Capital Bancorp Reports Record Quarter and Year to Date Earnings

Tuesday, 27. October 2020 02:00
  • 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
SectorTotal Loans OutstandingBalance# of Loans Deferred Total Loans OutstandingBalance# of Loans Deferred
Accommodation & Food Services$86.4$11.214 $83.9$42.636
Real Estate and Rental Leasing503.19.316 527.945.667
Other Services Including Private Households273.95.611 193.817.336
Educational Services20.5 20.49.86
Construction246.00.31 220.44.26
Professional, Scientific, and Technical Services87.31.12 88.45.011
Arts, Entertainment & Recreation30.41.42 14.95.09
Retail Trade24.5 25.53.08
Healthcare & Social Assistance78.00.91 77.24.711
Wholesale Trade2.6 13.00.91
All other (1)125.30.52 175.75.913
Total$1,478.0$30.349 $1,441.1$144.0204

_______________
(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 expense3,150  4,170  (24.5)% 10,583  11,502  (8.0)%
Net interest income22,039  18,184  21.2% 58,350  49,459  18.0%
Provision for loan losses3,500  1,071  226.8% 9,209  1,869  392.7%
Noninterest income21,146  7,221  192.8% 41,626  17,240  141.5%
Noninterest expense28,119  18,228  54.3% 68,665  48,768  40.8%
Income before income taxes11,566  6,106  89.4% 22,102  16,062  37.6%
Income tax expense3,128  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 - Basic13,795  13,728  0.5% 13,795  13,714  0.6%
Weighted average common shares - Diluted13,832  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 equity23.28% 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 sale53,992  37,073  45.6% 56,796  59,524  60,828
Mortgage loans held for sale137,717  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 losses22,016  12,808  71.9% 18,680  15,513  13,301
Deposits1,662,211  1,112,444  49.4% 1,608,726  1,302,913  1,225,421
Borrowings and repurchase agreements22,222  35,556  (37.5)% 25,556  28,889  32,222
Other borrowed funds17,516  15,416  13.6% 17,392  15,430  15,423
Total stockholders' equity149,377  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 outstanding13,682  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 sale273  215  929  707 
Federal funds sold and other80  239  484  706 
Total interest income25,189  22,354  68,933  60,961 
        
Interest expense       
Deposits2,634  3,449  9,201  9,887 
Borrowed funds516  721  1,382  1,615 
Total interest expense3,150  4,170  10,583  11,502 
        
Net interest income22,039  18,184  58,350  49,459 
Provision for loan losses3,500  1,071  9,209  1,869 
Net interest income after provision for loan losses18,539  17,113  49,141  47,590 
        
Noninterest income       
Service charges on deposits119  146  378  382 
Credit card fees5,773  2,059  10,694  5,521 
Mortgage banking revenue14,359  4,900  28,496  10,991 
Gain on sale of investment securities available for sale      26 
Other fees and charges895  116  2,058  320 
Total noninterest income21,146  7,221  41,626  17,240 
        
Noninterest expenses       
Salaries and employee benefits12,609  9,238  32,362  24,136 
Occupancy and equipment1,328  1,111  3,658  3,307 
Professional fees1,307  724  2,971  1,952 
Data processing7,880  4,192  17,664  11,222 
Advertising633  584  1,875  1,557 
Loan processing1,264  634  2,451  1,279 
Other real estate expenses, net9  7  137  57 
Other operating3,089  1,737  7,548  5,258 
Total noninterest expenses28,119  18,228  68,665  48,768 
Income before income taxes11,566  6,106  22,102  16,062 
Income tax expense3,128  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 institutions179,789  102,447 
Federal funds sold5,590  1,847 
Total cash and cash equivalents205,517  114,824 
Investment securities available for sale53,992  60,828 
Restricted investments3,958  3,966 
Loans held for sale137,717  71,030 
U.S. Small Business Administration Payroll Protection Program ("SBA-PPP") loans receivable, net of fees233,349   
Portfolio loans receivable, net of deferred fees and costs and net of allowance for loan losses of $22,016 and $13,3011,222,597  1,157,820 
Premises and equipment, net5,021  6,092 
Accrued interest receivable7,678  4,770 
Deferred income taxes, net3,589  4,263 
Other real estate owned3,326  2,384 
Other assets2,285  2,518 
Total assets$1,879,029  $1,428,495 
    
Liabilities   
Deposits   
Noninterest bearing$596,239  $291,777 
Interest bearing1,065,972  933,644 
Total deposits1,662,211  1,225,421 
Federal Home Loan Bank advances22,222  32,222 
Other borrowed funds17,516  15,423 
Accrued interest payable1,523  1,801 
Other liabilities26,179  20,297 
Total liabilities1,729,652  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 outstanding137  139 
Additional paid-in capital49,866  51,561 
Retained earnings97,580  81,618 
Accumulated other comprehensive income1,794  13 
Total stockholders' equity149,377  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 sold3,980    0.01  1,325  7  2.12 
Investment securities available for sale54,989  273  1.97  38,389  215  2.22 
Restricted stock4,007  51  5.04  5,629  68  4.77 
Loans held for sale112,890  856  3.02  56,301  896  6.31 
Loans receivable under SBA Payroll Protection Program235,160  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 assets1,748,894  25,189  5.73  1,236,558  22,354  7.17 
Noninterest earning assets22,768      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 
Savings5,126  1  0.05  3,913  3  0.35 
Money market accounts532,973  1,186  0.89  339,751  1,484  1.73 
Time deposits267,970  1,291  1.92  286,605  1,771  2.45 
Borrowed funds41,069  516  5.00  89,746  721  3.19 
Total interest bearing liabilities1,065,553  3,150  1.18  836,835  4,170  1.98 
Noninterest bearing liabilities:           
Noninterest bearing liabilities22,702      17,163     
Noninterest bearing deposits539,220      271,851     
Stockholders’ equity144,187      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 sold2,319  4  0.22  1,685  28  2.23 
Investment securities available for sale58,071  929  2.14  42,281  707  2.24 
Restricted stock4,025  174  5.78  4,276  160  4.99 
Loans held for sale77,878  1,909  3.27  35,229  1,928  7.32 
Loans receivable under SBA Payroll Protection Program134,130  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 assets1,572,803  68,933  5.85  1,159,999  60,961  7.03 
Noninterest earning assets21,779      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 
Savings4,686  4  0.13  3,613  9  0.35 
Money market accounts484,412  4,153  1.15  330,086  4,203  1.70 
Time deposits284,844  4,489  2.11  294,693  5,288  2.40 
Borrowed funds43,823  1,382  4.21  59,816  1,615  3.61 
Total interest bearing liabilities999,362  10,583  1.41  785,533  11,502  1.96 
Noninterest bearing liabilities:           
Noninterest bearing liabilities21,401      14,971     
Noninterest bearing deposits433,381      252,353     
Stockholders’ equity140,438      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 ThousandsYear EndedQuarter EndedYear to Date
 December 31, 2019September 30, 2020September 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 Adjusted1.38%1.80%1.25%

Net Interest Margin, as Adjusted

Dollars in ThousandsYear EndedQuarter EndedYear to Date
 December 31, 2019September 30, 2020September 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 Assets1,204,863 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 Adjusted5.60%3.84%3.91%

Tangible Book Value per Share

Dollars in Thousands  
 December 31, 2019September 30, 2020
   
Total Stockholders' Equity$133,331 $149,377 
Tangible Common Equity$133,331 $149,377 
Period End Shares Outstanding13,894,842 13,682,198 
Tangible Book Value per Share$9.60 $10.92 


Allowance for Loan Losses to Total Portfolio Loans  
Dollars in ThousandsYear EndedQuarter Ended
 December 31, 2019September 30, 2020
   
Allowance for Loan Losses$13,301 $22,016 
Total Loans1,171,121 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 Loans1.14%1.77%
   
   
Nonperforming Assets to Total Assets, net SBA-PPP Loans  
Dollars in ThousandsYear EndedQuarter Ended
 December 31, 2019September 30, 2020
   
Total Nonperforming Assets$7,104 $14,806 
Total Assets1,428,495 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 Loans0.50%0.90%
   
   
Nonperforming Loans to Total Portfolio Loans  
Dollars in ThousandsYear EndedQuarter Ended
 December 31, 2019September 30, 2020
   
Total Nonperforming Loans$4,720 $11,480 
Total Loans1,171,121 1,477,962 
Less: SBA-PPP loans (233,349)
Total Portfolio Loans$1,171,121 $1,244,613 
Nonperforming Loans to Total Portfolio Loans0.40%0.92%
   
   
Net Charge-offs to Average Portfolio Loans  
Dollars in ThousandsYear EndedQuarter Ended
 December 31, 2019September 30, 2020
   
Total Net Charge-offs$798 $(163)
Total Average Loans1,064,421 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 Loans0.08%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 

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