ROCKVILLE, Md., July 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 $11.5 million, or $0.80 per diluted share, for the second quarter of 2022 representing 19.3% growth when compared to net income of $9.6 million, or $0.68 per diluted share, for the second quarter of 2021. Net portfolio loans increased $81.4 million, or 21.4 percent annualized, during the second quarter.

“Loan growth, stable deposit costs, OpenSky® performance and lower than anticipated expenses drove another quarter of outstanding performance,” said Ed Barry, CEO of the Company and the Bank. “Credit quality in our commercial and consumer loan portfolios remains stable with an anticipated increase in loss provisions in our OpenSky® loan portfolio. Continued aggressive marketing by fintech and credit card companies offering unsecured subprime credit cards has resulted in account growth headwinds in OpenSky®, but we are confident that our approach to serving this market and our investments to scale our platform will continue to deliver substantial profits in this business. Our multi-year effort to transform our deposit franchise continues to show results and will help drive results in the rising rate environment.”

“We are pleased with how well Capital Bank’s diversified business model continues to perform despite changes in macroeconomic conditions” said Steven Schwartz, Chairman of the Board of the Company. “Our extremely dedicated management team and fully engaged Board remain focused on increasing shareholder value by improving our unique mix of products with the adoption of state-of-the-art technology to deliver coveted financial solutions to our customers.”

Second Quarter 2022 Highlights

Capital Bancorp, Inc.

  • Record Earnings – Continued strong performance by the Commercial Bank and OpenSky® contributed to the second quarter’s record results. Quarterly net income increased to $11.5 million from $9.6 million in the second quarter of 2021 due mainly to increased net interest income due to loan growth and an increase in rates. The increase in net interest income was offset by an increase in the loan loss provision and a decrease in noninterest income. Earnings were $0.80 per diluted share for the three months ended June 30, 2022 and $0.68 for the three months ended June 30, 2021.
  • Continued Outstanding Performance Ratios – Return on average assets (“ROAA”) and return on average equity (“ROAE”) were 2.23% and 22.16%, respectively, for the three months ended June 30, 2022, compared to 1.90% and 22.36%, respectively, for the three months ended June 30, 2021.
  • Expanded Net Interest Margin – Net interest margin was 7.06% for the three months ended June 30, 2022, compared to 5.47% 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 card holders whose accounts have been open for more than a year as origination costs on these accounts are amortized in the first year and no longer offset annual renewal fees. Rate increases in our adjustable rate portfolios also contributed to the margin expansion.
  • Robust Capital Positions – As of June 30, 2022, the Company reported a common equity tier 1 capital ratio of 15.55% and an allowance for loan losses to total portfolio loans ratio of 1.63%, or 1.64% excluding SBA-PPP loans. Tangible book value per common share grew 15.0 percent to $14.80 at June 30, 2022 when compared to the same quarter in 2021.

Commercial Bank

  • Strong Portfolio Loan Growth – Portfolio loans, excluding credit cards, increased by $199.2 million, or 15.6 percent, to $1.5 billion at June 30, 2022 compared to June 30, 2021. This growth was mainly due to a 29.0 percent increase in commercial real estate loans of $136.8 million, of which $92.9 million was owner occupied. Also contributing to the growth was a 22.0 percent increase in commercial and industrial loans of $34.9 million and an 7.8 percent increase in construction real estate loans of $17.4 million when comparing the quarter ended June 30, 2022 to the quarter ended June 30, 2021.
  • Improving Credit Metrics – Non-performing assets (“NPAs”) decreased to 0.34% of total assets at June 30, 2022 compared to 0.54% at June 30, 2021 with the disposition of $3.2 million in other real estate owned and a reduction in nonaccrual loans of $1.0 million as management continues to focus on reducing non-performing assets. The provision for loan losses increased $1.3 million compared to the second quarter of 2021. The current provision for the three months ended June 30, 2022 was $2.0 million and was related to the growth in the unsecured credit card loans and secured customer attrition which tends to result in an increase in charge offs of certain fees in excess of the secured portion of the loan.
  • SBA-PPP Loans SBA-PPP loans, net of $301 thousand in unearned fees, totaled $15.9 million at June 30, 2022 which was comprised of $1.4 million in 2020 originations and $14.7 million of 2021 originations. As of June 30, 2022, the Company has obtained forgiveness for $359.5 million of SBA-PPP loans.

Capital Bank Home Loans

  • Slowing Mortgage Originations – Origination volumes declined 68.2 percent, to $84.4 million, in the second quarter of 2022, when compared to $265.5 million in the second quarter of 2021. The continued steepening of the yield curve in the second quarter of 2022 slowed originations from the year earlier when low interest rates fueled refinance volumes.
  • Purchase Volume – While purchase volumes increased to 85.2 percent of total originations for the second quarter of 2022, up from 50.6 percent during the second quarter of 2021, total purchase originations declined by 46.7% during the same period.

OpenSky®

  • Strong Revenue Growth – OpenSky® revenue grew by 22.1 percent to $23.0 million for the quarter ended June 30, 2022 from the same period in 2021 due to an increase in average credit card loan balances as well as an increase in the yield on those credit card loans. Normal customer attrition and aggressive marketing by fintech and credit card companies offering unsecured subprime credit cards has resulted in the continued decline in the total number of OpenSky® accounts.
  • Continued Growth in OpenSky® Loans – OpenSky® loan balances, net of reserves, increased by $20.8 million to $142.2 million compared to $121.4 million in the second quarter of 2021. Corresponding deposit balances decreased 11.4 percent or $27.6 million from $241.7 million at June 30, 2021 to $214.1 million at June 30, 2022.

2022 Highlights

Capital Bancorp

  • Diversified Businesses Drive Net Income – Net income for the six months ended June 30, 2022 increased 16.6 percent to $21.7 million, or $1.52 per diluted share, from $18.6 million, or $1.32 per diluted share for the six months ended June 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 – Improved earnings supported ROAA and ROAE of 2.12% and 21.25%, respectively, for the six months ended June 30, 2022 compared to 1.88% and 22.33%, respectively, for the six months ended June 30, 2021.
  • Expanded Net Interest Margin – For the six months ended June 30, 2022, net interest margin increased by 161 basis points to 6.93% compared to 5.32% for the six months ended June 30, 2021. The margin improvement was primarily driven by increases in the yield on portfolio loans including credit card loans to card holders whose accounts have been open for more than a year as origination costs on these accounts are amortized in the first year and 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 63.52% for the six months ended June 30, 2022 compared to 66.73% for the same six month period in the prior year.
  • Strong Balance Sheet Growth – Total assets increased $99.5 million, or 4.8 percent during the six months ended June 30, 2022 and was primarily funded by a $91.8 million increase in deposits.The growth of earning assets on the balance sheet consisted primarily of increases in cash equivalents of $67.5 million, portfolio loans net of deferred fees of $83.7 million which includes OpenSky® net loan growth of $15.8 million, and investment securities available for sale of $42.1 million. Asset growth was primarily offset by a decrease of $92.4 million in SBA-PPP loans.

Commercial Bank

  • Strong Portfolio Loan Growth – During the first six months of 2022, portfolio loans, excluding credit card loans, increased by $84.2 million, or 12.2 percent on an annualized basis, to $1.5 billion at June 30, 2022 compared to the first six months of 2021 when portfolio loans, excluding credit card loans, increased by $61.0 million to $1.3 billion at June 30, 2021. The 2022 growth was primarily due to a $52.3 million increase in commercial real estate loans, of which $47.7 million was owner occupied, and a $28.6 million increase in residential real estate.
  • Improved Deposit Franchise and Lower Cost of Funding – While total deposits at June 30, 2022 decreased in comparison to total deposits at June 30, 2021, the composition of the deposit portfolio has continued to shift into a more favorable source of funding. Noninterest bearing deposits continue to grow and represented 44.6 percent of total deposits at June 30, 2022. The cost of interest bearing liabilities declined to 0.43% from 0.73% for the same period in the prior year, due mainly to the run-off of higher cost time deposits which have been replaced with lower cost money market accounts.
  • COVID-19 Related Deferrals – At June 30, 2022, outstanding loans deferred due to COVID-19 amounted to $2.3 million, a decrease of 86.9 percent from $11.9 million at June 30, 2021.

Capital Bank Home Loans

  • Gain on Sale – The year-to-date gain on sale of mortgage loans decreased to $5.0 million at June 30, 2022 from $19.8 million at June 30, 2021 due mainly to the $424.4 million, or 68.5 percent, decline in mortgage originations. The steepening yield curve in 2022 has slowed originations from the year earlier period when low interest rates fueled refinance volumes. Gain on sale margins, down slightly from 2.91% for the six months ended June 30, 2021, remained strong at 2.48% for the six months ended June 30, 2022. Historically-low housing inventory, shortages in new home building materials, and fluctuating interest rates are likely to continue suppressing origination volumes into 2022.

OpenSky®

  • Balance Growth Offsets Account Attrition – Gross credit card balances increased by $20.7 million, or 16.7 percent, at June 30, 2022 when compared to June 30, 2021. The growth in credit card loan balances coupled with an increase in interest rates accounted for the $12.4 million growth in interest income when comparing the six months ended June 30, 2022 to the same period in 2021. A decrease in overall credit card accounts led to a reduction in credit card fees, which decreased by 11.1 percent to $12.1 million compared to $13.7 million for the same six month period last year.
             
COMPARATIVE FINANCIAL HIGHLIGHTS – Unaudited            
                   
  Quarter Ended       Six months ended    
  June 30,       June 30,    
(dollars in thousands except per share data)   2022       2021     % Change     2022       2021     % Change
Earnings Summary                      
Interest income $ 36,556     $ 29,289     24.8  %   $ 70,957     $ 55,927     26.9  %
Interest expense   1,156       1,769     (34.7 )%     2,226       3,964     (43.8 )%
Net interest income   35,400       27,520     28.6  %     68,731       51,963     32.3  %
Provision for loan losses   2,035       781     160.6  %     2,987       1,284     132.6  %
Noninterest income   8,362       13,471     (37.9 )%     16,650       27,421     (39.3 )%
Noninterest expense   27,130       27,205     (0.3 )%     54,232       52,972     2.4  %
Income before income taxes   14,597       13,005     12.2  %     28,162       25,128     12.1  %
Income tax expense   3,089       3,357     (8.0 )%     6,443       6,499     (0.9 )%
Net income $ 11,508     $ 9,648     19.3  %   $ 21,719     $ 18,629     16.6  %
                       
Pre-tax pre-provision net revenue (“PPNR”) (2) $ 16,632     $ 13,786     20.6  %   $ 31,149     $ 26,412     17.9  %
Weighted average common shares – Basic   14,007       13,766     1.8  %     13,998       13,762     1.7  %
Weighted average common shares – Diluted   14,313       14,172     1.0  %     14,323       14,070     1.8  %
Earnings per share – Basic $ 0.82     $ 0.70     17.1  %   $ 1.55     $ 1.35     14.8  %
Earnings per share – Diluted $ 0.80     $ 0.68     17.6  %   $ 1.52     $ 1.32     15.2  %
Return on average assets (1)   2.23  %     1.90  %   17.4  %     2.12  %     1.88  %   12.8  %
Return on average assets, excluding impact of SBA-PPP loans(1) (2)   2.04  %     1.65  %   23.6  %     1.86  %     1.60  %   16.3  %
Return on average equity   22.16  %     22.36  %   (0.9 )%     21.25  %     22.33  %   (4.8 )%
                                       
  Quarter Ended   2Q22 vs. 2Q21   Quarter Ended
  June 30,     March 31,   December 31,   September 30,
(in thousands except per share data)   2022     2021   % Change     2022     2021     2021
Balance Sheet Highlights                      
Assets $ 2,154,846   $ 2,151,850   0.1  %   $ 2,122,453   $ 2,055,300   $ 2,169,556
Investment securities available for sale   226,509     160,515   41.1  %     172,712     184,455     189,165
Mortgage loans held for sale   11,708     47,935   (75.6 )%     17,036     15,989     36,005
SBA-PPP loans, net of fees   15,864     202,763   (92.2 )%     51,085     108,285     137,178
Portfolio loans receivable (3)   1,607,677     1,392,471   15.5  %     1,526,256     1,523,982     1,445,126
Allowance for loan losses   26,419     24,079   9.7  %     25,252     25,181     24,753
Deposits   1,888,920     1,917,419   (1.5 )%     1,862,722     1,797,137     1,921,238
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   207,316     177,204   17.0  %     201,492     197,903     189,080
Tangible common equity(2)   207,316     177,204   17.0  %     201,492     197,903     189,080
                       
Common shares outstanding   14,010     13,772   1.7  %     14,001     13,962     13,802
Tangible book value per share (2) $ 14.80   $ 12.87   15.0  %   $ 14.39   $ 14.17   $ 13.70
______________
(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 June 30, 2022 and 2021

For the three months ended June 30, 2022, net interest income increased $7.9 million, or 28.6 percent, to $35.4 million from the same period in 2021, primarily due to an increase in interest earned on the credit card loan portfolio. The net interest margin increased 159 basis points to 7.06% for the three months ended June 30, 2022 from the same period in 2021 due in large part to the acceleration of the deferred fees associated with the SBA-PPP loan forgiveness as well as the recognition of deferred fees on the credit card loans. Net interest margin, excluding credit card and SBA-PPP loans, was 3.86% for the second quarter of 2022 compared to 3.55% for the same period in 2021. For the three months ended June 30, 2022, average interest earning assets decreased $4.9 million, or 0.2 percent, to $2.0 billion as compared to the same period in 2021, and the average yield on interest earning assets increased 147 basis points. Compared to the same period in the prior year, average interest bearing liabilities decreased $60.0 million, or 5.5 percent, while the average cost of interest-bearing liabilities decreased 20 basis points to 0.45% from 0.65%.

The provision for loan losses of $2.0 million for the three months ended June 30, 2022 was related to growth in the credit card portfolio and the cycling of credit card accounts. Net charge-offs for the second quarter of 2022 were $868 thousand, or 0.23% on an annualized basis of average portfolio loans, compared to $252 thousand, or 0.08% on an annualized basis of average loans for the second quarter of 2021. All of the $868 thousand in net charge-offs during the quarter were related to the credit card portfolio.

For the quarter ended June 30, 2022, noninterest income was $8.4 million, a decrease of $5.1 million, or 37.9 percent, from $13.5 million in the prior year quarter. The decrease was primarily the result of reduced mortgage banking revenue.

Net credit card loan balances increased by $20.8 million to $142.2 million as of June 30, 2022 from $121.4 million at June 30, 2021. The related deposit account balances decreased 11.4 percent to $214.1 million at June 30, 2022 when compared to $241.7 million at June 30, 2021. For the three months ended June 30, 2022, OpenSky’s® secured credit card accounts decreased by 14 thousand net compared to 65 thousand net new accounts for the same period in 2021 as the elevated new account originations related to Covid stimulus payments subside.

The efficiency ratio for the three months ended June 30, 2022 decreased to 62.00% compared to 66.37% for the three months ended June 30, 2021.

Noninterest expense was $27.1 million for the three months ended June 30, 2022, as compared to $27.2 million for the three months ended June 30, 2021, a decrease of $74 thousand, or 0.3 percent. The decrease was primarily driven by decreases in data processing expenses of $2.9 million and loan processing expenses of $640 thousand, and were offset by increases in salaries and employee benefits of $1.3 million, advertising expenses of $930 thousand, and professional fees of $1.1 million.

Operating Results – Comparison of Six Months Ended June 30, 2022 and 2021

For the six months ended June 30, 2022, net interest income increased $16.8 million, or 32.3 percent, to $68.7 million from the same period in 2021, primarily due to an increase in average balances in the portfolio loans. The net interest margin increased 161 basis points to 6.93% for the six months ended June 30, 2022 from the same period in 2021. Net interest margin, excluding credit card and SBA-PPP loans, was 3.84% for the six months ended June 30, 2022 compared to 3.59% for the same period in 2021. For the six months ended June 30, 2022, average interest earning assets increased $30.8 million, or 1.6 percent, to $2.0 billion as compared to the same period in 2021, and the average yield on interest earning assets increased 143 basis points. Compared to the same period in the prior year, average interest-bearing liabilities decreased $56.9 million, or 5.2 percent, while the average cost of interest bearing liabilities decreased 30 basis points to 0.43% from 0.73%.

For the six months ended June 30, 2022, the provision for loan losses was $3.0 million, an increase of $1.7 million from the prior year. Net charge-offs for the six months ended June 30, 2022 were $1.7 million, or 0.23% annualized of average portfolio loans, compared to $640 thousand, or 0.10% annualized of average portfolio loans, for the same period in 2021. The $1.7 million in net charge-offs during the six months ended June 30, 2022 was comprised of credit card portfolio net charge-offs.

For the six months ended June 30, 2022, noninterest income was $16.7 million, a decrease of $10.8 million, or 39.3 percent, from the same period in 2021. The decrease was primarily driven by the reduction in mortgage banking revenues of $9.7 million.

For the six months ended June 30, 2022, the Bank had a net decrease of 44 thousand OpenSky® secured credit card accounts, decreasing the total number of open accounts to 616 thousand. This compares to 139 thousand net new originations for the same period last year, which increased total open accounts to 708 thousand.

The efficiency ratio for the six months ended June 30, 2022 decreased to 63.52% compared to 66.73% for the six months ended June 30, 2021 due to increases in interest income.

Noninterest expense was $54.2 million for the six months ended June 30, 2022, as compared to $53.0 million for the six months ended June 30, 2021, an increase of $1.3 million, or 2.4 percent. The increase was primarily driven by a $3.1 million, or 17.7 percent, increase in salaries and benefits, an increase in professional fees of 58.6 percent, or $1.8 million, and an $1.7 million, or 81.7 percent, increase in advertising expense. The increase was partially offset by a $3.9 million, or 20.0 percent, decrease in data processing and a $1.3 million, or 64.1 percent, decrease in loan processing. The decrease of $3.9 million in data processing expenses was primarily due to a contract renegotiation.

Financial Condition

Total assets at June 30, 2022 were $2.2 billion, comparable to the balance at June 30, 2021. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.6 billion as of June 30, 2022, an increase of 15.5 percent as compared to $1.4 billion at June 30, 2021.

While total deposits were $1.9 billion for the period ended June 30, 2022, a slight decline from the balance at June 30, 2021, the composition of the deposit portfolio shifted, with a decrease in higher costing time deposits of $121.9 million, or 43.1 percent, when comparing June 30, 2022 to June 30, 2021 to lower costing money market accounts and noninterest bearing accounts. At June 30, 2022, there were no listing service or brokered deposits compared to $68.2 million at June 30, 2021.

The Company recorded a provision for loan losses of $3.0 million during the six months ended June 30, 2022, which increased the allowance for loan losses to $26.4 million, or 1.63% of total loans (1.64%, excluding SBA-PPP loans, on a non-GAAP basis) at June 30, 2022. Nonperforming assets were $7.3 million, or 0.34% of total assets, as of June 30, 2022, down from $11.6 million, or 0.54% of total assets, at June 30, 2021, and was comprised solely of nonperforming loans. Included in nonperforming loans at June 30, 2022 were troubled debt restructurings of $519 thousand.

Stockholders’ equity increased to $207.3 million as of June 30, 2022, compared to $177.2 million at June 30, 2021. This increase was primarily attributable to earnings during the period of $21.7 million which were offset by unrealized losses recorded net of tax on the available for sale securities in the rising interest rate environment creating a $12.3 million reduction in accumulated other comprehensive income during the period. As of June 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 June 30,   Six Months Ended June 30,
    2022     2021     2022     2021
Interest income              
Loans, including fees $ 35,304   $ 28,641   $ 69,193   $ 54,709
Investment securities available for sale   779     544     1,149     1,021
Federal funds sold and other   473     104     615     197
Total interest income   36,556     29,289     70,957     55,927
               
Interest expense              
Deposits   964     1,582     1,847     3,589
Borrowed funds   192     187     379     375
Total interest expense   1,156     1,769     2,226     3,964
               
Net interest income   35,400     27,520     68,731     51,963
Provision for loan losses   2,035     781     2,987     1,284
Net interest income after provision for loan losses   33,365     26,739     65,744     50,679
               
Noninterest income              
Service charges on deposits   183     165     346     312
Credit card fees   6,210     7,715     12,134     13,655
Mortgage banking revenue   1,528     5,270     3,318     13,013
Gain on sale of investment securities available for sale, net       153         153
Other fees and charges   441     168     852     288
Total noninterest income   8,362     13,471     16,650     27,421
               
Noninterest expenses              
Salaries and employee benefits   10,071     8,750     20,381     17,317
Occupancy and equipment   1,313     1,195     2,339     2,324
Professional fees   2,417     1,362     4,738     2,987
Data processing   7,266     10,122     15,542     19,433
Advertising   2,223     1,293     3,862     2,126
Loan processing   335     975     727     2,026
Other operating   3,505     3,508     6,643     6,759
Total noninterest expenses   27,130     27,205     54,232     52,972
Income before income taxes   14,597     13,005     28,162     25,128
Income tax expense   3,089     3,357     6,443     6,499
Net income $ 11,508   $ 9,648   $ 21,719   $ 18,629
                       
Consolidated Balance Sheets      
(in thousands except share data) (unaudited)
June 30, 2022
  December 31, 2021
Assets      
Cash and due from banks $ 14,776     $ 42,914  
Interest bearing deposits at other financial institutions   234,823       136,824  
Federal funds sold   1,285       3,657  
Total cash and cash equivalents   250,884       183,395  
Investment securities available for sale   226,509       184,455  
Marketable equity securities   245       245  
Restricted investments   3,615       3,498  
Loans held for sale   11,708       15,989  
SBA-PPP loans receivable, net of fees   15,864       108,285  
Portfolio loans receivable, net of deferred fees and costs   1,607,677       1,523,982  
Less allowance for loan losses   (26,419 )     (25,181 )
Total portfolio loans held for investment, net   1,581,258       1,498,801  
Premises and equipment, net   3,315       3,282  
Accrued interest receivable   7,276       7,901  
Deferred income taxes, net   12,929       9,793  
Other real estate owned         86  
Bank owned life insurance   36,011       35,506  
Other assets   5,232       4,064  
Total assets $ 2,154,846     $ 2,055,300  
       
Liabilities      
Deposits      
Noninterest bearing $ 842,363     $ 787,650  
Interest bearing   1,046,557       1,009,487  
Total deposits   1,888,920       1,797,137  
Federal Home Loan Bank advances   22,000       22,000  
Other borrowed funds   12,062       12,062  
Accrued interest payable   300       473  
Other liabilities   24,248       25,725  
Total liabilities   1,947,530       1,857,397  
       
Stockholders’ equity      
Common stock, $.01 par value; 49,000,000 shares authorized; 14,010,158 and 13,962,334 issued and outstanding   140       140  
Additional paid-in capital   55,762       54,306  
Retained earnings   164,750       144,533  
Accumulated other comprehensive loss   (13,336 )     (1,076 )
Total stockholders’ equity   207,316       197,903  
Total liabilities and stockholders’ equity $ 2,154,846     $ 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 June 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 $ 218,251   $ 429   0.79 %   $ 259,330   $ 63   0.10 %
Federal funds sold   1,655     2   0.48       3,087        
Investment securities available for sale   215,172     779   1.45       139,997     544   1.56  
Restricted stock and equity securities   3,854     42   4.37       3,478     41   4.70  
Loans held for sale   11,447     134   4.70       44,644     314   2.82  
SBA-PPP loans receivable   28,870     1,120   15.56       250,040     2,272   3.64  
Portfolio loans receivable(2)   1,532,671     34,050   8.91       1,316,224     26,055   7.94  
Total interest earning assets   2,011,920     36,556   7.29       2,016,800     29,289   5.82  
Noninterest earning assets   56,298             24,432        
Total assets $ 2,068,218           $ 2,041,232        
                       
Liabilities and Stockholders’ Equity                      
Interest bearing liabilities:                      
Interest bearing demand accounts $ 259,192     38   0.06     $ 282,197     50   0.07  
Savings   9,913     1   0.04       6,634     1   0.05  
Money market accounts   566,303     396   0.28       460,669     352   0.31  
Time deposits   160,279     529   1.32       304,519     1,179   1.55  
Borrowed funds   34,062     192   2.27       35,770     187   2.10  
Total interest bearing liabilities   1,029,749     1,156   0.45       1,089,789     1,769   0.65  
Noninterest bearing liabilities:                      
Noninterest bearing liabilities   22,647             20,111        
Noninterest bearing deposits   807,558             758,255        
Stockholders’ equity   208,264             173,077        
Total liabilities and stockholders’ equity $ 2,068,218           $ 2,041,232        
                       
Net interest spread         6.84 %           5.17 %
Net interest income     $ 35,400           $ 27,520    
Net interest margin(3)         7.06 %           5.47 %
_______________
(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the three months ended June 30, 2022 and June 30, 2021, collectively, SBA-PPP loans and credit card loans accounted for 320 and 192 basis points of the reported net interest margin, respectively.
   

 

  Six Months Ended June 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 $ 208,043   $ 530   0.51 %   $ 232,712   $ 113   0.10 %
Federal funds sold   3,148     2   0.13       3,477       0.00  
Investment securities available for sale   197,965     1,149   1.17       123,443     1,022   1.67  
Restricted stock and equity securities   3,810     83   4.39       3,691     83   4.56  
Loans held for sale   12,467     245   3.96       58,475     794   2.74  
SBA-PPP loans receivable   55,917     3,186   11.49       242,619     4,741   3.94  
Portfolio loans receivable(1)   1,519,857     65,762   8.73       1,305,973     49,174   7.59  
Total interest earning assets   2,001,207     70,957   7.15       1,970,390     55,927   5.72  
Noninterest earning assets   61,533             25,113        
Total assets $ 2,062,740           $ 1,995,503        
                       
Liabilities and Stockholders’ Equity                      
Interest bearing liabilities:                      
Interest bearing demand accounts $ 276,490     74   0.05     $ 269,647     118   0.09  
Savings   9,098     3   0.07       6,127     2   0.05  
Money market accounts   552,858     697   0.25       465,882     881   0.38  
Time deposits   165,485     1,073   1.31       318,512     2,588   1.64  
Borrowed funds   34,062     379   2.24       34,699     375   2.18  
Total interest bearing liabilities   1,037,993     2,226   0.43       1,094,867     3,964   0.73  
Noninterest bearing liabilities:                      
Noninterest bearing liabilities   23,397             22,940        
Noninterest bearing deposits   795,221             709,443        
Stockholders’ equity   206,129             168,253        
Total liabilities and stockholders’ equity $ 2,062,740           $ 1,995,503        
                       
Net interest spread         6.72 %           4.99 %
Net interest income     $ 68,731           $ 51,963    
Net interest margin(2)         6.93 %           5.32 %
_______________
(1) Includes nonaccrual loans.
(2) For the six months ended June 30, 2022 and June 30, 2021, collectively, SBA-PPP loans and credit card loans accounted for 309 and 173 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 six months ended June 30, 2022 and June 30, 2021.

                         
Segments                        
                         
For the Three Months Ended June 30, 2022                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 18,912   $ 134     $ 16,780   $ 758   $ (28 )   $ 36,556
Interest expense     952     64           168     (28 )     1,156
Net interest income     17,960     70       16,780     590           35,400
Provision for loan losses               2,035               2,035
Net interest income after provision     17,960     70       14,745     590           33,365
Noninterest income     526     1,626       6,210               8,362
Noninterest expense(1)     12,859     2,217       11,940     114           27,130
Net income before taxes   $ 5,627   $ (521 )   $ 9,015   $ 476   $     $ 14,597
                         
Total assets   $ 1,958,893   $ 12,257     $ 137,180   $ 226,950   $ (180,434 )   $ 2,154,846
                         
For the Three Months Ended June 30, 2021                    
Interest income   $ 17,297   $ 313     $ 11,114   $ 600   $ (35 )   $ 29,289
Interest expense     1,413     221           170     (35 )     1,769
Net interest income     15,884     92       11,114     430           27,520
Provision for loan losses     349           432               781
Net interest income after provision     15,535     92       10,682     430           26,739
Noninterest income     260     5,454       7,715     42           13,471
Noninterest expense(1)     10,489     3,283       13,328     105           27,205
Net income before taxes   $ 5,306   $ 2,263     $ 5,069   $ 367   $     $ 13,005
                         
Total assets   $ 1,943,106   $ 49,110     $ 128,009   $ 197,071   $ (165,446 )   $ 2,151,850
________________________
(1) Noninterest expense includes $6.7 million and $9.3 million in data processing expense in OpenSky’s® segment for the three months ended June 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 Six Months Ended June 30, 2022                
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 37,412   $ 245     $ 31,720   $ 1,645   $ (65 )   $ 70,957
Interest expense     1,805     145           341     (65 )     2,226
Net interest income     35,607     100       31,720     1,304           68,731
Provision for loan losses               2,987               2,987
Net interest income after provision     35,607     100       28,733     1,304           65,744
Noninterest income     1,083     3,433       12,134               16,650
Noninterest expense(1)     24,922     4,316       24,822     172           54,232
Net income before taxes   $ 11,768   $ (783 )   $ 16,045   $ 1,132   $     $ 28,162
                         
Total assets   $ 1,958,893   $ 12,257     $ 137,180   $ 226,950   $ (180,434 )   $ 2,154,846
                         
For the Six Months Ended June 30, 2021                
Interest income   $ 34,861   $ 789     $ 19,309   $ 1,029     (61 )   $ 55,927
Interest expense     3,124     569           332     (61 )     3,964
Net interest income     31,737     220       19,309     697           51,963
Provision for loan losses     729           485     70           1,284
Net interest income after provision     31,008     220       18,824     627           50,679
Noninterest income     498     13,227       13,655     41           27,421
Noninterest expense(1)     19,888     7,202       25,702     180           52,972
Net income before taxes   $ 11,618   $ 6,245     $ 6,777   $ 488   $     $ 25,128
                         
Total assets   $ 1,943,106   $ 49,110     $ 128,009   $ 197,071   $ (165,446 )   $ 2,151,850
________________________
(1) Noninterest expense includes $14.3 million and $17.9 million in data processing expense in OpenSky’s® segment for the six months ended June 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)   June 30, 2022   March 31,
2022
  December 31,
2021
  September 30,
2021
  June 30,
2021
Earnings:                    
Net income   $ 11,508     $ 10,211     $ 10,171     $ 11,177     $ 9,648  
Earnings per common share, diluted     0.80       0.71       0.71       0.79       0.68  
Net interest margin     7.06  %     6.79  %     6.49  %     6.27  %     5.47  %
Net interest margin, excluding credit cards & SBA-PPP loans (1)     3.86  %     3.82  %     3.70  %     3.52  %     3.55  %
Return on average assets(2)     2.23  %     2.01  %     1.95  %     2.13  %     1.90  %
Return on average assets, excluding impact of SBA-PPP loans (1)(2)     2.04  %     1.67  %     1.80  %     1.99  %     1.65  %
Return on average equity(2)     22.16  %     20.30  %     20.66  %     23.87  %     22.36  %
Efficiency ratio     62.00  %     65.12  %     65.83  %     64.10  %     66.37  %
Balance Sheet:                    
Total portfolio loans receivable, net   $ 1,607,677     $ 1,526,256     $ 1,523,982     $ 1,445,126     $ 1,392,471  
Total deposits     1,888,920       1,862,722       1,797,137       1,921,238       1,917,419  
Total assets     2,154,846       2,122,453       2,055,300       2,169,556       2,151,850  
Total shareholders’ equity     207,316       201,492       197,903       189,080       177,204  
Asset Quality Ratios:                    
Nonperforming assets to total assets     0.34  %     0.28  %     0.56  %     0.77  %     0.54  %
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)     0.34  %     0.29  %     0.59  %     0.83  %     0.60  %
Nonperforming loans to total loans     0.45  %     0.38  %     0.70  %     0.85  %     0.52  %
Nonperforming loans to portfolio loans (1)     0.46  %     0.39  %     0.75  %     0.94  %     0.60  %
Net charge-offs to average portfolio loans (1)(2)     0.23  %     0.24  %     0.18  %     0.08  %     0.08  %
Allowance for loan losses to total loans     1.63  %     1.60  %     1.54  %     1.56  %     1.51  %
Allowance for loan losses to portfolio loans (1)     1.64  %     1.65  %     1.65  %     1.71  %     1.73  %
Allowance for loan losses to non-performing loans     360.06  %     422.65  %     220.40  %     182.48  %     287.40  %
Bank Capital Ratios:                    
Total risk based capital ratio     14.34  %     14.36  %     13.79  %     13.86  %     13.51  %
Tier 1 risk based capital ratio     13.09  %     13.10  %     12.53  %     12.60  %     12.25  %
Leverage ratio     9.11  %     8.74  %     8.36  %     7.83  %     7.58  %
Common equity Tier 1 capital ratio     13.09  %     13.10  %     12.53  %     12.60  %     12.25  %
Tangible common equity     8.17  %     8.11  %     8.36  %     7.57  %     7.17  %
Holding Company Capital Ratios:                    
Total risk based capital ratio     17.66  %     17.16  %     16.41  %     15.75  %     16.14  %
Tier 1 risk based capital ratio     15.70  %     15.19  %     14.43  %     14.49  %     14.10  %
Leverage ratio     10.93  %     10.25  %     9.73  %     9.12  %     8.78  %
Common equity Tier 1 capital ratio     15.55  %     15.04  %     14.28  %     14.34  %     13.94  %
Tangible common equity     9.62  %     9.49  %     9.63  %     8.72  %     8.23  %
Composition of Loans:                    
SBA-PPP loans, net   $ 15,864     $ 51,085     $ 108,285     $ 137,178     $ 202,763  
Residential real estate   $ 430,244     $ 420,242     $ 401,607     $ 418,205     $ 420,015  
Commercial real estate     608,646       564,725       556,339       502,523       471,807  
Construction real estate     241,249       245,722       255,147       251,256       223,832  
Commercial and industrial     193,262       177,504       175,956       143,244       158,392  
Credit card, net of reserve     142,166       123,750       141,120       134,979       121,410  
Other consumer loans     856       909       1,033       1,425       1,034  
Portfolio loans receivable   $ 1,616,423     $ 1,532,852     $ 1,531,202     $ 1,451,632     $ 1,396,490  
Deferred origination fees, net     (8,746 )     (6,596 )     (7,220 )     (6,506 )     (4,019 )
Portfolio loans receivable, net   $ 1,607,677     $ 1,526,256     $ 1,523,982     $ 1,445,126     $ 1,392,471  
Composition of Deposits:                    
Noninterest bearing   $ 842,363     $ 825,174     $ 787,650     $ 833,187     $ 828,308  
Interest-bearing demand     305,377       279,591       330,924       369,812       314,883  
Savings     10,078       9,894       6,994       6,682       6,965  
Money markets     570,298       585,920       493,919       493,029       484,567  
Time deposits     160,804       162,143       177,650       218,528       282,696  
Total Deposits   $ 1,888,920     $ 1,862,722     $ 1,797,137     $ 1,921,238     $ 1,917,419  
Capital Bank Home Loan Metrics:                
Origination of loans held for sale   $ 84,432     $ 110,446     $ 158,051     $ 217,175     $ 265,517  
Mortgage loans sold     89,797       109,953       178,068       229,111       278,384  
Gain on sale of loans     1,918       3,042       4,423       6,108       7,763  
Purchase volume as a % of originations     85.23  %     73.16  %     56.44  %     50.98  %     50.64  %
Gain on sale as a % of loans sold(3)     2.14  %     2.77  %     2.48  %     2.67  %     2.79  %
Mortgage commissions   $ 772     $ 1,125     $ 1,462     $ 1,884     $ 2,364  
OpenSky® Portfolio Metrics:                
Active customer accounts     616,435       630,709       660,397       700,383       707,600  
Secured credit card loans, gross   $ 118,938     $ 109,978     $ 125,898     $ 125,393     $ 116,054  
Unsecured credit card loans, gross     25,641       16,233       17,682       12,037       7,808  
Noninterest secured credit card deposits     214,110       220,354       229,530       242,405       241,724  
_______________
(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.
   

 

   
Return on Average Assets, as Adjusted Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Net Income   11,508   10,211   10,171   11,177   9,648  
Less: SBA-PPP loan income $ 1,120   2,066   1,347   1,525   2,272  
Net Income, as Adjusted $ 10,388   8,145   8,824   9,652   7,376  
Average Total Assets $ 2,068,218   2,057,201   2,066,283   2,084,772   2,041,232  
Less: Average SBA-PPP Loans   28,870   83,264   116,595   162,217   250,040  
Average Total Assets, as Adjusted $ 2,039,348   1,973,937   1,949,688   1,922,555   1,791,192  
Return on Average Assets, as Adjusted   2.04  % 1.67  % 1.80  % 1.99  % 1.65  %
   
Net Interest Margin, as Adjusted Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Net Interest Income $ 35,400   $ 33,331   $ 32,671   $ 32,059   $ 27,520  
Less Credit card loan income   16,376     14,487     15,010     15,086     10,497  
Less SBA-PPP loan income   1,120     2,066     1,347     1,525     2,272  
Net Interest Income, as Adjusted $ 17,904   $ 16,778   $ 16,314   $ 15,448   $ 14,751  
Average Interest Earning Assets   2,011,920     1,990,377     1,996,331     2,026,616     2,016,801  
Less Average credit card loans   124,548     124,923     131,306     124,771     100,456  
Less Average SBA-PPP loans   28,870     83,264     116,595     162,217     250,040  
Total Average Interest Earning Assets, as Adjusted $ 1,858,502   $ 1,782,190   $ 1,748,430   $ 1,739,628   $ 1,666,305  
Net Interest Margin, as Adjusted   3.86  %   3.82  %   3.70  %   3.52  %   3.55  %
   
Tangible Book Value per Share Quarters Ended
Dollars in thousands, except per share amounts June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Total Stockholders’ Equity $ 207,316   $ 201,492   $ 197,903   $ 189,080   $ 177,204  
Less: Preferred equity                    
Less: Intangible assets                    
Tangible Common Equity $ 207,316   $ 201,492   $ 197,903   $ 189,080   $ 177,204  
Period End Shares Outstanding   14,010,158     14,000,520     13,962,334     13,801,936     13,771,615  
Tangible Book Value per Share $ 14.80   $ 14.39   $ 14.17   $ 13.70   $ 12.87  
   
Allowance for Loan Losses to Total Portfolio Loans Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Allowance for Loan Losses $ 26,419   $ 25,252   $ 25,181   $ 24,753   $ 24,079  
Total Loans   1,623,541     1,577,341     1,632,267     1,582,304     1,595,234  
Less: SBA-PPP loans   15,864     51,085     108,285     137,178     202,763  
Total Portfolio Loans $ 1,607,677   $ 1,526,256   $ 1,523,982   $ 1,445,126   $ 1,392,471  
Allowance for Loan Losses to Total Portfolio Loans   1.64  %   1.65  %   1.65  %   1.71  %   1.73  %
           
           
Nonperforming Assets to Total Assets, net SBA-PPP Loans Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Total Nonperforming Assets $ 7,338   $ 5,975   $ 11,512   $ 16,801   $ 11,615  
Total Assets   2,154,846     2,122,453     2,055,300     2,169,556     2,151,850  
Less: SBA-PPP loans   15,864     51,085     108,285     137,178     202,763  
Total Assets, net SBA-PPP Loans $ 2,138,982   $ 2,071,368   $ 1,947,015   $ 2,032,378   $ 1,949,087  
Nonperforming Assets to Total Assets, net SBA-PPP Loans   0.34  %   0.29  %   0.59  %   0.83  %   0.60  %
           
           
Nonperforming Loans to Total Portfolio Loans Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Total Nonperforming Loans $ 7,338   $ 5,975   $ 11,425   $ 13,565   $ 8,378  
Total Loans   1,623,541     1,577,341     1,632,267     1,582,304     1,595,234  
Less: SBA-PPP loans   15,864     51,085     108,285     137,178     202,763  
Total Portfolio Loans $ 1,607,677   $ 1,526,256   $ 1,523,982   $ 1,445,126   $ 1,392,471  
Nonperforming Loans to Total Portfolio Loans   0.46  %   0.39  %   0.75  %   0.94  %   0.60  %
           
           
Net Charge-offs to Average Portfolio Loans Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Total Net Charge-offs $ 868   $ 881   $ 672   $ 301   $ 252  
Total Average Loans   1,561,541     1,590,166     1,582,473     1,569,198     1,567,973  
Less: Average SBA-PPP loans   28,870     83,264     116,595     162,217     250,040  
Total Average Portfolio Loans $ 1,532,671   $ 1,506,902   $ 1,465,878   $ 1,406,981   $ 1,317,933  
Net Charge-offs to Average Portfolio Loans   0.23  %   0.24  %   0.18  %   0.08  %   0.08  %
           
           
Pre-tax, Pre-Provision Net Revenue (“PPNR”) Quarters Ended
Dollars in thousands June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
           
Net income $ 11,508   $ 10,211   $ 10,171   $ 11,177   $ 9,648  
Add: Income Tax Expense   3,089     3,354     3,522     3,877     3,357  
Add: Provision for Loan Losses   2,035     952     1,100     975     781  
Pre-tax, Pre-Provision Net Revenue (“PPNR”) $ 16,632   $ 14,517   $ 14,793   $ 16,029   $ 13,786  
                               

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 June 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 $2.2 billion at June 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

By AKDSEO