Capital Bancorp Reports Results for the First Quarter of 2019

| Source: Capital Bancorp, Inc. Capital Bancorp, Inc.

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.”

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited      
 Quarter Ended 1st Quarter 
 March 31, 2019 - 2018 
(in thousands except per share data)2019 2018 % Change 
Earnings Summary      
Interest income$18,318  $16,664  9.9% 
Interest expense3,574  2,279  56.8% 
Net interest income14,744  14,385  2.5% 
Provision for loan losses121  515  (76.5)% 
Noninterest income4,092  4,078  0.3% 
Noninterest expense14,330  13,600  5.4% 
Income before income taxes4,385  4,348  0.9% 
Income tax expense1,066  1,358  (21.5)% 
Net income$3,319  $2,990  11.0% 
       
Weighted average common shares - Basic(1)13,702  11,564  18.5% 
Weighted average common shares - Diluted(1)13,878  11,966  16.0% 
Earnings - Basic(1)$0.24  $0.26  (7.7)% 
Earnings - Diluted(1)$0.24  $0.25  (4.0)% 
Return on average assets1.22% 1.19% 2.5% 
Return on average equity11.39% 14.86% (23.4)% 

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

 Quarter Ended 1st
Quarter		 Quarter Ended
 March 31, 2019
vs. 2018		 December 31, September 30, June 30,
(in thousands except per share data)2019 2018 % Change 2018 2018 2018
Balance Sheet Highlights           
Assets$1,123,752  $1,017,613  10.4% $1,105,058  $1,072,905  $1,067,786 
Investment securities46,080  51,706  (10.9)% 46,932  48,067  49,799 
Mortgage loans held for sale21,630  17,353  24.6% 18,526  21,373  21,370 
Loans1,007,928  900,033  12.0% 1,000,268  955,412  920,783 
Allowance for loan losses11,347  10,157  11.7% 11,308  10,892  10,447 
Deposits967,722  897,153  7.9% 955,240  911,116  938,364 
Borrowings and repurchase agreements3,010  12,071  (75.1)% 7,332  28,239  14,445 
Subordinated debentures15,401  15,369  0.2% 15,393  15,386  15,378 
Total stockholders' equity118,550  83,366  42.2% 114,564  106,657  86,994 
Tangible common equity118,550  83,366  42.2% 114,564  106,657  86,994 
            
Common shares outstanding13,713  11,595  18.3% 13,672  13,191  11,661 
Tangible book value per share$8.65  $7.19  20.3% $8.38  $8.09  $7.46 


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.

Consolidated Statements of Income (Unaudited)   
 Three Months Ended March 31,
(in thousands)2019 2018
Interest income   
Loans, including fees$17,844  $16,268 
Investment securities available for sale259  239 
Federal funds sold and other215  157 
Total interest income18,318  16,664 
Interest expense   
Deposits3,243  1,950 
Borrowed funds331  329 
Total interest expense3,574  2,279 
Net interest income14,744  14,385 
Provision for loan losses121  515 
Net interest income after provision for loan losses14,623  13,870 
Noninterest income   
Service charges on deposits98  125 
Credit card fees1,492  1,456 
Mortgage banking revenue2,376  2,429 
Loss on sale of investment securities available for sale—  (3)
Other fees and charges126  71 
Total noninterest income4,092  4,078 
Noninterest expenses   
Salaries and employee benefits6,787  6,301 
Occupancy and equipment1,094  1,083 
Professional fees619  374 
Data processing3,313  3,683 
Advertising443  423 
Loan processing305  261 
Other real estate expenses, net22  24 
Other operating1,747  1,451 
Total noninterest expenses14,330  13,600 
Income before income taxes4,385  4,348 
Income tax expense1,066  1,358 
Net income$3,319  $2,990 


Consolidated Balance Sheets(unaudited)  
(in thousands)March 31, 2019 December 31, 2018
Assets   
Cash and due from banks$11,611  $10,431 
Interest bearing deposits at other financial institutions25,815  22,007 
Federal funds sold925  2,285 
Total cash and cash equivalents38,351  34,723 
Investment securities available for sale46,080  46,932 
Restricted investments2,484  2,503 
Loans held for sale21,630  18,526 
Loans, net of allowance for loan losses996,581  988,960 
Premises and equipment, net7,735  2,975 
Accrued interest receivable4,523  4,462 
Deferred income taxes3,612  3,654 
Foreclosed real estate149  142 
Prepaid income taxes86  90 
Other assets2,521  2,091 
Total assets$1,123,752  $1,105,058 
    
Liabilities   
Deposits   
Noninterest bearing$262,235  $242,259 
Interest bearing705,487  712,981 
Total deposits967,722  955,240 
Securities sold under agreements to repurchase3,010  3,332 
Federal funds purchased—  2,000 
Federal Home Loan Bank advances—  2,000 
Other borrowed funds15,401  15,393 
Accrued interest payable1,970  1,565 
Other liabilities17,099  10,964 
Total liabilities1,005,202  990,494 
    
Stockholders' equity   
Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding at March 31, 2019 and December 31, 2018—  — 
Common stock, $.01 par value; 49,000,000 shares authorized:  13,712,565 and 13,672,479 issued and outstanding at March 31, 2019 and December 31, 2018, respectively137  137 
Additional paid-in capital49,825  49,321 
Retained earnings68,918  65,701 
Accumulated other comprehensive loss(330) (595)
Total stockholders' equity118,550  114,564 
Total liabilities and stockholders' equity$1,123,752  $1,105,058 

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.

 Three Months Ended March 31,
 2019 2018
 Average
Outstanding 
Balance		 Interest
Income/
Expense		 Average 
Yield/ 
Rate(1)		 Average
Outstanding 
Balance		 Interest
Income/
Expense		 Average 
Yield/ 
Rate(1)
 (Dollars in thousands)
Assets           
Interest earning assets:           
Interest bearing deposits$31,145  $164  2.13% $42,151  $119  1.14%
Federal funds sold1,624  1  0.21% 1,808  6  1.42%
Restricted stock2,739  50  7.47% 2,565  32  5.13%
Investment securities46,512  259  2.26% 53,108  239  1.82%
Loans(2)(3)(4)1,013,790  17,844  7.14% 907,999  16,268  7.27%
Total interest earning assets1,095,810  18,318  6.78% 1,007,631  16,664  6.71%
Noninterest earning assets12,162      8,286     
Total assets$1,107,972      $1,015,917     
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing deposits$718,821  3,243  1.83% $695,339  1,950  1.14%
Borrowed funds25,918  331  5.18% 32,286  329  4.13%
Total interest bearing liabilities744,739  3,574  1.95% 727,625  2,279  1.27%
Noninterest bearing liabilities:           
Noninterest bearing liabilities11,689      8,280     
Noninterest bearing deposits233,379      198,393     
Stockholders’ equity118,165      81,619     
Total liabilities and stockholders’ equity$1,107,972      $1,015,917     
            
Net interest spread(5)    4.83%     5.44%
Net interest income  $14,744      $14,385   
Net interest margin(6)    5.46%     5.79%
Net interest margin excluding credit card portfolio    4.30%     4.25%

_______________
(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.


HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited    
  Quarter Ended
(Dollars in thousands except per share data) March 31,
 2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
Earnings:          
Net income $3,319  $3,486  $3,147  $3,144  $2,990 
Earnings per common share, diluted(1) 0.24  0.25  0.26  0.26  0.25 
Net interest margin 5.46% 5.46% 5.56% 5.49% 5.79%
Net interest margin excluding credit card portfolio 4.30% 4.28% 4.26% 4.25% 4.25%
Return on average assets(1) 1.22% 1.27% 1.19% 1.22% 1.19%
Return on average equity(1) 11.39% 12.26% 13.69% 14.77% 14.86%
Efficiency ratio 76.08% 71.34% 74.20% 73.64% 73.66%
           
Balance Sheet:          
Loans $1,007,928  $1,000,268  $955,412  $920,783  $900,033 
Deposits 967,722  955,240  911,116  938,364  897,153 
Total assets 1,123,752  1,105,058  1,072,905  1,067,786  1,017,613 
           
Asset Quality Ratios:          
Nonperforming assets to total assets 0.63% 0.44% 0.42% 0.35% 0.39%
Nonperforming loans to total loans 0.69% 0.47% 0.44% 0.35% 0.41%
Net charge-offs to average loans (YTD annualized) 0.03% 0.09% 0.11% 0.16% 0.17%
Allowance for loan losses to total loans 1.13% 1.13% 1.14% 1.13% 1.13%
Allowance for loan losses to non-performing loans 162.52% 241.72% 257.83% 320.78% 273.66%
           
Bank Capital Ratios:          
Total risk based capital ratio 12.23% 12.25% 12.36% 12.34% 12.30%
Tier 1 risk based capital ratio 10.98% 11.00% 11.11% 11.09% 11.05%
Leverage ratio 9.05% 9.06% 9.03% 8.91% 8.83%
Common equity Tier 1 ratio 10.98% 11.00% 11.11% 11.09% 11.05%
Tangible common equity 10.55% 8.89% 8.72% 8.58% 8.78%
           
Composition of Loans:          
Residential real estate $424,919  $407,844  $388,141  $366,465  $354,818 
Commercial real estate 274,332  278,691  276,726  271,800  269,357 
Construction real estate 157,338  157,586  144,012  149,192  150,820 
Commercial and industrial 120,191  122,264  113,473  101,752  96,927 
Credit card 32,358  34,673  33,821  32,522  28,757 
Other 1,195  1,202  1,270  1,244  1,149 
           
Mortgage Metrics (CBHL only):          
Origination of loans held for sale $74,128  $70,826  $81,665  $95,570  $87,279 
Proceeds from loans held for sale, net of gains 71,693  73,883  81,029  92,195  96,048 
Gain on sale of loans 2,375  2,097  2,451  2,500  2,428 
Purchase volume as a % of originations 78.42% 86.72% 92.72% 85.09% 55.41%
Gain on sale as a % of loans sold 3.31% 2.84% 3.02% 2.71% 2.53%
           
Credit Card Portfolio Metrics:          
Total active customer accounts 187,423  169,981  170,160  166,661  158,362 
Total loans $32,358  $34,673  $33,821  $32,522  $28,757 
Total deposits at the Bank $65,808  $59,954  $59,978  $58,951  $56,333 

_______________

(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

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