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Capital Bancorp, Inc. Continued Deposit and Loan Growth Leads to Strong Net Interest Margin, Declares Quarterly Dividend of $0.08

ROCKVILLE, Md., July 27, 2023 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $7.3 million, or $0.52 per diluted share, for the second quarter 2023, compared to net income of $9.7 million, or $0.68 per diluted share, for the first quarter 2023 and $11.5 million, or $0.80 per diluted share, for the second quarter 2022. Total average deposits increased $110.4 million, or 25.0% annualized, the average loan portfolio grew $50.3 million and the net interest margin of 6.63% for the second quarter 2023 remained stable when compared to 6.65% for the first quarter 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans) of 4.06% for the second quarter 2023 grew on the back of steady loan and deposit growth, excluding brokered time deposits, when compared to adjusted net interest margin of 3.81% for the first quarter 2023.

The Company also declared a cash dividend on its common stock of $0.08 per share. The dividend is payable on August 23, 2023 to shareholders of record on August 7, 2023. The dividend declared of $0.08 is $0.02, or 33.3% higher than the prior quarter dividend.

"We saw a significant number of positive signs in our performance this quarter and are making investments in our future,” said Ed Barry, Chief Executive Officer of the Company and the Bank. “Core deposit growth remains a priority and we continue to see traction on building our franchise and in particular our noninterest-bearing deposits. Net interest margin was stable with adjusted net interest margin increasing as we continued to price loans based on the marginal cost of deposits to generate attractive spreads. OpenSky® open customer accounts increased, with growth in corresponding loan and deposit balances, as initiatives began to deliver. Credit remained stable and we maintain a well positioned balance sheet with a strong capital base in the current environment."

“Despite some of the year-over-year declines, the Board is pleased with Capital Bank’s performance during the quarter.” said Steven J. Schwartz, Chairman of the Company. “Our continued solid increases in tangible book value, average non-interest-bearing deposits, loans, and cardholders are a direct result of the Bank’s smart growth strategy. We are also pleased with the results of our continuing focus on maintaining outstanding capital and liquidity metrics, as reflected in our quarter-end numbers. Declines in EPS and ROE resulted primarily from a decision to invest more heavily in our credit card franchise, loan and deposit growth personnel and branding, as well as the industry-wide migration of our deposit book to more expensive products. We are gratified nonetheless that our net interest margin remains largely unaffected, and we believe the Bank continues to be well positioned for any macroeconomic challenges that may lie ahead.”

Second Quarter 2023 Highlights

Capital Bancorp, Inc.

Earnings Summary - Net income of $7.3 million, or $0.52 per diluted share, decreased $2.4 million compared to $9.7 million, or $0.68 per diluted share, for the first quarter 2023.

  • Net interest income of $35.3 million increased $0.9 million compared to $34.5 million for the first quarter 2023. Interest income of $45.1 million increased $1.7 million compared to $43.4 million for the first quarter 2023 driven by loan growth, as average portfolio loans increased $50.3 million compared to the first quarter 2023 in tandem with slightly higher rates in the second quarter 2023. Interest expense of $9.7 million increased $0.8 million compared to $8.9 million for the first quarter 2023 driven by an increase in the cost of funds. Interest expense from interest-bearing deposits increased $1.7 million, as average interest-bearing deposits increased $88.0 million while interest expense from borrowed funds decreased $0.8 million, as average borrowed funds decreased $75.2 million from the first quarter 2023.
  • The provision for credit losses was $2.9 million, an increase of $1.2 million from the first quarter 2023 driven by moderate changes to the economic forecast and loan growth.
  • Noninterest income of $6.7 million increased $0.7 million compared to $6.0 million for the first quarter of 2023. Credit card fees increased $0.5 million as the number of open customer accounts increased quarter over quarter, which resulted in higher interchange and other income.
  • Noninterest expense of $29.6 million increased $3.4 million compared to $26.2 million for the first quarter 2023. Within this category, significant variances included the following:
    • Advertising expense of $2.6 million increased $2.1 million due to marketing efforts related to OpenSky® customer acquisition.
    • Other operating expenses of $3.4 million increased $0.8 million including $0.2 million related to outside service provider expense, $0.2 million related to FDIC assessment expense, with the remainder among other categories.
    • Occupancy and equipment expense of $1.5 million increased $0.3 million related to software licensing expenses.
    • Loan processing expense of $0.7 million increased $0.3 million in line with the growth in the loan portfolio.
    • Professional fees of $2.6 million increased $0.2 million, attributable primarily to increases in third party consulting and legal fees.
    • Salaries and employee benefits of $12.1 million decreased $0.4 million reflecting a seasonal increase in payroll taxes and benefit expense in the first quarter 2023.

Balance Sheet Total assets of $2.2 billion at June 30, 2023 decreased $17.4 million, or 0.8%, from March 31, 2023.

  • Cash and cash equivalents decreased $21.0 million.
  • Net portfolio loans of $1.8 billion increased $50.9 million, representing 11.4% annualized growth.
  • Total deposits of $1.9 billion at June 30, 2023 decreased $10.0 million, or 0.5%, from March 31, 2023, while total average deposits increased $110.4 million, or 25.0% annualized, quarter over quarter. Federal Home Loan Bank advances decreased $10.0 million, or 31.3%, from March 31, 2023.
  • The investment securities portfolio continues to be classified as available for sale and had a fair market value of $208.5 million, or 9.4% of total assets, at June 30, 2023. The amortized cost of the investment securities portfolio was $229.9 million, with an effective duration of 3.48 years. U.S. Treasury securities represent 74.6% of the overall investment portfolio. Investment securities available for sale decreased $47.3 million, primarily due to $44.0 million of maturing U.S. Treasuries in the second quarter 2023. The accumulated other comprehensive loss ("AOCI Loss") on the investment securities portfolio increased $2.1 million during the quarter to $16.1 million as of June 30, 2023, which represents 6.8% of total stockholders' equity. The Company does not have a held to maturity ("HTM") investment securities portfolio.

Performance and Efficiency Ratios – Annualized return on average assets ("ROAA") and annualized return on average equity ("ROAE") were 1.34% and 12.30%, respectively, for the three months ended June 30, 2023, compared to 1.84% and 16.98%, respectively, for the three months ended March 31, 2023.

  • The efficiency ratio was 70.4% for the three months ended June 30, 2023, compared to 64.7% for the three months ended March 31, 2023. The change was primarily attributable to an increase in noninterest expense.

Stable Net Interest Margin - Net interest margin was 6.63% for the three months ended June 30, 2023, compared to 6.65% for the three months ended March 31, 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans), of 4.06%, increased 25 basis points compared to 3.81% for the three months ended March 31, 2023.

  • The average yield on interest earning assets increased 9 basis points compared to the first quarter 2023. The average yield on investment securities available for sale decreased 4 basis points to 1.99%, and the average yield on portfolio loans increased 1 basis point.
  • The average rate on interest-bearing liabilities increased 20 basis points compared to the first quarter 2023. Increases in average rates include money market accounts increasing 39 basis points to 3.47% and time deposits increasing 37 basis points to 4.30%, while average balances increased $20.7 million and $47.0 million, respectively, compared to the first quarter 2023. The average rate on borrowed funds decreased 95 basis points to 3.07%, while average balances decreased $75.2 million compared to the first quarter 2023.

Deposits and Cost of Funds - Total deposits at June 30, 2023 decreased by $10.0 million, or 0.5%, compared to March 31, 2023.

  • Total brokered time deposits of $128.7 million decreased $53.2 million, or 29.2%, compared to March 31, 2023. Excluding the decline in brokered time deposits during the quarter, total deposits increased $43.1 million, or 9.8% annualized.
  • Average noninterest-bearing deposits increased 3.4% compared to March 31, 2023, and represented 36.0% of total average deposits at June 30, 2023.
  • The elevated interest rate environment has driven up the cost of interest-bearing liabilities to 3.13% for the quarter ended June 30, 2023, compared to 2.93% for the first quarter 2023.

Robust Capital Positions - As of June 30, 2023, the Company reported a common equity tier 1 capital ratio of 14.96%, compared to 14.90% at March 31, 2023, and an allowance for credit losses to total loans ratio of 1.50%, compared to an allowance for credit losses to total loans ratio of 1.47% as March 31, 2023. Shares repurchased and retired during the three months ended June 30, 2023, as part of the Company's stock repurchase program totaled 138,407 shares at an average price of $16.72, for a total cost of $2.3 million including commissions. Tangible book value per common share grew 2.0% to $16.98 at June 30, 2023 when compared to March 31, 2023.

Liquidity - Total sources of available borrowings at June 30, 2023 totaled $665.8 million, including available collateralized lines of credit of $531.4 million, unsecured lines of credit with other banks of $76.0 million and unpledged investment securities available as collateral for potential additional borrowings of $58.5 million.

Commercial Bank

Continued Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $41.2 million, or 10.1% annualized, to $1.7 billion, gross, at June 30, 2023 compared to March 31, 2023. The increase in portfolio loans included $13.9 million from commercial real estate, $12.3 million from commercial and industrial, $9.3 million from residential real estate and $6.9 million from construction real estate.

Credit Metrics - Nonperforming assets ("NPAs") decreased 2 basis points to 0.71% of total assets at June 30, 2023 compared to 0.73% at March 31, 2023 as a result of a decrease in nonaccrual loans at June 30, 2023 to $15.7 million compared to $16.3 million at March 31, 2023. Included in nonperforming assets is a single $8.2 million, well-collateralized multi-unit residential real estate loan that was downgraded in the first quarter of 2023. At June 30, 2023 commercial real estate loans with office space exposure totaled $55.8 million, or 3.0% of total portfolio loans.

OpenSky®

Revenues - Total revenue of $19.9 million decreased $0.5 million from the first quarter 2023. Interest income of $15.2 million decreased $1.0 million from the first quarter 2023 as income from late charges decreased $0.7 million. Noninterest income of $4.7 million increased $0.5 million due to credit card fees as compared to the first quarter 2023.

Noninterest Expense - Total noninterest expense of $12.1 million increased $2.6 million from the first quarter 2023 due to marketing expense of $2.3 million related to the Company’s strategy for OpenSky® customer acquisition. During the second quarter 2023, the number of OpenSky® credit card accounts increased by 12,827 to 540,058.

Loan Balances - OpenSky® loan balances, net of reserves, of $122.9 million increased by $10.1 million, or 8.9% compared to the first quarter 2023. Corresponding deposit balances of $186.6 million increased $1.8 million, or 1.0%, compared to the first quarter 2023. Gross unsecured loan balances stood at $25.3 million at June 30, 2023 and $25.8 million at March 31, 2023.

OpenSky® Credit - Card delinquencies and utilization remained stable in the second quarter 2023 when compared to the first quarter 2023. The provision for credit losses increased $0.3 million compared to the first quarter 2023, driven primarily by higher loan balances.

2023 Highlights

Capital Bancorp

Earnings Summary - Net income of $17.1 million, or $1.20 per diluted share for the six months ended June 30, 2023 decreased $4.7 million compared to $21.7 million, or $1.52 per diluted share for the six months ended June 30, 2022.

  • Improved interest income was offset by increased deposit costs that were a result of the rising interest rate environment and a shift within the portfolio from noninterest-bearing to interest-bearing deposits and increased time deposits and FHLB balances. Further, SBA-PPP income totaled $3.2 million for the six months ended June 30, 2022 with no comparable amount in 2023. A decline in card fees of $3.2 million resulted in lower total noninterest income of $12.7 million for the six months ended June 30, 2023, as compared to $16.7 million for the same period in 2022.

Balance Sheet Growth - Total assets of $2.2 billion at June 30, 2023 increased $73.0 million, or 3.4%, from June 30, 2022. Net portfolio loans increased $229.4 million, or 14.3% partially offset by a $131.5 million reduction in cash and cash equivalents. Total deposits of $1.9 billion at June 30, 2023 increased $45.4 million, or 2.4%, from June 30, 2022.

Performance and Efficiency Ratios - Annualized ROAA and ROAE were 1.59% and 14.60%, respectively, for the six months ended June 30, 2023 compared to 2.12% and 21.25%, respectively, for the six months ended June 30, 2022.

  • The efficiency ratio was 67.60% for the six months ended June 30, 2023, compared to 63.52% for the six months ended June 30, 2022.

Net Interest Margin - Net interest margin was 6.64%, or 3.94% excluding credit card and SBA-PPP loans, for the six months ended June 30, 2023, compared to 6.93%, or 3.84% excluding credit card and SBA-PPP loans, for the six months ended June 30, 2022. The lower margin is a result of a 260 basis point increase in the cost of interest-bearing liabilities despite a 127 basis point increase in yield for portfolio loans as the average balances of portfolio loans increased $256.0 million.

Robust Capital Positions - As of June 30, 2023, the Company reported a common equity tier 1 capital ratio of 14.96%, compared to 15.55% at June 30, 2022, and an allowance for loan losses to total loans ratio of 1.50%, compared to 1.64% in 2022. Tangible book value per common share grew 14.7% to $16.98 at June 30, 2023 as compared to $14.80 at June 30, 2022.

Commercial Bank

Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $226.2 million, or 15.7% to $1.7 billion, gross, at June 30, 2023 compared to June 30, 2022. The increase in portfolio loans included $123.0 million from residential real estate, $65.3 million from commercial real estate and $40.3 million from commercial and industrial.

OpenSky®

Revenues - Total revenue of $40.2 million for the six months ended June 30, 2023, decreased $3.6 million as compared to the six months ended June 30, 2022. Interest income of $31.3 million in 2023 decreased $0.4 million compared to 2022 while noninterest income of $8.9 million decreased $3.2 million due primarily to a decrease in credit card fees resulting from a lower number of open customer accounts and balances.

Noninterest Expense - Total noninterest expense of $21.5 million for the six months ended June 30, 2023, decreased $3.3 million as compared to the six months ended June 30, 2022 including decreases in data processing expense of $2.4 million and outside service provider expense of $1.0 million.


COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited      
              
 Quarter Ended 2Q23 vs 1Q23 2Q23 vs 2Q22
(in thousands except per share data)June 30,
2023
 March 31,
2023
 June 30,
2022
 $ Change %
Change
 $ Change %
Change
Earnings Summary             
Interest income$45,080  $43,416  $36,556  $1,664  3.8% $8,524  23.3%
Interest expense 9,740   8,929   1,156   811  9.1%  8,584  742.6%
Net interest income 35,340   34,487   35,400   853  2.5%  (60) (0.2)%
Provision for credit losses 2,862   1,660   2,035   1,202  72.4%  827  40.6%
Noninterest income 6,687   6,026   8,362   661  11.0%  (1,675) (20.0)%
Noninterest expense 29,592   26,203   27,130   3,389  12.9%  2,462  9.1%
Income before income taxes 9,573   12,650   14,597   (3,077) (24.3)%  (5,024) (34.4)%
Income tax expense 2,255   2,915   3,089   (660) (22.6)%  (834) (27.0)%
Net income$7,318  $9,735  $11,508  $(2,417) (24.8)% $(4,190) (36.4)%
              
Pre-tax pre-provision net revenue ("PPNR") (1)$12,435  $14,310  $16,632  $(1,875) (13.1)% $(4,197) (25.2)%
Weighted average common shares - Basic 14,025   14,159   14,007   (134) (0.9)%  18  0.1%
Weighted average common shares - Diluted 14,059   14,272   14,313   (213) (1.5)%  (254) (1.8)%
Earnings per share - Basic$0.52  $0.69  $0.82  $(0.17) (24.6)% $(0.30) (36.6)%
Earnings per share - Diluted$0.52  $0.68  $0.80  $(0.16) (23.5)% $(0.28) (35.0)%
Return on average assets (annualized) 1.34%  1.84%  2.23% (0.50)% (27.2)% (0.89)% (39.9)%
Return on average assets, excluding impact of SBA-PPP loans (annualized) (1) 1.34%  1.84%  2.04% (0.50)% (27.2)% (0.70)% (34.3)%
Return on average equity (annualized) 12.30%  16.98%  22.16% (4.68)% (27.6)% (9.86)% (44.5)%


  Six Months Ended      
  June 30,      
(in thousands except per share data)  2023   2022  $ Change %
Change
 
Earnings Summary          
Interest income $88,496  $70,957  $17,539  24.7% 
Interest expense  18,669   2,226   16,443  738.7%  
Net interest income  69,827   68,731   1,096  1.6%  
Provision for credit losses  4,522   2,987   1,535  51.4%  
Noninterest income  12,713   16,650   (3,937) (23.6)%  
Noninterest expense  55,795   54,232   1,563  2.9%  
Income before income taxes  22,223   28,162   (5,939)  (21.1)%  
Income tax expense  5,170   6,443   (1,273)  (19.8)%  
Net income $17,053  $21,719  $(4,666)  (21.5)%  
           
Pre-tax pre-provision net revenue ("PPNR") (1) $26,745  $31,149  $(4,404)  (14.1)%  
Weighted average common shares - Basic  14,092   13,998   94  0.7%  
Weighted average common shares - Diluted  14,210   14,323   (113)  (0.8)%  
Earnings per share - Basic $1.21  $1.55  $(0.34)  (21.9)%  
Earnings per share - Diluted $1.20  $1.52  $(0.32)  (21.1)%  
Return on average assets (annualized)  1.59%  2.12% (0.53)% (25.0)%  
Return on average assets, excluding impact of SBA-PPP loans (annualized) (1)  1.59%  1.86% (0.27)% (14.5)%  
Return on average equity (annualized)  14.60%  21.25% (6.65)% (31.3)%  


 Quarter Ended   Quarter Ended
 June 30,  March 31, December 31, September 30,
(in thousands except per share data) 2023  2022 % Change  2023  2022  2022
Balance Sheet Highlights           
Assets$2,227,866 $2,154,846 3.4% $2,245,286 $2,123,655 $2,009,358
Investment securities available for sale 208,464  226,509 (8.0)%  255,762  252,481  269,620
Mortgage loans held for sale 10,146  11,708 (13.3)%  9,620  7,416  6,875
SBA-PPP loans, net of fees 1,090  15,864 (93.1)%  2,037  2,163  2,662
Portfolio loans receivable (2) 1,837,041  1,607,677 14.3%  1,786,109  1,728,592  1,648,001
Allowance for credit losses 27,495  26,419 4.1%  26,216  26,385  26,091
Deposits 1,934,361  1,888,920 2.4%  1,944,374  1,758,072  1,737,591
FHLB borrowings 22,000  22,000 %  32,000  107,000  22,000
Other borrowed funds 12,062  12,062 %  12,062  12,062  12,062
Total stockholders' equity 237,435  207,316 14.5%  234,517  224,015  214,005
Tangible common equity (1) 237,435  207,316 14.5%  234,517  224,015  214,005
            
Common shares outstanding 13,981  14,010 (0.2)%  14,083  14,139  14,039
Tangible book value per share (1)$16.98 $14.80 14.7% $16.65 $15.84 $15.24

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


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

For the three months ended June 30, 2023, net interest income of $35.3 million decreased slightly from $35.4 million in the same period in 2022, primarily due to significant increases in the cost of funding partially offset by increased average balances of $268.1 million in portfolio loans combined with a 64 basis point increase in yield for portfolio loans. The net interest margin decreased 43 basis points to 6.63% for the three months ended June 30, 2023, from the same period in 2022 as the increase in the costs of deposits, including money market accounts and time deposits, outpaced the increase in portfolio loan yields, including credit cards. Further SBA-PPP income totaled $1.1 million for the three months ended June 30, 2022 with no comparable amount in 2023. Net interest margin, excluding credit card and SBA-PPP loans, increased to 4.06% for the three months ended June 30, 2023, compared to 3.86% for the same period in 2022.

For the three months ended June 30, 2023, average interest earning assets increased $125.0 million, or 6.2%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 117 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $218.5 million, or 21.2%, and the average cost of interest-bearing liabilities increased to 3.13%, a 268 basis point increase from 0.45%.

For the three months ended June 30, 2023, the provision for credit losses was $2.9 million, an increase of $0.8 million from the same period in 2022. Contributors to the increase in the provision were loan portfolio growth and change in credit card mix from fully secured to partially or fully unsecured. Net charge-offs for the three months ended June 30, 2023, were $1.6 million, or 0.35% on an annualized basis of average portfolio loans, compared to $0.9 million, or 0.23% on an annualized basis of average loans for the same period in 2022. Of the $1.6 million in net charge-offs during the quarter, $1.5 million related to secured and partially secured cards in the credit card portfolio and $0.1 million related to unsecured cards.

For the three months ended June 30, 2023, noninterest income of $6.7 million decreased $1.7 million, or 20.0%, from the same period in 2022. Credit card fees declined by $1.5 million as the number of open customer accounts declined year over year, which resulted in lower interchange and other fee income compared to the prior year quarter.

Credit card loan balances, net of reserves, decreased by $19.2 million to $122.9 million as of June 30, 2023, from $142.2 million at June 30, 2022. The related deposit account balances decreased 12.9% to $186.6 million at June 30, 2023 when compared to $214.1 million at June 30, 2022 reflecting the reduction in the number of open customer accounts year over year.

The efficiency ratio for the three months ended June 30, 2023, was 70.41% compared to 62.00% for the three months ended June 30, 2022. The change was due primarily to a decline in noninterest income from credit card fees and an increase in noninterest expense from salaries and employee benefits.

For the three months ended June 30, 2023, noninterest expense of $29.6 million increased $2.5��million, or 9.1%, from the same period in 2022. The increase was primarily driven by increased salaries and employee benefits of $2.1 million.

Operating Results - Comparison of Six Months Ended June 30, 2023 and 2022

For the six months ended June 30, 2023, net interest income of $69.8 million increased $1.1 million, or 1.6%, from the same period in 2022, primarily due to increased average balances of $256.0 million in portfolio loans combined with the 82 basis point increase in yield for portfolio loans offset by significant increases in the cost of funding. The net interest margin decreased 29 basis points to 6.64% for the six months ended June 30, 2023, from the same period in 2022. Net interest margin, excluding credit card and SBA-PPP loans, was 3.94% for the six months ended June 30, 2023, compared to 3.84% for the same period in 2022.

For the six months ended June 30, 2023, average interest earning assets increased $119.3 million, or 6.0%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 127 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $203.8 million, or 19.6%, while the cost of interest-bearing liabilities increased 260 basis points to 3.03% from 0.43%.

For the six months ended June 30, 2023, the provision for credit losses was $4.5 million, an increase of $1.5 million from the prior year, attributable primarily to the credit card portfolio. Net charge-offs for the six months ended June 30, 2023, were $4.2 million, or 0.48% annualized of average portfolio loans, compared to $1.7 million, or 0.23% annualized of average portfolio loans, for the same period in 2022. The $4.2 million in net charge-offs during the six months ended June 30, 2023, was comprised primarily of credit card portfolio net charge-offs with $2.6 million related to secured and partially secured cards while $0.7 million was related to unsecured cards.

For the six months ended June 30, 2023, noninterest income of $12.7 million decreased $3.9 million, or 23.6%, from the same period in 2022. The decrease was primarily driven by the decline in credit card fees of $3.2 million as the number of open customer accounts declined to 540,058 at June 30, 2023 from 616,435 year over year, which resulted in lower interchange and other fee income recognized compared to the prior year. The elevated interest rate environment continues to put pressure on the mortgage market, resulting in declines in home loan sales and home loan refinances, which has resulted in a $0.8 million decrease in mortgage banking revenue compared to the prior year.

The efficiency ratio for the six months ended June 30, 2023, was 67.60% compared to 63.52% for the six months ended June 30, 2022.

For the six months ended June 30, 2023, noninterest expense of $55.8 million increased $1.6 million, or 2.9%, from the same period in 2022. The increase was primarily driven by a $4.3 million, or 21.2%, increase in salaries and benefits, partially offset by a $2.5 million, or 15.8%, decrease in data processing expense. The decrease of $2.5 million in data processing expense was the result of a contract renegotiation entered into in the first quarter 2022 in the OpenSky® Division as well as fewer average open cards during the period.

Financial Condition

Total assets at June 30, 2023 were $2.2 billion, a decrease of $17.4 million, or 0.8%, from the balance at March 31, 2023 and an increase of $73.0 million, or 3.4%, from the balance at June 30, 2022. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.8 billion at June 30, 2023, an increase of $50.9 million, up 2.9% or 11.4% annualized, compared to March 31, 2023, and an increase of $229.4 million, or 14.3%, compared to $1.6 billion at June 30, 2022.

The Company recorded a provision for credit losses of $4.5 million during the six months ended June 30, 2023, which increased the allowance for credit losses to $27.5 million, or 1.5% of total loans at June 30, 2023, representing an increase of $1.3 million or 4.9%, from the balance at March 31, 2023. Nonperforming assets, which were comprised solely of nonperforming loans as of June 30, 2023, were $15.7 million, or 0.71% of total assets, down from $16.3 million, or 0.73% of total assets at March 31, 2023 and up from $7.3 million, or 0.34% of total assets at June 30, 2022.

Deposits were $1.9 billion at June 30, 2023, a slight decrease of $10.0 million, or 0.5%, from the balance at March 31, 2023 and an increase of $45.4 million, or 2.4%, from the balance at June 30, 2022. Average deposits of $1.9 billion for the three months ended June 30, 2023, increased $110.4 million, or 6.2%, as compared to the three months ended March 31, 2023. Rising interest rates have resulted in some customers moving balances from noninterest-bearing deposit accounts to interest-bearing deposit accounts. As a result of the migration, average noninterest-bearing deposit balances decreased $131.2 million to $676.4 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. These deposits represented 35.8% of total deposits at June 30, 2023 compared to 44.6% at June 30, 2022. Uninsured deposits were approximately $860.4 million as of June 30, 2023, representing 44.5% of the Company's deposit portfolio, compared to $888.9 million, or 45.7%, at March 31, 2023, and $915.0 million, or 48.4%, at June 30, 2022.

Stockholders’ equity increased to $237.4 million as of June 30, 2023, compared to $234.5 million at March 31, 2023 and $207.3 million at June 30, 2022. Shares repurchased and retired through June 30, 2023 as part of the Company's stock repurchase program totaled 285,344 shares at an average price of $17.65, for a total cost of $5.0 million including commissions. As of June 30, 2023, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.


Consolidated Statements of Income (Unaudited)    
  Three Months EndedSix Months Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
 June 30,
2023
 June 30,
2022
Interest income              
Loans, including fees $42,991 $41,275 $38,763 $36,451 $35,304 $84,266 $69,193
Investment securities available for sale  1,266  1,377  1,402  1,362  779  2,643  1,149
Federal funds sold and other  823  764  1,183  527  473  1,587  615
Total interest income  45,080  43,416  41,348  38,340  36,556  88,496  70,957
               
Interest expense              
Deposits  9,409  7,754  4,377  1,386  964  17,163  1,847
Borrowed funds  331  1,175  1,772  277  192  1,506  379
Total interest expense  9,740  8,929  6,149  1,663  1,156  18,669  2,226
               
Net interest income  35,340  34,487  35,199  36,677  35,400  69,827  68,731
Provision for credit losses  2,862  1,660  2,384  1,260  2,035  4,522  2,987
Net interest income after provision for credit losses  32,478  32,827  32,815  35,417  33,365  65,305  65,744
               
Noninterest income              
Service charges on deposits  245  229  222  199  183  474  346
Credit card fees  4,706  4,210  4,314  5,524  6,210  8,916  12,134
Mortgage banking revenue  1,332  1,155  554  969  1,528  2,487  3,318
Other income  404  432  471  416  441  836  852
Total noninterest income  6,687  6,026  5,561  7,108  8,362  12,713  16,650
               
Noninterest expenses              
Salaries and employee benefits  12,143  12,554  11,769  10,747  10,071  24,697  20,381
Occupancy and equipment  1,536  1,213  1,388  1,138  1,313  2,749  2,339
Professional fees  2,608  2,374  2,426  3,848  2,417  4,982  4,738
Data processing  6,559  6,530  6,697  7,178  7,266  13,089  15,542
Advertising  2,646  517  726  1,632  2,223  3,163  3,862
Loan processing  660  349  350  625  335  1,009  727
Foreclosed real estate expenses, net    6        6  
Other operating  3,440  2,660  3,378  2,926  3,505  6,100  6,643
Total noninterest expenses  29,592  26,203  26,734  28,094  27,130  55,795  54,232
Income before income taxes  9,573  12,650  11,642  14,431  14,597  22,223  28,162
Income tax expense  2,255  2,915  2,651  3,336  3,089  5,170  6,443
Net income $7,318 $9,735 $8,991 $11,095 $11,508 $17,053 $21,719


Consolidated Balance Sheets          
  (unaudited) (unaudited) (audited) (unaudited) (unaudited)
(in thousands except share data) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
Assets          
Cash and due from banks $18,619  $14,477  $19,963  $14,774  $14,776 
Interest-bearing deposits at other financial institutions  100,343   125,448   39,764   20,867   234,823 
Federal funds sold  376   462   20,688   1,421   1,285 
Total cash and cash equivalents  119,338   140,387   80,415   37,062   250,884 
Investment securities available for sale  208,464   255,762   252,481   269,620   226,509 
Marketable equity securities           232   245 
Restricted investments  3,803   4,215   7,362   3,627   3,615 
Loans held for sale  10,146   9,620   7,416   6,875   11,708 
U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loans receivable, net of fees and costs  1,090   2,037   2,163   2,662   15,864 
Portfolio loans receivable, net of deferred fees and costs  1,837,041   1,786,109   1,728,592   1,648,001   1,607,677 
Less allowance for credit losses  (27,495)  (26,216)  (26,385)  (26,091)  (26,419)
Total portfolio loans held for investment, net  1,809,546   1,759,893   1,702,207   1,621,910   1,581,258 
Premises and equipment, net  5,494   5,367   3,386   3,212   3,315 
Accrued interest receivable  10,155   9,985   9,489   7,890   7,276 
Deferred tax asset  13,616   12,898   13,777   14,047   12,929 
Bank owned life insurance  37,041   36,781   36,524   36,267   36,011 
Other assets  9,173   8,341   8,435   5,954   5,232 
Total assets $2,227,866  $2,245,286  $2,123,655  $2,009,358  $2,154,846 
           
Liabilities          
Deposits          
Noninterest-bearing $693,129  $705,801  $674,313  $806,033  $842,363 
Interest-bearing  1,241,232   1,238,573   1,083,759   931,558   1,046,557 
Total deposits  1,934,361   1,944,374   1,758,072   1,737,591   1,888,920 
Federal Home Loan Bank advances  22,000   32,000   107,000   22,000   22,000 
Other borrowed funds  12,062   12,062   12,062   12,062   12,062 
Accrued interest payable  3,029   1,977   1,031   481   300 
Other liabilities  18,979   20,356   21,475   23,219   24,248 
Total liabilities  1,990,431   2,010,769   1,899,640   1,795,353   1,947,530 
           
Stockholders' equity          
Common stock  140   141   141   140   140 
Additional paid-in capital  55,856   57,277   58,190   56,532   55,762 
Retained earnings  197,490   191,058   182,435   174,916   164,750 
Accumulated other comprehensive loss  (16,051)  (13,959)  (16,751)  (17,583)  (13,336)
Total stockholders' equity  237,435   234,517   224,015   214,005   207,316 
Total liabilities and stockholders' equity $2,227,866  $2,245,286  $2,123,655  $2,009,358  $2,154,846 


The following tables show the average outstanding balance of each principal category of our assets, liabilities and stockholders’ equity, together with the average yields on our assets and the average costs of our liabilities for the periods indicated. Such yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.

  Three Months Ended
June 30, 2023
 Three Months Ended
March 31, 2023
 Three Months Ended
June 30, 2022
  Average
Outstanding
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate(1)
 Average
Outstanding
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate(1)
 Average
Outstanding
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate(1)
  (in thousands)
Assets                  
Interest earning assets:                  
Interest-bearing deposits $66,401 $733 4.43% $62,566 $615 3.99% $218,251 $429 0.79%
Federal funds sold  1,638  20 4.90   2,054  18 3.62   1,655  2 0.48 
Investment securities available for sale  255,057  1,266 1.99   274,685  1,377 2.03   215,172  779 1.45 
Restricted investments  4,185  71 6.80   7,346  130 7.17   3,854  42 4.37 
Loans held for sale  7,047  111 6.32   4,695  77 6.65   11,447  134 4.70 
SBA-PPP loans receivable  1,808  7 1.55   2,099  8 1.50   28,870  1,120 15.56 
Portfolio loans receivable(2)  1,800,800  42,872 9.55   1,750,539  41,191 9.54   1,532,671  34,050 8.91 
Total interest earning assets  2,136,936  45,080 8.46   2,103,984  43,416 8.37   2,011,920  36,556 7.29 
Noninterest earning assets  47,415      40,265      56,298    
Total assets $2,184,351     $2,144,249     $2,068,218    
                   
Liabilities and Stockholders’ Equity                  
Interest-bearing liabilities:                  
Interest-bearing demand accounts $207,264  67 0.13  $186,184  70 0.15  $259,192  38 0.06 
Savings  5,822  2 0.14   6,502  1 0.05   9,913  1 0.04 
Money market accounts  625,515  5,411 3.47   604,864  4,587 3.08   566,303  396 0.28 
Time deposits  366,421  3,929 4.30   319,449  3,096 3.93   160,279  529 1.32 
Borrowed funds  43,183  331 3.07   118,379  1,175 4.02   34,062  192 2.27 
Total interest-bearing liabilities  1,248,205  9,740 3.13   1,235,378  8,929 2.93   1,029,749  1,156 0.45 
Noninterest-bearing liabilities:                  
Noninterest-bearing liabilities  21,104      22,355      22,647    
Noninterest-bearing deposits  676,358      654,025      807,558    
Stockholders’ equity  238,684      232,491      208,264    
Total liabilities and stockholders’ equity $2,184,351     $2,144,249     $2,068,218    
                   
Net interest spread     5.33%     5.44%     6.84%
Net interest income   $35,340     $34,487     $35,400  
Net interest margin(3)     6.63%     6.65%     7.06%

_______________
(1)   Annualized.
(2)   Includes nonaccrual loans.
(3)   For the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, collectively, SBA-PPP loans and credit card loans accounted for 257, 283 and 320 basis points of the reported net interest margin, respectively.


  Six Months Ended June 30,
   2023   2022 
  Average
Outstanding
Balance
 Interest
Income/

Expense
 Average
Yield/
Rate(1)
 Average
Outstanding
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate(1)
  (in thousands)
Assets            
Interest earning assets:            
Interest-bearing deposits $64,494 $1,348 4.21% $208,043 $530 0.51%
Federal funds sold  1,845  38 4.15   3,148  2 0.13 
Investment securities available for sale  264,817  2,643 2.01   197,965  1,149 1.17 
Restricted investments  5,757  201 7.04   3,810  83 4.39 
Loans held for sale  5,878  188 6.45   12,467  245 3.96 
SBA-PPP loans receivable  1,953  15 1.55   55,917  3,186 11.49 
Portfolio loans receivable(2)  1,775,809  84,063 9.55   1,519,857  65,762 8.73 
Total interest earning assets  2,120,553  88,496 8.42   2,001,207  70,957 7.15 
Noninterest earning assets  43,858      61,533    
Total assets $2,164,411     $2,062,740 ��  
             
Liabilities and Stockholders’ Equity            
Interest-bearing liabilities:            
Interest-bearing demand accounts $196,782  137 0.14  $276,490  74 0.05 
Savings  6,160  3 0.10   9,098  3 0.07 
Money market accounts  615,247  9,998 3.28   552,858  697 0.25 
Time deposits  343,065  7,025 4.13   165,485  1,073 1.31 
Borrowed funds  80,573  1,506 3.77   34,062  379 2.24 
Total interest-bearing liabilities  1,241,827  18,669 3.03   1,037,993  2,226 0.43 
Noninterest-bearing liabilities:            
Noninterest-bearing liabilities  21,726      23,397    
Noninterest-bearing deposits  665,253      795,221    
Stockholders’ equity  235,605      206,129    
Total liabilities and stockholders’ equity $2,164,411     $2,062,740    
             
Net interest spread     5.39%     6.72%
Net interest income   $69,827     $68,731  
Net interest margin(3)     6.64%     6.93%

_______________
(1)   Annualized.
(2)   Includes nonaccrual loans.
(3)   For the six months ended June 30, 2023 and 2022, collectively, SBA-PPP loans and credit card loans accounted for 270 and 309 basis points of the reported net interest margin, respectively.


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

Segments            
For the three months ended June 30, 2023          
(in thousands) Commercial
Bank
 CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $28,742  $111  $15,168 $1,134 $(75) $45,080
Interest expense  9,537   42     236  (75)  9,740
Net interest income  19,205   69   15,168  898     35,340
Provision for credit losses  735      2,127       2,862
Net interest income after provision  18,470   69   13,041  898     32,478
Noninterest income  810   1,161   4,714  2     6,687
Noninterest expense(1)  15,918   1,481   12,059  134     29,592
Net income (loss) before taxes $3,362  $(251) $5,696 $766 $  $9,573
             
Total assets $2,047,400  $10,605  $116,123 $260,309 $(206,571) $2,227,866
             
For the three months ended March 31, 2023          
(in thousands) Commercial
Bank
 CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $26,300  $77  $16,130 $978 $(69) $43,416
Interest expense  8,739   30     229  (69)  8,929
Net interest income  17,561   47   16,130  749     34,487
Provision (release of provision) for credit losses  (161)     1,821       1,660
Net interest income after provision  17,722   47   14,309  749     32,827
Noninterest income  489   1,327   4,210       6,026
Noninterest expense(1)  14,980   1,581   9,450  192     26,203
Net income (loss) before taxes $3,231  $(207) $9,069 $557 $  $12,650
             
Total assets $2,074,634  $10,193  $106,761 $257,048 $(203,350) $2,245,286
             
For the three months ended June 30, 2022          
(in thousands) Commercial
Bank
 CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $18,912  $134  $16,780 $758 $(28) $36,556
Interest expense  952   64     168  (28)  1,156
Net interest income  17,960   70   16,780  590     35,400
Provision for loan losses        2,035       2,035
Net interest income after provision  17,960   70   14,745  590     33,365
Noninterest income  526   1,626   6,210       8,362
Noninterest expense(1)  12,859   2,217   11,940  114     27,130
Net income (loss) before taxes $5,627  $(521) $9,015 $476 $  $14,597
             
Total assets $1,958,893  $12,257  $137,180 $226,950 $(180,434) $2,154,846

_______________
(1)   Noninterest expense includes $5.9 million, $5.9 million and $6.7 million in data processing expense in OpenSky’s® segment for the three months ended June 30, 2023 March 31, 2023, and June 30, 2022, respectively.
(2)   The Corporate segment invests idle cash in revenue-producing assets including interest-bearing cash accounts, loan participations and other appropriate investments for the Company.


Segments            
For the six months ended June 30, 2023          
(in thousands) Commercial
Bank
 CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $55,042  $188  $31,298 $2,112 $(144) $88,496
Interest expense  18,276   72     465  (144)  18,669
Net interest income  36,766   116   31,298  1,647     69,827
Provision for credit losses  574      3,948       4,522
Net interest income after provision  36,192   116   27,350  1,647     65,305
Noninterest income  1,299   2,488   8,924  2     12,713
Noninterest expense(1)  30,898   3,062   21,509  326     55,795
Net income (loss) before taxes $6,593  $(458) $14,765 $1,323 $  $22,223
             
Total assets $2,047,400  $10,605  $116,123 $260,309 $(206,571) $2,227,866
             
For the six months ended June 30, 2022          
(in thousands) Commercial
Bank
 CBHL OpenSky® Corporate(2) Eliminations Consolidated
Interest income $37,412  $245  $31,720 $1,645 $(65) $70,957
Interest expense  1,805   145     341  (65)  2,226
Net interest income  35,607   100   31,720  1,304     68,731
Provision for loan losses        2,987       2,987
Net interest income after provision  35,607   100   28,733  1,304     65,744
Noninterest income  1,083   3,433   12,134       16,650
Noninterest expense(1)  24,922   4,316   24,822  172     54,232
Net income (loss) before taxes $11,768  $(783) $16,045 $1,132 $  $28,162
             
Total assets $1,958,893  $12,257  $137,180 $226,950 $(180,434) $2,154,846

_______________
(1)   Noninterest expense includes $11.9 million and $14.3 million in data processing expense in OpenSky’s® segment for the six months ended June 30, 2023 and 2022, respectively.
(2)   The Corporate segment invests idle cash in revenue-producing assets including interest-bearing cash accounts, loan participations and other appropriate investments for the Company.


HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited
  Quarter Ended
(in thousands except per share data) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
Earnings:          
Net income $7,318  $9,735  $8,991  $11,095  $11,508 
Earnings per common share, diluted  0.52   0.68   0.62   0.77   0.80 
Net interest margin  6.63%  6.65%  6.64%  7.24%  7.06%
Net interest margin, excluding credit cards & SBA-PPP loans (1)  4.06%  3.81%  3.91%  4.16%  3.86%
Return on average assets(2)  1.34%  1.84%  1.67%  2.15%  2.23%
Return on average assets, excluding impact of SBA-PPP loans (1)(2)  1.34%  1.84%  1.67%  2.10%  2.04%
Return on average equity(2)  12.30%  16.98%  16.18%  20.32%  22.16%
Efficiency ratio  70.41%  64.68%  65.59%  64.16%  62.00%
           
Balance Sheet:          
Total portfolio loans receivable, net deferred fees $1,837,041  $1,786,109  $1,728,592  $1,648,001  $1,607,677 
Total deposits  1,934,361   1,944,374   1,758,072   1,737,591   1,888,920 
Total assets  2,227,866   2,245,286   2,123,655   2,009,358   2,154,846 
Total stockholders' equity  237,435   234,517   224,015   214,005   207,316 
           
Asset Quality Ratios:          
Nonperforming assets to total assets  0.71%  0.73%  0.46%  0.43%  0.34%
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)  0.71%  0.73%  0.46%  0.43%  0.34%
Nonperforming loans to total loans  0.85%  0.91%  0.56%  0.52%  0.45%
Nonperforming loans to portfolio loans (1)  0.86%  0.91%  0.56%  0.52%  0.46%
Net charge-offs to average portfolio loans (1)(2)  0.35%  0.61%  0.49%  0.39%  0.23%
Allowance for credit losses to total loans  1.50%  1.47%  1.52%  1.58%  1.64%
Allowance for credit losses to portfolio loans (1)  1.50%  1.47%  1.53%  1.58%  1.64%
Allowance for credit losses to non-performing loans  175.03%  160.91%  270.46%  303.76%  360.06%
           
Bank Capital Ratios:          
Total risk based capital ratio  14.08%  14.09%  14.21%  14.65%  14.34%
Tier 1 risk based capital ratio  12.82%  12.84%  12.95%  13.39%  13.09%
Leverage ratio  9.77%  9.78%  9.47%  9.60%  9.11%
Common equity Tier 1 capital ratio  12.82%  12.84%  12.95%  13.39%  13.09%
Tangible common equity  8.93%  8.79%  8.85%  9.00%  8.17%
Holding Company Capital Ratios:          
Total risk based capital ratio  16.81%  16.75%  16.33%  17.41%  17.66%
Tier 1 risk based capital ratio  14.96%  14.90%  15.13%  15.49%  15.70%
Leverage ratio  11.50%  11.47%  11.24%  11.31%  10.93%
Common equity Tier 1 capital ratio  14.96%  14.90%  15.00%  15.36%  15.55%
Tangible common equity  10.66%  10.44%  10.55%  10.65%  9.62%
Composition of Loans:          
SBA-PPP loans, net $1,090  $2,037  $2,163  $2,662  $15,864 
Commercial real estate  674,141   660,218   664,551   626,030   608,646 
Residential real estate $555,133  $545,899  $484,735  $466,849  $430,244 
Construction real estate  258,400   251,494   238,099   235,045   241,249 
Commercial and industrial  233,598   221,258   220,221   192,207   193,262 
Credit card, net of reserve(3)  122,925   112,860   128,434   136,658   142,166 
Other consumer loans  1,187   1,578   1,179   1,055   856 
Portfolio loans receivable $1,845,384  $1,793,307  $1,737,219  $1,657,844  $1,616,423 
Deferred origination fees, net  (8,343)  (7,198)  (8,627)  (9,843)  (8,746)
Portfolio loans receivable, net $1,837,041  $1,786,109  $1,728,592  $1,648,001  $1,607,677 
           
Composition of Deposits:          
Noninterest-bearing $693,129  $705,801  $674,313  $806,033  $842,363 
Interest-bearing demand  243,095   219,685   207,836   252,135   305,377 
Savings  5,816   5,835   7,530   8,861   10,078 
Money markets  631,148   632,087   574,978   518,184   570,298 
Brokered time deposits  128,665   181,820   131,819       
Other time deposits  232,508   199,146   161,596   152,378   160,804 
Total deposits $1,934,361  $1,944,374  $1,758,072  $1,737,591  $1,888,920 
           
Capital Bank Home Loan Metrics:    
Origination of loans held for sale $61,480  $44,448  $43,956  $60,516  $84,417 
Mortgage loans sold  49,231   40,483   43,415   65,349   89,745 
Gain on sale of loans  1,262   1,223   912   1,340   1,918 
Purchase volume as a % of originations  93.12%  90.72%  88.94%  81.85%  85.23%
Gain on sale as a % of loans sold(4)  2.56%  3.02%  2.10%  2.05%  2.14%
Mortgage commissions $621  $378  $451  $587  $772 
           
OpenSky® Portfolio Metrics:    
Open customer accounts  540,058   527,231   533,855   576,844   616,435 
Secured credit card loans, gross $100,218  $89,078  $104,157  $111,842  $118,938 
Unsecured credit card loans, gross  25,254   25,782   26,795   27,335   25,641 
Noninterest secured credit card deposits  186,566   184,809   187,412   201,277   214,110 

_______________
(1)   Refer to Appendix for reconciliation of non-GAAP measures.
(2)   Annualized.
(3)   Credit card loans are presented net of reserve for interest and fees.
(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
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Net Income $7,318  $9,735  $8,991  $11,095  $11,508 
Less: SBA-PPP loan income  7   8   28   263   1,120 
Net Income, as Adjusted $7,311  $9,727  $8,963  $10,832  $10,388 
Average Total Assets  2,184,351   2,144,249   2,136,156   2,049,078   2,068,218 
Less: Average SBA-PPP Loans  1,808   2,099   2,435   5,906   28,870 
Average Total Assets, as Adjusted $2,182,543  $2,142,150  $2,133,721  $2,043,172  $2,039,348 
Return on Average Assets, as Adjusted  1.34%   1.84%   1.67%   2.10%   2.04% 


Return on Average Assets, as Adjusted Six Months Ended
 
(in thousands) June 30,
2023
 June 30,
2022

 
        
Net Income $17,053  $21,719  
Less: SBA-PPP loan income  15   3,186  
Net Income, as Adjusted $17,038  $18,533  
Average Total Assets  2,164,411   2,062,740  
Less: Average SBA-PPP Loans  1,953   55,917  
Average Total Assets, as Adjusted $2,162,458  $2,006,823  
Return on Average Assets, as Adjusted  1.59%   1.81%  


Net Interest Margin, as Adjusted Quarters Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Net Interest Income $35,340  $34,487  $35,199  $36,677  $35,400 
Less Credit card loan income  14,818   15,809   15,717   16,768   16,376 
Less SBA-PPP loan income  7   8   28   263   1,120 
Net Interest Income, as Adjusted $20,515  $18,670  $19,454  $19,646  $17,904 
Average Interest Earning Assets  2,136,936   2,103,984   2,101,617   2,010,070   2,011,920 
Less Average credit card loans  110,574   115,850   124,120   132,246   124,548 
Less Average SBA-PPP loans  1,808   2,099   2,435   5,906   28,870 
Total Average Interest Earning Assets, as Adjusted $2,024,554  $1,986,035  $1,975,062  $1,871,918  $1,858,502 
Net Interest Margin, as Adjusted  4.06%   3.81%   3.91%   4.16%   3.86% 


Net Interest Margin, as Adjusted Six Months Ended
 
(in thousands) June 30,
2023
 June 30,
2022

 
        
Net Interest Income $69,827  $68,731  
Less Credit card loan income  30,627   30,863  
Less SBA-PPP loan income  15   3,186  
Net Interest Income, as Adjusted $39,185  $34,682  
Average Interest Earning Assets  2,120,553   2,001,207  
Less Average credit card loans  113,197   124,735  
Less Average SBA-PPP loans  1,953   55,917  
Total Average Interest Earning Assets, as Adjusted $2,005,403  $1,820,555  
Net Interest Margin, as Adjusted  3.94%   3.84%  


Pre-tax, Pre-Provision Net Revenue ("PPNR") Quarters Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Net income $7,318  $9,735  $8,991  $11,095  $11,508 
Add: Income Tax Expense  2,255   2,915   2,651   3,336   3,089 
Add: Provision for Credit Losses  2,862   1,660   2,384   1,260   2,035 
Pre-tax, Pre-Provision Net Revenue ("PPNR") $12,435  $14,310  $14,026  $15,691  $16,632 


Pre-tax, Pre-Provision Net Revenue ("PPNR") Six Months Ended
 
(in thousands) June 30,
2023
 June 30,
2022

 
        
Net income $17,053  $21,719  
Add: Income Tax Expense  5,170   6,443  
Add: Provision for Credit Losses  4,522   2,987  
Pre-tax, Pre-Provision Net Revenue ("PPNR") $26,745  $31,149  


Allowance for Credit Losses to Total Portfolio Loans Quarters Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Allowance for Credit Losses $27,495  $26,216  $26,385  $26,091  $26,419 
Total Loans  1,838,131   1,788,146   1,730,755   1,650,663   1,623,541 
Less: SBA-PPP loans  1,090   2,037   2,163   2,662   15,864 
Total Portfolio Loans $1,837,041  $1,786,109  $1,728,592  $1,648,001  $1,607,677 
Allowance for Credit Losses to Total Portfolio Loans  1.50%   1.47%   1.53%   1.58%   1.64% 
           
Nonperforming Assets to Total Assets, net SBA-PPP Loans Quarters Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Total Nonperforming Assets $15,709  $16,293  $9,756  $8,589  $7,338 
Total Assets  2,227,866   2,245,286   2,123,655   2,009,358   2,154,846 
Less: SBA-PPP loans  1,090   2,037   2,163   2,662   15,864 
Total Assets, net SBA-PPP Loans $2,226,776  $2,243,249  $2,121,492  $2,006,696  $2,138,982 
Nonperforming Assets to Total Assets, net SBA-PPP Loans  0.71%   0.73%   0.46%   0.43%   0.34% 
           
Nonperforming Loans to Total Portfolio Loans Quarters Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Total Nonperforming Loans $15,709  $16,293  $9,756  $8,589  $7,338 
Total Loans  1,838,131   1,788,146   1,730,755   1,650,663   1,623,541 
Less: SBA-PPP loans  1,090   2,037   2,163   2,662   15,864 
Total Portfolio Loans $1,837,041  $1,786,109  $1,728,592  $1,648,001  $1,607,677 
Nonperforming Loans to Total Portfolio Loans  0.86%   0.91%   0.56%   0.52%   0.46% 
           
Net Charge-offs to Average Portfolio Loans Quarters Ended
(in thousands) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Total Net Charge-offs $1,583  $2,633  $2,090  $1,588  $868 
Total Average Loans  1,802,608   1,752,638   1,677,869   1,607,452   1,561,541 
Less: Average SBA-PPP loans  1,808   2,099   2,435   5,906   28,870 
Total Average Portfolio Loans $1,800,800  $1,750,539  $1,675,434  $1,601,546  $1,532,671 
Net Charge-offs to Average Portfolio Loans  0.35%   0.61%   0.49%   0.39%   0.23% 
           
Tangible Book Value per Share Quarters Ended
(in thousands, except per share amounts) June 30,
2023
 March 31,
2023
 December 31,
2022
 September 30,
2022
 June 30,
2022
           
Total Stockholders' Equity $237,435  $234,517  $224,015  $214,005  $207,316 
Less: Preferred equity               
Less: Intangible assets               
Tangible Common Equity $237,435  $234,517  $224,015  $214,005  $207,316 
Period End Shares Outstanding  13,981,414   14,082,657   14,138,829   14,038,599   14,010,158 
Tangible Book Value per Share $16.98  $16.65  $15.84  $15.24  $14.80 


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 June 30, 2023. Capital Bancorp has been providing financial services since 1999 and now operates bank branches in four locations in the greater Washington, D.C. and Baltimore, Maryland markets. Capital Bancorp had assets of approximately $2.2 billion at June 30, 2023 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.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing war in Ukraine; the magnitude and duration of the COVID-19 pandemic and related variants and mutations and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; volatility and disruptions in global capital and credit markets; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; and other factors that may affect our future results.

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: Jay Walker (301) 468-8848 x1223

MEDIA CONTACT: Ed Barry (240) 283-1912

WEB SITE: www.CapitalBankMD.com


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