Stock Quote

CBNK Continues Strong Quarterly Earnings Trend

ROCKVILLE, Md., Oct. 20, 2022 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $11.1 million, or $0.77 per diluted share, for the third quarter of 2022 in-line with the net income of $11.2 million, or $0.79 per diluted share, for the third quarter of 2021. Net portfolio loans increased $40.3 million, or 10.0 percent annualized, during the third quarter.

"Balance sheet realignment and continued expense management helped drive another quarter of strong results including record net interest income of $36.7 million," said Ed Barry, CEO of the Company and the Bank. "We redeployed excess liquidity to grow our securities portfolio and fund prudent loan growth while managing deposit balances and costs. Our diversified business continues to perform, but we are mindful that economic headwinds will affect our customers. Commercial loan quality remains stable, but we are seeing stress on consumer credit and have increased card-related reserves accordingly. We remain committed to managing the business to maximize shareholder value over the long-term."

Steven Schwartz, Chairman of the Board of the Company said, "The tailwinds of PPP loan fees, excess liquidity and extraordinary low-cost deposits that were present last year are all gone this year. Banks like ours are now facing the headwinds of rising costs of deposits, potential credit deterioration due to the probable recession and continued strong competition for the current moderate loan demand. Considering these factors, I am very pleased with the Company's performance for the quarter and year-to-date. We will continue to strive to provide value and first-class service to our customers, a workplace that facilitates the success and job satisfaction of our employees, and superior overall rates of return to our shareholders."

Third Quarter 2022 Highlights

Capital Bancorp, Inc.

  • Strong Earnings - Continued strong performance by the Commercial Bank and OpenSky® contributed to the third quarter's results. Quarterly net income remained consistent at $11.1 million compared to $11.2 million in the third quarter of 2021. While the Company reported record net interest income of $36.7 million, it also experienced a $5.5 million decrease in noninterest income, with $3.4 million of the decrease attributable to lower mortgage revenue and $2.0 million to lower credit card revenue. Offsetting this net decrease in non-interest income was a reduction in noninterest expense of $533 thousand. For the three months ended September 30, 2022 we earned $0.77 per diluted share compared to $0.79 for the three months ended September 30, 2021.
  • Continued Outstanding Performance Ratios - Return on average assets ("ROAA") and return on average equity ("ROAE") were 2.15% and 20.32%, respectively, for the three months ended September 30, 2022, compared to 2.13% and 23.87%, respectively, for the three months ended September 30, 2021.
  • Expanded Net Interest Margin - Net interest margin was 7.24%, or 4.16% excluding PPP and credit card loans, for the three months ended September 30, 2022, compared to 6.28%, or 3.52% excluding PPP and credit card loans, for the same three month period last year. The margin expansion was primarily driven by increases in the yield on portfolio loans, including credit card loans to customers whose accounts have been open for more than a year as origination costs on these accounts are amortized in the first year and thereafter no longer offset annual renewal fees. Rate increases in our adjustable rate portfolios also contributed to the margin expansion.
  • Robust Capital Positions - As of September 30, 2022, the Company reported a common equity tier 1 capital ratio of 15.36% and an allowance for loan losses to total loans ratio of 1.58%. Tangible book value per common share grew 11.2 percent to $15.24 at September 30, 2022 when compared to the same quarter in 2021.

Commercial Bank

  • Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $204.5 million, or 15.5 percent, to $1.5 billion at September 30, 2022 compared to September 30, 2021. This growth was mainly due to a 24.6 percent increase in commercial real estate loans of $123.5 million, of which $63.0 million was owner occupied. Also contributing to the growth was a 34.2 percent increase in commercial and industrial loans of $49.0 million and an 11.6 percent increase in residential real estate loans of $48.6 million when comparing the quarter ended September 30, 2022 to the quarter ended September 30, 2021.
  • Improving Credit Metrics - Non-performing assets ("NPAs") decreased to 0.43% of total assets at September 30, 2022 compared to 0.77% at September 30, 2021 with the disposition of $3.2 million in other real estate owned and a reduction in nonaccrual loans of $5.0 million as management continues to focus on resolving non-performing assets. The provision for loan losses increased $285 thousand compared to the third quarter of 2021. The current provision for the three months ended September 30, 2022 was $1.3 million and was related to the growth in unsecured credit card balances and to increases in charge-offs associated with attrition in the number of active secured card accounts.

OpenSky®

  • Stable Revenues - OpenSky® revenue declined by 2.4 percent to $22.6 million for the quarter ended September 30, 2022 from the same period in 2021 due to the decrease in active customer accounts which led to decreases in interchange, renewal and other fees. Normal customer attrition and aggressive marketing and product strategies by fintech and credit card companies offering unsecured subprime credit cards has resulted in the continued decline in the total number of OpenSky® accounts.
  • Stable OpenSky® Loan Balances - OpenSky® loan balances, net of reserves, increased by $1.7 million to $136.7 million compared to $135.0 million in the third quarter of 2021. Corresponding deposit balances decreased 17.0 percent or $41.1 million from $242.4 million at September 30, 2021 to $201.3 million at September 30, 2022.

2022 Highlights

Capital Bancorp

  • Diversified Businesses Drive Net Income - Net income for the nine months ended September 30, 2022 increased 10.1 percent to $32.8 million, or $2.29 per diluted share, from $29.8 million, or $2.11 per diluted share for the nine months ended September 30, 2021. 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 - Strong earnings supported ROAA and ROAE of 2.13% and 20.93%, respectively, for the nine months ended September 30, 2022 compared to 1.97% and 22.88%, respectively, for the nine months ended September 30, 2021.
  • Expanded Net Interest Margin - For the nine months ended September 30, 2022, net interest margin increased by 136 basis points to 7.01% compared to 5.65% for the nine months ended September 30, 2021. The margin improvement was primarily driven by increases in the yield on portfolio loans including credit card loans to customers whose accounts have been open for more than a year as origination costs on these accounts are amortized in the first year and thereafter no longer offset annual renewal fees. Rate increases in our adjustable rate portfolios also contributed to the margin expansion.
  • Stable Efficiency Ratio - The efficiency ratio decreased to 63.75% for the nine months ended September 30, 2022 compared to 65.78% for the same nine month period in the prior year.
  • Repositioned Balance Sheet - Total assets decreased $45.9 million, or 2.2 percent during the nine months ended September 30, 2022 due mainly to a $59.5 million decrease in our deposit base. The roll off of higher priced time deposits contributed to $25.3 million of the decrease while a decrease in interest bearing demand deposits not absorbed through realignment into noninterest bearing and money market account balances contributed to the rest of the decline. The year to date cash received for the payoff of SBA-PPP loans totaling $105.6 million was utilized to grow the portfolio loans receivable base by $124.0 million during the nine months ended September 30, 2022. By comparison, for the nine months ended September 30, 2021, deposit growth of $269.1 million funded a growth in portfolio loans of $135.4 million as well as $89.4 million in investment portfolio growth.

Commercial Bank

  • Strong Portfolio Loan Growth - During the first nine months of 2022, portfolio loans, excluding credit card loans, increased by $131.1 million, or 12.6 percent on an annualized basis, to $1.5 billion at September 30, 2022 compared to the first nine months of 2021 when portfolio loans, excluding credit card loans, increased by $102.6 million to $1.3 billion at September 30, 2021. The 2022 growth was primarily due to a $69.7 million increase in commercial real estate loans, of which $51.5 million was owner occupied, a $65.2 million increase in residential real estate, and a $16.3 million increase in commercial and industrial. These increases were offset by a $20.1 million decline in construction real estate.
  • Improved Deposit Franchise - While total deposits at September 30, 2022 decreased during the first nine months, the composition of the deposit portfolio has continued to move away from higher costing time deposits. Noninterest bearing deposits continue to increase as a percent of total deposits and represented 46.4 percent of total deposits at September 30, 2022. The cost of interest bearing liabilities declined to 0.51% from 0.66% for the same period in the prior year, due mainly to the mix of deposits in the portfolio.

OpenSky®

  • Interest Rate Increases Offset Gross Balance Declines - Gross credit card balances decreased by $4.5 million, or 3.2 percent, for the first nine months of 2022 compared to an increase of $32.8 million for the first nine months of 2021 when government stimulus funds contributed to balance growth in the credit card portfolio. For the first nine months of 2022, the increase in average credit card balances as well as an increase in interest rates accounted for the $13.9 million growth in interest income when compared to the same period in 2021. The decrease in overall credit card accounts led to the reduction in credit card fees, which declined by 16.7 percent to $17.7 million compared to $21.2 million for the same nine month period last year.
COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited      
          
 Quarter Ended   Nine Months Ended  
 September 30,   September 30,  
(dollars in thousands except per share data) 2022   2021  % Change  2022   2021  % Change
Earnings Summary           
Interest income$38,340  $33,528  14.4% $109,298  $89,455  22.2%
Interest expense 1,663   1,469  13.2%  3,890   5,433  (28.4)%
Net interest income 36,677   32,059  14.4%  105,408   84,022  25.5%
Provision for loan losses 1,260   975  29.2%  4,247   2,259  88.0%
Noninterest income 7,108   12,597  (43.6)%  23,811   39,992  (40.5)%
Noninterest expense 28,094   28,627  (1.9)%  82,379   81,572  1.0%
Income before income taxes 14,431   15,054  (4.1)%  42,593   40,183  6.0%
Income tax expense 3,336   3,877  (14.0)%  9,779   10,376  (5.8)%
Net income$11,095  $11,177  (0.7)% $32,814  $29,807  10.1%
            
Pre-tax pre-provision net revenue ("PPNR") (2)$15,691  $16,029  (2.1)% $46,840  $42,442  10.4%
Weighted average common shares - Basic 14,030   13,793  1.7%  14,009   13,772  1.7%
Weighted average common shares - Diluted 14,375   14,228  1.0%  14,329   14,111  1.5%
Earnings per share - Basic$0.79  $0.81  (2.5)% $2.34  $2.16  8.3%
Earnings per share - Diluted$0.77  $0.79  (2.5)% $2.29  $2.11  8.5%
Return on average assets (1) 2.15%  2.13% 0.9%  2.13%  1.97% 8.1%
Return on average assets, excluding impact of SBA-PPP loans(1) (2) 2.10%  1.99% 5.5%  1.94%  1.74% 11.5%
Return on average equity 20.32%  23.87% (14.9)%  20.93%  22.88% (8.5)%


 Quarter Ended 2Q22 vs. 2Q21 Quarter Ended
 September 30,  June 30, March 31, December 31,
(in thousands except per share data) 2022  2021 % Change  2022  2022  2021
Balance Sheet Highlights           
Assets$2,009,358 $2,169,556 (7.4)% $2,154,846 $2,122,453 $2,055,300
Investment securities available for sale 269,620  189,165 42.5%  226,509  172,712  184,455
Mortgage loans held for sale 6,875  36,005 (80.9)%  11,708  17,036  15,989
SBA-PPP loans, net of fees 2,662  137,178 (98.1)%  15,864  51,085  108,285
Portfolio loans receivable (3) 1,648,001  1,445,126 14.0%  1,607,677  1,526,256  1,523,982
Allowance for loan losses 26,091  24,753 5.4%  26,419  25,252  25,181
Deposits 1,737,591  1,921,238 (9.6)%  1,888,920  1,862,722  1,797,137
FHLB borrowings 22,000  22,000 %  22,000  22,000  22,000
Other borrowed funds 12,062  12,062 %  12,062  12,062  12,062
Total stockholders' equity 214,005  189,080 13.2%  207,316  201,492  197,903
Tangible common equity(2) 214,005  189,080 13.2%  207,316  201,492  197,903
            
Common shares outstanding 14,039  13,802 1.7%  14,010  14,001  13,962
Tangible book value per share (2)$15.24 $13.70 11.2% $14.80 $14.39 $14.17

______________

(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 September 30, 2022 and 2021

For the three months ended September 30, 2022, net interest income increased $4.6 million, or 14.4 percent, to $36.7 million from the same period in 2021, primarily due to an increase in interest earned on portfolio loans. The net interest margin increased 96 basis points to 7.24% for the three months ended September 30, 2022 from 6.28% for the same period in 2021 due in large part to the growth in portfolio loan balances and an increase in the loan yields on those loans. Net interest margin, excluding credit card and SBA-PPP loans, was 4.16% for the third quarter of 2022 compared to 3.52% for the same period in 2021. For the three months ended September 30, 2022, average interest earning assets decreased $15.2 million, or 0.8 percent, to $2.0 billion as compared to the same period in 2021, and the average yield on interest earning assets increased 100 basis points. Compared to the same period in the prior year, average interest bearing liabilities decreased $85.5 million, or 7.8 percent, while the average cost of interest-bearing liabilities increased 13 basis points to 0.66% from 0.53%.

The provision for loan losses of $1.3 million for the three months ended September 30, 2022 was related to the credit card portfolio and the cycling of credit card accounts. Net charge-offs for the third quarter of 2022 were $1.6 million, or 0.39% on an annualized basis of average portfolio loans, compared to $301 thousand, or 0.08% on an annualized basis of average loans for the third quarter of 2021. All of the $1.6 million in net charge-offs during the quarter were related to the credit card portfolio with $1.5 million related to secured cards and $95 thousand related to unsecured cards.

For the quarter ended September 30, 2022, noninterest income was $7.1 million, a decrease of $5.5 million, or 43.6 percent, from $12.6 million in the prior year quarter. The decrease was primarily the result of a reduction in mortgage banking revenue of $3.5 million due to the decline in home loan sales and home loan refinances brought on by the rising interest rate environment as well as a decline in credit card fees of $2.0 million associated with the decline in active customer accounts and interchange income.

Credit card loan balances, net of reserves increased by $1.7 million to $136.7 million as of September 30, 2022 from $135.0 million at September 30, 2021. The related deposit account balances decreased 17.0 percent to $201.3 million at September 30, 2022 when compared to $242.4 million at September 30, 2021 reflecting the reduction in active customer accounts as well as the migration of customers from the secured card program to the unsecured card program. For the three months ended September 30, 2022, OpenSky® credit card accounts decreased by 40 thousand net compared to a 7 thousand net decrease in accounts for the same period in 2021. Elevated new account originations related to COVID-19 stimulus payments were realized in 2021 did not recur in 2022.

The efficiency ratio for the three months ended September 30, 2022 increased slightly to 64.16% compared to 64.10% for the three months ended September 30, 2021.

Noninterest expense was $28.1 million for the three months ended September 30, 2022, as compared to $28.6 million for the three months ended September 30, 2021, a decrease of $533 thousand, or 1.9 percent. The decrease was primarily driven by decreases in data processing expenses of $3.0 million due to successful contract negotiations in the first quarter of 2022 for OpenSky® and were offset by increases in salaries and employee benefits of $785 thousand, or 7.9 percent; advertising expenses of $605 thousand, or 58.9 percent; and professional fees of $1.3 million, or 50.6 percent.

Operating Results - Comparison of Nine Months Ended September 30, 2022 and 2021

For the nine months ended September 30, 2022, net interest income increased $21.4 million, or 25.5 percent, to $105.4 million from the same period in 2021, primarily due to the $208.4 million increase in average balances in portfolio loans combined with the 79 basis point increase in yield for portfolio loans. The net interest margin increased 136 basis points to 7.01% for the nine months ended September 30, 2022 from the same period in 2021. Net interest margin, excluding credit card and SBA-PPP loans, was 3.94% for the nine months ended September 30, 2022 compared to 3.57% for the same period in 2021. For the nine months ended September 30, 2022, average interest earning assets increased $22.1 million, or 1.1 percent, to $2.0 billion as compared to the same period in 2021, and the average yield on interest earning assets increased 125 basis points. Compared to the same period in the prior year, average interest-bearing liabilities decreased $65.5 million, or 6.0 percent, while the average cost of interest bearing liabilities decreased 15 basis points to 0.51% from 0.66%.

For the nine months ended September 30, 2022, the provision for loan losses was $4.2 million, an increase of $2.0 million from the prior year and was related primarily to the credit card portfolio. Net charge-offs for the nine months ended September 30, 2022 were $3.3 million, or 0.29% annualized of average portfolio loans, compared to $941 thousand, or 0.09% annualized of average portfolio loans, for the same period in 2021. The $3.3 million in net charge-offs during the nine months ended September 30, 2022 was comprised of credit card portfolio net charge-offs with $3.2 million related to secured cards while $116 thousand was related to unsecured cards . Noted deterioration in macro economic conditions caused management to tighten credit policies surrounding the credit card portfolio, and we are beginning to see delinquencies flatten.

For the nine months ended September 30, 2022, noninterest income was $23.8 million, a decrease of $16.2 million, or 40.5 percent, from the same period in 2021. The decrease was primarily driven by the reduction in mortgage banking revenues of $13.2 million due to the decline in home loan sales and home loan refinances brought on by the rising interest rate environment. The rising interest rate environment is expected to continue depressing the contribution made by Capital Bank Home Loans into 2023.

For the nine months ended September 30, 2022, the Bank had a net decrease of 84 thousand OpenSky® net active credit card accounts, decreasing the total number of open accounts to 577 thousand. This compares to 132 thousand net new originations for the same period last year, which increased total open accounts to 700 thousand at September 30, 2021.

The efficiency ratio for the nine months ended September 30, 2022 decreased to 63.75% compared to 65.78% for the nine months ended September 30, 2021 due to increases in interest income.

Noninterest expense was $82.4 million for the nine months ended September 30, 2022, as compared to $81.6 million for the nine months ended September 30, 2021, an increase of $808 thousand, or 1.0 percent. The increase was primarily driven by a $3.8 million, or 14.1 percent, increase in salaries and benefits, an increase in professional fees of 54.9 percent, or $3.0 million, and a $2.3 million, or 74.3 percent, increase in advertising expense. The increase was partially offset by a $6.9 million, or 23.2 percent, decrease in data processing and a $1.3 million, or 49.4 percent, decrease in loan processing. The decrease of $6.9 million in data processing expenses was primarily due to a contract renegotiation entered into in the first quarter of 2022 in the OpenSky® Division.

Financial Condition

Total assets at September 30, 2022 were $2.0 billion, down slightly from the balance at December 31, 2021. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.6 billion as of September 30, 2022, an increase of 8.1 percent as compared to $1.5 billion at December 31, 2021.

While total deposits were $1.7 billion for the period ended September 30, 2022, a slight decline from the balance at December 31, 2021, the composition of the deposit portfolio shifted, with a decrease in higher costing time deposits of $25.3 million, or 14.2 percent, when comparing September 30, 2022 to December 31, 2021, to lower costing money market accounts and noninterest bearing accounts.

The Company recorded a provision for loan losses of $4.2 million during the nine months ended September 30, 2022, which increased the allowance for loan losses to $26.1 million, or 1.58% of total loans at September 30, 2022. Nonperforming assets were $8.6 million, or 0.43% of total assets, as of September 30, 2022, down from $11.5 million, or 0.56% of total assets, at December 31, 2021, and was comprised solely of nonperforming loans. Included in nonperforming loans at September 30, 2022 were troubled debt restructurings of $361 thousand.

Stockholders’ equity increased to $214.0 million as of September 30, 2022, compared to $197.9 million at December 31, 2021. This increase was primarily attributable to earnings during the period of $32.8 million which were offset by unrealized losses recorded net of tax on available for sale securities in the rising interest rate environment creating a $16.5 million reduction in accumulated other comprehensive income during the period. As of September 30, 2022, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

Consolidated Statements of Income (Unaudited)    
 Three Months Ended September 30, Nine Months Ended September 30,
  2022  2021  2022  2021
Interest income       
Loans, including fees$36,451 $32,840 $105,645 $87,549
Investment securities available for sale 1,362  549  2,510  1,571
Federal funds sold and other 527  139  1,143  335
Total interest income 38,340  33,528  109,298  89,455
        
Interest expense       
Deposits 1,386  1,285  3,234  4,874
Borrowed funds 277  184  656  559
Total interest expense 1,663  1,469  3,890  5,433
        
Net interest income 36,677  32,059  105,408  84,022
Provision for loan losses 1,260  975  4,247  2,259
Net interest income after provision for loan losses 35,417  31,084  101,161  81,763
        
Noninterest income       
Service charges on deposits 199  160  545  473
Credit card fees 5,524  7,554  17,658  21,208
Mortgage banking revenue 969  4,465  4,312  17,478
Gain on sale of investment securities available for sale, net       153
Other fees and charges 416  418  1,296  680
Total noninterest income 7,108  12,597  23,811  39,992
        
Noninterest expenses       
Salaries and employee benefits 10,747  9,962  31,129  27,279
Occupancy and equipment 1,138  998  3,476  3,322
Professional fees 3,848  2,555  8,586  5,542
Data processing 7,178  10,161  22,721  29,594
Advertising 1,632  1,027  5,494  3,153
Loan processing 625  644  1,352  2,670
Other operating 2,926  3,280  9,621  10,012
Total noninterest expenses 28,094  28,627  82,379  81,572
Income before income taxes 14,431  15,054  42,593  40,183
Income tax expense 3,336  3,877  9,779  10,376
Net income$11,095 $11,177 $32,814 $29,807


Consolidated Balance Sheets    
(in thousands except share data)(unaudited)
September 30,
2022
 December 31, 2021
Assets   
Cash and due from banks$14,774  $42,914 
Interest bearing deposits at other financial institutions 20,867   136,824 
Federal funds sold 1,421   3,657 
Total cash and cash equivalents 37,062   183,395 
Investment securities available for sale 269,620   184,455 
Marketable equity securities 232   245 
Restricted investments 3,627   3,498 
Loans held for sale 6,875   15,989 
SBA-PPP loans receivable, net of fees 2,662   108,285 
Portfolio loans receivable, net of deferred fees and costs 1,648,001   1,523,982 
Less allowance for loan losses (26,091)  (25,181)
Total portfolio loans held for investment, net 1,621,910   1,498,801 
Premises and equipment, net 3,212   3,282 
Accrued interest receivable 7,890   7,901 
Deferred income taxes, net 14,047   9,793 
Other real estate owned    86 
Bank owned life insurance 36,267   35,506 
Other assets 5,954   4,064 
Total assets$2,009,358  $2,055,300 
    
Liabilities   
Deposits   
Noninterest bearing$806,033  $787,650 
Interest bearing 931,558   1,009,487 
Total deposits 1,737,591   1,797,137 
Federal Home Loan Bank advances 22,000   22,000 
Other borrowed funds 12,062   12,062 
Accrued interest payable 481   473 
Other liabilities 23,219   25,725 
Total liabilities 1,795,353   1,857,397 
    
Stockholders' equity   
Common stock, $.01 par value; 49,000,000 shares authorized; 14,038,599 and 13,962,334 issued and outstanding 140   140 
Additional paid-in capital 56,532   54,306 
Retained earnings 174,916   144,533 
Accumulated other comprehensive loss (17,583)  (1,076)
Total stockholders' equity 214,005   197,903 
Total liabilities and stockholders' equity$2,009,358  $2,055,300 


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 September 30,
  2022   2021 
 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$101,187 $471 1.85% $250,326 $98 0.15%
Federal funds sold 1,492  7 1.87   2,421    
Investment securities available for sale 287,944  1,362 1.88   170,151  549 1.28 
Restricted stock and equity securities 4,116  49 4.72   3,480  41 4.64 
Loans held for sale 7,879  102 5.15   32,660  248 3.02 
SBA-PPP loans receivable 5,906  263 17.66   162,217  1,525 3.73 
Portfolio loans receivable(2) 1,601,546  36,086 8.94   1,404,006  31,067 8.78 
Total interest earning assets 2,010,070  38,340 7.57   2,025,261  33,528 6.57 
Noninterest earning assets 39,008      59,511    
Total assets$2,049,078     $2,084,772    
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$244,929  39 0.06  $301,272  45 0.06 
Savings 9,216  1 0.04   7,025  1 0.05 
Money market accounts 555,634  815 0.58   495,534  335 0.27 
Time deposits 155,091  531 1.36   250,836  904 1.43 
Borrowed funds 40,700  277 2.70   36,384  184 2.01 
Total interest bearing liabilities 1,005,570  1,663 0.66   1,091,051  1,469 0.53 
Noninterest bearing liabilities:           
Noninterest bearing liabilities 24,440      21,138    
Noninterest bearing deposits 802,458      786,784    
Stockholders’ equity 216,610      185,799    
Total liabilities and stockholders’ equity$2,049,078     $2,084,772    
            
Net interest spread    6.91%     6.04%
Net interest income  $36,677     $32,059  
Net interest margin(3)    7.24%     6.28%

_______________

(1)   Annualized.
(2)   Includes nonaccrual loans.
(3)   For the three months ended September 30, 2022 and September 30, 2021, collectively, SBA-PPP loans and credit card loans accounted for 308 and 276 basis points of the reported net interest margin, respectively.


 Nine Months Ended September 30,
  2022   2021 
 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$172,033 $1,001 0.78% $238,648 $211 0.12%
Federal funds sold 2,590  9 0.48   3,121    
Investment securities available for sale 234,294  2,510 1.43   138,403  1,571 1.52 
Restricted stock and equity securities 3,913  133 4.54   3,620  124 4.59 
Loans held for sale 10,921  347 4.25   49,775  1,043 2.80 
SBA-PPP loans receivable 39,063  3,449 11.80   215,524  6,266 3.89 
Portfolio loans receivable(1) 1,547,386  101,849 8.80   1,339,010  80,240 8.01 
Total interest earning assets 2,010,200  109,298 7.27   1,988,101  89,455 6.02 
Noninterest earning assets 47,936      37,485    
Total assets$2,058,136     $2,025,586    
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$265,854  114 0.06  $280,305  163 0.08 
Savings 9,138  4 0.06   6,435  2 0.05 
Money market accounts 553,794  1,512 0.37   475,875  1,217 0.34 
Time deposits 161,982  1,604 1.32   295,705  3,492 1.58 
Borrowed funds 36,299  656 2.41   34,265  559 2.18 
Total interest bearing liabilities 1,027,067  3,890 0.51   1,092,585  5,433 0.66 
Noninterest bearing liabilities:           
Noninterest bearing liabilities 23,748      23,327    
Noninterest bearing deposits 797,660      735,509    
Stockholders’ equity 209,661      174,165    
Total liabilities and stockholders’ equity$2,058,136     $2,025,586    
            
Net interest spread    6.76%     5.36%
Net interest income  $105,408     $84,022  
Net interest margin(2)    7.01%     5.65%

_______________

(1)   Includes nonaccrual loans.
(2)   For the nine months ended September 30, 2022 and September 30, 2021, collectively, SBA-PPP loans and credit card loans accounted for 307 and 208 basis points of the reported net interest margin, respectively.


The Company’s reportable segments represent business units with discrete financial information whose results are regularly reviewed by management. The four segments include Commercial Banking, Capital Bank Home Loans (the Company’s mortgage loan division), OpenSky® (the Company’s credit card division) and the Corporate Office. The following schedule presents financial information for each reportable segment for the three and nine months ended September 30, 2022 and September 30, 2021.

Segments            
             
For the three months ended September 30, 2022          
(in thousands) Commercial Bank CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $20,382  $102  $17,103 $812 $(59) $38,340
Interest expense  1,449   40     233  (59)  1,663
Net interest income  18,933   62   17,103  579     36,677
Provision for loan losses  (980)     2,240       1,260
Net interest income after provision  19,913   62   14,863  579     35,417
Noninterest income  468   1,115   5,524  1     7,108
Noninterest expense(1)  13,798   2,017   12,101  178     28,094
Net income (loss) before taxes $6,583  $(840) $8,286 $402 $  $14,431
             
Total assets $1,823,049  $7,664  $128,842 $234,731 $(184,928) $2,009,358
             
For the three months ended September 30, 2021          
Interest income $17,109  $248  $15,635 $574 $(38) $33,528
Interest expense  1,160   177     170  (38)  1,469
Net interest income  15,949   71   15,635  404     32,059
Provision for loan losses        975       975
Net interest income after provision  15,949   71   14,660  404     31,084
Noninterest income  559   4,484   7,553  1     12,597
Noninterest expense(1)  12,073   2,775   13,677  102     28,627
Net income before taxes $4,435  $1,780  $8,536 $303 $  $15,054
             
Total assets $1,956,340  $36,791  $135,612 $209,070 $(168,257) $2,169,556

________________________
(1)   Noninterest expense includes $6.6 million and $9.4 million in data processing expense in OpenSky’s® segment for the three months ended September 30, 2022 and 2021, respectively.
(2)   The Corporate segment invests idle cash in revenue producing assets including interest bearing cash accounts, loan participations and other appropriate investments for the Company.


For the nine months ended September 30, 2022        
(in thousands) Commercial Bank CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $57,794  $347  $48,823 $2,457 $(123) $109,298
Interest expense  3,255   185     573  (123)  3,890
Net interest income  54,539   162   48,823  1,884     105,408
Provision for loan losses  (980)     5,227       4,247
Net interest income after provision  55,519   162   43,596  1,884     101,161
Noninterest income  1,571   4,580   17,658  2     23,811
Noninterest expense(1)  38,741   6,364   36,923  351     82,379
Net income (loss) before taxes $18,349  $(1,622) $24,331 $1,535 $  $42,593
             
Total assets $1,823,049  $7,664  $128,842 $234,731 $(184,928) $2,009,358
             
For the nine months ended September 30, 2021        
Interest income $51,969  $1,037  $34,944 $1,604  (99) $89,455
Interest expense  4,285   745     502  (99)  5,433
Net interest income  47,684   292   34,944  1,102     84,022
Provision for loan losses  433      1,756  70     2,259
Net interest income after provision  47,251   292   33,188  1,032     81,763
Noninterest income  1,212   17,529   21,208  43     39,992
Noninterest expense(1)  31,962   9,941   39,379  290     81,572
Net income before taxes $16,501  $7,880  $15,017 $785 $  $40,183
             
Total assets $1,956,340  $36,791  $135,612 $209,070 $(168,257) $2,169,556

________________________
(1)   Noninterest expense includes $20.9 million and $27.3 million in data processing expense in OpenSky’s® segment for the nine months ended September 30, 2022 and 2021, respectively.
(2)   The Corporate segment invests idle cash in revenue producing assets including interest bearing cash accounts, loan participations and other appropriate investments for the Company.


HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited    
  Quarter Ended
(dollars in thousands except per share data) September 30, 2022 June 30,
2022
 March 31,
2022
 December 31,
2021
 September 30,
2021
Earnings:          
Net income $11,095  $11,508  $10,211  $10,171  $11,177 
Earnings per common share, diluted  0.77   0.80   0.71   0.71   0.79 
Net interest margin  7.24%  7.06%  6.79%  6.49%  6.28%
Net interest margin, excluding credit cards & SBA-PPP loans (1)  4.16%  3.86%  3.82%  3.70%  3.52%
Return on average assets(2)  2.15%  2.23%  2.01%  1.95%  2.13%
Return on average assets, excluding impact of SBA-PPP loans (1)(2)  2.10%  2.04%  1.67%  1.80%  1.99%
Return on average equity(2)  20.32%  22.16%  20.30%  20.66%  23.87%
Efficiency ratio  64.16%  62.00%  65.12%  65.83%  64.10%
Balance Sheet:          
Total portfolio loans receivable, net deferred fees $1,648,001  $1,607,677  $1,526,256  $1,523,982  $1,445,126 
Total deposits  1,737,591   1,888,920   1,862,722   1,797,137   1,921,238 
Total assets  2,009,358   2,154,846   2,122,453   2,055,300   2,169,556 
Total shareholders' equity  214,005   207,316   201,492   197,903   189,080 
Asset Quality Ratios:          
Nonperforming assets to total assets  0.43%  0.34%  0.28%  0.56%  0.77%
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)  0.43%  0.34%  0.29%  0.59%  0.83%
Nonperforming loans to total loans  0.52%  0.45%  0.38%  0.70%  0.85%
Nonperforming loans to portfolio loans (1)  0.52%  0.46%  0.39%  0.75%  0.94%
Net charge-offs to average portfolio loans (1)(2)  0.39%  0.23%  0.24%  0.18%  0.08%
Allowance for loan losses to total loans  1.58%  1.63%  1.60%  1.54%  1.56%
Allowance for loan losses to portfolio loans (1)  1.58%  1.64%  1.65%  1.65%  1.71%
Allowance for loan losses to non-performing loans  303.76%  360.06%  422.65%  220.40%  182.48%
Bank Capital Ratios:          
Total risk based capital ratio  14.65%  14.34%  14.36%  13.79%  13.86%
Tier 1 risk based capital ratio  13.39%  13.09%  13.10%  12.53%  12.60%
Leverage ratio  9.60%  9.11%  8.74%  8.36%  7.83%
Common equity Tier 1 capital ratio  13.39%  13.09%  13.10%  12.53%  12.60%
Tangible common equity  9.00%  8.17%  8.11%  8.36%  7.57%
Holding Company Capital Ratios:          
Total risk based capital ratio  17.41%  17.66%  17.16%  16.41%  15.75%
Tier 1 risk based capital ratio  15.49%  15.70%  15.19%  14.43%  14.49%
Leverage ratio  11.31%  10.93%  10.25%  9.73%  9.12%
Common equity Tier 1 capital ratio  15.36%  15.55%  15.04%  14.28%  14.34%
Tangible common equity  10.65%  9.62%  9.49%  9.63%  8.72%
Composition of Loans:          
SBA-PPP loans, net $2,662  $15,864  $51,085  $108,285  $137,178 
Residential real estate $466,849  $430,244  $420,242  $401,607  $418,205 
Commercial real estate  626,030   608,646   564,725   556,339   502,523 
Construction real estate  235,045   241,249   245,722   255,147   251,256 
Commercial and industrial  192,207   193,262   177,504   175,956   143,244 
Credit card, net of reserve  136,658   142,166   123,750   141,120   134,979 
Other consumer loans  1,055   856   909   1,033   1,425 
Portfolio loans receivable $1,657,844  $1,616,423  $1,532,852  $1,531,202  $1,451,632 
Deferred origination fees, net  (9,843)  (8,746)  (6,596)  (7,220)  (6,506)
Portfolio loans receivable, net $1,648,001  $1,607,677  $1,526,256  $1,523,982  $1,445,126 
Composition of Deposits:          
Noninterest bearing $806,033  $842,363  $825,174  $787,650  $833,187 
Interest-bearing demand  252,135   305,377   279,591   330,924   369,812 
Savings  8,861   10,078   9,894   6,994   6,682 
Money markets  518,184   570,298   585,920   493,919   493,029 
Time deposits  152,378   160,804   162,143   177,650   218,528 
Total Deposits $1,737,591  $1,888,920  $1,862,722  $1,797,137  $1,921,238 
Capital Bank Home Loan Metrics:        
Origination of loans held for sale $60,516  $84,417  $111,087  $158,051  $217,175 
Mortgage loans sold  65,349   89,745   110,039   178,068   229,111 
Gain on sale of loans  1,340   1,918   3,042   4,423   6,108 
Purchase volume as a % of originations  81.85%  85.23%  73.16%  56.44%  50.98%
Gain on sale as a % of loans sold(3)  2.05%  2.14%  2.77%  2.48%  2.67%
Mortgage commissions $587  $772  $1,125  $1,462  $1,884 
OpenSky® Portfolio Metrics:        
Active customer accounts  576,844   616,435   630,709   660,397   700,383 
Secured credit card loans, gross $111,842  $118,938  $109,978  $125,898  $125,393 
Unsecured credit card loans, gross  27,335   25,641   16,233   17,682   12,037 
Noninterest secured credit card deposits  201,277   214,110   220,354   229,530   242,405 

_______________

(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 AdjustedQuarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Net Income$11,095 $11,508 $10,211 $10,171 $11,177 
Less: SBA-PPP loan income 263  1,120  2,066  1,347  1,525 
Net Income, as Adjusted$10,832 $10,388 $8,145 $8,824 $9,652 
Average Total Assets 2,049,078  2,068,218  2,057,201  2,066,283  2,084,772 
Less: Average SBA-PPP Loans 5,906  28,870  83,264  116,595  162,217 
Average Total Assets, as Adjusted$2,043,172 $2,039,348 $1,973,937 $1,949,688 $1,922,555 
Return on Average Assets, as Adjusted 2.10% 2.04% 1.67% 1.80% 1.99%


Net Interest Margin, as AdjustedQuarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Net Interest Income$36,677 $35,400 $33,331 $32,671 $32,059 
Less Credit card loan income 16,768  16,376  14,487  15,010  15,086 
Less SBA-PPP loan income 263  1,120  2,066  1,347  1,525 
Net Interest Income, as Adjusted$19,646 $17,904 $16,778 $16,314 $15,448 
Average Interest Earning Assets 2,010,070  2,011,920  1,990,377  1,996,331  2,026,616 
Less Average credit card loans 132,246  124,548  124,923  131,306  124,771 
Less Average SBA-PPP loans 5,906  28,870  83,264  116,595  162,217 
Total Average Interest Earning Assets, as Adjusted$1,871,918 $1,858,502 $1,782,190 $1,748,430 $1,739,628 
Net Interest Margin, as Adjusted 4.16% 3.86% 3.82% 3.70% 3.52%


Tangible Book Value per ShareQuarters Ended
Dollars in thousands, except per share amountsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Total Stockholders' Equity$214,005$207,316$201,492$197,903$189,080
Less: Preferred equity     
Less: Intangible assets     
Tangible Common Equity$214,005$207,316$201,492$197,903$189,080
Period End Shares Outstanding 14,038,599 14,010,158 14,000,520 13,962,334 13,801,936
Tangible Book Value per Share$15.24$14.80$14.39$14.17$13.70


Allowance for Loan Losses to Total Portfolio LoansQuarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Allowance for Loan Losses$26,091 $26,419 $25,252 $25,181 $24,753 
Total Loans 1,650,663  1,623,541  1,577,341  1,632,267  1,582,304 
Less: SBA-PPP loans 2,662  15,864  51,085  108,285  137,178 
Total Portfolio Loans$1,648,001 $1,607,677 $1,526,256 $1,523,982 $1,445,126 
Allowance for Loan Losses to Total Portfolio Loans 1.58% 1.64% 1.65% 1.65% 1.71%
      
      
Nonperforming Assets to Total Assets, net SBA-PPP LoansQuarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Total Nonperforming Assets$8,589 $7,338 $5,975 $11,512 $16,801 
Total Assets 2,009,358  2,154,846  2,122,453  2,055,300  2,169,556 
Less: SBA-PPP loans 2,662  15,864  51,085  108,285  137,178 
Total Assets, net SBA-PPP Loans$2,006,696 $2,138,982 $2,071,368 $1,947,015 $2,032,378 
Nonperforming Assets to Total Assets, net SBA-PPP Loans 0.43% 0.34% 0.29% 0.59% 0.83%
      
      
Nonperforming Loans to Total Portfolio LoansQuarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Total Nonperforming Loans$8,589 $7,338 $5,975 $11,425 $13,565 
Total Loans 1,650,663  1,623,541  1,577,341  1,632,267  1,582,304 
Less: SBA-PPP loans 2,662  15,864  51,085  108,285  137,178 
Total Portfolio Loans$1,648,001 $1,607,677 $1,526,256 $1,523,982 $1,445,126 
Nonperforming Loans to Total Portfolio Loans 0.52% 0.46% 0.39% 0.75% 0.94%
      
      
Net Charge-offs to Average Portfolio LoansQuarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Total Net Charge-offs$1,588 $868 $881 $672 $301 
Total Average Loans 1,607,452  1,561,541  1,590,166  1,582,473  1,569,198 
Less: Average SBA-PPP loans 5,906  28,870  83,264  116,595  162,217 
Total Average Portfolio Loans$1,601,546 $1,532,671 $1,506,902 $1,465,878 $1,406,981 
Net Charge-offs to Average Portfolio Loans 0.39% 0.23% 0.24% 0.18% 0.08%
      
      
Pre-tax, Pre-Provision Net Revenue ("PPNR")Quarters Ended
Dollars in thousandsSeptember 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
      
Net income$11,095 $11,508 $10,211 $10,171 $11,177 
Add: Income Tax Expense 3,336  3,089  3,354  3,522  3,877 
Add: Provision for Loan Losses 1,260  2,035  952  1,100  975 
Pre-tax, Pre-Provision Net Revenue ("PPNR")$15,691 $16,632 $14,517 $14,793 $16,029 

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 September 30, 2022. 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 $2.0 billion at September 30, 2022 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.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing war in Ukraine; the magnitude and duration of the COVID-19 pandemic and related variants and mutations and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; volatility and disruptions in global capital and credit markets; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; and other factors that may affect our future results.

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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