CBNK Accelerating Loan Growth Drives Steady Profits and Returns

ROCKVILLE, Md., Jan. 26, 2023 (GLOBE NEWSWIRE) — Capital Bancorp, Inc. (the “Company”) (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the “Bank”), today reported net income of $10.2 million, or $0.71 per diluted share, for the fourth quarter of 2023. By comparison, net income was $9.7 million, or $0.71 per diluted share, for the fourth quarter of 2020. Portfolio loans, net, increased $78.9 million when compared to the period ended September 30, 2023, and $208.5 million when compared to the period ended December 31, 2023.

“2023 was a tremendous year for Capital Bank,” said Steven Schwartz, Chairman of the Board of the Company. “The Commercial Bank, Capital Bank Home Loans and OpenSky® all outperformed expectations as investments in technology and people continued to deliver exceptional results. Building on the Bank’s success, we continue to seek out and invest in opportunities that will leverage our unique combination of technological innovation and community banking to build long-term shareholder value.”

“The fourth quarter’s results were driven by strong performance in the Commercial Bank and OpenSky® which more than made up for the slowdown of our mortgage business,” said Ed Barry, CEO of the Company. “Capitalizing on market disruption, we made several strategic hires in the Commercial Bank which contributed to a 21.9 percent annualized portfolio loan growth in the fourth quarter. OpenSky® is poised to remain an engine of growth with the fourth quarter launch of our unsecured credit card line to our highest performing OpenSky® secured card holders. OpenSky’s® annualized quarterly net loan growth of 18.1 percent continued to drive portfolio loan balances. Anticipated OpenSky® card holder attrition resulted in a modest decline in open accounts for the quarter but remains well-below historical levels.”

Fourth Quarter 2023 Highlights

Capital Bancorp, Inc.

  • Stable Earnings – Continued strong performance by the Commercial Bank and OpenSky® contributed to the fourth quarter’s results. Quarterly net income increased to $10.2 million from $9.7 million in the fourth quarter of 2020. Earnings were $0.71 per diluted share for the three months ended December 31, 2023 and 2020.
  • Outstanding Performance Ratios – Return on average assets (“ROAA”) and return on average equity (“ROAE”) were 1.95% and 20.66%, respectively, for the three months ended December 31, 2023 compared to 2.08% and 25.26%, respectively, for the three months ended December 31, 2020.
  • Expanded Net Interest Margin – Net interest margin was 6.49% for the three months ended December 31, 2023, which is an increase of 92 basis points compared to 5.57% for the same three month period last year and an increase over linked quarter of 22 basis points, from 6.27%, for the three months ended September 30, 2023. The margin improvement over linked quarter was driven by an increase in average loans outstanding as well as management’s concentrated effort to lower funding costs.
  • Robust Capital Positions – As of December 31, 2023, the Company reported a common equity tier 1 capital ratio of 14.28% and an allowance for loan losses to total loans ratio of 1.54%, or 1.65% excluding Small Business Administration Payroll Protection Program (“SBA-PPP”) loans. During the preceding twelve months, tangible book value per common share grew 22.4 percent to $14.17 at December 31, 2023.

Commercial Bank

  • Accelerating Strong Portfolio Loan Growth – Portfolio loans, excluding credit cards, increased by $176.0 million, or 14.5 percent, to $1.4 billion at December 31, 2023 compared to December 31, 2020, and by $73.4 million, compared to September 30, 2023. The year over year growth was mainly due to a 41.7 percent increase in commercial real estate loans of $163.8 million, of which $102.2 million was owner occupied while $61.6 was non-owner occupied. Also contributing to the year over year growth was a 12.0 percent increase in commercial and industrial loans of $18.8 million and a 13.4 percent increase in construction real estate loans of $30.2 million. Offsetting total growth was a $36.3 million decrease in residential real estate loans.
  • Growth in Core Deposits and Reduced Cost of Funds – Noninterest bearing deposits increased 29.4 percent compared to December 31, 2020. The $179.1 million year over year increase was primarily due to an increase in commercial demand deposits reflecting management’s ongoing strategic initiative to improve the deposit franchise. At December 31, 2023, noninterest bearing deposits represented 43.8% of total deposits compared to 36.8% at December 31, 2020. Overall, the cost of interest bearing liabilities was reduced 53 basis points, from 0.95% for the quarter ended December 31, 2020 to 0.42% for the quarter ended December 31, 2023.
  • Improving Credit Metrics – Non-performing assets (“NPAs”) decreased to 0.56% of total assets at December 31, 2023 compared to 0.77% at September 30, 2023 primarily due to the disposition of $3.2 million in other real estate owned during the fourth quarter of 2023 and a reduction in nonaccrual loans of $2.3 million as management continues to focus on reducing non-performing assets. Primarily as a result of improving market conditions, the provision for loan losses declined $933.0 thousand compared to the fourth quarter of 2020. The current provision for the three months ended December 31, 2023 was $1.1 million and primarily related to the credit card portfolio.
  • SBA-PPP Loans SBA-PPP loans, net of $3.2 million in unearned fees, totaled $108.3 million at December 31, 2023 which was comprised of $4.4 million in 2020 originations and $103.9 million of 2023 originations. As of December 31, 2023, the Company has obtained forgiveness for $261.6 million of SBA-PPP loans.

Capital Bank Home Loans

  • Softening Mortgage Performance – Origination volumes declined 58.7 percent, to $158.1 million, in the fourth quarter of 2023, when compared to $382.3 million in the fourth quarter of 2020. The continued steepening of the yield curve in the fourth quarter of 2023 slowed originations from the year earlier when low interest rates fueled refinance volumes. In the most recent quarter, mortgage origination volumes declined $59.1 million or 27.2 percent from the three months ended September 30, 2023 due to normal seasonal patterns as well as the rate-related slow-down in the mortgage industry which has disproportionately impacted refinance activity.
  • Purchase Volume – Purchase volumes increased to 56.4 percent of total originations for the fourth quarter of 2023, up from 30.0 percent during the fourth quarter of 2020.

OpenSky®

  • Strong Revenue Growth – OpenSky® revenue grew by 38.2 percent to $22.2 million for the quarter ended December 31, 2023 from the same period in 2020. As account growth, line usage and customer behaviors continue to revert to traditional seasonal patterns, management anticipates modest seasonal declines in open accounts as account opening and attrition normalize.
  • Continued Growth in OpenSky® Loans and Deposits – OpenSky® loan balances, net of reserves, increased by $38.9 million to $141.1 million compared to $102.2 million in the fourth quarter of 2020 and from $135.0 million, or 4.5 percent, on a linked quarter basis. Corresponding deposit balances increased 19.2 percent or $37.0 million from $192.5 million at December 31, 2020 to $229.5 million at December 31, 2023.

2023 Highlights

Capital Bancorp

  • Diversified Businesses Drive Net Income – Net income for the twelve months ended December 31, 2023 increased 54.8 percent to $40.0 million, or $2.84 per diluted share, from $25.8 million, or $1.87 per diluted share for the twelve months ended December 31, 2020. Continued strong operating results demonstrate the advantages of the Company’s diversified business lines that are, in certain respects, non-correlated across economic cycles.
  • Top Tier Performance Ratios – Improved earnings supported ROAA and ROAE of 1.96% and 22.27%, respectively, for the twelve months ended December 31, 2023 compared to 1.56% and 18.00%, respectively, for the twelve months ended December 31, 2020.
  • Expanded Net Interest Margin – For the twelve months ended December 31, 2023, net interest margin increased by 72 basis points to 5.86% compared to 5.14% for the twelve months ended December 31, 2020. The margin improvement was largely driven by the increase in OpenSky® income.
  • Stable Efficiency Ratio – The efficiency ratio increased slightly to 65.79% for the twelve months ended December 31, 2023 compared to 65.44% for the same twelve month period in the prior year.
  • Strong Balance Sheet Growth – Total assets increased $178.7 million, or 9.5 percent during the twelve months ended December 31, 2023 and was primarily funded by a $145.0 million increase in deposits. The growth of earning assets on the balance sheet consisted primarily of increases in cash equivalents of $36.5 million, portfolio loans net of deferred fees of $208.5 million which includes OpenSky® net loan growth of $30.1 million, investments available for sale of $84.7 million, and Bank Owned Life Insurance (“BOLI”) of $35.5 million. Asset growth was primarily offset by a decrease of $91.2 million in loans held for sale as well as a $92.7 million reduction in SBA-PPP loans.

Commercial Bank

  • Strong Portfolio Loan Growth – Portfolio loans, excluding credit card loans, increased by $176.0 million, or 14.5 percent, to $1.4 billion at December 31, 2023 compared to $1.2 billion at December 31, 2020. The growth was primarily due to a 41.7 percent increase in commercial real estate loans of $163.8 million, of which $102.2 million was owner occupied while $61.6 was non owner occupied.
  • Improved Deposit Franchise and Lower Cost of Funding – Noninterest bearing deposits increased by $179.1 million, or 29.4 percent, during the twelve months ended December 31, 2023 and represented 43.8 percent of total deposits at December 31, 2023. The cost of interest bearing liabilities declined to 0.61% from 1.29% for the same period in the prior year, due mainly to the average rate of interest bearing demand deposits dropping from 0.34% as of December 31, 2020 to 0.07% as of December 31, 2023.
  • COVID-19 Related Deferrals – At December 31, 2023, outstanding loans deferred due to COVID-19 amounted to $4.0 million, a decrease of 86.9 percent from $30.5 million at December 31, 2020.

Capital Bank Home Loans

  • Gain on Sale – The year-to-date gain on sale of mortgage loans decreased to $30.3 million at December 31, 2023 from $38.5 million at December 31, 2020 due mainly to the $314.4 million, or 24.0 percent, decline in mortgage originations. The steepening yield curve in 2023 has slowed originations from the year earlier period when low interest rates fueled refinance volumes. Gain on sale margins, down slightly from 3.02% for the twelve months ended December 31, 2020, remained strong at 2.79% for the twelve months ended December 31, 2023. Historically-low housing inventory, shortages in new home building materials, and fluctuating interest rates are likely to continue suppressing origination volumes into 2023.

OpenSky®

  • Growth Elevates Performance – The 92 thousand net increase in the number of accounts in the twelve months ended December 31, 2023 resulted in a $37.0 million increase in noninterest bearing secured credit card deposits that totaled $229.5 million as of December 31, 2023. Credit card balances increased by $38.9 million, or 38.1 percent, for the twelve months ended December 31, 2023 and totaled $141.1 million at December 31, 2023. Account growth led to higher credit card fees, which increased by 64.4 percent to $27.9 million compared to $17.0 million for the same twelve month period last year, largely driven by the increase in the number of accounts in the portfolio.
COMPARATIVE FINANCIAL HIGHLIGHTS – Unaudited            
                   
  Quarter Ended       Twelve months ended    
  December 31,       December 31,    
(amounts in thousands except per share data) 2021   2020   % Change   2021   2020   % Change
Earnings Summary                      
Interest income $ 33,788     $ 28,318     19.3 %   $ 123,243     $ 97,251     26.7 %
Interest expense   1,117       2,599     (57.0 )%     6,550       13,182     (50.3 )%
Net interest income   32,671       25,719     27.0 %     116,693       84,069     38.8 %
Provision for loan losses   1,100       2,033     (45.9 )%     3,359       11,242     (70.1 )%
Noninterest income   10,617       16,030     (33.8 )%     50,636       50,144     1.0 %
Noninterest expense   28,495       26,680     6.8 %     110,094       87,834     25.3 %
Income before income taxes   13,693       13,036     5.0 %     53,876       35,137     53.3 %
Income tax expense   3,522       3,347     5.2 %     13,898       9,314     49.2 %
Net income $ 10,171     $ 9,689     5.0 %   $ 39,978     $ 25,823     54.8 %
                       
Pre-tax pre-provision net revenue (“PPNR”) (2) $ 14,793     $ 15,069     (1.8 )%   $ 57,235     $ 46,379     23.4 %
Weighted average common shares – Basic   13,877       13,686     1.4 %     13,799       13,793     %
Weighted average common shares – Diluted   14,290       13,707     4.3 %     14,081       13,800     2.0 %
Earnings per share – Basic $ 0.73     $ 0.71     2.8 %   $ 2.90     $ 1.87     55.1 %
Earnings per share – Diluted $ 0.71     $ 0.71     %   $ 2.84     $ 1.87     51.9 %
Return on average assets (1)   1.95 %     2.08 %   (6.3 )%     1.96 %     1.56 %   25.6 %
Return on average assets, excluding impact of SBA-PPP loans(1) (2)   1.80 %     1.88 %   (4.3 )%     1.75 %     1.42 %   23.2 %
Return on average equity   20.66 %     25.26 %   (18.2 )%     22.27 %     18.00 %   23.7 %
  Quarter Ended   4Q21 vs. 4Q20   Quarter Ended
  December 31,     September 30,   June 30,   March 31,
(in thousands except per share data) 2021   2020   % Change   2021   2021   2021
Balance Sheet Highlights                      
Assets $ 2,055,300   $ 1,876,593   9.5 %   $ 2,169,556   $ 2,151,850   $ 2,091,851
Investment securities available for sale   184,455     99,787   84.8 %     189,165     160,515     128,023
Mortgage loans held for sale   15,989     107,154   (85.1 )%     36,005     47,935     60,816
SBA-PPP loans, net of fees   108,285     201,018   (46.1 )%     137,178     202,763     265,712
Portfolio loans receivable (3)   1,523,982     1,315,502   15.8 %     1,445,126     1,392,471     1,312,375
Allowance for loan losses   25,181     23,434   7.5 %     24,753     24,079     23,550
Deposits   1,797,137     1,652,128   8.8 %     1,921,238     1,917,419     1,863,069
FHLB borrowings   22,000     22,000   %     22,000     22,000     22,000
Other borrowed funds   12,062     14,016   (13.9 )%     12,062     12,062     12,062
Total stockholders’ equity   197,903     159,311   24.2 %     189,080     177,204     167,003
Tangible common equity(2)   197,903     159,311   24.2 %     189,080     177,204     167,003
                       
Common shares outstanding   13,962     13,754   1.5 %     13,802     13,772     13,759
Tangible book value per share (2) $ 14.17   $ 11.58   22.4 %   $ 13.70   $ 12.87   $ 12.14

______________

(1) Annualized for the quarterly periods
(2) Refer to Appendix for reconciliation of non-GAAP measures.
(3) Loans are reflected net of deferred fees and costs.

Operating Results – Comparison of Three Months Ended December 31, 2023 and 2020

For the three months ended December 31, 2023, net interest income increased $7.0 million, or 27.0 percent, to $32.7 million from the same period in 2020, primarily due to an increase in interest earning assets and a decrease in rates on interest bearing liabilities. The net interest margin increased 92 basis point to 6.49% for the three months ended December 31, 2023 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.70% for the fourth quarter of 2023 compared to 3.80% for the same period in 2020. For the three months ended December 31, 2023, average interest earning assets increased $160.0 million, or 8.7 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 58 basis points. Compared to the same period in the prior year, average interest-bearing liabilities decreased $37.8 million, or 3.5 percent, while the average cost of interest bearing liabilities decreased 53 basis points to 0.42% from 0.95%.

The provision for loan losses of $1.1 million for the three months ended December 31, 2023 was primarily related to growth in the credit card portfolio. Net charge-offs for the fourth quarter of 2023 were $671.6 thousand, or 0.18% on an annualized basis of average loans, compared to $615.0 thousand, or 0.19% on an annualized basis of average loans for the fourth quarter of 2020. The $671.6 thousand in net charge-offs during the quarter was related solely to the credit card portfolio.

For the quarter ended December 31, 2023, noninterest income was $10.6 million, a decrease of $5.4 million, or 33.8 percent, from $16.0 million in the prior year quarter. The decrease was primarily the result of reduced mortgage banking revenue.

Net credit card loan balances increased by $38.9 million to $141.1 million as of December 31, 2023 from $102.2 million at December 31, 2020. The related deposit account balances increased 19.2 percent to $229.5 million at December 31, 2023 when compared to $192.5 million at December 31, 2020. For the three months ended December 31, 2023, OpenSky’s® secured credit card accounts decreased by 40 thousand net compared to 39 thousand net new accounts for the same period in 2020 suggesting consumer behaviors may be returning to historical trends after being elevated in response to COVID-19 throughout 2020 and the first two quarters of 2023.

The efficiency ratio for the three months ended December 31, 2023 increased to 65.83% compared to 63.91% for the three months ended December 31, 2020 due mainly to the reduction in mortgage income generated.

Noninterest expense was $28.5 million for the three months ended December 31, 2023, as compared to $26.7 million for the three months ended December 31, 2020, an increase of $1.8 million, or 6.8 percent. The increase was primarily driven by increases in salaries and employee benefits of $2.0 million, advertising expenses of $994.7 thousand, and data processing expenses of $390.1 thousand. Offsetting these expenses were decreases in occupancy and equipment expense of $507.2 thousand, loan processing expenses of $503.2 thousand, and professional fees of $474.0 thousand.

Operating Results – Comparison of Twelve Months Ended December 31, 2023 and 2020

For the twelve months ended December 31, 2023, net interest income increased $32.6 million, or 38.8 percent, to $116.7 million from the same period in 2020, primarily due to an increase in interest earning assets and a decrease in rates on interest bearing liabilities. The net interest margin increased 72 basis points to 5.86% for the twelve months ended December 31, 2023 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.60% for the twelve months ended December 31, 2023 compared to 3.89% for the same period in 2020. For the twelve months ended December 31, 2023, average interest earning assets increased $356.1 million, or 21.8 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 24 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $60.3 million, or 5.9 percent, while the average cost of interest-bearing liabilities decreased 68 basis points to 0.61% from 1.29%.

For the twelve months ended December 31, 2023, the provision for loan losses was $3.4 million, a decrease of $7.9 million from the prior year. Net charge-offs for the twelve months ended December 31, 2023 were $1.6 million, or 0.12% of average portfolio loans, compared to $1.1 million, or 0.09% of average portfolio loans, for the same period in 2020. The $1.6 million in net charge-offs during the twelve months ended December 31, 2023 was comprised primarily of commercial real estate loan net charge-offs of $161.1 thousand and net charge-offs of $1.4 million in the credit card portfolio.

For the twelve months ended December 31, 2023, noninterest income was $50.6 million, an increase of $491.5 thousand, or 1.0 percent, from the same period in 2020. The increase was primarily driven by significant growth in credit card fees of $10.9 million, which was partially offset by a decrease in mortgage banking revenues of $8.9 million.

For the twelve months ended December 31, 2023, the Bank had net growth of 92 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 660 thousand. This compares to 345 thousand new originations for the same period last year, which increased total open accounts to 568 thousand.

The efficiency ratio for the twelve months ended December 31, 2023 increased slightly to 65.79% compared to 65.44% for the twelve months ended December 31, 2020 due to increases in noninterest expense.

Noninterest expense was $110.1 million for the twelve months ended December 31, 2023, as compared to $87.8 million for the twelve months ended December 31, 2020, an increase of $22.3 million, or 25.3 percent. The increase was primarily driven by a $4.4 million, or 13.2 percent, increase in salaries and benefits, an increase in professional fees of 42.8 percent, or $2.1 million, a $12.3 million, or 45.8 percent, increase in data processing, a $2.3 million, or 89.8 percent, increase in advertising, and a $2.0 million, or 18.2 percent, increase in other operating expenses period over period. The increase of $12.3 million in data processing expenses was primarily due to the higher volume of open credit cards during the twelve months ended December 31, 2023. Additionally, operating expenses increased $2.0 million, primarily due to increases in outside service providers.

During the twelve months ended December 31, 2023, results of operations were impacted by the COVID-19 pandemic and the resulting issuance of SBA-PPP loans. At December 31, 2023, the $111.5 million of SBA-PPP loans had remaining deferred origination fees of $3.8 million, and deferred costs of $655.7 thousand.

Financial Condition

Total assets at December 31, 2023 were $2.1 billion, an increase of 9.5 percent from December 31, 2020. Portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.5 billion as of December 31, 2023, an increase of 15.8 percent as compared to $1.3 billion at December 31, 2020.

Total deposits at December 31, 2023 were $1.8 billion, an increase of $145.0 million, or 8.8 percent, as compared to $1.7 billion at December 31, 2020. Noninterest bearing deposits increased by $179.1 million, or 29.4 percent, to $787.7 million at December 31, 2023 compared to the level at December 31, 2020. Deposit balances grew year over year in certain fiduciary accounts of title and property management companies, as well as noninterest bearing OpenSky® deposits.

The Company recorded a provision for loan losses of $3.4 million during the twelve months ended December 31, 2023, which increased the allowance for loan losses to $25.2 million, or 1.54% of total loans (1.65%, excluding SBA-PPP loans, on a non-GAAP basis) at December 31, 2023. Nonperforming assets were $11.5 million, or 0.56% of total assets, as of December 31, 2023, down from $12.6 million, or 0.67% of total assets, at December 31, 2020. Of the $11.5 million in total nonperforming assets as of December 31, 2023, nonperforming loans represented $11.4 million and foreclosed real estate totaled $86.4 thousand. Included in nonperforming loans at December 31, 2023 were troubled debt restructurings of $534 thousand.

Stockholders’ equity increased to $197.9 million as of December 31, 2023, compared to $159.3 million at December 31, 2020. This increase was primarily attributable to earnings during the period. As of December 31, 2023, the Bank’s capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

Consolidated Statements of Income (Unaudited)            
  Three Months Ended December 31,   Twelve Months Ended December 31,
(in thousands) 2021   2020   2021   2020
Interest income              
Loans, including fees $ 33,235   $ 27,848     $ 120,784   $ 95,367
Investment securities available for sale   439     363       2,010     1,292
Federal funds sold and other   114     107       449     592
Total interest income   33,788     28,318       123,243     97,251
               
Interest expense              
Deposits   934     2,323       5,808     11,524
Borrowed funds   183     276       742     1,658
Total interest expense   1,117     2,599       6,550     13,182
               
Net interest income   32,671     25,719       116,693     84,069
Provision for loan losses   1,100     2,033       3,359     11,242
Net interest income after provision for loan losses   31,571     23,686       113,334     72,827
               
Noninterest income              
Service charges on deposits   136     143       609     520
Credit card fees   6,676     6,272       27,884     16,966
Mortgage banking revenue   3,365     8,748       20,843     29,732
Gain on sale of investment securities available for sale, net       20       153     20
Other fees and charges   440     847       1,147     2,906
Total noninterest income   10,617     16,030       50,636     50,144
               
Noninterest expenses              
Salaries and employee benefits   10,564     8,592       37,843     33,442
Occupancy and equipment   1,005     1,512       4,327     5,170
Professional fees   1,454     1,928       6,996     4,900
Data processing   9,643     9,253       39,237     26,917
Advertising   1,650     655       4,803     2,530
Loan processing   857     1,360       3,527     3,811
Other real estate expenses, net   47     (68 )     368     69
Other operating   3,275     3,448       12,993     10,995
Total noninterest expenses   28,495     26,680       110,094     87,834
Income before income taxes   13,693     13,036       53,876     35,137
Income tax expense   3,522     3,347       13,898     9,314
Net income $ 10,171   $ 9,689     $ 39,978   $ 25,823
Consolidated Balance Sheets      
(in thousands except share data) (unaudited)
December 31, 2023
  December 31, 2020
Assets      
Cash and due from banks $ 42,914     $ 18,456  
Interest bearing deposits at other financial institutions   136,824       126,081  
Federal funds sold   3,657       2,373  
Total cash and cash equivalents   183,395       146,910  
Investment securities available for sale   184,455       99,787  
Marketable equity securities   245       245  
Restricted investments   3,498       3,713  
Loans held for sale   15,989       107,154  
SBA-PPP loans receivable, net of fees   108,285       201,018  
Portfolio loans receivable, net of deferred fees and costs   1,523,982       1,315,502  
Less allowance for loan losses   (25,181 )     (23,434 )
Total portfolio loans held for investment, net   1,498,801       1,292,068  
Premises and equipment, net   3,282       4,464  
Accrued interest receivable   7,901       8,134  
Deferred income taxes, net   9,793       6,818  
Other real estate owned   86       3,326  
Bank owned life insurance   35,506        
Other assets   4,064       2,956  
Total assets $ 2,055,300     $ 1,876,593  
       
Liabilities      
Deposits      
Noninterest bearing $ 787,650     $ 608,559  
Interest bearing   1,009,487       1,043,569  
Total deposits   1,797,137       1,652,128  
Federal Home Loan Bank advances   22,000       22,000  
Other borrowed funds   12,062       14,016  
Accrued interest payable   473       1,134  
Other liabilities   25,725       28,004  
Total liabilities   1,857,397       1,717,282  
       
Stockholders’ equity      
Common stock, $.01 par value; 49,000,000 shares authorized; 13,962,334 and 13,753,529 issued and outstanding   140       138  
Additional paid-in capital   54,306       50,602  
Retained earnings   144,533       106,854  
Accumulated other comprehensive income (loss)   (1,076 )     1,717  
Total stockholders’ equity   197,903       159,311  
Total liabilities and stockholders’ equity $ 2,055,300     $ 1,876,593  

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 December 31,
  2021
  2020
  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 $ 198,070   $ 73   0.15 %   $ 152,720   $ 37   0.10 %
Federal funds sold   2,048             5,537        
Investment securities available for sale   186,603     439   0.93       73,931     363   1.95  
Restricted stock and equity securities   3,743     41   4.35       3,947     70   7.08  
Loans held for sale   23,395     179   3.04       105,922     701   2.63  
SBA-PPP loans receivable   116,595     1,347   4.58       227,617     1,998   3.49  
Portfolio loans receivable(2)   1,465,878     31,709   8.58       1,266,662     25,149   7.90  
Total interest earning assets   1,996,332     33,788   6.71       1,836,336     28,318   6.13  
Noninterest earning assets   69,951             18,509        
Total assets $ 2,066,283           $ 1,854,845        
                       
Liabilities and Stockholders’ Equity                      
Interest bearing liabilities:                      
Interest bearing demand accounts $ 315,933     39   0.05     $ 238,078     102   0.17  
Savings   6,575     1   0.06       4,828     1   0.05  
Money market accounts   501,070     267   0.21       467,727     633   0.54  
Time deposits   190,795     627   1.30       337,170     1,586   1.87  
Borrowed funds   34,062     183   2.13       38,447     277   2.86  
Total interest bearing liabilities   1,048,435     1,117   0.42       1,086,250     2,599   0.95  
Noninterest bearing liabilities:                      
Noninterest bearing liabilities   26,504             23,810        
Noninterest bearing deposits   796,014             592,193        
Stockholders’ equity   195,330             152,592        
Total liabilities and stockholders’ equity $ 2,066,283           $ 1,854,845        
                       
Net interest spread         6.29 %           5.18 %
Net interest income     $ 32,671           $ 25,719    
Net interest margin(3)         6.49 %           5.57 %

_______________

(1)   Annualized.
(2)   Includes nonaccrual loans.
(3)   For the three months ended December 31, 2023 and December 31, 2020, collectively, SBA-PPP loans and credit card loans accounted for 279 and 177 basis points of the reported net interest margin, respectively.

  Twelve Months Ended December 31,
  2021
  2020
  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 $ 228,420   $ 283   0.12 %   $ 112,249   $ 343   0.31 %
Federal funds sold   2,850             3,128     4   0.12  
Investment securities available for sale   151,479     2,010   1.33       58,071     1,292   2.22  
Restricted stock and equity securities   3,774     166   4.40       4,025     244   6.07  
Loans held for sale   43,126     1,224   2.84       84,928     2,610   3.07  
SBA-PPP loans receivable   190,588     7,613   3.99       157,630     4,479   2.84  
Portfolio loans receivable(1)   1,370,988     111,947   8.17       1,215,049     88,279   7.27  
Total interest earning assets   1,991,225     123,243   6.19       1,635,080     97,251   5.95  
Noninterest earning assets   44,619             24,923        
Total assets $ 2,035,844           $ 1,660,003        
                       
Liabilities and Stockholders’ Equity                      
Interest bearing liabilities:                      
Interest bearing demand accounts $ 289,285     202   0.07     $ 195,794     656   0.34  
Savings   6,470     3   0.05       4,722     5   0.11  
Money market accounts   482,225     1,484   0.31       480,218     4,786   1.00  
Time deposits   269,262     4,119   1.53       297,997     6,077   2.04  
Borrowed funds   34,214     742   2.17       42,471     1,658   3.90  
Total interest bearing liabilities   1,081,456     6,550   0.61       1,021,202     13,182   1.29  
Noninterest bearing liabilities:                      
Noninterest bearing liabilities   24,128             22,007        
Noninterest bearing deposits   750,760             473,301        
Stockholders’ equity   179,500             143,493        
Total liabilities and stockholders’ equity $ 2,035,844           $ 1,660,003        
                       
Net interest spread         5.58 %           4.66 %
Net interest income     $ 116,693           $ 84,069    
Net interest margin(2)         5.86 %           5.14 %

_______________

(1)   Includes nonaccrual loans.
(2)   For the twelve months ended December 31, 2023 and December 31, 2020, collectively, SBA-PPP loans and credit card loans accounted for 226 and 125 basis points of the reported net interest margin, respectively.

HISTORICAL FINANCIAL HIGHLIGHTS – Unaudited        
    Quarter Ended
(Dollars in thousands except per share data)   December 31,
2021
  September 30,
2021
  June 30,
2021
  March 31,
2021
  December 31,
2020
Earnings:                    
Net income   $ 10,171     $ 11,177     $ 9,648     $ 8,982     $ 9,689  
Earnings per common share, diluted     0.71       0.79       0.68       0.65       0.71  
Net interest margin     6.49 %     6.27 %     5.47 %     5.15 %     5.57 %
Net interest margin, excluding credit cards & SBA-PPP loans (1)     3.70 %     3.52 %     3.55 %     3.70 %     3.80 %
Return on average assets(2)     1.95 %     2.13 %     1.90 %     1.87 %     2.08 %
Return on average assets, excluding impact of SBA-PPP loans (1)(2)     1.80 %     1.99 %     1.65 %     1.60 %     1.88 %
Return on average equity(2)     20.66 %     23.87 %     22.36 %     22.30 %     25.26 %
Efficiency ratio     65.83 %     64.10 %     66.37 %     67.11 %     63.91 %
Balance Sheet:                    
Total assets   $ 2,055,300     $ 2,169,556     $ 2,151,850     $ 2,091,851     $ 1,876,593  
Asset Quality Ratios:                    
Nonperforming assets to total assets     0.56 %     0.77 %     0.54 %     0.58 %     0.67 %
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)     0.59 %     0.83 %     0.60 %     0.66 %     0.75 %
Nonperforming loans to total loans     0.70 %     0.85 %     0.52 %     0.56 %     0.61 %
Nonperforming loans to portfolio loans (1)     0.75 %     0.94 %     0.60 %     0.67 %     0.70 %
Net charge-offs to average portfolio loans (1)(2)     0.18 %     0.08 %     0.08 %     0.12 %     0.19 %
Allowance for loan losses to total loans     1.54 %     1.56 %     1.51 %     1.49 %     1.54 %
Allowance for loan losses to portfolio loans (1)     1.65 %     1.71 %     1.73 %     1.79 %     1.78 %
Allowance for loan losses to non-performing loans     220.40 %     182.48 %     287.40 %     267.07 %     253.71 %
Bank Capital Ratios:                    
Total risk based capital ratio     13.79 %     13.86 %     13.51 %     13.55 %     12.60 %
Tier 1 risk based capital ratio     12.53 %     12.60 %     12.25 %     12.29 %     11.34 %
Leverage ratio     8.36 %     7.83 %     7.58 %     7.54 %     7.45 %
Common equity Tier 1 capital ratio     12.53 %     12.60 %     12.25 %     12.29 %     11.34 %
Tangible common equity     8.36 %     7.57 %     7.17 %     7.01 %     7.43 %
Holding Company Capital Ratios:                    
Total risk based capital ratio     16.41 %     15.75 %     16.14 %     16.07 %     15.19 %
Tier 1 risk based capital ratio     14.43 %     14.49 %     14.10 %     13.98 %     13.10 %
Leverage ratio     9.73 %     9.12 %     8.78 %     8.84 %     8.78 %
Common equity Tier 1 capital ratio     14.28 %     14.34 %     13.94 %     13.81 %     12.94 %
Tangible common equity     9.63 %     8.72 %     8.23 %     7.98 %     8.48 %
Composition of Loans:                    
Residential real estate   $ 401,607     $ 418,205     $ 420,015     $ 420,461     $ 437,860  
Commercial real estate     556,339       502,523       471,807       433,336       392,550  
Construction real estate     255,147       251,256       223,832       221,277       224,904  
Commercial and industrial – Other     175,956       143,244       158,392       149,914       157,127  
Credit card, net of reserve     141,120       134,979       121,410       83,740       102,186  
Other consumer loans     1,033       1,425       1,034       4,487       1,649  
Portfolio loans receivable   $ 1,531,202     $ 1,451,632     $ 1,396,490     $ 1,313,215     $ 1,316,276  
Deferred origination fees, net     (7,220 )     (6,506 )     (4,019 )     (840 )     (774 )
Portfolio loans receivable, net   $ 1,523,982     $ 1,445,126     $ 1,392,471     $ 1,312,375     $ 1,315,502  
SBA-PPP loans, net   $ 108,285     $ 137,178     $ 202,763     $ 265,712     $ 201,018  
Composition of Deposits:                    
Noninterest bearing   $ 787,650     $ 833,187     $ 828,308     $ 771,924     $ 608,559  
Interest bearing demand     330,924       369,812       314,883       300,992       257,126  
Savings     6,994       6,682       6,965       6,012       4,800  
Money Markets     493,919       493,029       484,567       471,303       447,077  
Time Deposits     177,650       218,528       282,696       312,838       334,566  
Total Deposits   $ 1,797,137     $ 1,921,238     $ 1,917,419     $ 1,863,069     $ 1,652,128  
Capital Bank Home Loan Metrics:                
Origination of loans held for sale   $ 158,051     $ 217,175     $ 265,517     $ 353,774     $ 382,267  
Mortgage loans sold     178,068       229,111       278,384       400,112       412,830  
Gain on sale of loans     4,423       6,108       7,763       12,008       12,950  
Purchase volume as a % of originations     56.44 %     50.98 %     50.64 %     24.59 %     30.03 %
Gain on sale as a % of loans sold(3)     2.48 %     2.67 %     2.79 %     3.00 %     3.14 %
Mortgage commissions   $ 1,462     $ 1,884     $ 2,364     $ 3,320     $ 3,405  
OpenSky® Portfolio Metrics:                
Active customer accounts     660,397       700,383       707,600       642,272       568,373  
Credit card loans, net of reserve   $ 141,120     $ 134,979     $ 121,410     $ 83,740     $ 102,186  
Noninterest secured credit card deposits     229,530       242,405       241,724       215,883       192,520  

_______________

(1)   Refer to Appendix for reconciliation of non-GAAP measures.
(2)   Annualized.
(3)   Gain on sale percentage is calculated as gain on sale of loans divided by mortgage loans sold.   

Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as Adjusted Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Net Income $ 10,171   $ 11,177   $ 9,648   $ 8,982   $ 9,689  
Less: SBA-PPP loan income   1,347     1,525     2,272     2,205     1,998  
Net Income, as Adjusted $ 8,824   $ 9,652   $ 7,376   $ 6,777   $ 7,691  
Average Total Assets   2,066,283     2,084,772     2,041,232     1,949,265     1,854,845  
Less: Average SBA-PPP Loans   116,595     162,217     250,040     232,371     227,617  
Average Total Assets, as Adjusted $ 1,949,688   $ 1,922,555   $ 1,791,192   $ 1,716,894   $ 1,627,228  
Return on Average Assets, as Adjusted   1.80 %   1.99 %   1.65 %   1.60 %   1.88 %
           
Net Interest Margin, as Adjusted Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Net Interest Income $ 32,671   $ 32,059   $ 27,520   $ 24,444   $ 25,719  
Less Secured credit card loan income   15,010     15,086     10,497     7,660     9,306  
Less SBA-PPP loan income   1,347     1,525     2,272     2,205     1,998  
Net Interest Income, as Adjusted $ 16,314   $ 15,448   $ 14,751   $ 14,579   $ 14,415  
Average Interest Earning Assets   1,996,331     2,026,616     2,016,801     1,923,463     1,836,337  
Less Average secured credit card loans   131,306     124,771     100,456     93,520     95,739  
Less Average SBA-PPP loans   116,595     162,217     250,040     232,371     227,617  
Total Average Interest Earning Assets, as Adjusted $ 1,748,430   $ 1,739,628   $ 1,666,305   $ 1,597,572   $ 1,512,981  
Net Interest Margin, as Adjusted   3.70 %   3.52 %   3.55 %   3.70 %   3.80 %
Tangible Book Value per Share Quarters Ended
Dollars in thousands, except per share amounts December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Total Stockholders’ Equity $ 197,903 $ 189,080 $ 177,204 $ 167,003 $ 159,311
Less: Preferred equity          
Less: Intangible assets          
Tangible Common Equity $ 197,903 $ 189,080 $ 177,204 $ 167,003 $ 159,311
Period End Shares Outstanding   13,962,334   13,801,936   13,771,615   13,759,218   13,753,529
Tangible Book Value per Share $ 14.17 $ 13.70 $ 12.87 $ 12.14 $ 11.58
Allowance for Loan Losses to Total Portfolio Loans Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Allowance for Loan Losses $ 25,181   $ 24,753   $ 24,079   $ 23,550   $ 23,434  
Total Loans   1,632,267     1,582,304     1,595,234     1,578,087     1,516,520  
Less: SBA-PPP loans   108,285     137,178     202,763     265,712     201,018  
Total Portfolio Loans $ 1,523,982   $ 1,445,126   $ 1,392,471   $ 1,312,375   $ 1,315,502  
Allowance for Loan Losses to Total Portfolio Loans   1.65 %   1.71 %   1.73 %   1.79 %   1.78 %
           
           
           
Nonperforming Assets to Total Assets, net SBA-PPP Loans Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Total Nonperforming Assets $ 11,512   $ 16,801   $ 11,615   $ 12,112   $ 12,563  
Total Assets   2,055,300     2,169,556     2,151,850     2,091,851     1,876,593  
Less: SBA-PPP loans   108,285     137,178     202,763     265,712     201,018  
Total Assets, net SBA-PPP Loans $ 1,947,015   $ 2,032,378   $ 1,949,087   $ 1,826,139   $ 1,675,575  
Nonperforming Assets to Total Assets, net SBA-PPP Loans   0.59 %   0.83 %   0.60 %   0.66 %   0.75 %
           
           
           
Nonperforming Loans to Portfolio Loans Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Total Nonperforming Loans $ 11,425   $ 13,565   $ 8,378   $ 8,818   $ 9,237  
Total Loans   1,632,267     1,582,304     1,595,234     1,578,087     1,516,520  
Less: SBA-PPP loans   108,285     137,178     202,763     265,712     201,018  
Total Portfolio Loans $ 1,523,982   $ 1,445,126   $ 1,392,471   $ 1,312,375   $ 1,315,502  
Nonperforming Loans to Total Portfolio Loans   0.75 %   0.94 %   0.60 %   0.67 %   0.70 %
           
           
           
Net Charge-offs to Average Portfolio Loans Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Total Net Charge-offs $ 672   $ 301   $ 251   $ 388   $ 615  
Total Average Loans   1,582,473     1,569,198     1,567,973     1,532,093     1,494,279  
Less: Average SBA-PPP loans   116,595     162,217     250,040     232,371     227,617  
Total Average Portfolio Loans $ 1,465,878   $ 1,406,981   $ 1,317,933   $ 1,299,722   $ 1,266,662  
Net Charge-offs to Average Portfolio Loans   0.18 %   0.08 %   0.08 %   0.12 %   0.19 %
           
           
           
Pre-tax, Pre-Provision Net Revenue (“PPNR”) Quarters Ended
Dollars in thousands December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2020
           
Net income $ 10,171   $ 11,177   $ 9,648   $ 8,982   $ 9,689  
Add: Income Tax Expense   3,522     3,877     3,357     3,143     3,347  
Add: Provision for Loan Losses   1,100     975     781     503     2,033  
Pre-tax, Pre-Provision Net Revenue (“PPNR”) $ 14,793   $ 16,029   $ 13,786   $ 12,628   $ 15,069  
           

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 fourth largest bank headquartered in Maryland at December 31, 2023. 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 $2.1 billion at December 31, 2023 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,” “optimistic,” “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. For details on some of the factors that could affect these expectations, see risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K and other periodic and current reports filed with the Securities and Exchange Commission.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are exposed to all of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen as planned, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of decisions made by the Federal Open Market Committee of the Federal Reserve and other factors, our net interest margin and spread may decline, which would adversely affect our earnings; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

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

Capital Bancorp Inc