Press Release

Capital Bancorp, Inc. Reports Fourth Quarter 2023 Net Income of $9.0 million, or $0.65 per share

January 22, 2024 at 4:10 PM EST
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  • Diluted EPS of $0.65, ROAA of 1.63%, and ROAE of 14.44% for 4Q 2023
  • Tangible Book Value Per Share(1) of $18.31 for 4Q 2023 up 15.6% from 4Q 2022
  • Loan Growth of $40.7 million, or 8.7% annualized for 4Q 2023
  • Cash dividend of $0.08 per share declared

ROCKVILLE, Md., Jan. 22, 2024 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $9.0 million, or $0.65 per diluted share, for the fourth quarter 2023, compared to net income of $9.8 million, or $0.70 per diluted share, for the third quarter 2023 and $9.0 million, or $0.62 per diluted share, for the fourth quarter 2022.

The Company also declared a cash dividend on its common stock of $0.08 per share. The dividend is payable on February 21, 2024 to shareholders of record on February 5, 2024.

“Over the past two years, our strategy, which emphasizes both growth and profitability, has led to a 29% increase in book value," said Ed Barry, Chief Executive Officer of the Company and the Bank. “Despite persistent market volatility, we continue to identify opportunities to generate attractive loans and core deposits and expand our talented team. We are investing in our people and technology to build on our momentum, diversify our business, and achieve profitable expansion.”

“While acknowledging that net income year-over-year did not advance, there are many performance indicators that are cause for optimism about the Bank’s future,” said Steven J. Schwartz, Chairman of the Company. "Substantial stability of core net interest margin and core deposits year-over-year positions the Bank for continued outperformance of peers, as does our ongoing commitment to maintain a strong credit culture and eschew the assumption of undue interest rate risk. Moreover, our investment in best-in-class C-suite executives should give us competitive advantages as we seek to meaningfully grow both sides of our balance sheet. Also encouraging is the promise that our ongoing investments in technology applications will enable improvements to our already strong customer-facing and back office functions.”

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

Fourth Quarter 2023 Highlights

Capital Bancorp, Inc.

Earnings Summary - Net income of $9.0 million, or $0.65 per diluted share, decreased $0.8 million compared to $9.8 million, or $0.70 per diluted share, for the third quarter 2023.

  • Net interest income of $34.9 million decreased $1.9 million compared to $36.8 million for the third quarter 2023. Interest income of $47.0 million decreased $0.8 million compared to $47.7 million for the third quarter 2023 as interest income from credit card loans decreased $1.1 million. Interest expense of $12.1 million increased $1.2 million compared to $10.9 million for the third quarter 2023 reflecting the rising cost of interest-bearing deposits.
  • The provision for credit losses was $2.8 million, an increase of $0.5 million from the third quarter 2023. The provision for credit losses includes net charge-offs of $2.5 million in the fourth quarter 2023 including $1.9 million from credit card related loans and $0.6 million from commercial loans. Commercial loan net charge-offs include a charge-off of $0.7 million in the fourth quarter 2023 of which $0.4 million was specifically reserved in the third quarter 2023 on a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2023. This loan was classified as nonperforming in the first quarter of 2023. As of January 22, 2024, sales of three of the properties totaling $7.1 million are currently pending. The third quarter 2023 provision for credit losses included net charge-offs of $1.8 million primarily related to credit card loans.
  • Noninterest income of $5.9 million decreased $0.4 million compared to $6.3 million for the third quarter 2023. Credit card fees decreased $0.4 million primarily due to lower interchange and other fee income.
  • Noninterest expense of $26.9 million decreased $1.1 million compared to $28.0 million for the third quarter 2023. Within this category, significant variances included the following:
    • Salaries and employee benefits of $11.6 million decreased $0.8 million primarily due to adjustments to annual incentive based compensation.
    • Professional fees of $1.6 million decreased $0.4 million related to decreases in third party consulting fees.
    • Data processing expense of $6.1 million decreased $0.3 million primarily from processor rebates.
    • Loan processing expense of $0.2 million decreased $0.2 million.
    • Other operating expenses of $4.0 million increased $0.6 million related to operational losses.
  • Income tax expense of $2.2 million, or 19.5% of pre-tax income for the fourth quarter 2023 decreased $0.8 million from $3.0 million, or 23.4% of pre-tax income for the third quarter 2023, reflecting a decrease in pre-tax income of $1.6 million. The lower effective tax rate for the fourth quarter 2023 when compared to the third quarter 2023 is primarily driven by the tax benefit recognized on the exercise of non-qualified stock options during the fourth quarter. The stock option exercises also contributed to the reduction in the total year effective tax rate.

Performance and Efficiency Ratios – Annualized return on average assets ("ROAA") and annualized return on average equity ("ROAE") were 1.63% and 14.44%, respectively, for the three months ended December 31, 2023, compared to 1.75% and 16.00%, respectively, for the three months ended September 30, 2023.

  • The efficiency ratio was 65.91% for the three months ended December 31, 2023, compared to 65.02% for the three months ended September 30, 2023.

Balance Sheet – Total assets of $2.2 billion at December 31, 2023 decreased $47.8 million, or 2.1%, from September 30, 2023.

  • Cash and cash equivalents of $54.0 million at December 31, 2023 decreased $92.2 million, or 63.1% from September 30, 2023, as total deposits decreased $72.0 million and total portfolio loans increased $40.4 million partially offset by an increase in other borrowed funds of $15.0 million.
  • Net portfolio loans of $1.9 billion increased $40.7 million, representing 8.7% annualized growth.
  • Total deposits of $1.9 billion at December 31, 2023 decreased $72.0 million, or 3.7%, from September 30, 2023, while total average deposits decreased $33.4 million quarter over quarter. The reduction in deposits is traditionally seasonal in nature, with title companies typically experiencing slower mortgage activity in the fourth quarter and some other commercial operating businesses typically drawing down demand deposits in the fourth quarter. Average portfolio loans-to-deposit ratio of 98.8% for the three months ended December 31, 2023 increased from 96.3% for the three months ended September 30, 2023.
  • The investment securities portfolio continues to be classified as available for sale and had a fair market value of $208.3 million, or 9.4% of total assets, at December 31, 2023 up slightly from $206.1 million at September 30, 2023. The amortized cost of the investment securities portfolio was $225.7 million, with an effective duration of 3.22 years. U.S. Treasury securities represented 71.5% of the overall investment portfolio at December 31, 2023. The accumulated other comprehensive loss ("AOCI Loss") on the investment securities portfolio decreased $4.7 million during the quarter to $13.1 million as of December 31, 2023, which represents 5.1% of total stockholders' equity. The Company does not have a held to maturity ("HTM") investment securities portfolio.

Net Interest Margin - Net interest margin decreased to 6.40% for the three months ended December 31, 2023, compared to 6.71% for the three months ended September 30, 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans), a non-GAAP measure, decreased to 3.92%, compared to 4.05% for the three months ended September 30, 2023.

  • The average yield on interest earning assets decreased 8 basis points compared to the third quarter 2023. The decrease in average yield was due to a 13 basis point decline in the yield for portfolio loans to 9.59% as interest income from credit card loans of $14.7 million in the fourth quarter 2023 declined $1.1 million from $15.8 million in the third quarter 2023. The yield on portfolio loans, as adjusted (excluding credit card loans), a non-GAAP measure, of 6.89% for the fourth quarter 2023 increased 13 basis points from 6.76% for the third quarter 2023. New portfolio loans (excluding credit card loans) originated in the fourth quarter 2023 totaled $91.1 million with a weighted average yield of 8.46% as compared to $98.9 million with a weighted average yield of 8.37% in the third quarter 2023.
  • The average rate on interest-bearing liabilities increased 31 basis points compared to the third quarter 2023. Increases in average rates include money market accounts increasing 31 basis points to 4.16% and time deposits increasing 21 basis points to 4.72%, while average balances increased $24.7 million and $6.3 million, respectively, compared to the third quarter 2023. Further, the average rate on interest-bearing demand accounts increased 3 basis points to 0.18%, while the average balance decreased $20.0 million compared to the third quarter 2023.

Deposits - Total deposits at December 31, 2023 decreased by $72.0 million, or 3.7%, compared to September 30, 2023.

  • Noninterest-bearing deposits of $617.4 million decreased $63.4 million, or 9.3%, compared to September 30, 2023. Interest-bearing deposits of $1.3 billion decreased $8.6 million, or 0.7%, compared to September 30, 2023 with a reduction in interest-bearing demand accounts of $29.7 million, money market accounts of $5.6 million and savings of $0.5 million while other time deposits increased $13.6 million. Brokered time deposits totaled $142.4 million at December 31, 2023, an increase of $13.7 million from September 30, 2023.

Cost of Interest-Bearing Liabilities - The elevated interest rate environment has driven up the average cost of interest-bearing liabilities to 3.68% for the quarter ended December 31, 2023, compared to 3.37% for the third quarter 2023.

  • Average noninterest-bearing deposits of $622.9 million decreased $44.0 million, or 6.6%, compared to September 30, 2023, and represented 33.0% of total average deposits at December 31, 2023.
  • Average borrowed funds of $41.8 million increased $6.9 million, or 19.7%, compared to September 30, 2023.

Robust Capital Positions - As of December 31, 2023, the Company reported a common equity tier 1 capital ratio of 15.43%, compared to 15.27% at September 30, 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 1.52% at September 30, 2023. Shares repurchased and retired during the three months ended December 31, 2023, as part of the Company's stock repurchase program, totaled 89,427 shares at an average price of $20.52, for a total cost of $1.8 million including commissions. Tangible book value per common share grew 4.5% to $18.31 at December 31, 2023 when compared to September 30, 2023. The Company did not have goodwill or other intangible assets during any of the periods presented and therefore, tangible book value per share is equal to book value per share.

Liquidity - Total sources of available borrowings at December 31, 2023 totaled $576.9 million, including available collateralized lines of credit of $463.7 million, unsecured lines of credit with other banks of $76.0 million and unpledged investment securities available as collateral for potential additional borrowings of $37.2 million.

Commercial Bank

Continued Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $39.6 million, to $1.8 billion, gross, at December 31, 2023 compared to September 30, 2023.

Net Interest Income - Interest income of $31.0 million increased $0.5 million compared to $30.4 million for the third quarter 2023, driven primarily by loan growth. Interest expense of $11.9 million increased $1.1 million, driven by an increase in the average cost of interest-bearing liabilities in the fourth quarter 2023.

Credit Metrics - Nonperforming assets ("NPAs") increased 5 basis points to 0.72% of total assets at December 31, 2023 compared to 0.67% at September 30, 2023 as a result of an increase in nonaccrual loans at December 31, 2023 to $16.0 million compared to $15.2 million at September 30, 2023. Included in nonperforming assets is a single $7.6 million, multi-unit residential real estate loan as previously mentioned. At December 31, 2023 commercial real estate loans with office space exposure totaled $56.3 million, or 3.0% of total portfolio loans, with a weighted average loan-to-value ("LTV") of 49.5%. Included in the total are owner-occupied commercial real estate loans with office exposure totaling $42.8 million with a weighted average LTV of 48.2% and non owner-occupied commercial real estate loans with office exposure totaling $13.5 million with a weighted average LTV of 54.2%.

OpenSky®

Revenues - Total revenue of $19.0 million decreased $1.5 million from the third quarter 2023. Interest income of $15.0 million decreased $1.1 million from the third quarter 2023. Average OpenSky® loan balances, net of reserves and deferred fees of $114.6 million for the fourth quarter 2023, decreased $2.3 million, or 1.9%, compared to $116.8 million for the third quarter 2023. Noninterest income of $4.0 million decreased $0.4 million due to a decline in credit card fees as compared to the third quarter 2023.

Noninterest Expense - Total noninterest expense of $10.4 million decreased $0.3 million from the third quarter 2023. Noninterest expense declined in the fourth quarter 2023 due primarily to a reduction in data processing expense of $0.4 million primarily from processor rebates. During the fourth quarter 2023, the number of OpenSky® credit card accounts declined by 3,891 to 525,314.

Loan Balances - OpenSky® loan balances, net of reserves, of $123.3 million at December 31, 2023 increased by $0.8 million, or 0.7%, compared to $122.5 million at September 30, 2023. Corresponding deposit balances of $173.9 million at December 31, 2023 decreased $7.3 million, or 4.0%, compared to $181.2 million at September 30, 2023. Gross unsecured loan balances of $30.8 million at December 31, 2023 increased $3.4 million, or 12.4%, compared to $27.4 million at September 30, 2023.

OpenSky® Credit - Card delinquencies remained stable in the fourth quarter 2023 when compared to the third quarter 2023. The provision for credit losses increased $0.3 million compared to the third quarter 2023 as card balances, net of reserves, increased $0.8 million during the fourth quarter 2023 as compared to a decrease of $0.4 million during the third quarter 2023.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited            
                           
  Quarter Ended   4Q23 vs 3Q23   4Q23 vs 4Q22
(in thousands except per share data) December 31,
2023		   September 30,
2023		   December 31,
2022		   $
Change		   %
Change		   $
Change		   %
Change
Earnings Summary                          
Interest income $ 46,969     $ 47,741     $ 41,348     $ (772 )   (1.6 )%   $ 5,621     13.6 %
Interest expense   12,080       10,931       6,149       1,149     10.5 %     5,931     96.5 %
Net interest income   34,889       36,810       35,199       (1,921 )   (5.2 )%     (310 )   (0.9 )%
Provision for credit losses   2,808       2,280       2,384       528     23.2 %     424     17.8 %
(Release of) provision for credit losses on unfunded commitments   (106 )     24       —       (130 )   (541.7 )%     (106 )   — %
Noninterest income   5,936       6,326       5,561       (390 )   (6.2 )%     375     6.7 %
Noninterest expense   26,907       28,046       26,734       (1,139 )   (4.1 )%     173     0.6 %
Income before income taxes   11,216       12,786       11,642       (1,570 )   (12.3 )%     (426 )   (3.7 )%
Income tax expense   2,186       2,998       2,651       (812 )   (27.1 )%     (465 )   (17.5 )%
Net income $ 9,030     $ 9,788     $ 8,991     $ (758 )   (7.7 )%   $ 39     0.4 %
                           
Pre-tax pre-provision net revenue ("PPNR")(1) $ 13,918     $ 15,090     $ 14,026     $ (1,172 )   (7.8 )%   $ (108 )   (0.8 )%
                           
Common Share Data                          
Earnings per share - Basic $ 0.65     $ 0.70     $ 0.64     $ (0.05 )   (7.1 )%   $ 0.01     1.6 %
Earnings per share - Diluted $ 0.65     $ 0.70     $ 0.62     $ (0.05 )   (7.1 )%   $ 0.03     4.8 %
Weighted average common shares - Basic   13,897       13,933       14,071                  
Weighted average common shares - Diluted   13,989       14,024       14,408                  
                           
Return Ratios                          
Return on average assets (annualized)   1.63 %     1.75 %     1.67 %                
Return on average assets, excluding impact of SBA-PPP loans (annualized)(1)   1.63 %     1.75 %     1.67 %                
Return on average equity (annualized)   14.44 %     16.00 %     16.18 %                

______________

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

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited (Continued)  
                 
    Year Ended        
    December 31,        
(in thousands except per share data)     2023       2022     $ Change   % Change
Earnings Summary                
Interest income   $ 183,206     $ 150,646     $ 32,560     21.6 %
Interest expense     41,680       10,039       31,641     315.2 %
Net interest income     141,526       140,607       919     0.7 %
Provision for credit losses     9,610       6,631       2,979     44.9 %
(Release of) provision for credit losses on unfunded commitments     (101 )     —       (101 )   — %
Noninterest income     24,975       29,372       (4,397 )   (15.0 )%
Noninterest expense     110,767       109,114       1,653     1.5 %
Income before income taxes     46,225       54,234       (8,009 )   (14.8 )%
Income tax expense     10,354       12,430       (2,076 )   (16.7 )%
Net income   $ 35,871     $ 41,804     $ (5,933 )   (14.2 )%
                 
Pre-tax pre-provision net revenue ("PPNR")(1)   $ 55,734     $ 60,865     $ (5,131 )   (8.4 )%
                 
Common Share Data                
Earnings per share - Basic   $ 2.56     $ 2.98     $ (0.42 )   (14.1 )%
Earnings per share - Diluted   $ 2.55     $ 2.91     $ (0.36 )   (12.4 )%
Weighted average common shares - Basic     14,003       14,025          
Weighted average common shares - Diluted     14,081       14,362          
                 
Return Ratios                
Return on average assets (annualized)     1.64 %     2.01 %        
Return on average assets, excluding impact of SBA-PPP loans (annualized)(1)     1.64 %     1.87 %        
Return on average equity (annualized)     14.91 %     19.68 %        

______________

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

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited (Continued)        
                       
  Quarter Ended       Quarter Ended
  December
31,		     September
30,		   June
30,		   March
31,
(in thousands except per share data)   2023     2022   % Change     2023     2023     2022
Balance Sheet Highlights                      
Assets $ 2,224,667   $ 2,123,655   4.8 %   $ 2,272,484   $ 2,227,866   $ 2,245,286
Investment securities available for sale   208,329     252,481   (17.5 )%     206,055     208,464     255,762
Mortgage loans held for sale   7,481     7,416   0.9 %     4,843     10,146     9,620
SBA-PPP loans, net of fees   645     2,163   (70.2 )%     750     1,090     2,037
Portfolio loans receivable(2)   1,902,643     1,728,592   10.1 %     1,861,929     1,837,041     1,786,109
Allowance for credit losses   28,610     26,385   8.4 %     28,279     27,495     26,216
Deposits   1,895,996     1,758,072   7.8 %     1,967,988     1,934,361     1,944,374
FHLB borrowings   22,000     107,000   (79.4 )%     22,000     22,000     32,000
Other borrowed funds   27,062     12,062   124.4 %     12,062     12,062     12,062
Total stockholders' equity   254,860     224,015   13.8 %     242,878     237,435     234,517
Tangible common equity(1)   254,860     224,015   13.8 %     242,878     237,435     234,517
                       
Common shares outstanding   13,923     14,139   (1.5 )%     13,893     13,981     14,083
Book value per share $ 18.31   $ 15.84   15.6 %   $ 17.48   $ 16.98   $ 16.65
Tangible book value per share(1) $ 18.31   $ 15.84   15.6 %   $ 17.48   $ 16.98   $ 16.65
Dividends per share $ 0.08   $ 0.06   33.3 %   $ 0.08   $ 0.06   $ 0.06

______________

(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 December 31, 2023 and 2022

For the three months ended December 31, 2023, net interest income of $34.9 million decreased slightly from $35.2 million in the same period in 2022. The net interest margin decreased 24 basis points to 6.40% for the three months ended December 31, 2023 from the same period in 2022 as interest income on credit card decreased $1.1 million. Net interest margin, excluding credit card and SBA-PPP loans, increased to 3.92% for the three months ended December 31, 2023, compared to 3.91% for the same period in 2022 as yields on interest-bearing deposits and portfolio loans generally kept pace with the rising costs of deposits, including money market accounts and time deposits.

For the three months ended December 31, 2023, average interest earning assets increased $60.8 million, or 2.9%, to $2.2 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 81 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $147.7 million, or 12.8%, and the average cost of interest-bearing liabilities increased to 3.68%, a 157 basis point increase from 2.11%.

For the three months ended December 31, 2023, the provision for credit losses was $2.8 million, an increase of $0.4 million from the same period in 2022. Net charge-offs for the three months ended December 31, 2023 were $2.5 million, or 0.53% on an annualized basis of average portfolio loans, compared to $2.1 million, or 0.49% on an annualized basis of average loans for the same period in 2022. The change in provision was partially due to a charge-off of $0.7 million in the fourth quarter 2023 of which $0.4 million was specifically reserved in the third quarter 2023 on a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2023. This loan was classified as nonperforming in the first quarter of 2023. As of January 22, 2024, sales of three of the properties totaling $7.1 million are currently pending. Of the $2.5 million in net charge-offs during the quarter, $1.4 million related to secured and partially secured cards in the credit card portfolio and $0.4 million related to unsecured cards.

For the three months ended December 31, 2023, noninterest income of $5.9 million increased $0.4 million, or 6.7%, from the same period in 2022. Mortgage banking revenue of $1.2 million increased $0.6 million due to an increase in home loan sales. Credit card fees of $4.0 million decreased $0.3 million as the number of open customer accounts declined year over year, which resulted in lower interchange and other fee income.

Credit card loan balances, net of reserves, decreased by $5.1 million to $123.3 million as of December 31, 2023, from $128.4 million at December 31, 2022. The related deposit account balances decreased 7.2% to $173.9 million at December 31, 2023 when compared to $187.4 million at December 31, 2022, reflective of the reduction in the number of open customer accounts year over year.

The efficiency ratio for the three months ended December 31, 2023 was 65.91% compared to 65.59% for the three months ended December 31, 2022.

For the three months ended December 31, 2023, noninterest expense of $26.9 million increased slightly from $26.7 million for the same period in 2022. The change includes increases in advertising expense of $0.7 million and other operating expense of $0.6 million, partially offset by decreases in data processing expense of $0.6 million and professional fees of $0.5 million.

Operating Results - Comparison of Year Ended December 31, 2023 and 2022

For the year ended December 31, 2023, net interest income of $141.5 million increased $0.9 million from the same period in 2022, primarily due to increased average balances of $235.9 million in portfolio loans combined with a 71 basis point increase in yield for portfolio loans, offset by significant increases in the cost of funding. The net interest margin decreased 32 basis points to 6.60% for the year ended December 31, 2023 from the same period in 2022. Net interest margin, excluding credit card and SBA-PPP loans, was 3.96% for the year ended December 31, 2023, compared to 3.93% for the same period in 2022.

For the year ended December 31, 2023, average interest earning assets increased $112.0 million, or 5.5%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 113 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $209.1 million, or 19.7%, while the average cost of interest-bearing liabilities increased 234 basis points to 3.29% from 0.95%.

For the year ended December 31, 2023, the provision for credit losses was $9.6 million, an increase of $3.0 million from the prior year, attributable primarily to the credit card portfolio. Net charge-offs for the year ended December 31, 2023 were $8.5 million, or 0.47% annualized of average portfolio loans, compared to $5.4 million, or 0.34% annualized of average portfolio loans, for the same period in 2022. The $8.5 million in net charge-offs during the year ended December 31, 2023 was comprised primarily of credit card portfolio net charge-offs, with $5.5 million related to secured and partially secured cards while $1.4 million was related to unsecured cards.

For the year ended December 31, 2023, noninterest income of $25.0 million decreased $4.4 million, or 15.0%, from the same period in 2022. The decrease was primarily driven by the decline in credit card fees of $4.7 million as the number of open customer accounts declined to 525,314 at December 31, 2023 from 533,855 year over year, which resulted in lower interchange and other fee income recognized compared to the prior year.

The efficiency ratio for the year ended December 31, 2023 was 66.53% compared to 64.19% for the year ended December 31, 2022.

For the year ended December 31, 2023, noninterest expense of $110.8 million increased $1.7 million, or 1.5%, from the same period in 2022. The increase was primarily driven by a $5.9 million, or 13.7%, increase in salaries and employee benefits and a $0.8 million, or 16.6%, increase in occupancy and equipment, partially offset by a $3.7 million, or 12.7%, decrease in data processing expense and a $1.7 million, or 15.8%, decrease in professional fees due to a reduction in third party consulting fees. The decrease in data processing expense was the result of a contract renegotiation entered into in the first quarter 2022 in the OpenSky® Division as well as fewer average open cards during the period.

Financial Condition

Total assets at December 31, 2023 were $2.2 billion, a decrease of $47.8 million, or 2.1%, from the balance at September 30, 2023 and an increase of $101.0 million, or 4.8%, from the balance at December 31, 2022. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.9 billion at December 31, 2023, an increase of $40.7 million, up 2.2% or 8.7% annualized, compared to September 30, 2023, and an increase of $174.1 million, or 10.1%, compared to $1.7 billion at December 31, 2022.

The Company recorded a provision for credit losses of $9.6 million during the year ended December 31, 2023, which increased the allowance for credit losses to $28.6 million, or 1.50% of total loans at December 31, 2023, representing an increase of $0.3 million over the balance at September 30, 2023. Nonperforming assets, which were comprised solely of nonperforming loans as of December 31, 2023, were $16.0 million, or 0.72% of total assets, up from $15.2 million, or 0.67% of total assets at September 30, 2023, and up from $9.8 million, or 0.46% of total assets at December 31, 2022. Included in nonperforming assets at December 31, 2023 is a single $7.6 million, multi-unit residential real estate loan, with respect to which $0.7 million was charged off in the fourth quarter 2023.

Deposits were $1.9 billion at December 31, 2023, a decrease of $72.0 million, or 3.7%, from the balance at September 30, 2023 and an increase of $137.9 million, or 7.8%, from the balance at December 31, 2022. Average deposits of $1.9 billion for the three months ended December 31, 2023 decreased $33.4 million, or 1.7%, as compared to the three months ended September 30, 2023. Rising interest rates have resulted in some customers moving balances from noninterest-bearing deposit accounts to interest-bearing deposit accounts. As a result of the migration, average noninterest-bearing deposit balances decreased $112.5 million to $622.9 million as of December 31, 2023, as compared to December 31, 2022. Noninterest-bearing deposits represented 32.6% of total deposits at December 31, 2023 compared to 38.4% at December 31, 2022. Uninsured deposits were approximately $789.4 million as of December 31, 2023, representing 41.6% of the Company's deposit portfolio, compared to $857.7 million, or 43.6%, at September 30, 2023, and $784.6 million, or 44.6%, at December 31, 2022.

Stockholders’ equity increased to $254.9 million as of December 31, 2023, compared to $242.9 million at September 30, 2023 and $224.0 million at December 31, 2022. Shares repurchased and retired for the year ended December 31, 2023 as part of the Company's stock repurchase program totaled 475,346 shares at an average price of $18.12, for a total cost of $8.8 million including commissions. As of December 31, 2023, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

Consolidated Statements of Income (Unaudited)        
  Three Months Ended Year Ended
(in thousands) December
31,
2023		   September
30,
2023		   June
30,
2023		   March
31,
2023		   December
31,
2022		   December
31,
2023		   December
31,
2022
Interest income                          
Loans, including fees $ 45,109     $ 45,385   $ 42,991   $ 41,275     $ 38,763   $ 174,760     $ 144,408  
Investment securities available for sale   1,083       1,089     1,266     1,377       1,402     4,815       3,912  
Federal funds sold and other   777       1,267     823     764       1,183     3,631       2,326  
Total interest income   46,969       47,741     45,080     43,416       41,348     183,206       150,646  
                           
Interest expense                          
Deposits   11,759       10,703     9,409     7,754       4,377     39,625       7,611  
Borrowed funds   321       228     331     1,175       1,772     2,055       2,428  
Total interest expense   12,080       10,931     9,740     8,929       6,149     41,680       10,039  
                           
Net interest income   34,889       36,810     35,340     34,487       35,199     141,526       140,607  
Provision for credit losses   2,808       2,280     2,862     1,660       2,384     9,610       6,631  
(Release of) provision for credit losses on unfunded commitments   (106 )     24     —     (19 )     —     (101 )     —  
Net interest income after provision for credit losses   32,187       34,506     32,478     32,846       32,815     132,017       133,976  
                           
Noninterest income                          
Service charges on deposits   240       250     245     229       222     964       767  
Credit card fees   3,970       4,387     4,706     4,210       4,314     17,273       21,972  
Mortgage banking revenue   1,166       1,243     1,332     1,155       554     4,896       4,866  
Other income   560       446     404     432       471     1,842       1,767  
Total noninterest income   5,936       6,326     6,687     6,026       5,561     24,975       29,372  
                           
Noninterest expenses                          
Salaries and employee benefits   11,638       12,419     12,143     12,554       11,769     48,754       42,898  
Occupancy and equipment   1,573       1,351     1,536     1,213       1,388     5,673       4,865  
Professional fees   1,930       2,358     2,608     2,374       2,426     9,270       11,012  
Data processing   6,128       6,469     6,559     6,530       6,697     25,686       29,418  
Advertising   1,433       1,565     2,646     517       726     6,161       6,220  
Loan processing   198       426     660     349       350     1,633       1,702  
Foreclosed real estate expenses, net   —       1     —     6       —     7       (183 )
Other operating   4,007       3,457     3,440     2,679       3,378     13,583       13,182  
Total noninterest expenses   26,907       28,046     29,592     26,222       26,734     110,767       109,114  
Income before income taxes   11,216       12,786     9,573     12,650       11,642     46,225       54,234  
Income tax expense   2,186       2,998     2,255     2,915       2,651     10,354       12,430  
Net income $ 9,030     $ 9,788   $ 7,318   $ 9,735     $ 8,991   $ 35,871     $ 41,804  


Consolidated Balance Sheets                  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)   (audited)
(in thousands except share data) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
Assets                  
Cash and due from banks $ 14,513     $ 13,767     $ 18,619     $ 14,477     $ 19,963  
Interest-bearing deposits at other financial institutions   39,044       130,428       100,343       125,448       39,764  
Federal funds sold   407       1,957       376       462       20,688  
Total cash and cash equivalents   53,964       146,152       119,338       140,387       80,415  
Investment securities available for sale   208,329       206,055       208,464       255,762       252,481  
Restricted investments   4,353       4,340       3,803       4,215       7,362  
Loans held for sale   7,481       4,843       10,146       9,620       7,416  
U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loans receivable, net of fees and costs   645       750       1,090       2,037       2,163  
Portfolio loans receivable, net of deferred fees and costs   1,902,643       1,861,929       1,837,041       1,786,109       1,728,592  
Less allowance for credit losses   (28,610 )     (28,279 )     (27,495 )     (26,216 )     (26,385 )
Total portfolio loans held for investment, net   1,874,033       1,833,650       1,809,546       1,759,893       1,702,207  
Premises and equipment, net   5,069       5,297       5,494       5,367       3,386  
Accrued interest receivable   11,494       11,231       10,155       9,985       9,489  
Deferred tax asset   12,252       13,644       13,616       12,898       13,777  
Bank owned life insurance   37,711       37,315       37,041       36,781       36,524  
Other assets   9,336       9,207       9,173       8,341       8,435  
Total assets $ 2,224,667     $ 2,272,484     $ 2,227,866     $ 2,245,286     $ 2,123,655  
                   
Liabilities                  
Deposits                  
Noninterest-bearing $ 617,373     $ 680,803     $ 693,129     $ 705,801     $ 674,313  
Interest-bearing   1,278,623       1,287,185       1,241,232       1,238,573       1,083,759  
Total deposits   1,895,996       1,967,988       1,934,361       1,944,374       1,758,072  
Federal Home Loan Bank advances   22,000       22,000       22,000       32,000       107,000  
Other borrowed funds   27,062       12,062       12,062       12,062       12,062  
Accrued interest payable   5,583       5,204       3,029       1,977       1,031  
Other liabilities   19,166       22,352       18,979       20,356       21,475  
Total liabilities   1,969,807       2,029,606       1,990,431       2,010,769       1,899,640  
                   
Stockholders' equity                  
Common stock   139       139       140       141       141  
Additional paid-in capital   54,473       54,549       55,856       57,277       58,190  
Retained earnings   213,345       206,033       197,490       191,058       182,435  
Accumulated other comprehensive loss   (13,097 )     (17,843 )     (16,051 )     (13,959 )     (16,751 )
Total stockholders' equity   254,860       242,878       237,435       234,517       224,015  
Total liabilities and stockholders' equity $ 2,224,667     $ 2,272,484     $ 2,227,866     $ 2,245,286     $ 2,123,655  


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
December 31, 2023		   Three Months Ended
September 30, 2023		   Three Months Ended
December 31, 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 $ 65,336   $ 680   4.13 %   $ 87,112   $ 1,183   5.39 %   $ 111,404   $ 1,006   3.58 %
Federal funds sold   1,574     21   5.29       1,134     15   5.25       4,054     35   3.41  
Investment securities available for sale   223,132     1,083   1.93       229,731     1,089   1.88       292,117     1,402   1.90  
Restricted investments   4,518     76   6.67       4,058     69   6.75       10,111     142   5.57  
Loans held for sale   4,601     83   7.16       6,670     111   6.60       6,062     88   5.74  
SBA-PPP loans receivable   699     4   2.27       906     11   4.82       2,435     28   4.59  
Portfolio loans receivable(2)(3)   1,862,599     45,022   9.59       1,846,866     45,263   9.72       1,675,434     38,647   9.15  
Total interest earning assets   2,162,459     46,969   8.62       2,176,477     47,741   8.70       2,101,617     41,348   7.81  
Noninterest earning assets   40,020             44,640             34,539        
Total assets $ 2,202,479           $ 2,221,117           $ 2,136,156        
                                   
Liabilities and Stockholders’ Equity                                  
Interest-bearing liabilities:                                  
Interest-bearing demand accounts $ 195,539     90   0.18     $ 215,527     71   0.13     $ 218,518     61   0.11  
Savings   5,184     2   0.15       5,582     3   0.21       8,261     1   0.05  
Money market accounts   680,697     7,139   4.16       655,990     6,373   3.85       552,185     3,016   2.17  
Time deposits   380,731     4,528   4.72       374,429     4,256   4.51       177,346     1,299   2.91  
Borrowed funds   41,823     321   3.05       34,932     228   2.59       199,982     1,772   3.52  
Total interest-bearing liabilities   1,303,974     12,080   3.68       1,286,460     10,931   3.37       1,156,292     6,149   2.11  
Noninterest-bearing liabilities:                                  
Noninterest-bearing liabilities   27,529             25,047             23,941        
Noninterest-bearing deposits   622,941             666,939             735,416        
Stockholders’ equity   248,035             242,671             220,507        
Total liabilities and stockholders’ equity $ 2,202,479           $ 2,221,117           $ 2,136,156        
                                   
Net interest spread         4.94 %           5.33 %           5.70 %
Net interest income     $ 34,889           $ 36,810           $ 35,199    
Net interest margin(4)         6.40 %           6.71 %           6.64 %

_______________

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, collectively, portfolio loans yield excluding credit card loans was 6.89%, 6.76% and 5.86%, respectively.
(4) For the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, collectively, SBA-PPP loans and credit card loans accounted for 248, 266 and 273 basis points of the reported net interest margin, respectively.

  Year Ended December 31,
    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 $ 70,407   $ 3,211   4.56 %   $ 156,751   $ 2,007   1.28 %
Federal funds sold   1,597     74   4.63       2,959     44   1.49  
Investment securities available for sale   245,466     4,815   1.96       248,869     3,912   1.57  
Restricted investments   5,016     346   6.90       5,475     275   5.02  
Loans held for sale   5,755     382   6.64       9,696     435   4.49  
SBA-PPP loans receivable   1,373     30   2.18       29,831     3,477   11.66  
Portfolio loans receivable(2)(3)   1,815,595     174,348   9.60       1,579,661     140,496   8.89  
Total interest earning assets   2,145,209     183,206   8.54       2,033,242     150,646   7.41  
Noninterest earning assets   43,090             44,559        
Total assets $ 2,188,299           $ 2,077,801        
                       
Liabilities and Stockholders’ Equity                      
Interest-bearing liabilities:                      
Interest-bearing demand accounts $ 201,194     298   0.15     $ 253,923     174   0.07  
Savings   5,768     8   0.14       8,917     5   0.06  
Money market accounts   642,013     23,510   3.66       553,388     4,529   0.82  
Time deposits   360,464     15,809   4.39       165,854     2,903   1.75  
Borrowed funds   59,302     2,055   3.47       77,556     2,428   3.13  
Total interest-bearing liabilities   1,268,741     41,680   3.29       1,059,638     10,039   0.95  
Noninterest-bearing liabilities:                      
Noninterest-bearing liabilities   24,026             23,797        
Noninterest-bearing deposits   655,013             781,971        
Stockholders’ equity   240,519             212,395        
Total liabilities and stockholders’ equity $ 2,188,299           $ 2,077,801        
                       
Net interest spread         5.25 %           6.46 %
Net interest income     $ 141,526           $ 140,607    
Net interest margin(4)         6.60 %           6.92 %

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the years ended December 31, 2023 and 2022, collectively, portfolio loans yield excluding credit card loans was 6.66% and 5.31%, respectively.
(4) For the years ended December 31, 2023 and 2022, collectively, SBA-PPP loans and credit card loans accounted for 264 and 299 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 year ended December 31, 2023 and December 31, 2022.

Segments                        
For the three months ended December 31, 2023                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 30,957     $ 83     $ 15,035   $ 964     $ (70 )   $ 46,969  
Interest expense     11,884       31       —     235       (70 )     12,080  
Net interest income     19,073       52       15,035     729       —       34,889  
Provision (release of provision) for credit losses     691       —       2,125     (8 )     —       2,808  
Release of credit losses on unfunded commitments     (106 )     —       —     —       —       (106 )
Net interest income after provision     18,488       52       12,910     737       —       32,187  
Noninterest income     773       1,166       3,996     1       —       5,936  
Noninterest expense(1)     15,135       1,437       10,378     (43 )     —       26,907  
Net income (loss) before taxes   $ 4,126     $ (219 )   $ 6,528   $ 781     $ —     $ 11,216  
                         
Total assets   $ 2,050,436     $ 8,589     $ 117,477   $ 276,831     $ (228,666 )   $ 2,224,667  
                         
For the three months ended September 30, 2023                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 30,409     $ 111     $ 16,143   $ 1,162     $ (84 )   $ 47,741  
Interest expense     10,736       32       —     247       (84 )     10,931  
Net interest income     19,673       79       16,143     915       —       36,810  
Provision for credit losses     275       —       1,875     130       —       2,280  
Provision for credit losses on unfunded commitments     24       —       —     —       —       24  
Net interest income after provision     19,374       79       14,268     785       —       34,506  
Noninterest income     665       1,255       4,405     1       —       6,326  
Noninterest expense(1)     15,784       1,502       10,637     123       —       28,046  
Net income (loss) before taxes   $ 4,255     $ (168 )   $ 8,036   $ 663     $ —     $ 12,786  
                         
Total assets   $ 2,102,749     $ 5,280     $ 116,318   $ 264,950     $ (216,813 )   $ 2,272,484  
                         
For the three months ended December 31, 2022                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 24,389     $ 88     $ 16,035   $ 891     $ (55 )   $ 41,348  
Interest expense     5,990       33       —     181       (55 )     6,149  
Net interest income     18,399       55       16,035     710       —       35,199  
Provision for loan losses     —       —       2,384     —       —       2,384  
Net interest income after provision     18,399       55       13,651     710       —       32,815  
Noninterest income     550       696       4,314     1       —       5,561  
Noninterest expense(1)     13,811       2,085       10,724     114       —       26,734  
Net income (loss) before taxes   $ 5,138     $ (1,334 )   $ 7,241   $ 597     $ —     $ 11,642  
                         
Total assets   $ 1,939,601     $ 7,936     $ 122,418   $ 245,399     $ (191,699 )   $ 2,123,655  

________________________

(1) Noninterest expense includes $5.7 million, $6.1 million and $6.1 million in data processing expense in OpenSky’s® segment for the three months ended December 31, 2023 September 30, 2023, and December 31, 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 year ended December 31, 2023                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 116,408     $ 382     $ 62,476   $ 4,238   $ (298 )   $ 183,206  
Interest expense     40,896       135       —     947     (298 )     41,680  
Net interest income     75,512       247       62,476     3,291     —       141,526  
Provision for credit losses     1,540       —       7,948     122     —       9,610  
Release of credit losses on unfunded commitments     (101 )     —       —     —     —       (101 )
Net interest income after provision     74,073       247       54,528     3,169     —       132,017  
Noninterest income     2,737       4,909       17,325     4     —       24,975  
Noninterest expense(1)     61,836       6,001       42,524     406     —       110,767  
Net income (loss) before taxes   $ 14,974     $ (845 )   $ 29,329   $ 2,767   $ —     $ 46,225  
                         
Total assets   $ 2,050,436     $ 8,589     $ 117,477   $ 276,831   $ (228,666 )   $ 2,224,667  
                         
For the year ended December 31, 2022                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 82,182     $ 435     $ 64,859   $ 3,349   $ (179 )   $ 150,646  
Interest expense     9,245       218       —     755     (179 )     10,039  
Net interest income     72,937       217       64,859     2,594     —       140,607  
Provision (release of provision) for loan losses     (980 )     —       7,611     —     —       6,631  
Net interest income after provision     73,917       217       57,248     2,594     —       133,976  
Noninterest income     2,122       5,276       21,972     2     —       29,372  
Noninterest expense(1)     52,552       8,450       47,647     465     —       109,114  
Net income (loss) before taxes   $ 23,487     $ (2,957 )   $ 31,573   $ 2,131   $ —     $ 54,234  
                         
Total assets   $ 1,939,601     $ 7,936     $ 122,418   $ 245,399   $ (191,699 )   $ 2,123,655  

(1) Noninterest expense includes $23.7 million and $27.0 million in data processing expense in OpenSky’s® segment for the years ended December 31, 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)   December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
Earnings:                    
Net income   $ 9,030     $ 9,788     $ 7,318     $ 9,735     $ 8,991  
Earnings per common share, diluted     0.65       0.70       0.52       0.68       0.62  
Net interest margin     6.40 %     6.71 %     6.63 %     6.65 %     6.64 %
Net interest margin, excluding credit cards & SBA-PPP loans(1)     3.92 %     4.05 %     4.06 %     3.81 %     3.91 %
Return on average assets(2)     1.63 %     1.75 %     1.34 %     1.84 %     1.67 %
Return on average assets, excluding impact of SBA-PPP loans(1)(2)     1.63 %     1.75 %     1.34 %     1.84 %     1.67 %
Return on average equity(2)     14.44 %     16.00 %     12.30 %     16.98 %     16.18 %
Efficiency ratio     65.91 %     65.02 %     70.41 %     64.73 %     65.59 %
                     
Balance Sheet:                    
Total portfolio loans receivable, net deferred fees   $ 1,902,643     $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592  
Total deposits     1,895,996       1,967,988       1,934,361       1,944,374       1,758,072  
Total assets     2,224,667       2,272,484       2,227,866       2,245,286       2,123,655  
Total stockholders' equity     254,860       242,878       237,435       234,517       224,015  
Total average portfolio loans receivable, net deferred fees     1,862,599       1,846,866       1,800,800       1,750,539       1,675,434  
Total average deposits     1,885,092       1,918,467       1,881,380       1,771,024       1,691,726  
Portfolio loans-to-deposit ratio (period-end balances)     100.35 %     94.61 %     94.97 %     91.86 %     98.32 %
Portfolio loans-to-deposit ratio (average balances)     98.81 %     96.27 %     95.72 %     98.84 %     99.04 %
                     
Asset Quality Ratios:                    
Nonperforming assets to total assets     0.72 %     0.67 %     0.71 %     0.73 %     0.46 %
Nonperforming assets to total assets, excluding the SBA-PPP loans(1)     0.72 %     0.67 %     0.71 %     0.73 %     0.46 %
Nonperforming loans to total loans     0.84 %     0.82 %     0.85 %     0.91 %     0.56 %
Nonperforming loans to portfolio loans(1)     0.84 %     0.82 %     0.86 %     0.91 %     0.56 %
Net charge-offs to average portfolio loans(1)(2)     0.53 %     0.38 %     0.35 %     0.61 %     0.49 %
Allowance for credit losses to total loans     1.50 %     1.52 %     1.50 %     1.47 %     1.52 %
Allowance for credit losses to portfolio loans(1)     1.50 %     1.52 %     1.50 %     1.47 %     1.53 %
Allowance for credit losses to non-performing loans     178.34 %     185.61 %     175.03 %     160.91 %     270.46 %
                     
Bank Capital Ratios:                    
Total risk based capital ratio     14.81 %     14.51 %     14.08 %     14.09 %     14.21 %
Tier 1 risk based capital ratio     13.56 %     13.25 %     12.82 %     12.84 %     12.95 %
Leverage ratio     10.51 %     10.04 %     9.77 %     9.78 %     9.47 %
Common equity Tier 1 capital ratio     13.56 %     13.25 %     12.82 %     12.84 %     12.95 %
Tangible common equity     9.91 %     9.08 %     8.93 %     8.79 %     8.85 %
Holding Company Capital Ratios:                    
Total risk based capital ratio     17.38 %     17.11 %     16.81 %     16.75 %     16.33 %
Tier 1 risk based capital ratio     15.55 %     15.27 %     14.96 %     14.90 %     15.13 %
Leverage ratio     12.14 %     11.62 %     11.50 %     11.47 %     11.24 %
Common equity Tier 1 capital ratio     15.43 %     15.27 %     14.96 %     14.90 %     15.00 %
Tangible common equity     11.71 %     10.69 %     10.66 %     10.44 %     10.55 %
Composition of Loans:                    
SBA-PPP loans, net   $ 645     $ 750     $ 1,090     $ 2,037     $ 2,163  
Commercial real estate, non owner-occupied   $ 351,116     $ 350,637     $ 348,892     $ 348,047     $ 351,423  
Commercial real estate, owner-occupied   $ 307,911     $ 305,802     $ 311,972     $ 299,966     $ 300,809  
Residential real estate     573,104       558,147       555,133       545,899       484,735  
Construction real estate     290,108       280,905       258,400       251,494       238,099  
Commercial and industrial     238,548       236,782       233,598       221,258       220,221  
Lender finance     11,085       —       —       —       —  
Business equity lines of credit     14,117       14,155       13,277       12,205       12,319  
Credit card, net of reserve(3)     123,331       122,533       122,925       112,860       128,434  
Other consumer loans     950       948       1,187       1,578       1,179  
Portfolio loans receivable   $ 1,910,270     $ 1,869,909     $ 1,845,384     $ 1,793,307     $ 1,737,219  
Deferred origination fees, net     (7,627 )     (7,980 )     (8,343 )     (7,198 )     (8,627 )
Portfolio loans receivable, net   $ 1,902,643     $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592  
                     
Composition of Deposits:                    
Noninterest-bearing   $ 617,373     $ 680,803     $ 693,129     $ 705,801     $ 674,313  
Interest-bearing demand     199,308       229,035       243,095       219,685       207,836  
Savings     5,211       5,686       5,816       5,835       7,530  
Money markets     663,129       668,774       631,148       632,087       574,978  
Brokered time deposits     142,356       128,665       128,665       181,820       131,819  
Other time deposits     268,619       255,025       232,508       199,146       161,596  
Total deposits   $ 1,895,996     $ 1,967,988     $ 1,934,361     $ 1,944,374     $ 1,758,072  
                     
Capital Bank Home Loan Metrics:        
Origination of loans held for sale   $ 45,152     $ 50,023     $ 61,480     $ 44,448     $ 43,956  
Mortgage loans sold     34,140       39,364       49,231       40,483       43,415  
Gain on sale of loans     1,015       1,011       1,262       1,223       912  
Purchase volume as a % of originations     89.99 %     92.29 %     93.12 %     90.72 %     88.94 %
Gain on sale as a % of loans sold(4)     2.97 %     2.57 %     2.56 %     3.02 %     2.10 %
Mortgage commissions   $ 465     $ 528     $ 621     $ 378     $ 451  
                     
OpenSky®Portfolio Metrics:        
Open customer accounts     525,314       529,205       540,058       527,231       533,855  
Secured credit card loans, gross   $ 95,300     $ 98,138     $ 100,218     $ 89,078     $ 104,157  
Unsecured credit card loans, gross     30,817       27,430       25,254       25,782       26,795  
Noninterest secured credit card deposits     173,857       181,185       186,566       184,809       187,412  

_______________

(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

The Company has presented the following non-GAAP (U.S. Generally Accepted Accounting Principles) financial measures because it believes that these measures provide useful and comparative information to assess trends in the Company’s results of operations and financial condition. Presentation of these non-GAAP financial measures is consistent with how the Company evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry. Investors should recognize that the Company’s presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and the Company strongly encourages a review of its condensed consolidated financial statements in their entirety.

Return on Average Assets, as Adjusted Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Net Income $ 9,030     $ 9,788     $ 7,318     $ 9,735     $ 8,991  
Less: SBA-PPP Loan Income   4       11       7       8       28  
Net Income, as Adjusted $ 9,026     $ 9,777     $ 7,311     $ 9,727     $ 8,963  
Average Total Assets   2,202,479       2,221,117       2,184,351       2,144,249       2,136,156  
Less: Average SBA-PPP Loans   699       906       1,808       2,099       2,435  
Average Total Assets, as Adjusted $ 2,201,780     $ 2,220,211     $ 2,182,543     $ 2,142,150     $ 2,133,721  
Return on Average Assets, as Adjusted   1.63 %     1.75 %     1.34 %     1.84 %     1.67 %


Return on Average Assets, as Adjusted Year Ended
  
(in thousands) December 31,
2023		   December 31,
2022
  
       
Net Income $ 35,871     $ 41,804    
Less: SBA-PPP Loan Income   30       3,477    
Net Income, as Adjusted $ 35,841     $ 38,327    
Average Total Assets   2,188,299       2,077,801    
Less: Average SBA-PPP Loans   1,373       29,831    
Average Total Assets, as Adjusted $ 2,186,926     $ 2,047,970    
Return on Average Assets, as Adjusted   1.64 %     1.87 %  


Net Interest Margin, as Adjusted Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Net Interest Income $ 34,889     $ 36,810     $ 35,340     $ 34,487     $ 35,199  
Less: Credit Card Loan Income   14,677       15,792       14,818       15,809       15,717  
Less: SBA-PPP Loan Income   4       11       7       8       28  
Net Interest Income, as Adjusted $ 20,208     $ 21,007     $ 20,515     $ 18,670     $ 19,454  
Average Interest Earning Assets   2,162,459       2,176,477       2,136,936       2,103,984       2,101,617  
Less: Average Credit Card Loans   114,551       116,814       110,574       115,850       124,120  
Less: Average SBA-PPP Loans   699       906       1,808       2,099       2,435  
Total Average Interest Earning Assets, as Adjusted $ 2,047,209     $ 2,058,757     $ 2,024,554     $ 1,986,035     $ 1,975,062  
Net Interest Margin, as Adjusted   3.92 %     4.05 %     4.06 %     3.81 %     3.91 %


Net Interest Margin, as Adjusted Year Ended
  
(in thousands) December 31,
2023		   December 31,
2022
  
       
Net Interest Income $ 141,526     $ 140,607    
Less: Credit Card Loan Income   61,096       63,348    
Less: SBA-PPP Loan Income   30       3,477    
Net Interest Income, as Adjusted $ 80,400     $ 73,782    
Average Interest Earning Assets   2,145,209       2,033,242    
Less: Average Credit Card Loans   114,450       126,473    
Less: Average SBA-PPP Loans   1,373       29,831    
Total Average Interest Earning Assets, as Adjusted $ 2,029,386     $ 1,876,938    
Net Interest Margin, as Adjusted   3.96 %     3.93 %  


Portfolio Loans Receivable Yield, as Adjusted Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Portfolio Loans Receivable Interest Income $ 45,022     $ 45,263     $ 42,872     $ 41,191     $ 38,647  
Less: Credit Card Loan Income   14,677       15,792       14,818       15,809       15,717  
Portfolio Loans Receivable Interest Income, as Adjusted $ 30,345     $ 29,471     $ 28,054     $ 25,382     $ 22,930  
Average Portfolio Loans Receivable   1,862,599       1,846,866       1,800,800       1,750,539       1,675,434  
Less: Average Credit Card Loans   114,551       116,814       110,574       115,850       124,120  
Total Average Portfolio Loans Receivable, as Adjusted $ 1,748,048     $ 1,730,052     $ 1,690,226     $ 1,634,689     $ 1,551,314  
Portfolio Loans Receivable Yield, as Adjusted   6.89 %     6.76 %     6.66 %     6.30 %     5.86 %


Portfolio Loans Receivable Yield, as Adjusted Year Ended
  
(in thousands) December 31,
2023		   December 31,
2022
  
       
Portfolio Loans Receivable Interest Income $ 174,348     $ 140,496    
Less: Credit Card Loan Income   61,096       63,348    
Portfolio Loans Receivable Interest Income, as Adjusted $ 113,252     $ 77,148    
Average Portfolio Loans Receivable   1,815,595       1,579,661    
Less: Average Credit Card Loans   114,450       126,473    
Total Average Portfolio Loans Receivable, as Adjusted $ 1,701,145     $ 1,453,188    
Portfolio Loans Receivable Yield, as Adjusted   6.66 %     5.31 %  


Pre-tax, Pre-Provision Net Revenue ("PPNR") Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Net Income $ 9,030     $ 9,788   $ 7,318   $ 9,735     $ 8,991
Add: Income Tax Expense   2,186       2,998     2,255     2,915       2,651
Add: Provision for Credit Losses   2,808       2,280     2,862     1,660       2,384
Add: (Release of) Provision for Credit Losses on Unfunded Commitments   (106 )     24     —     (19 )     —
Pre-tax, Pre-Provision Net Revenue ("PPNR") $ 13,918     $ 15,090   $ 12,435   $ 14,291     $ 14,026


Pre-tax, Pre-Provision Net Revenue ("PPNR") Year Ended
  
(in thousands) December 31,
2023		   December 31,
2022
  
       
Net Income $ 35,871     $ 41,804  
Add: Income Tax Expense   10,354       12,430  
Add: Provision for Credit Losses   9,610       6,631  
Add: Release of Credit Losses on Unfunded Commitments   (101 )     —  
Pre-tax, Pre-Provision Net Revenue ("PPNR") $ 55,734     $ 60,865  


Allowance for Credit Losses to Total Portfolio Loans Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Allowance for Credit Losses $ 28,610     $ 28,279     $ 27,495     $ 26,216     $ 26,385  
Total Loans   1,903,288       1,862,679       1,838,131       1,788,146       1,730,755  
Less: SBA-PPP Loans   645       750       1,090       2,037       2,163  
Total Portfolio Loans $ 1,902,643     $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592  
Allowance for Credit Losses to Total Portfolio Loans   1.50 %     1.52 %     1.50 %     1.47 %     1.53 %


Nonperforming Assets to Total Assets, net SBA-PPP Loans Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Total Nonperforming Assets $ 16,042     $ 15,236     $ 15,709     $ 16,293     $ 9,756  
Total Assets   2,224,667       2,272,484       2,227,866       2,245,286       2,123,655  
Less: SBA-PPP Loans   645       750       1,090       2,037       2,163  
Total Assets, net SBA-PPP Loans $ 2,224,022     $ 2,271,734     $ 2,226,776     $ 2,243,249     $ 2,121,492  
Nonperforming Assets to Total Assets, net SBA-PPP Loans   0.72 %     0.67 %     0.71 %     0.73 %     0.46 %


Nonperforming Loans to Total Portfolio Loans Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Total Nonperforming Loans $ 16,042     $ 15,236     $ 15,709     $ 16,293     $ 9,756  
Total Loans   1,903,288       1,862,679       1,838,131       1,788,146       1,730,755  
Less: SBA-PPP Loans   645       750       1,090       2,037       2,163  
Total Portfolio Loans $ 1,902,643     $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592  
Nonperforming Loans to Total Portfolio Loans   0.84 %     0.82 %     0.86 %     0.91 %     0.56 %


Net Charge-offs to Average Portfolio Loans Quarter Ended
(in thousands) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Total Net Charge-offs $ 2,477     $ 1,780     $ 1,583     $ 2,633     $ 2,090  
Total Average Loans   1,863,298       1,847,772       1,802,608       1,752,638       1,677,869  
Less: Average SBA-PPP Loans   699       906       1,808       2,099       2,435  
Total Average Portfolio Loans $ 1,862,599     $ 1,846,866     $ 1,800,800     $ 1,750,539     $ 1,675,434  
Net Charge-offs to Average Portfolio Loans   0.53 %     0.38 %     0.35 %     0.61 %     0.49 %


Net Charge-offs to Average Portfolio Loans Year Ended
  
(in thousands) December 31,
2023		   December 31,
2022
  
       
Total Net Charge-offs $ 8,473     $ 5,427    
Total Average Loans   1,816,968       1,609,492    
Less: Average SBA-PPP Loans   1,373       29,831    
Total Average Portfolio Loans $ 1,815,595     $ 1,579,661    
Net Charge-offs to Average Portfolio Loans   0.47 %     0.34 %  


Tangible Book Value per Share Quarter Ended
(in thousands, except per share amounts) December 31,
2023		   September 30,
2023		   June 30,
2023		   March 31,
2023		   December 31,
2022
                   
Total Stockholders' Equity $ 254,860   $ 242,878   $ 237,435   $ 234,517   $ 224,015
Less: Preferred Equity   —     —     —     —     —
Less: Intangible Assets   —     —     —     —     —
Tangible Common Equity $ 254,860   $ 242,878   $ 237,435   $ 234,517   $ 224,015
Period End Shares Outstanding   13,922,532     13,893,083     13,981,414     14,082,657     14,138,829
Tangible Book Value per Share $ 18.31   $ 17.48   $ 16.98   $ 16.65   $ 15.84


ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the fourth largest bank headquartered in Maryland at December 31, 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 December 31, 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 wars in Ukraine and in the Middle East; 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; any failure to adequately manage the transition from USD LIBOR as a reference rate; 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; climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs; 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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Source: Capital Bancorp, Inc.