• Net Income Expands 33.8% with Improved Net Interest Margin from 2Q 2023
• Diluted EPS of $0.70, ROAA of 1.75%, and ROAE of 16.00% for 3Q 2023
• Loan and Deposit Growth Generates Positive Operating Leverage
• Tangible Book Value Per Share⁽¹⁾ of $17.48 for 3Q 2023 up 15% from 3Q 2022
• Cash dividend of $0.08 per share declared
  

ROCKVILLE, Md., Oct. 23, 2023 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $9.8 million, or $0.70 per diluted share, for the third quarter 2023, compared to net income of $7.3 million, or $0.52 per diluted share, for the second quarter 2023 and $11.1 million, or $0.77 per diluted share, for the third quarter 2022. For the quarter, total average deposits increased $37.1 million and the average loan portfolio grew $42.9 million. In addition, the net interest margin of 6.71% for the third quarter 2023 improved when compared to 6.63% for the second quarter 2023. Adjusted net interest margin⁽¹⁾ (excluding credit card and SBA-PPP loans) of 4.05% for the third quarter 2023 remained stable when compared to adjusted net interest margin⁽¹⁾ of 4.06% for the second quarter 2023.

The Company also declared a cash dividend on its common stock of $0.08 per share. The dividend is payable on November 22, 2023 to shareholders of record on November 6, 2023.

"Our business model is proving to be stable and resilient against a challenging backdrop," said Ed Barry, Chief Executive Officer of the Company and the Bank. "Our focus on core deposit relationships and differentiated lending has enabled profitable growth. We continue to make investments in technology, people, and asset generation that should further strengthen our franchise. Credit remains stable and we maintained high capital levels allowing us to be opportunistic moving forward."

“The Board is pleased with our improved quarter over quarter performance,” said Steven J. Schwartz, Chairman of the Company. "Our continued, stable net interest margin, coupled with growth in loans and deposits, enabled our ROAA and ROE to bounce back nicely and positions the Bank for continued best-in-class performance. In addition, we are gratified by our year-over-year growth in tangible book value per share, particularly considering the challenges facing banks today due to a rapidly changing interest rate environment, and falling values of certain real estate asset classes.”

⁽¹⁾ Reconciliations of the non–U.S. generally accepted accounting principles (“GAAP”) measures are set forth in the Appendix at the end of this press release.

Third Quarter 2023 Highlights

Capital Bancorp, Inc.

Earnings Summary - Net income of $9.8 million, or $0.70 per diluted share, increased $2.5 million compared to $7.3 million, or $0.52 per diluted share, for the second quarter 2023.

• Net interest income of $36.8 million increased $1.5 million compared to $35.3 million for the second quarter 2023. Interest income of $47.7 million increased $2.7 million compared to $45.1 million for the second quarter 2023. Interest expense of $10.9 million increased $1.2 million compared to $9.7 million for the second quarter 2023.
• The provision for credit losses was $2.3 million, a decrease of $0.6 million from the second quarter 2023. The change in provision was partially due to lower loan growth of $24.9 million from June 30, 2023 to September 30, 2023 as compared to loan growth of $50.9 million from March 31, 2023 to June 30, 2023.
• Noninterest income of $6.3 million decreased $0.4 million compared to $6.7 million for the second quarter 2023. Credit card fees decreased $0.3 million partially due to interchange fees from lower customer purchases as the number of open customer accounts decreased quarter over quarter.
• Noninterest expense of $28.0 million decreased $1.5 million compared to $29.6 million for the second quarter 2023 including total advertising expense of $1.6 million decreasing $1.1 million off of seasonally higher second quarter levels.

Performance and Efficiency Ratios – Annualized return on average assets ("ROAA") and annualized return on average equity ("ROAE") were 1.75% and 16.00%, respectively, for the three months ended September 30, 2023, compared to 1.34% and 12.30%, respectively, for the three months ended June 30, 2023.

• The efficiency ratio was 65.0% for the three months ended September 30, 2023, compared to 70.4% for the three months ended June 30, 2023. The change was primarily attributable to a $1.5 million increase in net interest income and a $1.5 million reduction in noninterest expense quarter over quarter.
  

Balance Sheet – Total assets of $2.3 billion at September 30, 2023 increased $44.6 million, or 2.0%, from June 30, 2023.

• Cash and cash equivalents increased $26.8 million.
• Net portfolio loans of $1.9 billion increased $24.9 million, representing 5.4% annualized growth.
• Total deposits of $2.0 billion at September 30, 2023 increased $33.6 million, or 1.7%, from June 30, 2023, while total average deposits increased $37.1 million, or 7.8% annualized, quarter over quarter.
• The investment securities portfolio continues to be classified as available for sale and had a fair market value of $206.1 million, or 9.1% of total assets, at September 30, 2023 down slightly from $208.5 million at June 30, 2023. The amortized cost of the investment securities portfolio was $229.4 million, with an effective duration of 3.21 years. U.S. Treasury securities represent 74.8% of the overall investment portfolio. The accumulated other comprehensive loss ("AOCI Loss") on the investment securities portfolio increased $1.8 million during the quarter to $17.8 million as of September 30, 2023, which represents 7.3% of total stockholders' equity. The Company does not have a held to maturity ("HTM") investment securities portfolio.

Net Interest Margin - Net interest margin improved to 6.71% for the three months ended September 30, 2023, compared to 6.63% for the three months ended June 30, 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans), of 4.05%, remained stable compared to 4.06% for the three months ended June 30, 2023.

• The average yield on interest earning assets increased 24 basis points compared to the second quarter 2023. The increase in average yield is due to portfolio loans increasing 17 basis points to 9.72%, and interest-bearing deposits held at other institutions increased 96 basis points to 5.39%. Average portfolio loans increased $46.1 million and average interest-bearing deposits held at other institutions increased $20.7 million, compared to the second quarter 2023.
• The average rate on interest-bearing liabilities increased 24 basis points compared to the second quarter 2023. Increases in average rates include money market accounts increasing 38 basis points to 3.85% and time deposits increasing 21 basis points to 4.51%, while average balances increased $30.5 million and $8.0 million, respectively, compared to the second quarter 2023. The average rate on borrowed funds decreased 48 basis points to 2.59%, as a result of a reduction in average short-term FHLB advances of $8.3 million to $0.9 million in the third quarter 2023 from $9.1 million in the second quarter 2023.

Deposits and Cost of Funds - Total deposits at September 30, 2023 increased by $33.6 million, or 1.7%, compared to June 30, 2023.

• Interest-bearing deposits of $1.3 billion increased $46.0 million, or 3.7%, compared to June 30, 2023 with growth in money market accounts of $37.6 million, other time deposits of $22.5 million and a reduction in interest-bearing demand accounts of $14.1 million. Noninterest-bearing deposits of $680.8 million decreased $12.3 million, or 1.8%, compared to June 30, 2023. Brokered time deposits totaled $128.7 million at September 30, 2023, unchanged from June 30, 2023.
• The elevated interest rate environment has driven up the average cost of interest-bearing liabilities to 3.37% for the quarter ended September 30, 2023, compared to 3.13% for the second quarter 2023.
• Average noninterest-bearing deposits of $666.9 million decreased $9.4 million, or 1.4%, compared to June 30, 2023, and represented 34.8% of total average deposits at September 30, 2023.
• Average borrowed funds of $34.9 million decreased $8.3 million, or 19.1%, compared to June 30, 2023.

Robust Capital Positions - As of September 30, 2023, the Company reported a common equity tier 1 capital ratio of 15.71%, compared to 14.96% at June 30, 2023, and an allowance for credit losses to total loans ratio of 1.52%, compared to an allowance for credit losses to total loans ratio of 1.50% as June 30, 2023. Management expects the Company to remain well-capitalized for the foreseeable future. Shares repurchased and retired during the three months ended September 30, 2023, as part of the Company's stock repurchase program, totaled 100,575 shares at an average price of $19.47, for a total cost of $2.0 million including commissions. Tangible book value per common share grew 2.9% to $17.48 at September 30, 2023 when compared to June 30, 2023. The company did not have goodwill or other intangible assets during any of the periods presented and therefore, tangible book value per share is equal to book value per share.

Liquidity - Total sources of available borrowings at September 30, 2023 totaled $646.6 million, including available collateralized lines of credit of $514.5 million, unsecured lines of credit with other banks of $76.0 million and unpledged investment securities available as collateral for potential additional borrowings of $56.1 million.

Commercial Bank

Continued Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $29.9 million, to $1.7 billion, gross, at September 30, 2023 compared to June 30, 2023.

Net Interest Income - Interest income of $30.4 million increased $1.7 million compared to $28.7 million for the second quarter 2023 driven primarily by loan growth. Interest expense of $10.7 million increased $1.2 million driven by an increase in average interest-bearing deposits with slightly higher rates in the third quarter 2023.

Credit Metrics - Nonperforming assets ("NPAs") decreased 4 basis points to 0.67% of total assets at September 30, 2023 compared to 0.71% at June 30, 2023 as a result of a decrease in nonaccrual loans at September 30, 2023 to $15.2 million compared to $15.7 million at June 30, 2023. Included in nonperforming assets is a single $8.2 million, multi-unit residential real estate loan that was downgraded in the first quarter of 2023. At September 30, 2023 commercial real estate loans with office space exposure totaled $55.4 million, or 3.0% of total portfolio loans, with a weighted average loan-to-value ("LTV") of 48.2%. Owner-occupied commercial real estate loans with office exposure totaled $42.5 million with a weighted average LTV of 47.8% and non owner-occupied commercial real estate loans with office exposure totaled $12.8 million with a weighted average LTV of 49.8%.

OpenSky^®

Revenues - Total revenue of $20.5 million increased $0.7 million from the second quarter 2023. Interest income of $16.1 million increased $1.0 million from the second quarter 2023. Average OpenSky^® loan balances, net of reserves and deferred fees of $116.8 million for the third quarter 2023, increased $6.2 million, or 5.6%, compared to $110.6 million for the second quarter 2023. Noninterest income of $4.4 million decreased $0.3 million due to a decline in credit card fees as compared to the second quarter 2023.

Noninterest Expense - Total noninterest expense of $10.6 million decreased $1.4 million from the second quarter 2023. Noninterest expense declined in the third quarter off of higher seasonal second quarter levels driven primarily by higher advertising expense. Advertising expense can vary throughout the year based on market opportunities for new account acquisition. During the third quarter 2023, the number of OpenSky^® credit card accounts declined by 10,853 to 529,205.

Loan Balances - OpenSky^® loan balances, net of reserves, of $122.5 million at September 30, 2023 decreased by $0.4 million, or 0.3%, compared to $122.9 million at June 30, 2023. Corresponding deposit balances of $181.2 million at September 30, 2023 decreased $5.4 million, or 2.9%, compared to $186.6 million at June 30, 2023. Gross unsecured loan balances of $27.4 million at September 30, 2023 increased $2.2 million compared to $25.3 million at June 30, 2023.

OpenSky^® Credit - Card delinquencies and utilization remained stable in the third quarter 2023 when compared to the second quarter 2023. The provision for credit losses decreased $0.3 million compared to the second quarter 2023 as card balances, net of reserve decreased $0.4 million during the third quarter 2023 as compared to an increase of $10.1 million during the second quarter 2022.

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⁽¹⁾ Refer to Appendix for reconciliation of non-GAAP measures

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

Operating Results - Comparison of Three Months Ended September 30, 2023 and 2022

For the three months ended September 30, 2023, net interest income of $36.8 million increased slightly from $36.7 million in the same period in 2022, primarily due to increased average balances of $245.3 million in portfolio loans combined with a 78 basis point increase in yield for portfolio loans partially offset by significant increases in the cost of funding. The net interest margin decreased 53 basis points to 6.71% for the three months ended September 30, 2023, from the same period in 2022 as interest income on credit cards decreased $1.0 million and interest income on SBA-PPP totaled $0.3 million for the three months ended September 30, 2022 with no comparable amount in 2023. Net interest margin, excluding credit card and SBA-PPP loans, decreased to 4.05% for the three months ended September 30, 2023, compared to 4.16% for the same period in 2022 as the costs of deposits, including money market accounts and time deposits, outpaced the increases in yields on interest-bearing deposits and portfolio loans.

For the three months ended September 30, 2023, average interest earning assets increased $166.4 million, or 8.3%, to $2.2 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 113 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $280.9 million, or 27.9%, and the average cost of interest-bearing liabilities increased to 3.37%, a 271 basis point increase from 0.66%.

For the three months ended September 30, 2023, the provision for credit losses was $2.3 million, an increase of $1.0 million from the same period in 2022. Net charge-offs for the three months ended September 30, 2023 were $1.8 million, or 0.38% on an annualized basis of average portfolio loans, compared to $1.6 million, or 0.39% on an annualized basis of average loans for the same period in 2022. Of the $1.8 million in net charge-offs during the quarter, $1.4 million related to secured and partially secured cards in the credit card portfolio and $0.3 million related to unsecured cards.

For the three months ended September 30, 2023, noninterest income of $6.3 million decreased $0.8 million, or 11.0%, from the same period in 2022. Credit card fees declined by $1.1 million as the number of open customer accounts declined year over year, which resulted in lower interchange and other fee income.

Credit card loan balances, net of reserves, decreased by $14.1 million to $122.5 million as of September 30, 2023, from $136.7 million at September 30, 2022. The related deposit account balances decreased 10.0% to $181.2 million at September 30, 2023 when compared to $201.3 million at September 30, 2022 reflecting the reduction in the number of open customer accounts year over year.

The efficiency ratio for the three months ended September 30, 2023 was 65.02% compared to 64.16% for the three months ended September 30, 2022.

For the three months ended September 30, 2023, noninterest expense of $28.0 million decreased slightly from $28.1 million for the same period in 2022. The change includes decreases in professional fees of $1.5 million and data processing expense of $0.8 million partially offset by increases in salaries and employee benefits of $1.7 million and other operating expense of $0.5 million.

Operating Results - Comparison of Nine Months Ended September 30, 2023 and 2022

For the nine months ended September 30, 2023, net interest income of $106.6 million increased $1.2 million from the same period in 2022, primarily due to increased average balances of $252.4 million in portfolio loans combined with the 81 basis point increase in yield for portfolio loans offset by significant increases in the cost of funding. The net interest margin decreased 35 basis points to 6.66% for the nine months ended September 30, 2023 from the same period in 2022. Net interest margin, excluding credit card and SBA-PPP loans, was 3.98% for the nine months ended September 30, 2023, compared to 3.94% for the same period in 2022.

For the nine months ended September 30, 2023, average interest earning assets increased $129.2 million, or 6.4%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 124 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $229.8 million, or 22.4%, while the average cost of interest-bearing liabilities increased 264 basis points to 3.15% from 0.51%.

For the nine months ended September 30, 2023, the provision for credit losses was $6.8 million, an increase of $2.6 million from the prior year, attributable primarily to the credit card portfolio. Net charge-offs for the nine months ended September 30, 2023 were $6.0 million, or 0.45% annualized of average portfolio loans, compared to $1.7 million, or 0.23% annualized of average portfolio loans, for the same period in 2022. The $6.0 million in net charge-offs during the nine months ended September 30, 2023 was comprised primarily of credit card portfolio net charge-offs with $4.1 million related to secured and partially secured cards while $1.0 million was related to unsecured cards.

For the nine months ended September 30, 2023, noninterest income of $19.0 million decreased $4.8 million, or 20.0%, from the same period in 2022. The decrease was primarily driven by the decline in credit card fees of $4.4 million as the number of open customer accounts declined to 529,205 at September 30, 2023 from 576,844 year over year, which resulted in lower interchange and other fee income recognized compared to the prior year. The elevated interest rate environment continues to put pressure on the mortgage market, resulting in declines in home loan sales and home loan refinances, which has resulted in a $0.6 million decrease in mortgage banking revenue compared to the prior year.

The efficiency ratio for the nine months ended September 30, 2023 was 66.73% compared to 63.75% for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, noninterest expense of $83.9 million increased $1.5 million, or 1.8%, from the same period in 2022. The increase was primarily driven by a $6.0 million, or 19.2%, increase in salaries and employee benefits, partially offset by a $3.2 million, or 13.9%, decrease in data processing expense and a $1.2 million decrease in professional fees due to a reduction in third party consulting fees. The decrease in data processing expense was the result of a contract renegotiation entered into in the first quarter 2022 in the OpenSky^® Division as well as fewer average open cards during the period.

Financial Condition

Total assets at September 30, 2023 were $2.3 billion, an increase of $44.6 million, or 2.0%, from the balance at June 30, 2023 and an increase of $263.1 million, or 13.1%, from the balance at September 30, 2022. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.9 billion at September 30, 2023, an increase of $24.9 million, up 1.4% or 5.4% annualized, compared to June 30, 2023, and an increase of $213.9 million, or 13.0%, compared to $1.6 billion at September 30, 2022.

The Company recorded a provision for credit losses of $6.8 million during the nine months ended September 30, 2023, which increased the allowance for credit losses to $28.3 million, or 1.52% of total loans at September 30, 2023, representing an increase of $0.8 million or 2.9%, from the balance at June 30, 2023. Nonperforming assets, which were comprised solely of nonperforming loans as of September 30, 2023, were $15.2 million, or 0.67% of total assets, down from $15.7 million, or 0.71% of total assets at June 30, 2023 and up from $8.6 million, or 0.43% of total assets at September 30, 2022. Included in nonperforming assets is a single $8.2 million, multi-unit residential real estate loan that was downgraded in the first quarter of 2023.

Deposits were $2.0 billion at September 30, 2023, an increase of $33.6 million, or 1.7%, from the balance at June 30, 2023 and an increase of $230.4 million, or 13.3%, from the balance at September 30, 2022. Average deposits of $1.9 billion for the three months ended September 30, 2023, increased $37.1 million, or 2.0%, as compared to the three months ended June 30, 2023. Rising interest rates have resulted in some customers moving balances from noninterest-bearing deposit accounts to interest-bearing deposit accounts. As a result of the migration, average noninterest-bearing deposit balances decreased $135.5 million to $666.9 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. These deposits represented 34.6% of total deposits at September 30, 2023 compared to 46.4% at September 30, 2022. Uninsured deposits were approximately $857.7 million as of September 30, 2023, representing 43.6% of the Company's deposit portfolio, compared to $860.4 million, or 44.5%, at June 30, 2023, and $960.2 million, or 55.3%, at September 30, 2022.

Stockholders’ equity increased to $242.9 million as of September 30, 2023, compared to $237.4 million at June 30, 2023 and $214.0 million at September 30, 2022. Shares repurchased and retired through September 30, 2023 as part of the Company's stock repurchase program totaled 385,919 shares at an average price of $18.12, for a total cost of $7.0 million including commissions. As of September 30, 2023, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

The following tables show 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.

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⁽¹⁾   Annualized.
⁽²⁾   Includes nonaccrual loans.
⁽³⁾   For the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, collectively, SBA-PPP loans and credit card loans accounted for 266, 257 and 308 basis points of the reported net interest margin, respectively.

⁽¹⁾   Annualized.
⁽²⁾   Includes nonaccrual loans.
⁽³⁾   For the nine months ended September 30, 2023 and 2022, collectively, SBA-PPP loans and credit card loans accounted for 268 and 307 basis points of the reported net interest margin, respectively.

The Company’s reportable segments represent business units with discrete financial information whose results are regularly reviewed by management. The four segments include Commercial Banking, Capital Bank Home Loans (the Company’s mortgage loan division), OpenSky^® (the Company’s credit card division) and the Corporate Office. The following schedule presents financial information for each reportable segment for the three and nine months ended September 30, 2023 and September 30, 2022.

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⁽¹⁾   Noninterest expense includes $6.1 million, $5.9 million and $6.6 million in data processing expense in OpenSky’s^® segment for the three months ended September 30, 2023 June 30, 2023, and September 30, 2022, 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.