CBNK - Capital Bancorp Reports Results for the First Quarter of 2019

ROCKVILLE, Md., April 24, 2019 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $3.3 million, or $0.24 per diluted share, for the first quarter of 2019. By comparison, net income was $3.0 million, or $0.25 per diluted share, for the first quarter of 2018. Return on average assets was 1.22% and return on average equity was 11.39% for the first quarter of 2019.  For the comparable period in 2018, the return on average assets was 1.19% and the return on average equity was 14.86%.

2019 First Quarter Highlights

• Strong Quality Earnings - Net income for the first quarter of 2019 increased 11.0% to $3.3 million compared to $3.0 million for the first quarter of 2018.  Reflecting the increase in shares issued in 2018 for the initial public offering, diluted earnings per share for the three months ended March 31, 2019 was $0.24, compared to $0.25 per share for the three months ended March 31, 2018.  Weighted average common shares outstanding for the diluted earnings per share calculations were $13.9 million and $12.0 million for the three months ended March 31, 2019 and 2018, respectively.
  
  
• Improving Net Interest Margin excluding credit cards - Excluding credit card loans, the net interest margin increased for the three months ended March 31, 2019 to 4.30% from 4.28% in the prior quarter and increased from 4.25% in the same quarter in the prior year.  Overall, the net interest margin remained steady at 5.46% for the first quarter of 2019 compared to the fourth quarter of 2018, declining from the 5.79% posted in the year earlier period.
  
  
• Continued Loan Growth - For the quarter ending March 31, 2019, total loans increased 12.0% to $1.0 billion compared to $900.0 million at March 31, 2018.  The growth was muted in the most recent quarter despite strong new production, and was offset by seasonality and higher than typical loan payoffs and paydowns. During the quarter, management chose to use the opportunity to maintain pricing and credit discipline, allowing several credit relationships to leave the bank in the face underwriting concessions that did not measure up to our high standards.
  
  
• Record Credit Card Issuances - OpenSky^® credit card issuances, which are seasonally higher in the first quarter, exceeded our expectations and set a quarterly high.  During the quarter, new card accounts opened totaled 35 thousand compared to 30 thousand in the year earlier period.  Card balances, which naturally lag new card production seasonally decreased $2.3 million in the first quarter from year end. With our record new accounts opened during the quarter,  active customer accounts increased by approximately 29,000, or 18%, from March 31, 2018 to March 31, 2019, taking advantage of our enhanced customer application and improved mobile servicing functionality.
  
  
• Strong Core Deposit Growth and Deposit Re-mix - The Company continues to execute on it's strategic initiative to improve the deposit portfolio mix from wholesale time deposits to noninterest bearing deposits.  Accordingly, during first quarter of 2019, noninterest bearing deposits increased by $20.0 million, or 33.0% annualized, to $262.2 million compared to $242.3 million at December 31, 2018.  For the three months ended March 31, 2019, average noninterest bearing deposits increased 17.6% to $233.4 million, compared to $198.4 million for the three months ended March 31, 2018.  Total deposits increased 7.9% to $967.7 million at March 31, 2019, compared to $897.2 million at March 31, 2018.
  
  
• Profitable Mortgage Business - Capital Bank Home Loans ("CBHL"), formerly Church Street Mortgage, the Bank's residential mortgage banking division, continued to contribute to the Company's results of operations for the quarter with both higher origination volumes and higher margins from the previous quarter.
  
  
• Strong Asset Quality - Asset quality measures remain sound.  Non-performing assets as a percentage of total assets increased to 0.63% at March 31, 2019, compared to 0.39% at March 31, 2018.  The increase 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 the increase in non-performing assets.  Net charge-offs for the three months ended March 31, 2019 were $81 thousand, a decrease from $391 thousand for the three months ended March 31, 2018.

"In the first quarter, we experienced better than expected results in both our mortgage and credit card divisions that are a testament to the hard work being undertaken over the last several quarters,” said Ed Barry, CEO of Capital Bancorp.  “Our existing and new commercial lending and deposits sales teams continue to ramp up and show promise, enabling us to focus on disciplined growth and high quality relationships that fit our compelling value proposition.  Efforts to increase the quality of both our loan and deposit portfolios will hopefully provide added protection given the challenging market conditions.”

     ⁽¹⁾ Gives effect to a four-for-one common stock split completed effective August 15, 2018.

Operating Results

Net interest margin decreased 33 basis points to 5.46% for the three months ended March 31, 2019 from 5.79% for the three months ended March 31, 2018, due in part to reduced late fees from credit cards. In the prior year period, the net interest margin was impacted following the credit card processing system conversion in late 2017.  As a result of the conversion, in the fourth quarter of 2017, the Company accrued for late fee and interest charge-offs that were delayed from the fourth quarter of 2017 into the first quarter of 2018, thereby reducing the overall impact in the first quarter of 2018. For the three months ended March 31, 2019, our average interest-earning assets had increased by $88.2 million, compared to the three months ended March 31, 2018, while the average yield on our interest-earning assets increased by 7 basis points. In comparison, our average interest-bearing liabilities increased $17.1 million from the first quarter of 2018 to the first quarter of 2019, with the respective average rate increasing by 68 basis points.  As a result, net interest income increased $359 thousand, or 2.5%, to $14.7 million for the three months ended March 31, 2019 compared to the same period in 2018.

During the three months ended March 31, 2019, we recorded a provision for loan losses of $121 thousand on net charge-offs for the first quarter of 2019 of $81 thousand, or 0.03% of average loans, annualized. During the three months ended March 31, 2018, our provision for loan losses was $515 thousand, as net charge-offs for the first quarter of 2018 were $391 thousand, or 0.17% of average loans, annualized. Our allowance for loan losses was $11.3 million, or 1.13% of loans, at March 31, 2019, which provided approximately 163% coverage of nonperforming assets at such date, compared to $10.2 million, or 1.13% of loans, and approximately 274% coverage of nonperforming assets at March 31, 2018.

Noninterest income remained steady at $4.1 million for the three months ended March 31, 2019 and 2018, respectively. Noninterest expense was $14.3 million and $13.6 million for the three months ended March 31, 2019 and 2018, respectively. The increase in noninterest expense was driven primarily by increases in salaries and benefits; professional fees, primarily legal and accounting fees; and other operating expenses, which included a $200 thousand litigation settlement.

Income tax expense was $1.1 million for the three months ended March 31, 2019, as compared to $1.4 million for the same period in 2018, due to overall lower blended state and federal income tax rates.

Financial Condition

Total assets at March 31, 2019 were $1.1 billion, up 10.4% as compared to $1.0 billion at March 31, 2018. Gross loans were $1.0 billion, excluding mortgage loans held for sale, as of March 31, 2019, compared to $900.0 million at March 31, 2018, an increase of 12.0%.  Deposits were $967.7 million at March 31, 2019, an increase of 7.9%, as compared to $897.2 million at March 31, 2018.

Nonperforming assets were $7.1 million, or 0.63% of total assets, as of March 31, 2019. Comparatively, nonperforming assets were $4.0 million, or 0.39% of total assets, at March 31, 2018. Of the $7.1 million in total nonperforming assets as of March 31, 2019, nonperforming loans represented $7.0 million, including troubled debt restructurings of $284 thousand, and one borrower relationship totaling $2.1 million that is well secured, on which no impairment is expected.  Also included in nonperforming assets for the current quarter was other real estate owned which totaled $149 thousand.

Stockholders’ equity totaled $118.6 million as of March 31, 2019, compared to $83.4 million at March 31, 2018. The increase was due to increased earnings and net proceeds from the Company's initial public offering on September 28, 2018, including the exercise in full by the underwriters of their option to purchase additional shares, of approximately $19.8 million.  As of March 31, 2019, the Bank's capital ratios continue 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 loans held for sale.
⁽³⁾       Includes nonaccrual loans.
⁽⁴⁾       Interest income includes amortization of deferred loan fees, net of deferred loan costs.
⁽⁵⁾       Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
⁽⁶⁾       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.    

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 $1.1 billion at March 31, 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