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CBNK Reports Diluted EPS of $0.68, ROAA of 1.90%, and ROAE of 22.36% for 2Q2021

·41 min read

ROCKVILLE, Md., July 22, 2021 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $9.6 million, or $0.68 per diluted share, for the second quarter of 2021. By comparison, net income was $4.8 million, or $0.34 per diluted share, for the second quarter of 2020. Return on average assets ("ROAA") was 1.90% for the second quarter of 2021, compared to 1.19% for the same period in 2020. Return on average equity ("ROAE") was 22.36% for the second quarter of 2021, compared to 13.70% for the same period in 2020.

“Capital Bancorp’s second quarter results once again demonstrated the strength of our diversified business model that performs well in a variety of economic environments,” said Steven Schwartz, Chairman of the Board of the Company. “The strength of our earnings has made it possible to continue to invest in the business while delivering attractive returns to our shareholders.”

"Growth has accelerated, leading to another strong and balanced quarter. The continued strong performance by all of our business lines emphasizes the momentum we have built through investment and strategic decisions at Capital Bank," said Ed Barry, CEO of the Company. "OpenSky's® performance remains above expectations as consumers increasingly recognize the value of our product offerings. The Commercial Bank continues to grow and take advantage of dislocations in the market. Capital Bank Home Loans delivered another solid quarter despite a rapidly cooling origination environment. We believe we have laid the foundation for continued profitable growth and look forward to leading the market with our technology-led capabilities."

Second Quarter 2021 Highlights

Capital Bancorp, Inc.

  • Strong Earnings - Continued strong performance by the Commercial Bank, Capital Bank Home Loans and OpenSky® contributed to another quarter of solid results. In the second quarter of 2021, net income doubled to $9.6 million from $4.8 million in the second quarter of 2020. Earnings were $0.68 per diluted share for the three months ended June 30, 2021 compared to $0.34 per share for the same period last year.

  • Industry-Leading Performance Ratios - Return on average assets ("ROAA") and return on average equity ("ROAE") were 1.90% and 22.36%, respectively, for the three months ended June 30, 2021 compared to 1.19% and 13.70%, respectively, for the three months ended June 30, 2020.

  • Expanded Net Interest Margin - The net interest margin was 5.47% for the three months ended June 30, 2021, which is an increase of 75 basis points compared to 4.72% for the same three month period last year.

  • Robust Capital Levels - As of June 30, 2021, the Company reported a common equity tier 1 capital ratio of 13.94% and an allowance for loan and lease losses ("ALLL") to total loans ratio of 1.51%, or 1.73% excluding Small Business Administration Payroll Protection Program ("SBA-PPP") loans. During the preceding twelve months, book value per common share grew 25.1 percent to $12.87 at June 30, 2021 compared to $10.28 per share at June 30, 2020.

Commercial Bank

  • Continued Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $148.0 million to $1.3 billion at June 30, 2021 compared to June 30, 2020, and by $45.6 million, or 14.8 percent annualized, compared to March 31, 2021. The year over year growth was mainly due to a 29.6 percent increase in commercial real estate loans of $107.7 million, an 11.0 percent increase in commercial and industrial loans of $15.7 million, and a 5.1 percent increase in construction real estate loans of $10.9 million.

  • Further Growth in Core Deposits and Reduced Cost of Funds - Noninterest bearing deposits increased 46.9 percent compared to June 30, 2020, and by 29.2 percent annualized, compared to March 31, 2021. The $264.3 million year over year increase, and the $56.4 million increase over the prior quarter was primarily due to increases in OpenSky® and SBA-PPP loan-related deposits. At June 30, 2021, noninterest bearing deposits represented 43.2% of total deposits compared to 41.4% at March 31, 2021 and 35.1% at June 30, 2020. Overall, the cost of interest bearing liabilities was reduced 73 basis points, from 1.38% for the quarter ended June 30, 2020 to 0.65% for the quarter ended June 30, 2021. This reduction was primarily due to the Bank's ongoing strategic initiative to improve the deposit franchise.

  • Stable Credit Metrics - Non-performing assets ("NPAs") remained steady at 0.54% of total assets at June 30, 2021 compared to 0.50% at June 30, 2020. The provision for loan losses declined from $2.5 million for the three months ended June 30, 2020 to $781 thousand in the second quarter of 2021.

  • SBA-PPP Loans - SBA-PPP loans, net of $5.3 million in unearned fees, totaled $202.8 million at June 30, 2021 which was comprised of $74.1 million in 2020 originations and $128.7 million originated thus far in 2021. As of June 30, 2021, the Company has obtained forgiveness for $169.0 million of SBA-PPP loans, through the SBA.

Capital Bank Home Loans

  • Strong Mortgage Performance - New home purchase volume increased to 50.6% of total originations for the second quarter, up from 31.2% during the second quarter of 2020 as a result of a strategic shift to emphasize the financing of home purchases over the refinancing of existing mortgages. Mortgage loan originations were $266 million and mortgage banking revenue was $5.3 million for the three months ended June 30, 2021 compared to $315 million in originations and $7.3 million in revenue for the same three month period of the previous year.

  • Steady Gain on Sale Margin - The second quarter 2021 gain on sale margin was 2.79%, compared to 2.97% for the same quarter last year.

OpenSky®

  • Continued Growth in OpenSky® Accounts - OpenSky® increased customer accounts by 10.2 percent with net growth during the quarter of 65 thousand accounts, driving total accounts to 708 thousand at June 30, 2021.

  • Robust Growth in OpenSky® Loans and Deposits - OpenSky® loan balances increased by $68.3 million to $121.4 million compared to $53.1 million in the second quarter of 2020. Corresponding deposit balances increased 83.3 percent or $109.9 million from $131.9 million at June 30, 2021 to $241.7 million at June 30, 2021. This strong growth in loans and deposits appears to indicate that consumer behaviors are returning to historical trends.

Year to Date 2021 Highlights

Capital Bancorp

  • Diversified Businesses Drive Net Income - Net income for the six months ended June 30, 2021 increased 142.1 percent to $18.6 million, or $1.32 per diluted share, from $7.7 million, or $0.55 per diluted share for the six months ended June 30, 2020. Continued strong operating results demonstrate the advantages of the Bank's diversified business lines that are, in certain respects, uncorrelated across economic cycles.

  • Elevated Performance Ratios - Improved earnings supported ROAA and ROAE of 1.88% and 22.33%, respectively, for the six months ended June 30, 2021 compared to 1.03% and 11.17%, respectively, for the six months ended June 30, 2020.

  • Expanded Net Interest Margin - For the six months ended June 30, 2021, net interest margin ("NIM") increased by 40 basis points to 5.32% compared to 4.92% for the six months ended June 30, 2020. The improvement in NIM was driven by an increase in average loans outstanding, including SBA-PPP and OpenSky®, improving loan yields, and lower funding costs.

  • Efficiency Ratio Continues to Improve - Increased revenue and active expense management improved the efficiency ratio to 66.73% for the six months ended June 30, 2021 compared to 69.32% for the same six month period in the prior year.

  • Balance Sheet Growth - Total assets increased $275.3 million, or 14.7 percent, during the six months ended June 30, 2021. The growth of earning assets on the balance sheet consisted of increases in cash equivalents of $161.8 million, portfolio loans of $76.3 million, OpenSky® loans of $19.2 million, investments available for sale of $60.7 million, and Bank Owned Life Insurance ("BOLI") of $35.0 million. Asset growth was primarily funded by a $265.3 million increase in deposits and a $17.9 million increase in shareholders' equity.

Commercial Bank

  • Strong Portfolio Loan Growth - Portfolio loans, which exclude SBA-PPP loans, increased by $61.0 million, or 5.0 percent to $1.3 billion for the six months ended June 30, 2021 compared to $1.2 billion at December 31, 2020. The growth was primarily due to a 20.2 percent increase in commercial real estate loans.

  • Improved Deposit Franchise and Lower Cost of Funding - Noninterest bearing deposits increased by $219.7 million, or 36.1 percent, during the six months ended June 30, 2021 and represent 43.2% of total deposits at June 30, 2021. The cost of interest bearing liabilities declined to 0.73% from 1.55% in the prior year.

  • COVID-19 Related Deferrals - At June 30, 2021, outstanding loans deferred due to COVID-19 amounted to $11.9 million, a decrease of 91.7 percent from the high of $144.0 million at June 30, 2020 as shown in the table below.

Loan Modifications(1)

(dollars in millions)

June 30, 2021

March 31, 2021

December 31, 2020

June 30, 2020

Deferred Loans

Deferred Loans

Deferred Loans

Deferred Loans

Sector

Total Loans Outstanding

Balance

# of Loans Deferred

Balance

# of Loans Deferred

Balance

# of Loans Deferred

Balance

# of Loans Deferred

Accommodation & Food Services

$

114.2

$

5.0

7

$

16.1

15

$

14.7

16

$

42.6

36

Real Estate and Rental Leasing

463.1

0.8

1

3.2

4

5.5

10

45.6

67

Other Services Including Private Households

171.2

0.3

1

1.1

3

17.3

36

Educational Services

19.5

9.8

6

Construction

231.7

4.2

6

Professional, Scientific, and Technical Services

57.4

1.1

2

1.4

3

5.0

11

Arts, Entertainment & Recreation

37.2

2.0

3

1.3

1

0.7

2

5.0

9

Retail Trade

22.2

0.3

1

0.3

1

3.0

8

Healthcare & Social Assistance

94.3

0.9

1

4.7

11

Wholesale Trade

16.0

0.9

1

All other (1)

368.4

3.5

3

3.7

3

5.9

7

5.9

13

Total

$

1,595.2

$

11.9

16

$

25.4

25

$

30.5

43

$

144.0

204

_______________

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

Capital Bank Home Loans

  • Record Mortgage Originations and Revenues - Capital Bank Home Loans benefited from favorable industry trends, strategic hires and our ability to originate purchase volume (as distinct from refinance volume) equal to 35.7% of our $619.3 million of mortgage originations during the six months ended June 30, 2021, which compares to mortgage originations of $495.6 million for the same six month period last year. Mortgage revenues increased by $2.7 million or 26.4 percent to $13.0 million for the six months ended June 30, 2021 compared to $10.3 million for the six months ended June 30, 2020. Efforts to optimize product pricing and mix improved the average gain on sale to 2.91% compared to 2.82% in the prior year.

OpenSky®

  • Growth in OpenSky® Credit Card Accounts - Improved marketing and favorable market conditions resulted in the origination of 223 thousand new OpenSky® credit card accounts during the six months ended June 30, 2021 compared to 215 thousand for the same six month period in 2020. At June 30, 2021, total open accounts had increased by 76.7 percent, or 307 thousand to 708 thousand from 401 thousand at June 30, 2020.

  • Growth Contributing to Bank Performance - Account growth in the six months ended June 30, 2021 resulted in a $49.2 million increase in noninterest bearing secured credit card deposits that totaled $241.7 million at the end of the quarter. Corresponding credit card loans increased by $19.2 million, or 18.8 percent, for the six months ended June 30, 2021 and totaled $121.4 million. As a result, credit card fees increased by 177.5 percent, or $8.7 million, to $13.7 million compared to $4.9 million for the same six month period last year.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited

Quarter Ended

Six Months Ended

June 30,

June 30,

(amounts in thousands except per share data)

2021

2020

% Change

2021

2020

% Change

Earnings Summary

Interest income

$

29,289

$

22,000

33.1

%

$

55,927

$

43,744

27.9

%

Interest expense

1,769

3,376

(47.6

)%

3,964

7,433

(46.7

)%

Net interest income

27,520

18,624

47.8

%

51,963

36,311

43.1

%

Provision for loan losses

781

3,300

(76.3

)%

1,284

5,709

(77.5

)%

Noninterest income

13,471

11,101

21.3

%

27,421

16,636

64.8

%

Noninterest expense

27,205

19,905

36.7

%

52,972

36,704

44.3

%

Income before income taxes

13,005

6,520

99.5

%

25,128

10,534

138.5

%

Income tax expense

3,357

1,759

90.8

%

6,499

2,839

128.9

%

Net income

$

9,648

$

4,761

102.6

%

$

18,629

$

7,695

142.1

%

Pre-tax pre-provision net revenue ("PPNR") (2)

$

13,786

$

9,820

40.4

%

$

26,412

$

16,243

62.6

%

Weighted average common shares - Basic

13,766

13,817

(0.4

)%

13,762

13,847

(0.6

)%

Weighted average common shares - Diluted

14,172

13,817

2.6

%

14,070

13,877

1.4

%

Earnings per share - Basic

$

0.70

$

0.34

103.4

%

$

1.35

$

0.56

141.1

%

Earnings per share - Diluted

$

0.68

$

0.34

97.6

%

$

1.32

$

0.55

140.0

%

Return on average assets (1)

1.90

%

1.19

%

59.7

%

1.88

%

1.03

%

82.5

%

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

1.65

%

1.04

%

58.7

%

1.60

%

0.95

%

68.4

%

Return on average equity

22.36

%

13.70

%

63.2

%

22.33

%

11.17

%

99.9

%


Quarter Ended

2Q21 vs. 2Q20

Quarter Ended

June 30,

March 31,

December 31,

September 30,

(in thousands except per share data)

2021

2020

% Change

2021

2020

2020

Balance Sheet Highlights

Assets

$

2,151,850

$

1,822,365

18.1

%

$

2,091,851

$

1,876,593

$

1,879,029

Investment securities available for sale

160,515

56,796

182.6

%

128,023

99,787

53,992

Mortgage loans held for sale

47,935

116,969

(59.0

)%

60,816

107,154

137,717

SBA-PPP loans, net of fees (3)

202,763

229,646

(11.7

)%

265,712

201,018

233,349

Portfolio loans receivable (3)

1,392,471

1,209,895

15.1

%

1,312,375

1,315,503

1,244,613

Allowance for loan losses

24,079

18,680

28.9

%

23,550

23,434

22,016

Deposits

1,917,419

1,608,726

19.2

%

1,863,069

1,652,128

1,662,211

FHLB borrowings

22,000

25,556

(13.9

)%

22,000

22,000

22,222

Other borrowed funds

12,062

17,392

(30.6

)%

12,062

14,016

17,516

Total stockholders' equity

177,204

142,108

24.7

%

167,003

159,311

149,377

Tangible common equity(2)

177,204

142,108

24.7

%

167,003

159,311

149,377

Common shares outstanding

13,772

13,818

(0.3

)%

13,759

13,754

13,682

Tangible book value per share (2)

$

12.87

$

10.28

25.1

%

$

12.14

$

11.58

$

10.92

______________

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

Operating Results - Comparison of Three Months Ended June 30, 2021 and 2020

For the three months ended June 30, 2021, net interest income increased $8.9 million, or 47.8 percent, to $27.5 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 75 basis point to 5.47% for the three months ended June 30, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.55% for the second quarter of 2021 compared to 3.96% for the same period in 2020. For the three months ended June 30, 2021, average interest earning assets increased $428.4 million, or 27.0 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 25 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $103.0 million, or 10.4 percent, while the average cost decreased 73 basis points to 0.65% from 1.38%.

The provision for loan losses of $781 thousand for the three months ended June 30, 2021 was due primarily to a small number of loan charge-offs, which was offset by improving overall credit metrics. On an annualized basis, net charge-offs for the second quarter of 2021 were $252 thousand, or 0.08% of average loans, compared to $134 thousand, or 0.05% of average loans on an annualized basis, for the second quarter of 2020. The $252 thousand in net charge-offs during the quarter was comprised of $90 thousand in commercial loans and $162 thousand in credit cards.

For the quarter ended June 30, 2021, noninterest income was $13.5 million, an increase of $2.4 million, or 21.34 percent, from $11.1 million in the prior year quarter. The increase was primarily driven by significant growth in credit card fees of $4.8 million resulting from the higher number of credit card accounts which was partially offset by a decrease of $2.1 million in mortgage banking revenue.

For the three months ended June 30, 2021, OpenSky's® net growth was 65 thousand secured credit card accounts, increasing the total number of open accounts to 708 thousand. This compares to 157 thousand net new accounts for the same period last year, which increased total open accounts to 401 thousand. Credit card loan balances increased by $37.7 million to $121.4 million as of June 30, 2021 from $53.1 million at June 30, 2020 and the related deposit account balances have increased 83 percent to $241.7 million. The 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 June 30, 2021 improved to 66.37% compared to 69.74% for the three months ended June 30, 2020 on higher levels of revenue and improved operating leverage.

Noninterest expense was $27.2 million for the three months ended June 30, 2021, as compared to $19.9 million for the three months ended June 30, 2020, an increase of $7.3 million, or 36.7 percent. The increase was primarily driven by a $4.5 million, or 79 percent, increase in data processing expenses, an increase in professional services of $0.5 million, an increase in marketing and advertising of $0.7 million, and an increase in operating expenses of $1.0 million, or 42.8 percent, quarter over quarter. The increase of $4.5 million in data processing expenses was mainly attributed to the higher volume of open credit cards during the second quarter of 2021. In addition, the $1.0 million increase in operating expenses is due to increases in credit expenses, outside service providers, and FDIC insurance.

Operating Results - Comparison of Six Months Ended June 30, 2021 and 2020

For the six months ended June 30, 2021, net interest income increased $15.7 million, or 43.1 percent, to $52.0 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 40 basis points to 5.32% for the six months ended June 30, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.59% six months ended June 30, 2020 compared to 3.96% for the same period in 2020. For the six months ended June 30, 2021, average interest earning assets increased $486.6 million, or 32.8 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets decreased 20 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $129.0 million, or 13.4 percent, while the average cost decreased 82 basis points to 0.73% from 1.55%.

For the six months ended June 30, 2021, the provision for loan losses was $1.3 million, a decrease of $4.4 million from the prior year to date period primarily due to the continued economic recovery from COVID-19. On an annualized basis, net charge-offs for the six months ended June 30, 2021 were $640 thousand, or 0.10% of average portfolio loans, compared to $330 thousand, or 0.05% of average portfolio loans on an annualized basis, for the same period in 2020. The $640 thousand in net charge-offs during the quarter was comprised of commercial loan charge-offs amounting to $195 thousand and $445 thousand in our credit card portfolio.

For the six months ended June 30, 2021, noninterest income was $27.4 million, an increase of $10.8 million, or 64.8 percent, from the same period in 2020. The increase was primarily driven by significant growth in credit card fees, which increased by $8.7 million, and mortgage banking revenues, which increased $2.7 million.

For the six months ended June 30, 2021, the Bank originated 223 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 708 thousand. This compares to 215 thousand new originations for the same period last year, which increased total open accounts to 401 thousand.

The efficiency ratio for the six months ended June 30, 2021 decreased to 66.73% compared to 69.32% for the six months ended June 30, 2020, primarily resulting from increased revenue in addition to management's efforts to control expenses.

Noninterest expense was $53.0 million for the six months ended June 30, 2021, as compared to $36.7 million for the six months ended June 30, 2020, an increase of $16.3 million, or 44.3%. The increase was primarily driven by an $1.4 million, or 8.8 percent, increase in salaries and benefits, an increase in professional fees of 79.5 percent, or $1.3 million, a $9.6 million, or 98.6 percent, increase in data processing, and a $2.0 million, or 45.4 percent, increase in other operating expenses period over the period. The increase of $6.4 million in data processing expenses was due to the higher volume of open credit cards and increased mortgage originations during the year. Additionally, operating expenses increased $2.0 million due to increases in credit expenses, outside service providers, and FDIC insurance.

During the six months ended June 30, 2021, results of operations were impacted by the COVID-19 pandemic and the resulting issuance of SBA-PPP loans. At June 30, 2021, SBA-PPP loans had remaining deferred origination fees of $6.5 million, and deferred costs of $1.2 million.

Financial Condition

Total assets at June 30, 2021 were $2.2 billion, an increase of 18.1 percent from June 30, 2020. Portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.4 billion as of June 30, 2021, an increase of 15.1 percent as compared to $1.2 billion at June 30, 2020.

Total deposits at June 30, 2021 were $1.9 billion, an increase of 19.2 percent as compared to $1.6 billion at June 30, 2020. Noninterest bearing deposits increased by $264.3 million, or 46.9 percent, to $828.3 million at June 30, 2021 compared to the level at June 30, 2020. During the quarter, deposit balances grew in certain fiduciary accounts of title and property management companies, as well as noninterest bearing SBA-PPP loan customers and OpenSky® deposits.

The Company recorded a provision for loan losses of $1.3 million during the six months ended June 30, 2021, which increased the allowance for loan losses to $24.1 million, or 1.51% of total loans (1.73%, excluding SBA-PPP loans, on a non-GAAP basis) at June 30, 2021. Nonperforming assets were $11.6 million, or 0.54% of total assets, as of June 30, 2021, up from $9.2 million, or 0.50% of total assets, at June 30, 2020. Of the $11.6 million in total nonperforming assets as of June 30, 2021, nonperforming loans represented $8.4 million and foreclosed real estate totaled $3.2 million. Included in nonperforming loans at June 30, 2021 were troubled debt restructurings of $558 thousand.

Stockholders’ equity increased to $177.2 million as of June 30, 2021, compared to $142.1 million at June 30, 2020. This increase was primarily attributable to earnings during the period. As of June 30, 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 June 30,

Six Months Ended June 30,

(in thousands)

2021

2020

2021

2020

Interest income

Loans, including fees

$

28,641

$

21,609

$

54,709

$

42,683

Investment securities available for sale

544

316

1,021

656

Federal funds sold and other

104

75

197

405

Total interest income

29,289

22,000

55,927

43,744

Interest expense

Deposits

1,582

2,954

3,589

6,567

Borrowed funds

187

422

375

866

Total interest expense

1,769

3,376

3,964

7,433

Net interest income

27,520

18,624

51,963

36,311

Provision for loan losses

781

3,300

1,284

5,709

Net interest income after provision for loan losses

26,739

15,324

50,679

30,602

Noninterest income

Service charges on deposits

165

110

312

259

Credit card fees

7,715

2,912

13,655

4,921

Mortgage banking revenue

5,270

7,321

13,013

10,293

Gain on sale of investment securities available for sale, net

153

153

Other fees and charges

168

758

288

1,163

Total noninterest income

13,471

11,101

27,421

16,636

Noninterest expenses

Salaries and employee benefits

8,750

8,498

17,317

15,910

Occupancy and equipment

1,195

1,152

2,324

2,330

Professional fees

1,362

894

2,987

1,664

Data processing

10,122

5,667

19,433

9,784

Advertising

1,293

606

2,126

1,242

Loan processing

975

740

2,026

1,187

Other real estate expenses, net

273

82

277

128

Other operating

3,235

2,266

6,482

4,459

Total noninterest expenses

27,205

19,905

52,972

36,704

Income before income taxes

13,005

6,520

25,128

10,534

Income tax expense

3,357

1,759

6,499

2,839

Net income

$

9,648

$

4,761

$

18,629

$

7,695


Consolidated Balance Sheets

(in thousands except share data)

(unaudited) June 30, 2021

December 31, 2020

Assets

Cash and due from banks

$

19,691

$

18,456

Interest bearing deposits at other financial institutions

286,738

126,081

Federal funds sold

2,237

2,373

Total cash and cash equivalents

308,666

146,910

Investment securities available for sale

160,515

99,787

Marketable equity securities

245

245

Restricted investments

3,478

3,713

Loans held for sale

47,935

107,154

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

202,763

201,018

Portfolio loans receivable, net of deferred fees and costs and net of allowance for loan losses of $24,079 and $23,434

1,368,392

1,292,068

Premises and equipment, net

4,134

4,464

Accrued interest receivable

7,786

8,134

Deferred income taxes, net

7,381

6,818

Other real estate owned

3,236

3,326

Bank owned life insurance

35,004

Other assets

2,315

2,956

Total assets

$

2,151,850

$

1,876,593

Liabilities

Deposits

Noninterest bearing

$

828,308

$

608,559

Interest bearing

1,089,111

1,043,569

Total deposits

1,917,419

1,652,128

Federal Home Loan Bank advances

22,000

22,000

Other borrowed funds

12,062

14,016

Accrued interest payable

959

1,134

Other liabilities

22,206

28,004

Total liabilities

1,974,646

1,717,282

Stockholders' equity

Common stock, $.01 par value; 49,000,000 shares authorized; 13,771,615 and 13,753,529 issued and outstanding

138

138

Additional paid-in capital

51,487

50,602

Retained earnings

125,431

106,854

Accumulated other comprehensive income

148

1,717

Total stockholders' equity

177,204

159,311

Total liabilities and stockholders' equity

$

2,151,850

$

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 June 30,

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

$

259,330

$

63

0.10

%

$

79,854

$

19

0.09

%

Federal funds sold

3,087

0.00

1,889

0.05

Investment securities available for sale

139,997

544

1.56

58,860

316

2.16

Restricted stock

3,478

41

4.70

4,152

56

5.46

Loans held for sale

44,644

314

2.82

78,254

687

3.53

SBA-PPP loans receivable

250,040

2,272

3.64

166,033

1,011

2.45

Portfolio loans receivable(2)

1,316,224

26,055

7.94

1,199,338

19,911

6.68

Total interest earning assets

2,016,800

29,289

5.82

1,588,380

22,000

5.57

Noninterest earning assets

24,432

24,459

Total assets

$

2,041,232

$

1,612,839

Liabilities and Stockholders’ Equity

Interest bearing liabilities:

Interest bearing demand accounts

$

282,197

50

0.07

$

182,095

171

0.38

Savings

6,634

1

0.05

4,522

1

0.05

Money market accounts

460,669

352

0.31

472,802

1,279

1.09

Time deposits

304,519

1,179

1.55

282,695

1,503

2.14

Borrowed funds

35,770

187

2.10

44,672

422

3.79

Total interest bearing liabilities

1,089,789

1,769

0.65

986,786

3,376

1.38

Noninterest bearing liabilities:

Noninterest bearing liabilities

20,111

21,647

Noninterest bearing deposits

758,255

464,702

Stockholders’ equity

173,077

139,704

Total liabilities and stockholders’ equity

$

2,041,232

$

1,612,839

Net interest spread

5.17

%

4.19

%

Net interest income

$

27,520

$

18,624

Net interest margin(3)

5.47

%

4.72

%

_______________

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the three months ended June 30, 2021 and June 30, 2020, collectively, SBA-PPP loans and credit card loans accounted for 192 and 76 basis points of the reported net interest margin, respectively.

Six Months Ended June 30,

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

$

232,712

$

113

0.10

%

$

88,238

$

278

0.63

%

Federal funds sold

3,477

0.00

1,479

4

0.51

Investment securities available for sale

123,443

1,022

1.67

59,628

656

2.21

Restricted stock

3,691

83

4.56

4,035

123

6.15

Loans held for sale

58,475

794

2.74

60,180

1,053

3.52

SBA-PPP loans receivable

242,619

4,741

3.94

83,060

1,011

2.45

Portfolio loans receivable(2)

1,305,973

49,174

7.59

1,187,170

40,619

6.88

Total interest earning assets

1,970,390

55,927

5.72

1,483,790

43,744

5.93

Noninterest earning assets

25,113

21,279

Total assets

$

1,995,503

$

1,505,069

Liabilities and Stockholders’ Equity

Interest bearing liabilities:

Interest bearing demand accounts

$

269,647

118

0.09

$

162,985

398

0.49

Savings

6,127

2

0.05

4,463

4

0.17

Money market accounts

465,882

881

0.38

459,865

2,967

1.30

Time deposits

318,512

2,588

1.64

293,374

3,198

2.19

Borrowed funds

34,699

375

2.18

45,214

866

3.85

Total interest bearing liabilities

1,094,867

3,964

0.73

965,901

7,433

1.55

Noninterest bearing liabilities:

Noninterest bearing liabilities

22,940

20,744

Noninterest bearing deposits

709,443

379,881

Stockholders’ equity

168,253

138,543

Total liabilities and stockholders’ equity

$

1,995,503

$

1,505,069

Net interest spread

4.99

%

4.38

%

Net interest income

$

51,963

$

36,311

Net interest margin(3)

5.32

%

4.92

%

_______________

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the six months ended June 30, 2021 and June 30, 2020, collectively, SBA-PPP loans and credit card loans accounted for 173 and 96 basis points of the reported net interest margin, respectively.

HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited

Quarter Ended

(Dollars in thousands except per share data)

June 30, 2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

Earnings:

Net income

$

9,648

$

8,982

$

9,689

$

8,438

$

4,761

Earnings per common share, diluted

0.68

0.65

0.71

0.61

0.34

Net interest margin

5.47

%

5.15

%

5.57

%

5.01

%

4.72

%

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

3.55

%

3.70

%

3.80

%

3.84

%

3.96

%

Return on average assets(2)

1.90

%

1.87

%

2.08

%

1.89

%

1.19

%

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

1.65

%

1.60

%

1.88

%

1.80

%

1.04

%

Return on average equity(2)

22.36

%

22.30

%

25.26

%

23.28

%

13.70

%

Efficiency ratio

66.37

%

67.11

%

66.63

%

65.17

%

69.74

%

Balance Sheet:

Portfolio loans receivable (3)

$

1,392,471

$

1,312,375

$

1,315,503

$

1,244,613

$

1,209,895

Deposits

1,917,419

1,863,069

1,652,128

1,662,211

1,608,726

Total assets

2,151,850

2,091,851

1,876,593

1,879,029

1,822,365

Asset Quality Ratios:

Nonperforming assets to total assets

0.54

%

0.58

%

0.67

%

0.79

%

0.50

%

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

0.60

%

0.66

%

0.75

%

0.90

%

0.58

%

Nonperforming loans to total loans

0.52

%

0.56

%

0.61

%

0.78

%

0.41

%

Nonperforming loans to portfolio loans (1)

0.60

%

0.67

%

0.70

%

0.92

%

0.48

%

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

0.10

%

0.12

%

0.19

%

0.06

%

0.05

%

Allowance for loan losses to total loans

1.51

%

1.49

%

1.54

%

1.49

%

1.30

%

Allowance for loan losses to portfolio loans (1)

1.73

%

1.79

%

1.78

%

1.77

%

1.54

%

Allowance for loan losses to non-performing loans

287.40

%

267.07

%

253.71

%

191.78

%

318.25

%

Bank Capital Ratios:

Total risk based capital ratio

13.51

%

13.55

%

12.60

%

12.74

%

12.35

%

Tier 1 risk based capital ratio

12.25

%

12.29

%

11.34

%

11.48

%

11.10

%

Leverage ratio

7.58

%

7.54

%

7.45

%

7.44

%

7.73

%

Common equity Tier 1 capital ratio

12.25

%

12.29

%

11.34

%

11.48

%

11.10

%

Tangible common equity

7.17

%

7.01

%

7.43

%

7.09

%

6.91

%

Holding Company Capital Ratios:

Total risk based capital ratio

16.14

%

16.07

%

15.19

%

15.35

%

15.02

%

Tier 1 risk based capital ratio

14.10

%

13.98

%

13.10

%

12.93

%

12.58

%

Leverage ratio

8.78

%

8.84

%

8.78

%

8.63

%

8.85

%

Common equity Tier 1 capital ratio

13.94

%

13.81

%

12.94

%

12.75

%

12.39

%

Tangible common equity

8.23

%

7.98

%

8.48

%

7.95

%

7.80

%

Composition of Loans:

Residential real estate

$

420,015

$

420,460

$

437,860

$

422,698

$

437,429

Commercial real estate

471,807

433,336

392,550

372,972

364,071

Construction real estate

223,832

221,277

224,904

227,661

212,957

Commercial and industrial - Other

158,392

149,914

157,127

134,889

142,673

SBA-PPP loans

208,094

272,090

204,920

238,735

236,325

Credit card

121,410

83,740

102,186

84,964

53,150

Other consumer loans

1,034

4,487

1,649

2,268

947

Composition of Deposits:

Noninterest bearing

$

828,308

$

771,924

$

608,559

$

596,239

$

563,995

Interest bearing demand

314,883

300,992

257,126

247,150

268,150

Savings

6,965

6,012

4,800

4,941

5,087

Money Markets

484,567

471,303

447,077

472,447

507,432

Time Deposits

282,696

312,839

334,566

341,435

264,062

Capital Bank Home Loan Metrics:

Origination of loans held for sale

$

265,517

$

353,774

$

382,267

$

431,060

$

315,165

Mortgage loans sold

278,284

400,112

412,830

410,312

272,151

Gain on sale of loans

7,763

12,008

12,950

12,837

8,088

Purchase volume as a % of originations

50.64

%

24.59

%

30.03

%

33.76

%

31.16

%

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

2.79

%

3.00

%

3.14

%

3.13

%

2.97

%

Mortgage commissions

$

2,364

$

3,320

3,405

$

3,669

$

2,798

OpenSky® Portfolio Metrics:

Active customer accounts

707,600

642,272

568,373

529,114

400,530

Credit card loans, net

$

121,410

$

83,740

$

102,186

$

83,101

$

53,150

Noninterest secured credit card deposits

241,724

215,883

192,520

176,708

131,854

_______________

(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 mortgage loans sold.


Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as Adjusted

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Net Income

$

9,648

$

8,982

$

9,689

$

8,438

$

4,761

Less: SBA-PPP loan income

2,272

2,205

1,998

1,470

1,011

Net Income, as Adjusted

$

7,376

$

6,777

$

7,691

$

6,968

$

3,750

Average Total Assets

2,041,232

1,949,265

1,854,846

1,781,295

1,612,839

Less: Average SBA-PPP Loans

250,040

232,371

227,617

238,071

168,490

Average Total Assets, as Adjusted

$

1,791,192

$

1,716,894

$

1,627,229

$

1,543,224

$

1,444,349

Return on Average Assets, as Adjusted

1.65

%

1.60

%

1.88

%

1.80

%

1.04

%


Net Interest Margin, as Adjusted

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Net Interest Income

$

27,520

$

24,444

$

25,719

$

22,039

$

18,624

Less Secured credit card loan income

10,497

7,660

9,306

6,632

4,066

Less SBA-PPP loan income

2,272

2,205

1,998

1,470

1,011

Net Interest Income, as Adjusted

$

14,750

$

14,580

$

14,415

$

13,937

$

13,547

Average Interest Earning Assets

2,016,801

1,923,463

1,836,337

1,748,894

1,588,380

Less Average secured credit card loans

100,456

93,520

95,739

68,585

42,538

Less Average SBA-PPP loans

250,040

232,371

227,617

235,160

168,490

Total Average Interest Earning Assets, as Adjusted

$

1,666,304

$

1,597,573

$

1,512,981

$

1,445,149

$

1,377,352

Net Interest Margin, as Adjusted

3.55

%

3.70

%

3.80

%

3.84

%

3.96

%


Tangible Book Value per Share

Quarters Ended

Dollars in Thousands, Except Per Share Amount

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Total Stockholders' Equity

$

177,204

$

167,003

$

159,311

$

149,377

$

142,108

Less: Preferred equity

Less: Intangible assets

Tangible Common Equity

$

177,204

$

167,003

$

159,311

$

149,377

$

142,108

Period End Shares Outstanding

13,771,615

13,759,218

13,753,529

13,682,198

13,818,223

Tangible Book Value per Share

$

12.87

$

12.14

$

11.58

$

10.92

$

10.28


Allowance for Loan Losses to Total Portfolio Loans

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Allowance for Loan Losses

$

24,079

$

23,550

$

23,434

$

22,016

$

18,680

Total Loans

1,595,234

1,578,087

1,516,520

1,477,962

1,441,123

Less: SBA-PPP loans

202,763

265,712

201,018

233,349

229,646

Total Portfolio Loans

$

1,392,471

$

1,312,375

$

1,315,503

$

1,244,613

$

1,211,477

Allowance for Loan Losses to Total Portfolio Loans

1.73

%

1.79

%

1.78

%

1.77

%

1.54

%

Nonperforming Assets to Total Assets, net SBA-PPP Loans

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Total Nonperforming Assets

$

11,615

$

12,112

$

12,563

$

14,806

$

9,195

Total Assets

2,151,850

2,091,851

1,876,593

1,879,029

1,822,365

Less: SBA-PPP loans

202,763

265,712

201,018

233,349

229,646

Total Assets, net SBA-PPP Loans

$

1,949,087

$

1,826,139

$

1,675,575

$

1,645,680

$

1,592,719

Nonperforming Assets to Total Assets, net SBA-PPP Loans

0.60

%

0.66

%

0.75

%

0.90

%

0.58

%

Nonperforming Loans to Portfolio Loans

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Total Nonperforming Loans

$

8,378

$

8,818

$

9,237

$

11,480

$

5,869

Total Loans

1,595,234

1,578,087

1,516,520

1,477,962

1,441,123

Less: SBA-PPP loans

202,763

265,712

201,018

233,349

229,646

Total Portfolio Loans

$

1,392,471

$

1,312,375

$

1,315,503

$

1,244,613

$

1,211,477

Nonperforming Loans to Total Portfolio Loans

0.60

%

0.67

%

0.70

%

0.92

%

0.48

%

Net Charge-offs to Average Portfolio Loans

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Total Net Charge-offs

$

640

$

388

$

615

$

163

$

134

Total Average Loans

1,567,973

1,532,093

1,494,278

1,477,962

1,365,371

Less: Average SBA-PPP loans

250,040

232,371

227,617

233,349

84,245

Total Average Portfolio Loans

$

1,317,932

$

1,299,722

$

1,266,661

$

1,244,613

$

1,281,126

Net Charge-offs to Average Portfolio Loans

0.19

%

0.12

%

0.19

%

0.05

%

0.05

%

Pre-tax, Pre-provision Net Revenue ("PPNR")

Quarters Ended

Dollars in Thousands

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Net income

$

9,648

$

8,982

$

9,689

$

8,438

$

4,761

Add: Income Tax Expense

3,357

3,143

3,347

3,128

1,759

Add: Provision for Loan Losses

781

503

2,033

3,500

3,300

Pre-tax, Pre-provision Net Revenue ("PPNR")

$

13,786

$

12,628

$

15,069

$

15,066

$

9,820

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 June 30, 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 $2.2 billion at June 30, 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 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