Capital Bancorp Reports Record Quarter and Year to Date Earnings

Capital Bancorp, Inc.
·38 min read
  • Record earnings of $8.4 million, or $0.61 per diluted share for the third quarter of 2020 and $16.1 million, or $1.17 per diluted share for the nine months ended September 30, 2020

  • Third quarter earnings supported by all three business lines which provide resilience, diversification and risk mitigation in a range of economic conditions while returning 1.89% on assets, 23.28% on equity and providing pre-tax pre-provision net revenue of $15.1 million

  • Proactive credit management decreased loans in deferral status to 2.0% of loans outstanding as of September 30, 2020 which is a reduction of 79% from June 30, 2020

  • Increased provisions of $3.5 million to respond to economic conditions, increasing the ratio of the allowance for loan losses ("ALLL") to total loans to 1.49%, or 1.77% excluding Small Business Administration Payroll Protection Program ("SBA-PPP") loans

  • OpenSky® Credit Card account growth of 32% drove a $44.9 million increase in noninterest bearing secured credit card deposits, while cardholder behavior that showed signs of returning to pre-COVID patterns resulted in record credit card revenue of $5.8 million for the third quarter

  • Record mortgage loan originations of $431.1 million and mortgage banking revenue of $14.4 million during the quarter

ROCKVILLE, Md., Oct. 26, 2020 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $8.4 million, or $0.61 per diluted share, for the third quarter of 2020. By comparison, net income was $4.5 million, or $0.32 per diluted share, for the third quarter of 2019. Return on average assets was 1.89% for the third quarter of 2020, compared to 1.42% for the same period in 2019. Similarly, return on average equity was 23.3% for the third quarter of 2020, compared to 14.0% for the same period in 2019. Included in net income, in the current quarter, was a provision for loan losses of $3.5 million, compared to $1.1 million for the same period in 2019, attributable to the uncertain economic environment related to COVID-19.

"Our diversified business model has demonstrated resiliency in a difficult economic environment and continues to perform well as shown by our record earnings in the third quarter," said Ed Barry, CEO of Capital Bancorp. "We look to maintain momentum by focusing on expense control, increasing core deposits and expanding relationships with PPP borrowers in the quarters to come. Our consumer strategy is scaling more quickly than expected as we saw another quarter of robust growth in OpenSky® accounts, secured deposits, and related revenues as customer behavior began to normalize. Asset quality remains strong, with loans in deferral status decreasing 79% percent over the quarter to 2 percent of loans outstanding. Given the remaining uncertain economic outlook due to COVID-19, we recorded a provision of $3.5 million for the quarter bringing the total to $9.2 million for the year."

Third Quarter 2020 Highlights

  • Diversified Businesses Drive Record Net Income - In the third quarter of 2020, net income increased 88.2 percent to a record $8.4 million from $4.5 million in the third quarter of 2019. Our continued strong operating results demonstrate the advantages of the Bank's uncorrelated diversified business lines that are complimentary across economic cycles.

  • Net Interest Margin Improvement - Net interest margin ("NIM") increased by 29 basis points to 5.01% from the last quarter but decreased 82 basis points from 5.83% for the three months ended September 30, 2019. The year over year decline in NIM was driven by an overall decline in the interest rate environment, lower earning SBA-PPP loans and excess liquidity. Excluding credit card and SBA-PPP loans, third quarter 2020 NIM was 3.84%, down 12 basis points from the prior quarter and 53 basis points from 4.37% in the same period last year.

  • Growth in Core Deposits and Reduced Cost of Interest Bearing Liabilities - Noninterest bearing deposits increased by $32.2 million, or 5.7 percent, during the quarter ended September 30, 2020 and now represent 35.9% of total deposits. The growth in credit card-related deposits was partially offset by anticipated declines in SBA-PPP-related deposit balances. Overall, during the quarter, the cost of interest bearing liabilities was reduced from 1.38% at June 30, 2020 to 1.18% at September 30, 2020 as rates decreased in line with the market. The Bank continues to execute on its ongoing strategic initiative to improve the deposit portfolio mix by decreasing reliance on wholesale, internet and other non-core time deposits.

  • Cost Management Initiatives Improving Operating Leverage - Focused investments in technology, combined with process improvements and workforce rationalizations, continue to increase the Bank's operating leverage. Higher mortgage originations and credit card volumes increased noninterest expenses by $9.9 million, or 54.3 percent from the same quarter last year. These higher levels of activity drove a $13.9 million, or 192.9 percent increase in related noninterest income.

  • Balance Sheet Supported By Robust Capital Ratios, Elevated Reserves, and Excess Liquidity - As of September 30, 2020, the Company reported a common equity tier 1 capital ratio of 12.75% and ALLL to total loans of 1.49%, or 1.77% excluding SBA-PPP loans. The Bank is well-capitalized and has taken measures to navigate COVID-19 related disruptions by taking additional loan loss provisions and maintaining higher than normal levels of liquidity on the balance sheet.

  • Proactive Management Leads to Early Recognition of Problem Assets - Non-performing assets increased to $14.8 million at September 30, 2020 compared to $9.2 million at June 30, 2020. The increase was largely attributable to two past-due construction loans related to a single relationship and totaling $4.7 million. Both loans are well secured and we do not anticipate any losses with these credits. Non-performing assets as a percentage of total assets increased to 0.79%, 0.90% excluding SBA-PPP loans, at September 30, 2020 compared to 0.50% at June 30, 2020.

  • Continued Portfolio Loan Growth - For the quarter ended September 30, 2020, portfolio loans increased by $33.1 million, or 2.7 percent, to $1.24 billion compared to $1.21 billion at June 30, 2020. Commercial real estate loans increased by $8.9 million, or 2.4 percent, construction real estate loans increased by $14.7 million, or 6.9 percent and secured credit cards balances increased by $30.2 million, or 55.2 percent, while residential real estate decreased by $14.7 million, or 3.4 percent, and commercial and industrial loans decreased by $7.8 million, or 5.5 percent.

  • COVID-19 Related Deferrals - Outstanding loans deferred due to COVID-19 decreased by 79% from June 30, 2020 to September 30, 2020 as shown in the table below.

Loan Modifications (1)

(dollars in thousands)

September 30, 2020

June 30, 2020

Deferred Loans

Deferred Loans

Sector

Total Loans Outstanding

Balance

# of Loans Deferred

Total Loans Outstanding

Balance

# of Loans Deferred

Accommodation & Food Services

$

86.4

$

11.2

14

$

83.9

$

42.6

36

Real Estate and Rental Leasing

503.1

9.3

16

527.9

45.6

67

Other Services Including Private Households

273.9

5.6

11

193.8

17.3

36

Educational Services

20.5

20.4

9.8

6

Construction

246.0

0.3

1

220.4

4.2

6

Professional, Scientific, and Technical Services

87.3

1.1

2

88.4

5.0

11

Arts, Entertainment & Recreation

30.4

1.4

2

14.9

5.0

9

Retail Trade

24.5

25.5

3.0

8

Healthcare & Social Assistance

78.0

0.9

1

77.2

4.7

11

Wholesale Trade

2.6

13.0

0.9

1

All other (1)

125.3

0.5

2

175.7

5.9

13

Total

$

1,478.0

$

30.3

49

$

1,441.1

$

144.0

204

_______________
(1) Excludes modifications and deferrals made for OpenSky secured card customers.

  • Record Mortgage Originations and Revenues - In the third quarter of 2020, the Capital Bank Home Loans originated a record $431.1 million of mortgage loans for sale, compared to $197.8 million in the third quarter of 2019. Capital Bank Home Loans achieved record revenue of $14.4 million for the third quarter of 2020 compared to $4.9 million for the same period in 2019. Efforts to optimize product pricing and mix elevated the average gain on sale to 3.13%.

  • Continued Strong Growth in OpenSky® Credit Card Accounts - During the quarter, OpenSky® originated 148 thousand new credit cards, increasing the number of open credit card accounts to 529 thousand at September 30, 2020. Quarterly growth resulted in a $44.9 million increase in noninterest bearing secured credit card deposits which totaled $176.7 million at quarter end. Card balances, which typically lag new card production, increased in the third quarter of 2020 to $85.0 million from $54.7 million. Credit card fees were a record $5.8 million as consumer behavior shows signs of returning to pre-COVID patterns, resulting in a 98.2% increase in credit card revenue.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited

Quarter Ended

Nine Months Ended

September 30,

September 30,

(dollars in thousands except per share data)

2020

2019

% Change

2020

2019

% Change

Earnings Summary

Interest income

$

25,189

$

22,354

12.7

%

$

68,933

$

60,961

13.1

%

Interest expense

3,150

4,170

(24.5

)%

10,583

11,502

(8.0

)%

Net interest income

22,039

18,184

21.2

%

58,350

49,459

18.0

%

Provision for loan losses

3,500

1,071

226.8

%

9,209

1,869

392.7

%

Noninterest income

21,146

7,221

192.8

%

41,626

17,240

141.5

%

Noninterest expense

28,119

18,228

54.3

%

68,665

48,768

40.8

%

Income before income taxes

11,566

6,106

89.4

%

22,102

16,062

37.6

%

Income tax expense

3,128

1,625

92.5

%

5,968

4,239

40.8

%

Net income

$

8,438

$

4,481

88.3

%

$

16,134

$

11,823

36.5

%

Weighted average common shares - Basic

13,795

13,728

0.5

%

13,795

13,714

0.6

%

Weighted average common shares - Diluted

13,832

13,986

(1.1

)%

13,832

13,922

(0.6

)%

Earnings per share - Basic

$

0.61

$

0.33

87.4

%

$

1.17

$

0.86

36.0

%

Earnings per share - Diluted

$

0.61

$

0.32

90.4

%

$

1.17

$

0.85

37.6

%

Return on average assets (1)

1.89

%

1.42

%

33.1

%

1.35

%

1.35

%

%

Return on average assets, excluding impact of SBA PPP loans(1) (2)

1.80

%

1.42

%

26.8

%

1.25

%

1.35

%

(7.4

)%

Return on average equity

23.28

%

14.04

%

65.8

%

15.35

%

12.93

%

18.7

%


Quarter Ended

Quarter Ended

September 30,

3Q20 vs. 3Q19

June 30,

March 31,

December 31,

(in thousands except per share data)

2020

2019

% Change

2020

2020

2019

Balance Sheet Highlights

Assets

$

1,879,029

$

1,311,406

43.3

%

$

1,822,365

$

1,507,847

$

1,428,495

Investment securities available for sale

53,992

37,073

45.6

%

56,796

59,524

60,828

Mortgage loans held for sale

137,717

68,982

99.6

%

116,969

73,955

71,030

SBA-PPP loans, net of fees (3)

233,349

100.0

%

229,646

Portfolio loans receivable (3)

1,244,613

1,140,310

9.1

%

1,211,477

1,187,798

1,171,121

Allowance for loan losses

22,016

12,808

71.9

%

18,680

15,513

13,301

Deposits

1,662,211

1,112,444

49.4

%

1,608,726

1,302,913

1,225,421

Borrowings and repurchase agreements

22,222

35,556

(37.5

)%

25,556

28,889

32,222

Other borrowed funds

17,516

15,416

13.6

%

17,392

15,430

15,423

Total stockholders' equity

149,377

127,829

16.9

%

142,108

136,080

133,331

Tangible common equity(2)

149,377

127,829

16.9

%

142,108

136,080

133,331

Common shares outstanding

13,682

13,783

(0.7

)%

13,818

13,817

13,895

Tangible book value per share

$

10.92

$

9.27

17.7

%

$

10.28

$

9.85

$

9.60

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

Operating Results - Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

For the three months ended September 30, 2020, net interest income increased $3.9 million, or 21.2 percent, to $22.0 million from the same period in 2019, primarily due to a $512.3 million, or 41.4 percent, increase in average interest-earning assets. The net interest margin decreased 82 basis points to 5.01% for the three months ended September 30, 2020 from the same period in 2019 due to lower yields on loans which was partially offset by a decrease in interest expense due to a reduction in interest rates. Net interest margin, excluding credit card and SBA PPP loans, was 3.84% for the third quarter of 2020 compared to 4.37% for the same period in 2019. For the three months ended September 30, 2020, average interest earning assets increased $512.3 million, or 41.4 percent, to $1.7 billion as compared to the same period in 2019, and the average yield on interest earning assets decreased 144 basis points. Period over period, average interest-bearing liabilities increased $228.7 million, or 27.3 percent, while the average cost decreased 80 basis points to 1.18% from 1.98%.

The provision for loan losses of $3.5 million for the three months ended September 30, 2020 reflects the prevailing uncertainty in the economy as a result of COVID-19. Net charge-offs for the third quarter of 2020 were $163 thousand, or 0.06% of average loans on an annualized basis, compared to $111 thousand, or 0.04% of average loans on an annualized basis, for the third quarter of 2019.

For the quarter ended September 30, 2020, noninterest income was $21.1 million, an increase of $13.9 million, or 192.9 percent from $7.2 million in the prior year quarter. The increase was primarily driven by significant growth in mortgage banking revenues of $9.5 million and credit card fees of $3.7 million resulting from the higher level of credit card accounts.

For the three months ended September 30, 2020, the Bank originated 148 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 529 thousand. This compares to 31 thousand new originations for the same period last year, which increased total open accounts to 222 thousand. Since September 30, 2019, credit card loan balances increased to $85.0 million from $44.1 million, while the related deposit account balances increased 127 percent to $176.7 million. The record growth in open accounts was primarily driven by enhanced marketing and economic conditions that led consumers to recognize the value and convenience of the Bank's secured credit card product.

The efficiency ratio for the three months ended September 30, 2020 decreased to 65.11% compared to 71.75% for the three months ended September 30, 2019, resulting from increased revenue in addition to management's efforts to control expenses.

Noninterest expense was $28.1 million for the three months ended September 30, 2020, as compared to $18.2 million for the three months ended September 30, 2019, an increase of $9.9 million, or 54.3 percent. The increase was primarily driven by a $3.4 million, or 36.5 percent, increase in salaries and benefits, a $3.7 million, or 88.0 percent increase in data processing, and an increase in operating expenses of $1.4 million, or 77.8 percent period over period. Included in salaries and benefits are commissions paid on mortgage originations, which increased from $1.9 million to $3.7 million, primarily due to an increase in the number of mortgage originations. In the three month period ended September 30, 2020, $431.1 million of mortgage loans were originated for sale compared to $197.8 million in the three months ended September 30, 2019. The Company's organic growth was supported by a 5.6 percent increase in employees to 244 at September 30, 2020, up from 231 at September 30, 2019. The increase was included the addition of 13 new employees in the revenue producing teams of the commercial banking and mortgage banking divisions. The increase of $3.7 million in data processing expenses is largely attributable to the higher volume of open credit cards, and increased mortgage loan processing volumes during the third quarter. Additionally, operating expenses increased $1.4 million due to increases in marketing and advertising, credit expenses, professional fees and FDIC insurance.

Operating Results - Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

For the nine months ended September 30, 2020, net interest income increased $8.9 million, or 18.0 percent, to $58.4 million from the same period in 2019, primarily due to a $413 million, or 35.6 percent, increase in average interest-earning assets. As a result of the declining interest rate environment, which began in the third quarter of 2019, and the rapid increase in SBA PPP loans, net interest margin decreased 74 basis points to 4.96% for the nine months ended September 30, 2020 from the same period in 2019. Net interest margin, excluding credit cards and SBA PPP loans, was 3.92% for the nine months ended September 30, 2020 compared to 4.35% for the same period in 2019. For the nine months ended September 30, 2020, average interest earning assets increased $413 million, or 35.6 percent, to $1.6 billion as compared to the same period in 2019, and the average yield on interest earning assets decreased 118 basis points. Period over period, average interest-bearing liabilities increased $213.8 million, or 27.2 percent, while the average cost decreased 55 basis points to 1.41 percent from 1.96 percent.

For the nine months ended September 30, 2020, the provision for loan losses was $9.2 million, an increase of $7.3 million, or 392.7 percent, primarily due the impacts of COVID-19. Net charge-offs for the nine months ended September 30, 2020 were $494 thousand, or 0.07% of average loans, annualized, compared to $192 thousand, or 0.04% of average loans, annualized, for the same period in 2019.

For the nine months ended September 30, 2020, noninterest income was $41.6 million, an increase of $24.4 million, or 141.5 percent, from the same period in 2019. The increase was primarily driven by significant growth in mortgage banking revenues, which were up $17.5 million, and credit card fees, which increased by $5.2 million.

For the nine months ended September 30, 2020, the Bank originated 320 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 529 thousand. This compares to 72 thousand new originations for the same period last year, which increased total open accounts to 222 thousand. The record growth in open accounts was primarily driven by enhanced marketing and economic conditions that led consumers to recognize the value and convenience of the Bank's secured credit card product.

The efficiency ratio for the nine months ended September 30, 2020 decreased to 68.7% compared to 73.1% for the nine months ended September 30, 2019, primarily resulting from increased revenue in addition to management's efforts to control expenses.

Noninterest expense was $68.7 million for the nine months ended September 30, 2020, as compared to $48.8 million for the nine months ended September 30, 2019, an increase of $19.9 million, or 40.8 percent. The increase was primarily driven by an $8.2 million, or 34.1 percent, increase in salaries and benefits, a $6.4 million, or 57.4 percent increase in data processing, an increase in loan processing of $1.2 million and a $2.3 million, or 43.6 percent increase in other operating expenses period over period. Included in salaries and benefits are commissions paid on mortgage originations, which increased from $4.0 million to $7.5 million primarily due to an increase in the number of mortgage originations. In the nine months ended September 30, 2020, $920.2 million of mortgage loans were originated for sale compared to $208.5 million in the nine months ended September 30, 2019. The increase of $6.4 million in data processing expenses was due to the higher volume of open credit cards and increased mortgage loan processing volumes during the year. Additionally, operating expenses increased $2.3 million due to increases in marketing and advertising, credit expenses, professional fees and FDIC insurance.

During the nine months ended September 30, 2020, results of operations were impacted by the COVID-19 pandemic and include the deferral of $6.5 million of loan origination fees, net of costs, and the amortization of net fees of $1.1 million. There were no significant COVID-19 related noninterest expenses recorded during the nine months ended September 30, 2020.

Financial Condition

Total assets at September 30, 2020 were $1.88 billion, an increase of 43.3 percent as compared to $1.31 billion at September 30, 2019. Loans, excluding mortgage loans held for sale and PPP loans, totaled $1.24 billion as of September 30, 2020, an increase of 9.1 percent as compared to $1.14 billion at September 30, 2019.

Deposits at September 30, 2020 were $1.66 billion, an increase of 49.4 percent as compared to $1.11 billion at September 30, 2019. Noninterest bearing deposits increased by $303 million. These deposits include fiduciary accounts of title companies and property management accounts, as well as SBA PPP loans and the secured card deposits highlighted above. Interest bearing accounts increased by $246.9 million, mainly driven by a 46.7% increase in fiduciary accounts.

Due primarily to the deterioration in the macro-economic environment as a result of the impact of COVID-19, the Company recorded a provision for loan losses of $9.2 million during the nine months ended September 30, 2020, which increased our allowance for loan losses to $22.0 million, or 1.49% of total loans (1.77%, excluding SBA PPP loans, on a non-GAAP basis) at September 30, 2020. This level of reserve provides approximately 192 percent coverage of nonperforming loans at September 30, 2020, compared to a reserve of $12.8 million, or 1.12 percent, of total loans, and approximately 196% coverage of nonperforming loans at September 30, 2019. Nonperforming assets were $14.8 million, or 0.79% of total assets, as of September 30, 2020, up from $6.7 million, or 0.51% of total assets, at September 30, 2019. Of the $14.8 million in total nonperforming assets as of September 30, 2020, nonperforming loans represented $11.5 million and OREO totaled $3.3 million. The increase is primarily due to two construction loans totaling $4.7 million. Included in nonperforming loans at September 30, 2020 are troubled debt restructurings of $446 thousand.

Stockholders’ equity increased to $149.4 million as of September 30, 2020, compared to $127.8 million at September 30, 2019. This increase was primarily attributable to earnings and net proceeds from the exercise of stock options. Shares repurchased and retired in 2020 as part of the Company's stock repurchase program totaled 254,834 shares at a weighted average price of $10.84, for a total cost of $2.8 million including commissions. As of September 30, 2020, the Bank's capital ratios continue 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,

(in thousands)

2020

2019

2020

2019

Interest income

Loans, including fees

$

24,836

$

21,900

$

67,520

$

59,548

Investment securities available for sale

273

215

929

707

Federal funds sold and other

80

239

484

706

Total interest income

25,189

22,354

68,933

60,961

Interest expense

Deposits

2,634

3,449

9,201

9,887

Borrowed funds

516

721

1,382

1,615

Total interest expense

3,150

4,170

10,583

11,502

Net interest income

22,039

18,184

58,350

49,459

Provision for loan losses

3,500

1,071

9,209

1,869

Net interest income after provision for loan losses

18,539

17,113

49,141

47,590

Noninterest income

Service charges on deposits

119

146

378

382

Credit card fees

5,773

2,059

10,694

5,521

Mortgage banking revenue

14,359

4,900

28,496

10,991

Gain on sale of investment securities available for sale

26

Other fees and charges

895

116

2,058

320

Total noninterest income

21,146

7,221

41,626

17,240

Noninterest expenses

Salaries and employee benefits

12,609

9,238

32,362

24,136

Occupancy and equipment

1,328

1,111

3,658

3,307

Professional fees

1,307

724

2,971

1,952

Data processing

7,880

4,192

17,664

11,222

Advertising

633

584

1,875

1,557

Loan processing

1,264

634

2,451

1,279

Other real estate expenses, net

9

7

137

57

Other operating

3,089

1,737

7,548

5,258

Total noninterest expenses

28,119

18,228

68,665

48,768

Income before income taxes

11,566

6,106

22,102

16,062

Income tax expense

3,128

1,625

5,968

4,239

Net income

$

8,438

$

4,481

$

16,134

$

11,823


Consolidated Balance Sheets

(in thousands except share data)

(unaudited) September 30,
2020

December 31, 2019

Assets

Cash and due from banks

$

20,138

$

10,530

Interest bearing deposits at other financial institutions

179,789

102,447

Federal funds sold

5,590

1,847

Total cash and cash equivalents

205,517

114,824

Investment securities available for sale

53,992

60,828

Restricted investments

3,958

3,966

Loans held for sale

137,717

71,030

U.S. Small Business Administration Payroll Protection Program ("SBA-PPP") loans receivable, net of fees

233,349

Portfolio loans receivable, net of deferred fees and costs and net of allowance for loan losses of $22,016 and $13,301

1,222,597

1,157,820

Premises and equipment, net

5,021

6,092

Accrued interest receivable

7,678

4,770

Deferred income taxes, net

3,589

4,263

Other real estate owned

3,326

2,384

Other assets

2,285

2,518

Total assets

$

1,879,029

$

1,428,495

Liabilities

Deposits

Noninterest bearing

$

596,239

$

291,777

Interest bearing

1,065,972

933,644

Total deposits

1,662,211

1,225,421

Federal Home Loan Bank advances

22,222

32,222

Other borrowed funds

17,516

15,423

Accrued interest payable

1,523

1,801

Other liabilities

26,179

20,297

Total liabilities

1,729,652

1,295,164

Stockholders' equity

Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding

Common stock, $.01 par value; 49,000,000 shares authorized; 13,682,198 and 13,894,842 issued and outstanding

137

139

Additional paid-in capital

49,866

51,561

Retained earnings

97,580

81,618

Accumulated other comprehensive income

1,794

13

Total stockholders' equity

149,377

133,331

Total liabilities and stockholders' equity

$

1,879,029

$

1,428,495

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,

2020

2019

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

$

119,279

$

29

0.10

%

$

35,723

$

164

1.83

%

Federal funds sold

3,980

0.01

1,325

7

2.12

Investment securities available for sale

54,989

273

1.97

38,389

215

2.22

Restricted stock

4,007

51

5.04

5,629

68

4.77

Loans held for sale

112,890

856

3.02

56,301

896

6.31

Loans receivable under SBA Payroll Protection Program

235,160

1,470

2.49

0.00

Portfolio loans receivable(2)

1,218,589

22,510

7.35

1,099,191

21,004

7.58

Total interest earning assets

1,748,894

25,189

5.73

1,236,558

22,354

7.17

Noninterest earning assets

22,768

15,908

Total assets

$

1,771,662

$

1,252,466

Liabilities and Stockholders’ Equity

Interest bearing liabilities:

Interest bearing demand accounts

$

218,415

156

0.28

$

116,820

191

0.65

Savings

5,126

1

0.05

3,913

3

0.35

Money market accounts

532,973

1,186

0.89

339,751

1,484

1.73

Time deposits

267,970

1,291

1.92

286,605

1,771

2.45

Borrowed funds

41,069

516

5.00

89,746

721

3.19

Total interest bearing liabilities

1,065,553

3,150

1.18

836,835

4,170

1.98

Noninterest bearing liabilities:

Noninterest bearing liabilities

22,702

17,163

Noninterest bearing deposits

539,220

271,851

Stockholders’ equity

144,187

126,617

Total liabilities and stockholders’ equity

$

1,771,662

$

1,252,466

Net interest spread

4.55

%

5.19

%

Net interest income

$

22,039

$

18,184

Net interest margin(3)

5.01

%

5.83

%

_______________

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the three months ended September 30, 2020 and 2019, SBA-PPP loans and credit card loans collectively accounted for 117 and 146 basis points of the reported net interest margin, respectively.


Nine Months Ended September 30,

2020

2019

Average
Outstanding
Balance

Interest Income/
Expense

Average
Yield/
Rate(1)

Average
Outstanding
Balance

Interest Income/
Expense

Average
Yield/
Rate

(Dollars in thousands)

Assets

Interest earning assets:

Interest bearing deposits

$

98,661

$

306

0.41

%

$

35,164

$

518

1.97

%

Federal funds sold

2,319

4

0.22

1,685

28

2.23

Investment securities available for sale

58,071

929

2.14

42,281

707

2.24

Restricted stock

4,025

174

5.78

4,276

160

4.99

Loans held for sale

77,878

1,909

3.27

35,229

1,928

7.32

Loans receivable under SBA Payroll Protection Program

134,130

2,482

2.47

Portfolio loans receivable(2)

1,197,719

63,129

7.04

1,041,364

57,620

7.40

Total interest earning assets

1,572,803

68,933

5.85

1,159,999

60,961

7.03

Noninterest earning assets

21,779

15,115

Total assets

$

1,594,582

$

1,175,114

Liabilities and Stockholders’ Equity

Interest bearing liabilities:

Interest bearing demand accounts

$

181,597

555

0.41

$

97,325

387

0.53

Savings

4,686

4

0.13

3,613

9

0.35

Money market accounts

484,412

4,153

1.15

330,086

4,203

1.70

Time deposits

284,844

4,489

2.11

294,693

5,288

2.40

Borrowed funds

43,823

1,382

4.21

59,816

1,615

3.61

Total interest bearing liabilities

999,362

10,583

1.41

785,533

11,502

1.96

Noninterest bearing liabilities:

Noninterest bearing liabilities

21,401

14,971

Noninterest bearing deposits

433,381

252,353

Stockholders’ equity

140,438

122,257

Total liabilities and stockholders’ equity

$

1,594,582

$

1,175,114

Net interest spread

4.44

%

5.07

%

Net interest income

$

58,350

$

49,459

Net interest margin(3)

4.96

%

5.70

%

_______________

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the nine months ended September 30, 2020 and 2019, SBA-PPP loans and credit card loans collectively accounted for 104 and 135 basis points of the reported net interest margin, respectively.


HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited

Quarter Ended

(Dollars in thousands except per share data)

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

Earnings:

Net income

$

8,438

$

4,761

$

2,934

$

5,073

$

4,480

Earnings per common share, diluted

0.61

0.34

0.21

0.36

0.32

Net interest margin

5.01

%

4.72

%

5.16

%

5.33

%

5.83

%

Net interest margin, excluding credit cards & SBA-PPP loans (1)

3.84

%

3.96

%

3.96

%

4.02

%

4.37

%

Return on average assets(2)

1.89

%

1.19

%

0.84

%

1.48

%

1.42

%

Return on average assets excluding impact of SBA-PPP loans (1)(2)

1.80

%

1.04

%

0.84

%

1.48

%

1.42

%

Return on average equity(2)

23.28

%

13.70

%

8.59

%

15.32

%

14.04

%

Efficiency ratio

65.17

%

69.74

%

73.53

%

70.10

%

71.75

%

Balance Sheet:

Portfolio loans receivable (3)

$

1,244,613

$

1,211,477

$

1,187,798

$

1,171,121

$

1,140,310

Deposits

1,662,211

1,608,726

1,302,913

1,225,421

1,112,444

Total assets

1,879,029

1,822,365

1,507,847

1,428,495

1,311,406

Asset Quality Ratios:

Nonperforming assets to total assets

0.79

%

0.50

%

0.61

%

0.50

%

0.51

%

Nonperforming assets to total assets, excluding SBA-PPP loans (1)

0.90

%

0.58

%

0.61

%

0.50

%

0.51

%

Nonperforming loans to total loans

0.78

%

0.41

%

0.49

%

0.40

%

0.57

%

Nonperforming loans to portfolio loans (1)

0.92

%

0.48

%

0.49

%

0.40

%

0.57

%

Net charge-offs to average portfolio loans (1)(2)

0.06

%

0.05

%

0.07

%

0.10

%

0.04

%

Net charge-offs to average loans (1)(2)

0.06

%

0.05

%

0.07

%

0.10

%

0.04

%

Allowance for loan losses to total loans

1.49

%

1.30

%

1.31

%

1.14

%

1.12

%

Allowance for loan losses to portfolio loans

1.77

%

1.54

%

1.31

%

1.14

%

1.12

%

Allowance for loan losses to non-performing loans

191.78

%

318.25

%

268.13

%

281.80

%

195.76

%

Bank Capital Ratios:

Total risk based capital ratio

12.74

%

12.35

%

12.18

%

11.98

%

11.44

%

Tier 1 risk based capital ratio

11.48

%

11.10

%

10.93

%

10.73

%

10.19

%

Leverage ratio

7.44

%

7.73

%

8.61

%

8.65

%

8.60

%

Common equity Tier 1 capital ratio

11.48

%

11.10

%

10.93

%

10.73

%

10.19

%

Tangible common equity

7.09

%

6.91

%

8.03

%

8.21

%

8.21

%

Holding Company Capital Ratios:

Total risk based capital ratio

15.35

%

15.02

%

13.63

%

13.56

%

13.47

%

Tier 1 risk based capital ratio

12.93

%

12.58

%

12.38

%

12.31

%

12.21

%

Leverage ratio

8.63

%

8.85

%

9.83

%

9.96

%

10.37

%

Common equity Tier 1 capital ratio

12.75

%

12.39

%

12.19

%

12.12

%

12.02

%

Tangible common equity

7.95

%

7.80

%

11.08

%

10.71

%

10.26

%

Composition of Loans: (3)

Residential real estate

$

422,698

$

437,429

$

430,870

$

427,926

$

443,961

Commercial real estate

372,972

364,071

360,601

348,091

339,448

Construction real estate

227,661

212,957

204,047

198,702

182,224

Commercial and industrial - Other

134,889

142,673

151,551

151,109

132,935

SBA-PPP loans

238,735

229,646

Credit card

84,964

54,732

41,881

46,412

44,058

Other

2,268

947

1,103

1,285

1,148

Composition of Deposits:

Noninterest bearing

$

596,239

$

563,995

$

363,423

$

291,777

$

293,378

Interest bearing demand

247,150

268,150

175,924

174,166

186,422

Savings

4,941

5,087

4,290

3,675

3,994

Money Markets

472,447

507,432

473,958

429,078

313,131

Time Deposits

341,435

264,062

285,318

326,725

315,519

Capital Bank Home Loan Metrics:

Origination of loans held for sale

$

431,060

$

315,165

$

180,421

$

185,739

$

197,754

Mortgage loans sold

410,312

272,151

177,496

183,691

171,880

Gain on sale of loans

12,837

8,088

4,580

4,587

5,088

Purchase volume as a % of originations

33.76

%

31.16

%

32.79

%

28.95

%

44.02

%

Gain on sale as a % of loans sold(4)

3.13

%

2.97

%

2.52

%

2.44

%

2.88

%

OpenSky Credit Card Portfolio Metrics:

Active customer accounts

529,114

400,530

244,024

223,379

221,913

Credit card loans

$

84,964

$

54,732

$

41,881

$

46,412

$

44,058

Noninterest secured credit card deposits

176,708

131,854

84,689

78,223

77,689

_______________
(1) Refer to Appendix for reconciliation of non-GAAP measures
(2) Annualized.
(3) Loans are reflected net of deferred fees and costs.
(4) Gain on sale percentage is calculated as gain on sale of loans divided by the sum of gain on sale of loans and proceeds from loans held for sale, net of gains.

Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as Adjusted

Dollars in Thousands

Year Ended

Quarter Ended

Year to Date

December 31, 2019

September 30, 2020

September 30, 2020

Net Income

$

16,895

$

8,438

$

16,134

Less: SBA-PPP loan income

(1,470

)

(2,482

)

Net Income, as Adjusted

$

16,895

$

6,968

$

13,653

Average Total Assets

$

1,219,909

$

1,533,591

$

1,594,582

Less: Average SBA-PPP Loans

(238,071

)

(135,894

)

Average Total Assets, as Adjusted

$

1,219,909

$

1,533,591

$

1,458,687

Return on Average Assets, as Adjusted

1.38

%

1.80

%

1.25

%

Net Interest Margin, as Adjusted

Dollars in Thousands

Year Ended

Quarter Ended

Year to Date

December 31, 2019

September 30, 2020

September 30, 2020

Net Interest Income

$

67,509

$

22,039

$

58,350

Less Secured credit card loan income

(6,632

)

(15,225

)

Less SBA-PPP loan income

(1,470

)

(2,482

)

Net Interest Income, as Adjusted

$

67,509

$

13,937

$

40,644

Average Interest Earning Assets

1,204,863

1,748,894

1,572,803

Less Average secured credit card loans

(68,585

)

(51,289

)

Less Average SBA-PPP loans

(235,160

)

(134,130

)

Total Average Interest Earning Assets, as Adjusted

$

1,204,863

$

1,445,148

$

1,387,384

Net Interest Margin, as Adjusted

5.60

%

3.84

%

3.91

%

Tangible Book Value per Share

Dollars in Thousands

December 31, 2019

September 30, 2020

Total Stockholders' Equity

$

133,331

$

149,377

Tangible Common Equity

$

133,331

$

149,377

Period End Shares Outstanding

13,894,842

13,682,198

Tangible Book Value per Share

$

9.60

$

10.92


Allowance for Loan Losses to Total Portfolio Loans

Dollars in Thousands

Year Ended

Quarter Ended

December 31, 2019

September 30, 2020

Allowance for Loan Losses

$

13,301

$

22,016

Total Loans

1,171,121

1,477,962

Less: SBA-PPP loans

(233,349

)

Total Portfolio Loans

$

1,171,121

$

1,244,613

Allowance for Loan Losses to Total Portfolio Loans

1.14

%

1.77

%

Nonperforming Assets to Total Assets, net SBA-PPP Loans

Dollars in Thousands

Year Ended

Quarter Ended

December 31, 2019

September 30, 2020

Total Nonperforming Assets

$

7,104

$

14,806

Total Assets

1,428,495

1,879,029

Less: SBA-PPP loans

(233,349

)

Total Assets, net SBA-PPP Loans

$

1,428,495

$

1,645,680

Nonperforming Assets to Total Assets, net SBA-PPP Loans

0.50

%

0.90

%

Nonperforming Loans to Total Portfolio Loans

Dollars in Thousands

Year Ended

Quarter Ended

December 31, 2019

September 30, 2020

Total Nonperforming Loans

$

4,720

$

11,480

Total Loans

1,171,121

1,477,962

Less: SBA-PPP loans

(233,349

)

Total Portfolio Loans

$

1,171,121

$

1,244,613

Nonperforming Loans to Total Portfolio Loans

0.40

%

0.92

%

Net Charge-offs to Average Portfolio Loans

Dollars in Thousands

Year Ended

Quarter Ended

December 31, 2019

September 30, 2020

Total Net Charge-offs

$

798

$

(163

)

Total Average Loans

1,064,421

1,453,749

Less: Average SBA-PPP loans

(235,160

)

Total Average Loans, Excluding SBA-PPP Loans

$

1,064,421

$

1,218,589

Net Charge-offs (YTD annualized) to Average Portfolio Loans

0.08

%

0.06

%

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 fifth largest bank headquartered in Maryland at September 30, 2020. Capital Bancorp has been providing financial services since 1999 and now operates bank branches in five locations in the greater Washington, D.C. and Baltimore, Maryland markets. Capital Bancorp had assets of approximately $1.9 billion at September 30, 2020 and its common stock is traded in the NASDAQ Global Market under the symbol “CBNK.” More information can be found at the Company's website www.CapitalBankMD.com under its investor relations page.

FORWARD-LOOKING STATEMENTS

This earnings release contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements. Accordingly, we caution you that any such forward-looking statements are not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors. For details on factors that could affect these expectations, see risk factors and other cautionary language included in the Company's Annual Report on Form 10-K and other periodic and current reports filed with the Securities and Exchange Commission.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen as planned, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

These forward-looking statements are made as of the date of this communication, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

FINANCIAL CONTACT: Alan Jackson (240) 283-0402
MEDIA CONTACT: Ed Barry (240) 283-1912
WEB SITE: www.CapitalBankMD.com