CBNK Accelerating Loan Growth Drives Steady Profits and Returns

Mittwoch, 26. Januar 2022 22:45

ROCKVILLE, Md., Jan. 26, 2022 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $10.2 million, or $0.71 per diluted share, for the fourth quarter of 2021. By comparison, net income was $9.7 million, or $0.71 per diluted share, for the fourth quarter of 2020. Portfolio loans, net, increased $78.9 million when compared to the period ended September 30, 2021, and $208.5 million when compared to the period ended December 31, 2021.

“2021 was a tremendous year for Capital Bank,” said Steven Schwartz, Chairman of the Board of the Company. “The Commercial Bank, Capital Bank Home Loans and OpenSky® all outperformed expectations as investments in technology and people continued to deliver exceptional results. Building on the Bank’s success, we continue to seek out and invest in opportunities that will leverage our unique combination of technological innovation and community banking to build long-term shareholder value.”

"The fourth quarter’s results were driven by strong performance in the Commercial Bank and OpenSky® which more than made up for the slowdown of our mortgage business," said Ed Barry, CEO of the Company. "Capitalizing on market disruption, we made several strategic hires in the Commercial Bank which contributed to a 21.9 percent annualized portfolio loan growth in the fourth quarter. OpenSky® is poised to remain an engine of growth with the fourth quarter launch of our unsecured credit card line to our highest performing OpenSky® secured card holders. OpenSky's® annualized quarterly net loan growth of 18.1 percent continued to drive portfolio loan balances. Anticipated OpenSky® card holder attrition resulted in a modest decline in open accounts for the quarter but remains well-below historical levels."

Fourth Quarter 2021 Highlights

Capital Bancorp, Inc.

  • Stable Earnings - Continued strong performance by the Commercial Bank and OpenSky® contributed to the fourth quarter's results. Quarterly net income increased to $10.2 million from $9.7 million in the fourth quarter of 2020. Earnings were $0.71 per diluted share for the three months ended December 31, 2021 and 2020.
  • Outstanding Performance Ratios - Return on average assets ("ROAA") and return on average equity ("ROAE") were 1.95% and 20.66%, respectively, for the three months ended December 31, 2021 compared to 2.08% and 25.26%, respectively, for the three months ended December 31, 2020.
  • Expanded Net Interest Margin - Net interest margin was 6.49% for the three months ended December 31, 2021, which is an increase of 92 basis points compared to 5.57% for the same three month period last year and an increase over linked quarter of 22 basis points, from 6.27%, for the three months ended September 30, 2021. The margin improvement over linked quarter was driven by an increase in average loans outstanding as well as management's concentrated effort to lower funding costs.
  • Robust Capital Positions - As of December 31, 2021, the Company reported a common equity tier 1 capital ratio of 14.28% and an allowance for loan losses to total loans ratio of 1.54%, or 1.65% excluding Small Business Administration Payroll Protection Program ("SBA-PPP") loans. During the preceding twelve months, tangible book value per common share grew 22.4 percent to $14.17 at December 31, 2021.

Commercial Bank

  • Accelerating Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $176.0 million, or 14.5 percent, to $1.4 billion at December 31, 2021 compared to December 31, 2020, and by $73.4 million, compared to September 30, 2021. The year over year growth was mainly due to a 41.7 percent increase in commercial real estate loans of $163.8 million, of which $102.2 million was owner occupied while $61.6 was non-owner occupied. Also contributing to the year over year growth was a 12.0 percent increase in commercial and industrial loans of $18.8 million and a 13.4 percent increase in construction real estate loans of $30.2 million. Offsetting total growth was a $36.3 million decrease in residential real estate loans.
  • Growth in Core Deposits and Reduced Cost of Funds - Noninterest bearing deposits increased 29.4 percent compared to December 31, 2020. The $179.1 million year over year increase was primarily due to an increase in commercial demand deposits reflecting management's ongoing strategic initiative to improve the deposit franchise. At December 31, 2021, noninterest bearing deposits represented 43.8% of total deposits compared to 36.8% at December 31, 2020. Overall, the cost of interest bearing liabilities was reduced 53 basis points, from 0.95% for the quarter ended December 31, 2020 to 0.42% for the quarter ended December 31, 2021.
  • Improving Credit Metrics - Non-performing assets ("NPAs") decreased to 0.56% of total assets at December 31, 2021 compared to 0.77% at September 30, 2021 primarily due to the disposition of $3.2 million in other real estate owned during the fourth quarter of 2021 and a reduction in nonaccrual loans of $2.3 million as management continues to focus on reducing non-performing assets. Primarily as a result of improving market conditions, the provision for loan losses declined $933.0 thousand compared to the fourth quarter of 2020. The current provision for the three months ended December 31, 2021 was $1.1 million and primarily related to the credit card portfolio.
  • SBA-PPP Loans - SBA-PPP loans, net of $3.2 million in unearned fees, totaled $108.3 million at December 31, 2021 which was comprised of $4.4 million in 2020 originations and $103.9 million of 2021 originations. As of December 31, 2021, the Company has obtained forgiveness for $261.6 million of SBA-PPP loans.

Capital Bank Home Loans

  • Softening Mortgage Performance - Origination volumes declined 58.7 percent, to $158.1 million, in the fourth quarter of 2021, when compared to $382.3 million in the fourth quarter of 2020. The continued steepening of the yield curve in the fourth quarter of 2021 slowed originations from the year earlier when low interest rates fueled refinance volumes. In the most recent quarter, mortgage origination volumes declined $59.1 million or 27.2 percent from the three months ended September 30, 2021 due to normal seasonal patterns as well as the rate-related slow-down in the mortgage industry which has disproportionately impacted refinance activity.
  • Purchase Volume - Purchase volumes increased to 56.4 percent of total originations for the fourth quarter of 2021, up from 30.0 percent during the fourth quarter of 2020.

OpenSky®

  • Strong Revenue Growth - OpenSky® revenue grew by 38.2 percent to $22.2 million for the quarter ended December 31, 2021 from the same period in 2020. As account growth, line usage and customer behaviors continue to revert to traditional seasonal patterns, management anticipates modest seasonal declines in open accounts as account opening and attrition normalize.
  • Continued Growth in OpenSky® Loans and Deposits - OpenSky® loan balances, net of reserves, increased by $38.9 million to $141.1 million compared to $102.2 million in the fourth quarter of 2020 and from $135.0 million, or 4.5 percent, on a linked quarter basis. Corresponding deposit balances increased 19.2 percent or $37.0 million from $192.5 million at December 31, 2020 to $229.5 million at December 31, 2021.

2021 Highlights

Capital Bancorp

  • Diversified Businesses Drive Net Income - Net income for the twelve months ended December 31, 2021 increased 54.8 percent to $40.0 million, or $2.84 per diluted share, from $25.8 million, or $1.87 per diluted share for the twelve months ended December 31, 2020. Continued strong operating results demonstrate the advantages of the Company's diversified business lines that are, in certain respects, non-correlated across economic cycles.
  • Top Tier Performance Ratios - Improved earnings supported ROAA and ROAE of 1.96% and 22.27%, respectively, for the twelve months ended December 31, 2021 compared to 1.56% and 18.00%, respectively, for the twelve months ended December 31, 2020.
  • Expanded Net Interest Margin - For the twelve months ended December 31, 2021, net interest margin increased by 72 basis points to 5.86% compared to 5.14% for the twelve months ended December 31, 2020. The margin improvement was largely driven by the increase in OpenSky® income.
  • Stable Efficiency Ratio - The efficiency ratio increased slightly to 65.79% for the twelve months ended December 31, 2021 compared to 65.44% for the same twelve month period in the prior year.
  • Strong Balance Sheet Growth - Total assets increased $178.7 million, or 9.5 percent during the twelve months ended December 31, 2021 and was primarily funded by a $145.0 million increase in deposits. The growth of earning assets on the balance sheet consisted primarily of increases in cash equivalents of $36.5 million, portfolio loans net of deferred fees of $208.5 million which includes OpenSky® net loan growth of $30.1 million, investments available for sale of $84.7 million, and Bank Owned Life Insurance ("BOLI") of $35.5 million. Asset growth was primarily offset by a decrease of $91.2 million in loans held for sale as well as a $92.7 million reduction in SBA-PPP loans.

Commercial Bank

  • Strong Portfolio Loan Growth - Portfolio loans, excluding credit card loans, increased by $176.0 million, or 14.5 percent, to $1.4 billion at December 31, 2021 compared to $1.2 billion at December 31, 2020. The growth was primarily due to a 41.7 percent increase in commercial real estate loans of $163.8 million, of which $102.2 million was owner occupied while $61.6 was non owner occupied.
  • Improved Deposit Franchise and Lower Cost of Funding - Noninterest bearing deposits increased by $179.1 million, or 29.4 percent, during the twelve months ended December 31, 2021 and represented 43.8 percent of total deposits at December 31, 2021. The cost of interest bearing liabilities declined to 0.61% from 1.29% for the same period in the prior year, due mainly to the average rate of interest bearing demand deposits dropping from 0.34% as of December 31, 2020 to 0.07% as of December 31, 2021.
  • COVID-19 Related Deferrals - At December 31, 2021, outstanding loans deferred due to COVID-19 amounted to $4.0 million, a decrease of 86.9 percent from $30.5 million at December 31, 2020.

Capital Bank Home Loans

  • Gain on Sale - The year-to-date gain on sale of mortgage loans decreased to $30.3 million at December 31, 2021 from $38.5 million at December 31, 2020 due mainly to the $314.4 million, or 24.0 percent, decline in mortgage originations. The steepening yield curve in 2021 has slowed originations from the year earlier period when low interest rates fueled refinance volumes. Gain on sale margins, down slightly from 3.02% for the twelve months ended December 31, 2020, remained strong at 2.79% for the twelve months ended December 31, 2021. Historically-low housing inventory, shortages in new home building materials, and fluctuating interest rates are likely to continue suppressing origination volumes into 2022.

OpenSky®

  • Growth Elevates Performance - The 92 thousand net increase in the number of accounts in the twelve months ended December 31, 2021 resulted in a $37.0 million increase in noninterest bearing secured credit card deposits that totaled $229.5 million as of December 31, 2021. Credit card balances increased by $38.9 million, or 38.1 percent, for the twelve months ended December 31, 2021 and totaled $141.1 million at December 31, 2021. Account growth led to higher credit card fees, which increased by 64.4 percent to $27.9 million compared to $17.0 million for the same twelve month period last year, largely driven by the increase in the number of accounts in the portfolio.
COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited      
          
 Quarter Ended   Twelve months ended  
 December 31,   December 31,  
(amounts in thousands except per share data)2021 2020 % Change 2021 2020 % Change
Earnings Summary           
Interest income$33,788  $28,318  19.3% $123,243  $97,251  26.7%
Interest expense 1,117   2,599  (57.0)%  6,550   13,182  (50.3)%
Net interest income 32,671   25,719  27.0%  116,693   84,069  38.8%
Provision for loan losses 1,100   2,033  (45.9)%  3,359   11,242  (70.1)%
Noninterest income 10,617   16,030  (33.8)%  50,636   50,144  1.0%
Noninterest expense 28,495   26,680  6.8%  110,094   87,834  25.3%
Income before income taxes 13,693   13,036  5.0%  53,876   35,137  53.3%
Income tax expense 3,522   3,347  5.2%  13,898   9,314  49.2%
Net income$10,171  $9,689  5.0% $39,978  $25,823  54.8%
            
Pre-tax pre-provision net revenue ("PPNR") (2)$14,793  $15,069  (1.8)% $57,235  $46,379  23.4%
Weighted average common shares - Basic 13,877   13,686  1.4%  13,799   13,793  %
Weighted average common shares - Diluted 14,290   13,707  4.3%  14,081   13,800  2.0%
Earnings per share - Basic$0.73  $0.71  2.8% $2.90  $1.87  55.1%
Earnings per share - Diluted$0.71  $0.71  % $2.84  $1.87  51.9%
Return on average assets (1) 1.95%  2.08% (6.3)%  1.96%  1.56% 25.6%
Return on average assets, excluding impact of SBA-PPP loans(1) (2) 1.80%  1.88% (4.3)%  1.75%  1.42% 23.2%
Return on average equity 20.66%  25.26% (18.2)%  22.27%  18.00% 23.7%


 Quarter Ended 4Q21 vs. 4Q20 Quarter Ended
 December 31,  September 30, June 30, March 31,
(in thousands except per share data)2021 2020 % Change 2021 2021 2021
Balance Sheet Highlights           
Assets$2,055,300 $1,876,593 9.5% $2,169,556 $2,151,850 $2,091,851
Investment securities available for sale 184,455  99,787 84.8%  189,165  160,515  128,023
Mortgage loans held for sale 15,989  107,154 (85.1)%  36,005  47,935  60,816
SBA-PPP loans, net of fees 108,285  201,018 (46.1)%  137,178  202,763  265,712
Portfolio loans receivable (3) 1,523,982  1,315,502 15.8%  1,445,126  1,392,471  1,312,375
Allowance for loan losses 25,181  23,434 7.5%  24,753  24,079  23,550
Deposits 1,797,137  1,652,128 8.8%  1,921,238  1,917,419  1,863,069
FHLB borrowings 22,000  22,000 %  22,000  22,000  22,000
Other borrowed funds 12,062  14,016 (13.9)%  12,062  12,062  12,062
Total stockholders' equity 197,903  159,311 24.2%  189,080  177,204  167,003
Tangible common equity(2) 197,903  159,311 24.2%  189,080  177,204  167,003
            
Common shares outstanding 13,962  13,754 1.5%  13,802  13,772  13,759
Tangible book value per share (2)$14.17 $11.58 22.4% $13.70 $12.87 $12.14

______________

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

Operating Results - Comparison of Three Months Ended December 31, 2021 and 2020

For the three months ended December 31, 2021, net interest income increased $7.0 million, or 27.0 percent, to $32.7 million from the same period in 2020, primarily due to an increase in interest earning assets and a decrease in rates on interest bearing liabilities. The net interest margin increased 92 basis point to 6.49% for the three months ended December 31, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.70% for the fourth quarter of 2021 compared to 3.80% for the same period in 2020. For the three months ended December 31, 2021, average interest earning assets increased $160.0 million, or 8.7 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 58 basis points. Compared to the same period in the prior year, average interest-bearing liabilities decreased $37.8 million, or 3.5 percent, while the average cost of interest bearing liabilities decreased 53 basis points to 0.42% from 0.95%.

The provision for loan losses of $1.1 million for the three months ended December 31, 2021 was primarily related to growth in the credit card portfolio. Net charge-offs for the fourth quarter of 2021 were $671.6 thousand, or 0.18% on an annualized basis of average loans, compared to $615.0 thousand, or 0.19% on an annualized basis of average loans for the fourth quarter of 2020. The $671.6 thousand in net charge-offs during the quarter was related solely to the credit card portfolio.

For the quarter ended December 31, 2021, noninterest income was $10.6 million, a decrease of $5.4 million, or 33.8 percent, from $16.0 million in the prior year quarter. The decrease was primarily the result of reduced mortgage banking revenue.

Net credit card loan balances increased by $38.9 million to $141.1 million as of December 31, 2021 from $102.2 million at December 31, 2020. The related deposit account balances increased 19.2 percent to $229.5 million at December 31, 2021 when compared to $192.5 million at December 31, 2020. For the three months ended December 31, 2021, OpenSky's® secured credit card accounts decreased by 40 thousand net compared to 39 thousand net new accounts for the same period in 2020 suggesting consumer behaviors may be returning to historical trends after being elevated in response to COVID-19 throughout 2020 and the first two quarters of 2021.

The efficiency ratio for the three months ended December 31, 2021 increased to 65.83% compared to 63.91% for the three months ended December 31, 2020 due mainly to the reduction in mortgage income generated.

Noninterest expense was $28.5 million for the three months ended December 31, 2021, as compared to $26.7 million for the three months ended December 31, 2020, an increase of $1.8 million, or 6.8 percent. The increase was primarily driven by increases in salaries and employee benefits of $2.0 million, advertising expenses of $994.7 thousand, and data processing expenses of $390.1 thousand. Offsetting these expenses were decreases in occupancy and equipment expense of $507.2 thousand, loan processing expenses of $503.2 thousand, and professional fees of $474.0 thousand.

Operating Results - Comparison of Twelve Months Ended December 31, 2021 and 2020

For the twelve months ended December 31, 2021, net interest income increased $32.6 million, or 38.8 percent, to $116.7 million from the same period in 2020, primarily due to an increase in interest earning assets and a decrease in rates on interest bearing liabilities. The net interest margin increased 72 basis points to 5.86% for the twelve months ended December 31, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.60% for the twelve months ended December 31, 2021 compared to 3.89% for the same period in 2020. For the twelve months ended December 31, 2021, average interest earning assets increased $356.1 million, or 21.8 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 24 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $60.3 million, or 5.9 percent, while the average cost of interest-bearing liabilities decreased 68 basis points to 0.61% from 1.29%.

For the twelve months ended December 31, 2021, the provision for loan losses was $3.4 million, a decrease of $7.9 million from the prior year. Net charge-offs for the twelve months ended December 31, 2021 were $1.6 million, or 0.12% of average portfolio loans, compared to $1.1 million, or 0.09% of average portfolio loans, for the same period in 2020. The $1.6 million in net charge-offs during the twelve months ended December 31, 2021 was comprised primarily of commercial real estate loan net charge-offs of $161.1 thousand and net charge-offs of $1.4 million in the credit card portfolio.

For the twelve months ended December 31, 2021, noninterest income was $50.6 million, an increase of $491.5 thousand, or 1.0 percent, from the same period in 2020. The increase was primarily driven by significant growth in credit card fees of $10.9 million, which was partially offset by a decrease in mortgage banking revenues of $8.9 million.

For the twelve months ended December 31, 2021, the Bank had net growth of 92 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 660 thousand. This compares to 345 thousand new originations for the same period last year, which increased total open accounts to 568 thousand.

The efficiency ratio for the twelve months ended December 31, 2021 increased slightly to 65.79% compared to 65.44% for the twelve months ended December 31, 2020 due to increases in noninterest expense.

Noninterest expense was $110.1 million for the twelve months ended December 31, 2021, as compared to $87.8 million for the twelve months ended December 31, 2020, an increase of $22.3 million, or 25.3 percent. The increase was primarily driven by a $4.4 million, or 13.2 percent, increase in salaries and benefits, an increase in professional fees of 42.8 percent, or $2.1 million, a $12.3 million, or 45.8 percent, increase in data processing, a $2.3 million, or 89.8 percent, increase in advertising, and a $2.0 million, or 18.2 percent, increase in other operating expenses period over period. The increase of $12.3 million in data processing expenses was primarily due to the higher volume of open credit cards during the twelve months ended December 31, 2021. Additionally, operating expenses increased $2.0 million, primarily due to increases in outside service providers.

During the twelve months ended December 31, 2021, results of operations were impacted by the COVID-19 pandemic and the resulting issuance of SBA-PPP loans. At December 31, 2021, the $111.5 million of SBA-PPP loans had remaining deferred origination fees of $3.8 million, and deferred costs of $655.7 thousand.

Financial Condition

Total assets at December 31, 2021 were $2.1 billion, an increase of 9.5 percent from December 31, 2020. Portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.5 billion as of December 31, 2021, an increase of 15.8 percent as compared to $1.3 billion at December 31, 2020.

Total deposits at December 31, 2021 were $1.8 billion, an increase of $145.0 million, or 8.8 percent, as compared to $1.7 billion at December 31, 2020. Noninterest bearing deposits increased by $179.1 million, or 29.4 percent, to $787.7 million at December 31, 2021 compared to the level at December 31, 2020. Deposit balances grew year over year in certain fiduciary accounts of title and property management companies, as well as noninterest bearing OpenSky® deposits.

The Company recorded a provision for loan losses of $3.4 million during the twelve months ended December 31, 2021, which increased the allowance for loan losses to $25.2 million, or 1.54% of total loans (1.65%, excluding SBA-PPP loans, on a non-GAAP basis) at December 31, 2021. Nonperforming assets were $11.5 million, or 0.56% of total assets, as of December 31, 2021, down from $12.6 million, or 0.67% of total assets, at December 31, 2020. Of the $11.5 million in total nonperforming assets as of December 31, 2021, nonperforming loans represented $11.4 million and foreclosed real estate totaled $86.4 thousand. Included in nonperforming loans at December 31, 2021 were troubled debt restructurings of $534 thousand.

Stockholders’ equity increased to $197.9 million as of December 31, 2021, compared to $159.3 million at December 31, 2020. This increase was primarily attributable to earnings during the period. As of December 31, 2021, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

Consolidated Statements of Income (Unaudited)      
 Three Months Ended December 31, Twelve Months Ended December 31,
(in thousands)2021 2020 2021 2020
Interest income       
Loans, including fees$33,235 $27,848  $120,784 $95,367
Investment securities available for sale 439  363   2,010  1,292
Federal funds sold and other 114  107   449  592
Total interest income 33,788  28,318   123,243  97,251
        
Interest expense       
Deposits 934  2,323   5,808  11,524
Borrowed funds 183  276   742  1,658
Total interest expense 1,117  2,599   6,550  13,182
        
Net interest income 32,671  25,719   116,693  84,069
Provision for loan losses 1,100  2,033   3,359  11,242
Net interest income after provision for loan losses 31,571  23,686   113,334  72,827
        
Noninterest income       
Service charges on deposits 136  143   609  520
Credit card fees 6,676  6,272   27,884  16,966
Mortgage banking revenue 3,365  8,748   20,843  29,732
Gain on sale of investment securities available for sale, net   20   153  20
Other fees and charges 440  847   1,147  2,906
Total noninterest income 10,617  16,030   50,636  50,144
        
Noninterest expenses       
Salaries and employee benefits 10,564  8,592   37,843  33,442
Occupancy and equipment 1,005  1,512   4,327  5,170
Professional fees 1,454  1,928   6,996  4,900
Data processing 9,643  9,253   39,237  26,917
Advertising 1,650  655   4,803  2,530
Loan processing 857  1,360   3,527  3,811
Other real estate expenses, net 47  (68)  368  69
Other operating 3,275  3,448   12,993  10,995
Total noninterest expenses 28,495  26,680   110,094  87,834
Income before income taxes 13,693  13,036   53,876  35,137
Income tax expense 3,522  3,347   13,898  9,314
Net income$10,171 $9,689  $39,978 $25,823


Consolidated Balance Sheets    
(in thousands except share data)(unaudited)
December 31, 2021
 December 31, 2020
Assets   
Cash and due from banks$42,914  $18,456 
Interest bearing deposits at other financial institutions 136,824   126,081 
Federal funds sold 3,657   2,373 
Total cash and cash equivalents 183,395   146,910 
Investment securities available for sale 184,455   99,787 
Marketable equity securities 245   245 
Restricted investments 3,498   3,713 
Loans held for sale 15,989   107,154 
SBA-PPP loans receivable, net of fees 108,285   201,018 
Portfolio loans receivable, net of deferred fees and costs 1,523,982   1,315,502 
Less allowance for loan losses (25,181)  (23,434)
Total portfolio loans held for investment, net 1,498,801   1,292,068 
Premises and equipment, net 3,282   4,464 
Accrued interest receivable 7,901   8,134 
Deferred income taxes, net 9,793   6,818 
Other real estate owned 86   3,326 
Bank owned life insurance 35,506    
Other assets 4,064   2,956 
Total assets$2,055,300  $1,876,593 
    
Liabilities   
Deposits   
Noninterest bearing$787,650  $608,559 
Interest bearing 1,009,487   1,043,569 
Total deposits 1,797,137   1,652,128 
Federal Home Loan Bank advances 22,000   22,000 
Other borrowed funds 12,062   14,016 
Accrued interest payable 473   1,134 
Other liabilities 25,725   28,004 
Total liabilities 1,857,397   1,717,282 
    
Stockholders' equity   
Common stock, $.01 par value; 49,000,000 shares authorized; 13,962,334 and 13,753,529 issued and outstanding 140   138 
Additional paid-in capital 54,306   50,602 
Retained earnings 144,533   106,854 
Accumulated other comprehensive income (loss) (1,076)  1,717 
Total stockholders' equity 197,903   159,311 
Total liabilities and stockholders' equity$2,055,300  $1,876,593 


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 December 31,
 2021
 2020
 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$198,070 $73 0.15% $152,720 $37 0.10%
Federal funds sold 2,048      5,537    
Investment securities available for sale 186,603  439 0.93   73,931  363 1.95 
Restricted stock and equity securities 3,743  41 4.35   3,947  70 7.08 
Loans held for sale 23,395  179 3.04   105,922  701 2.63 
SBA-PPP loans receivable 116,595  1,347 4.58   227,617  1,998 3.49 
Portfolio loans receivable(2) 1,465,878  31,709 8.58   1,266,662  25,149 7.90 
Total interest earning assets 1,996,332  33,788 6.71   1,836,336  28,318 6.13 
Noninterest earning assets 69,951      18,509    
Total assets$2,066,283     $1,854,845    
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$315,933  39 0.05  $238,078  102 0.17 
Savings 6,575  1 0.06   4,828  1 0.05 
Money market accounts 501,070  267 0.21   467,727  633 0.54 
Time deposits 190,795  627 1.30   337,170  1,586 1.87 
Borrowed funds 34,062  183 2.13   38,447  277 2.86 
Total interest bearing liabilities 1,048,435  1,117 0.42   1,086,250  2,599 0.95 
Noninterest bearing liabilities:           
Noninterest bearing liabilities 26,504      23,810    
Noninterest bearing deposits 796,014      592,193    
Stockholders’ equity 195,330      152,592    
Total liabilities and stockholders’ equity$2,066,283     $1,854,845    
            
Net interest spread    6.29%     5.18%
Net interest income  $32,671     $25,719  
Net interest margin(3)    6.49%     5.57%

_______________

(1)   Annualized.
(2)   Includes nonaccrual loans.
(3)   For the three months ended December 31, 2021 and December 31, 2020, collectively, SBA-PPP loans and credit card loans accounted for 279 and 177 basis points of the reported net interest margin, respectively.

 Twelve Months Ended December 31,
 2021
 2020
 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$228,420 $283 0.12% $112,249 $343 0.31%
Federal funds sold 2,850      3,128  4 0.12 
Investment securities available for sale 151,479  2,010 1.33   58,071  1,292 2.22 
Restricted stock and equity securities 3,774  166 4.40   4,025  244 6.07 
Loans held for sale 43,126  1,224 2.84   84,928  2,610 3.07 
SBA-PPP loans receivable 190,588  7,613 3.99   157,630  4,479 2.84 
Portfolio loans receivable(1) 1,370,988  111,947 8.17   1,215,049  88,279 7.27 
Total interest earning assets 1,991,225  123,243 6.19   1,635,080  97,251 5.95 
Noninterest earning assets 44,619      24,923    
Total assets$2,035,844     $1,660,003    
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$289,285  202 0.07  $195,794  656 0.34 
Savings 6,470  3 0.05   4,722  5 0.11 
Money market accounts 482,225  1,484 0.31   480,218  4,786 1.00 
Time deposits 269,262  4,119 1.53   297,997  6,077 2.04 
Borrowed funds 34,214  742 2.17   42,471  1,658 3.90 
Total interest bearing liabilities 1,081,456  6,550 0.61   1,021,202  13,182 1.29 
Noninterest bearing liabilities:           
Noninterest bearing liabilities 24,128      22,007    
Noninterest bearing deposits 750,760      473,301    
Stockholders’ equity 179,500      143,493    
Total liabilities and stockholders’ equity$2,035,844     $1,660,003    
            
Net interest spread    5.58%     4.66%
Net interest income  $116,693     $84,069  
Net interest margin(2)    5.86%     5.14%

_______________

(1)   Includes nonaccrual loans.
(2)   For the twelve months ended December 31, 2021 and December 31, 2020, collectively, SBA-PPP loans and credit card loans accounted for 226 and 125 basis points of the reported net interest margin, respectively.

HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited    
  Quarter Ended
(Dollars in thousands except per share data) December 31,
2021
 September 30,
2021
 June 30,
2021
 March 31,
2021
 December 31,
2020
Earnings:          
Net income $10,171  $11,177  $9,648  $8,982  $9,689 
Earnings per common share, diluted  0.71   0.79   0.68   0.65   0.71 
Net interest margin  6.49%  6.27%  5.47%  5.15%  5.57%
Net interest margin, excluding credit cards & SBA-PPP loans (1)  3.70%  3.52%  3.55%  3.70%  3.80%
Return on average assets(2)  1.95%  2.13%  1.90%  1.87%  2.08%
Return on average assets, excluding impact of SBA-PPP loans (1)(2)  1.80%  1.99%  1.65%  1.60%  1.88%
Return on average equity(2)  20.66%  23.87%  22.36%  22.30%  25.26%
Efficiency ratio  65.83%  64.10%  66.37%  67.11%  63.91%
Balance Sheet:          
Total assets $2,055,300  $2,169,556  $2,151,850  $2,091,851  $1,876,593 
Asset Quality Ratios:          
Nonperforming assets to total assets  0.56%  0.77%  0.54%  0.58%  0.67%
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)  0.59%  0.83%  0.60%  0.66%  0.75%
Nonperforming loans to total loans  0.70%  0.85%  0.52%  0.56%  0.61%
Nonperforming loans to portfolio loans (1)  0.75%  0.94%  0.60%  0.67%  0.70%
Net charge-offs to average portfolio loans (1)(2)  0.18%  0.08%  0.08%  0.12%  0.19%
Allowance for loan losses to total loans  1.54%  1.56%  1.51%  1.49%  1.54%
Allowance for loan losses to portfolio loans (1)  1.65%  1.71%  1.73%  1.79%  1.78%
Allowance for loan losses to non-performing loans  220.40%  182.48%  287.40%  267.07%  253.71%
Bank Capital Ratios:          
Total risk based capital ratio  13.79%  13.86%  13.51%  13.55%  12.60%
Tier 1 risk based capital ratio  12.53%  12.60%  12.25%  12.29%  11.34%
Leverage ratio  8.36%  7.83%  7.58%  7.54%  7.45%
Common equity Tier 1 capital ratio  12.53%  12.60%  12.25%  12.29%  11.34%
Tangible common equity  8.36%  7.57%  7.17%  7.01%  7.43%
Holding Company Capital Ratios:          
Total risk based capital ratio  16.41%  15.75%  16.14%  16.07%  15.19%
Tier 1 risk based capital ratio  14.43%  14.49%  14.10%  13.98%  13.10%
Leverage ratio  9.73%  9.12%  8.78%  8.84%  8.78%
Common equity Tier 1 capital ratio  14.28%  14.34%  13.94%  13.81%  12.94%
Tangible common equity  9.63%  8.72%  8.23%  7.98%  8.48%
Composition of Loans:          
Residential real estate $401,607  $418,205  $420,015  $420,461  $437,860 
Commercial real estate  556,339   502,523   471,807   433,336   392,550 
Construction real estate  255,147   251,256   223,832   221,277   224,904 
Commercial and industrial - Other  175,956   143,244   158,392   149,914   157,127 
Credit card, net of reserve  141,120   134,979   121,410   83,740   102,186 
Other consumer loans  1,033   1,425   1,034   4,487   1,649 
Portfolio loans receivable $1,531,202  $1,451,632  $1,396,490  $1,313,215  $1,316,276 
Deferred origination fees, net  (7,220)  (6,506)  (4,019)  (840)  (774)
Portfolio loans receivable, net $1,523,982  $1,445,126  $1,392,471  $1,312,375  $1,315,502 
SBA-PPP loans, net $108,285  $137,178  $202,763  $265,712  $201,018 
Composition of Deposits:          
Noninterest bearing $787,650  $833,187  $828,308  $771,924  $608,559 
Interest bearing demand  330,924   369,812   314,883   300,992   257,126 
Savings  6,994   6,682   6,965   6,012   4,800 
Money Markets  493,919   493,029   484,567   471,303   447,077 
Time Deposits  177,650   218,528   282,696   312,838   334,566 
Total Deposits $1,797,137  $1,921,238  $1,917,419  $1,863,069  $1,652,128 
Capital Bank Home Loan Metrics:        
Origination of loans held for sale $158,051  $217,175  $265,517  $353,774  $382,267 
Mortgage loans sold  178,068   229,111   278,384   400,112   412,830 
Gain on sale of loans  4,423   6,108   7,763   12,008   12,950 
Purchase volume as a % of originations  56.44%  50.98%  50.64%  24.59%  30.03%
Gain on sale as a % of loans sold(3)  2.48%  2.67%  2.79%  3.00%  3.14%
Mortgage commissions $1,462  $1,884  $2,364  $3,320  $3,405 
OpenSky® Portfolio Metrics:        
Active customer accounts  660,397   700,383   707,600   642,272   568,373 
Credit card loans, net of reserve $141,120  $134,979  $121,410  $83,740  $102,186 
Noninterest secured credit card deposits  229,530   242,405   241,724   215,883   192,520 

_______________

(1)   Refer to Appendix for reconciliation of non-GAAP measures.
(2)   Annualized.
(3)   Gain on sale percentage is calculated as gain on sale of loans divided by mortgage loans sold.   


Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as AdjustedQuarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Net Income$10,171 $11,177 $9,648 $8,982 $9,689 
Less: SBA-PPP loan income 1,347  1,525  2,272  2,205  1,998 
Net Income, as Adjusted$8,824 $9,652 $7,376 $6,777 $7,691 
Average Total Assets 2,066,283  2,084,772  2,041,232  1,949,265  1,854,845 
Less: Average SBA-PPP Loans 116,595  162,217  250,040  232,371  227,617 
Average Total Assets, as Adjusted$1,949,688 $1,922,555 $1,791,192 $1,716,894 $1,627,228 
Return on Average Assets, as Adjusted 1.80% 1.99% 1.65% 1.60% 1.88%
      


Net Interest Margin, as AdjustedQuarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Net Interest Income$32,671 $32,059 $27,520 $24,444 $25,719 
Less Secured credit card loan income 15,010  15,086  10,497  7,660  9,306 
Less SBA-PPP loan income 1,347  1,525  2,272  2,205  1,998 
Net Interest Income, as Adjusted$16,314 $15,448 $14,751 $14,579 $14,415 
Average Interest Earning Assets 1,996,331  2,026,616  2,016,801  1,923,463  1,836,337 
Less Average secured credit card loans 131,306  124,771  100,456  93,520  95,739 
Less Average SBA-PPP loans 116,595  162,217  250,040  232,371  227,617 
Total Average Interest Earning Assets, as Adjusted$1,748,430 $1,739,628 $1,666,305 $1,597,572 $1,512,981 
Net Interest Margin, as Adjusted 3.70% 3.52% 3.55% 3.70% 3.80%


Tangible Book Value per ShareQuarters Ended
Dollars in thousands, except per share amountsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Total Stockholders' Equity$197,903$189,080$177,204$167,003$159,311
Less: Preferred equity     
Less: Intangible assets     
Tangible Common Equity$197,903$189,080$177,204$167,003$159,311
Period End Shares Outstanding 13,962,334 13,801,936 13,771,615 13,759,218 13,753,529
Tangible Book Value per Share$14.17$13.70$12.87$12.14$11.58


Allowance for Loan Losses to Total Portfolio LoansQuarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Allowance for Loan Losses$25,181 $24,753 $24,079 $23,550 $23,434 
Total Loans 1,632,267  1,582,304  1,595,234  1,578,087  1,516,520 
Less: SBA-PPP loans 108,285  137,178  202,763  265,712  201,018 
Total Portfolio Loans$1,523,982 $1,445,126 $1,392,471 $1,312,375 $1,315,502 
Allowance for Loan Losses to Total Portfolio Loans 1.65% 1.71% 1.73% 1.79% 1.78%
      
      
      
Nonperforming Assets to Total Assets, net SBA-PPP LoansQuarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Total Nonperforming Assets$11,512 $16,801 $11,615 $12,112 $12,563 
Total Assets 2,055,300  2,169,556  2,151,850  2,091,851  1,876,593 
Less: SBA-PPP loans 108,285  137,178  202,763  265,712  201,018 
Total Assets, net SBA-PPP Loans$1,947,015 $2,032,378 $1,949,087 $1,826,139 $1,675,575 
Nonperforming Assets to Total Assets, net SBA-PPP Loans 0.59% 0.83% 0.60% 0.66% 0.75%
      
      
      
Nonperforming Loans to Portfolio LoansQuarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Total Nonperforming Loans$11,425 $13,565 $8,378 $8,818 $9,237 
Total Loans 1,632,267  1,582,304  1,595,234  1,578,087  1,516,520 
Less: SBA-PPP loans 108,285  137,178  202,763  265,712  201,018 
Total Portfolio Loans$1,523,982 $1,445,126 $1,392,471 $1,312,375 $1,315,502 
Nonperforming Loans to Total Portfolio Loans 0.75% 0.94% 0.60% 0.67% 0.70%
      
      
      
Net Charge-offs to Average Portfolio LoansQuarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Total Net Charge-offs$672 $301 $251 $388 $615 
Total Average Loans 1,582,473  1,569,198  1,567,973  1,532,093  1,494,279 
Less: Average SBA-PPP loans 116,595  162,217  250,040  232,371  227,617 
Total Average Portfolio Loans$1,465,878 $1,406,981 $1,317,933 $1,299,722 $1,266,662 
Net Charge-offs to Average Portfolio Loans 0.18% 0.08% 0.08% 0.12% 0.19%
      
      
      
Pre-tax, Pre-Provision Net Revenue ("PPNR")Quarters Ended
Dollars in thousandsDecember 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
      
Net income$10,171 $11,177 $9,648 $8,982 $9,689 
Add: Income Tax Expense 3,522  3,877  3,357  3,143  3,347 
Add: Provision for Loan Losses 1,100  975  781  503  2,033 
Pre-tax, Pre-Provision Net Revenue ("PPNR")$14,793 $16,029 $13,786 $12,628 $15,069 
      

ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the fourth largest bank headquartered in Maryland at December 31, 2021. Capital Bancorp has been providing financial services since 1999 and now operates bank branches in five locations in the greater Washington, D.C. and Baltimore, Maryland markets. Capital Bancorp had assets of approximately $2.1 billion at December 31, 2021 and its common stock is traded in the NASDAQ Global Market under the symbol “CBNK.” More information can be found at the Company's website www.CapitalBankMD.com under its investor relations page.

FORWARD-LOOKING STATEMENTS

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

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 are exposed to all 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 decisions made by the Federal Open Market Committee of the Federal Reserve and other factors, our net interest margin and spread may decline, which would adversely affect our earnings; 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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