deferred fees and costs.
⁽⁴⁾         Gain on sale percentage is calculated as gain on sale of loans divided by the sum of gain on sale of loans and proceeds from loans held for sale, net of gains.

ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the eighth largest bank headquartered in Maryland. Capital Bancorp has been providing financial services since 1999 and now operates bank branches in five locations in the greater Washington, D.C. and Baltimore, Maryland markets.  Capital Bancorp had assets of approximately $1.3 billion at September 30, 2019 and its common stock is traded in the NASDAQ Global Market under the symbol “CBNK.” More information can be found at the Company's website www.CapitalBankMD.com under its investor relations page.

FORWARD-LOOKING STATEMENTS

This earnings release contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements.  Accordingly, we caution you that any such forward-looking statements are not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors. Such factors include, without limitation, those listed from time to time in reports that the Company files with the Securities and Exchange Commission. These forward-looking statements are made as of the date of this communication, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

FINANCIAL CONTACT: Alan Jackson (240) 283-0402

MEDIA CONTACT: Ed Barry (240) 283-1912

WEB SITE: www.CapitalBankMD.com