Press Release

Capital Bancorp, Inc. Reports Third Quarter 2023 Net Income of $9.8 million, or $0.70 per share

October 23, 2023 at 4:15 PM EDT
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  • Net Income Expands 33.8% with Improved Net Interest Margin from 2Q 2023
  • Diluted EPS of $0.70, ROAA of 1.75%, and ROAE of 16.00% for 3Q 2023
  • Loan and Deposit Growth Generates Positive Operating Leverage
  • Tangible Book Value Per Share(1) of $17.48 for 3Q 2023 up 15% from 3Q 2022
  • Cash dividend of $0.08 per share declared

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

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

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

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

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

Third Quarter 2023 Highlights

Capital Bancorp, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

Commercial Bank

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

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

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

OpenSky®

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

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

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

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

 
COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited
                           
  Quarter Ended   3Q23 vs 2Q23   3Q23 vs 3Q22
(in thousands except per share data) September 30, 2023   June 30, 2023   September 30, 2022   $ Change   % Change   $ Change   % Change
Earnings Summary                          
Interest income $ 47,741     $ 45,080     $ 38,340     $ 2,661     5.9 %   $ 9,401     24.5 %
Interest expense   10,931       9,740       1,663       1,191     12.2 %     9,268     557.3 %
Net interest income   36,810       35,340       36,677       1,470     4.2 %     133     0.4 %
Provision for credit losses   2,280       2,862       1,260       (582 )   (20.3 )%     1,020     81.0 %
Provision for credit losses on unfunded commitments   24       —       —       24     — %     24     — %
Noninterest income   6,326       6,687       7,108       (361 )   (5.4 )%     (782 )   (11.0 )%
Noninterest expense   28,046       29,592       28,094       (1,546 )   (5.2 )%     (48 )   (0.2 )%
Income before income taxes   12,786       9,573       14,431       3,213     33.6 %     (1,645 )   (11.4 )%
Income tax expense   2,998       2,255       3,336       743     32.9 %     (338 )   (10.1 )%
Net income $ 9,788     $ 7,318     $ 11,095     $ 2,470     33.8 %   $ (1,307 )   (11.8 )%
                           
Pre-tax pre-provision net revenue ("PPNR")(1) $ 15,090     $ 12,435     $ 15,691     $ 2,655     21.4 %   $ (601 )   (3.8 )%
Weighted average common shares - Basic   13,933       14,025       14,030       (92 )   (0.7 )%     (97 )   (0.7 )%
Weighted average common shares - Diluted   14,024       14,059       14,375       (35 )   (0.2 )%     (351 )   (2.4 )%
Earnings per share - Basic $ 0.70     $ 0.52     $ 0.79     $ 0.18     34.6 %   $ (0.09 )   (11.4 )%
Earnings per share - Diluted $ 0.70     $ 0.52     $ 0.77     $ 0.18     34.6 %   $ (0.07 )   (9.1 )%
Return on average assets (annualized)   1.75 %     1.34 %     2.15 %     0.41 %   30.6 %   (0.40 )%   (18.6 )%
Return on average assets, excluding impact of SBA-PPP loans (annualized)(1)   1.75 %     1.34 %     2.10 %     0.41 %   30.6 %   (0.35 )%   (16.7 )%
Return on average equity (annualized)   16.00 %     12.30 %     20.32 %     3.70 %   30.1 %   (4.32 )%   (21.3 )%

______________

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

 
COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited (Continued)
                 
    Nine Months Ended        
    September 30,        
(in thousands except per share data)   2023   2022   $ Change   % Change
Earnings Summary                
Interest income   $ 136,237     $ 109,298     $ 26,939     24.6 %
Interest expense     29,600       3,890       25,710     660.9 %
Net interest income     106,637       105,408       1,229     1.2 %
Provision for credit losses     6,802       4,247       2,555     60.2 %
Provision for credit losses on unfunded commitments     5       —       5     — %
Noninterest income     19,039       23,811       (4,772 )   (20.0 )%
Noninterest expense     83,860       82,379       1,481     1.8 %
Income before income taxes     35,009       42,593       (7,584 )   (17.8 )%
Income tax expense     8,168       9,779       (1,611 )   (16.5 )%
Net income   $ 26,841     $ 32,814     $ (5,973 )   (18.2 )%
                 
Pre-tax pre-provision net revenue ("PPNR")(1)   $ 41,816     $ 46,840     $ (5,024 )   (10.7 )%
Weighted average common shares - Basic     14,038       14,009       29     0.2 %
Weighted average common shares - Diluted     14,112       14,329       (217 )   (1.5 )%
Earnings per share - Basic   $ 1.91     $ 2.34     $ (0.43 )   (18.4 )%
Earnings per share - Diluted   $ 1.90     $ 2.29     $ (0.39 )   (17.0 )%
Return on average assets (annualized)     1.64 %     2.13 %   (0.49 )%   (23.0 )%
Return on average assets, excluding impact of SBA-PPP loans (annualized)(1)     1.64 %     1.94 %   (0.30 )%   (15.5 )%
Return on average equity (annualized)     15.08 %     20.93 %   (5.85 )%   (28.0 )%
                         


             
  Quarter Ended         Quarter Ended
  September 30,         June 30,   March 31,   December 31,
(in thousands except per share data) 2023
   2022
   % Change   2023
   2023
   2022
Balance Sheet Highlights                      
Assets $ 2,272,484     $ 2,009,358     13.1 %   $ 2,227,866     $ 2,245,286     $ 2,123,655  
Investment securities available for sale   206,055       269,620     (23.6 )%     208,464       255,762       252,481  
Mortgage loans held for sale   4,843       6,875     (29.6 )%     10,146       9,620       7,416  
SBA-PPP loans, net of fees   750       2,662     (71.8 )%     1,090       2,037       2,163  
Portfolio loans receivable(2)   1,861,929       1,648,001     13.0 %     1,837,041       1,786,109       1,728,592  
Allowance for credit losses   28,279       26,091     8.4 %     27,495       26,216       26,385  
Deposits   1,967,988       1,737,591     13.3 %     1,934,361       1,944,374       1,758,072  
FHLB borrowings   22,000       22,000     — %     22,000       32,000       107,000  
Other borrowed funds   12,062       12,062     — %     12,062       12,062       12,062  
Total stockholders' equity   242,878       214,005     13.5 %     237,435       234,517       224,015  
Tangible common equity(1)   242,878       214,005     13.5 %     237,435       234,517       224,015  
                       
Common shares outstanding   13,896       14,039     (1.0 )%     13,981       14,083       14,139  
Book value per share $ 17.48     $ 15.24     14.7 %   $ 16.98     $ 16.65     $ 15.84  
Tangible book value per share(1) $ 17.48     $ 15.24     14.7 %   $ 16.98     $ 16.65     $ 15.84  
Dividends per share $ 0.08     $ 0.06     33.3 %   $ 0.06     $ 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 September 30, 2023 and 2022

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Condition

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

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

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

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

 
Consolidated Statements of Income (Unaudited)
  Three Months Ended
   Nine Months Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022   September 30, 2023   September 30, 2022
Interest income                          
Loans, including fees $ 45,385     $ 42,991     $ 41,275     $ 38,763     $ 36,451     $ 129,651     $ 105,645  
Investment securities available for sale   1,089       1,266       1,377       1,402       1,362       3,732       2,510  
Federal funds sold and other   1,267       823       764       1,183       527       2,854       1,143  
Total interest income   47,741       45,080       43,416       41,348       38,340       136,237       109,298  
                           
Interest expense                          
Deposits   10,703       9,409       7,754       4,377       1,386       27,866       3,234  
Borrowed funds   228       331       1,175       1,772       277       1,734       656  
Total interest expense   10,931       9,740       8,929       6,149       1,663       29,600       3,890  
                           
Net interest income   36,810       35,340       34,487       35,199       36,677       106,637       105,408  
Provision for credit losses   2,280       2,862       1,660       2,384       1,260       6,802       4,247  
Provision for (release of) credit losses on unfunded commitments   24       —       (19 )     —       —       5       —  
Net interest income after provision for credit losses   34,506       32,478       32,846       32,815       35,417       99,830       101,161  
                           
Noninterest income                          
Service charges on deposits   250       245       229       222       199       724       545  
Credit card fees   4,387       4,706       4,210       4,314       5,524       13,303       17,658  
Mortgage banking revenue   1,243       1,332       1,155       554       969       3,730       4,312  
Other income   446       404       432       471       416       1,282       1,296  
Total noninterest income   6,326       6,687       6,026       5,561       7,108       19,039       23,811  
                           
Noninterest expenses                          
Salaries and employee benefits   12,419       12,143       12,554       11,769       10,747       37,116       31,129  
Occupancy and equipment   1,351       1,536       1,213       1,388       1,138       4,100       3,476  
Professional fees   2,358       2,608       2,374       2,426       3,848       7,340       8,586  
Data processing   6,469       6,559       6,530       6,697       7,178       19,558       22,721  
Advertising   1,565       2,646       517       726       1,632       4,728       5,494  
Loan processing   426       660       349       350       625       1,435       1,352  
Foreclosed real estate expenses, net   1       —       6       —       —       7       —  
Other operating   3,457       3,440       2,679       3,378       2,926       9,576       9,621  
Total noninterest expenses   28,046       29,592       26,222       26,734       28,094       83,860       82,379  
Income before income taxes   12,786       9,573       12,650       11,642       14,431       35,009       42,593  
Income tax expense   2,998       2,255       2,915       2,651       3,336       8,168       9,779  
Net income $ 9,788     $ 7,318     $ 9,735     $ 8,991     $ 11,095     $ 26,841     $ 32,814  
                                                       


 
Consolidated Balance Sheets
  (unaudited)   (unaudited)   (unaudited)   (audited)   (unaudited)
(in thousands except share data) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
Assets                  
Cash and due from banks $ 13,767     $ 18,619     $ 14,477     $ 19,963     $ 14,774  
Interest-bearing deposits at other financial institutions   130,428       100,343       125,448       39,764       20,867  
Federal funds sold   1,957       376       462       20,688       1,421  
Total cash and cash equivalents   146,152       119,338       140,387       80,415       37,062  
Investment securities available for sale   206,055       208,464       255,762       252,481       269,620  
Marketable equity securities   —       —       —       —       232  
Restricted investments   4,340       3,803       4,215       7,362       3,627  
Loans held for sale   4,843       10,146       9,620       7,416       6,875  
U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loans receivable, net of fees and costs   750       1,090       2,037       2,163       2,662  
Portfolio loans receivable, net of deferred fees and costs   1,861,929       1,837,041       1,786,109       1,728,592       1,648,001  
Less allowance for credit losses   (28,279 )     (27,495 )     (26,216 )     (26,385 )     (26,091 )
Total portfolio loans held for investment, net   1,833,650       1,809,546       1,759,893       1,702,207       1,621,910  
Premises and equipment, net   5,297       5,494       5,367       3,386       3,212  
Accrued interest receivable   11,231       10,155       9,985       9,489       7,890  
Deferred tax asset   13,644       13,616       12,898       13,777       14,047  
Bank owned life insurance   37,315       37,041       36,781       36,524       36,267  
Other assets   9,207       9,173       8,341       8,435       5,954  
Total assets $ 2,272,484     $ 2,227,866     $ 2,245,286     $ 2,123,655     $ 2,009,358  
                   
Liabilities                  
Deposits                  
Noninterest-bearing $ 680,803     $ 693,129     $ 705,801     $ 674,313     $ 806,033  
Interest-bearing   1,287,185       1,241,232       1,238,573       1,083,759       931,558  
Total deposits   1,967,988       1,934,361       1,944,374       1,758,072       1,737,591  
Federal Home Loan Bank advances   22,000       22,000       32,000       107,000       22,000  
Other borrowed funds   12,062       12,062       12,062       12,062       12,062  
Accrued interest payable   5,204       3,029       1,977       1,031       481  
Other liabilities   22,352       18,979       20,356       21,475       23,219  
Total liabilities   2,029,606       1,990,431       2,010,769       1,899,640       1,795,353  
                   
Stockholders' equity                  
Common stock   139       140       141       141       140  
Additional paid-in capital   54,549       55,856       57,277       58,190       56,532  
Retained earnings   206,033       197,490       191,058       182,435       174,916  
Accumulated other comprehensive loss   (17,843 )     (16,051 )     (13,959 )     (16,751 )     (17,583 )
Total stockholders' equity   242,878       237,435       234,517       224,015       214,005  
Total liabilities and stockholders' equity $ 2,272,484     $ 2,227,866     $ 2,245,286     $ 2,123,655     $ 2,009,358  
                                       

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
September 30, 2023		   Three Months Ended
June 30, 2023		   Three Months Ended
September 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 $ 87,112     $ 1,183     5.39 %   $ 66,401     $ 733     4.43 %   $ 101,187     $ 471     1.85 %
Federal funds sold   1,134       15     5.25       1,638       20     4.90       1,492       7     1.87  
Investment securities available for sale   229,731       1,089     1.88       255,057       1,266     1.99       287,944       1,362     1.88  
Restricted investments   4,058       69     6.75       4,185       71     6.80       4,116       49     4.72  
Loans held for sale   6,670       111     6.60       7,047       111     6.32       7,879       102     5.15  
SBA-PPP loans receivable   906       11     4.82       1,808       7     1.55       5,906       263     17.66  
Portfolio loans receivable(2)   1,846,866       45,263     9.72       1,800,800       42,872     9.55       1,601,546       36,086     8.94  
Total interest earning assets   2,176,477       47,741     8.70       2,136,936       45,080     8.46       2,010,070       38,340     7.57  
Noninterest earning assets   44,640               47,415               39,008          
Total assets $ 2,221,117             $ 2,184,351             $ 2,049,078          
                                   
Liabilities and Stockholders’ Equity                                  
Interest-bearing liabilities:                                  
Interest-bearing demand accounts $ 215,527       71     0.13     $ 207,264       67     0.13     $ 244,929       39     0.06  
Savings   5,582       3     0.21       5,822       2     0.14       9,216       1     0.04  
Money market accounts   655,990       6,373     3.85       625,515       5,411     3.47       555,634       815     0.58  
Time deposits   374,429       4,256     4.51       366,421       3,929     4.30       155,091       531     1.36  
Borrowed funds   34,932       228     2.59       43,183       331     3.07       40,700       277     2.70  
Total interest-bearing liabilities   1,286,460       10,931     3.37       1,248,205       9,740     3.13       1,005,570       1,663     0.66  
Noninterest-bearing liabilities:                                  
Noninterest-bearing liabilities   25,047               21,104               24,440          
Noninterest-bearing deposits   666,939               676,358               802,458          
Stockholders’ equity   242,671               238,684               216,610          
Total liabilities and stockholders’ equity $ 2,221,117             $ 2,184,351             $ 2,049,078          
                                   
Net interest spread         5.33 %           5.33 %           6.91 %
Net interest income     $ 36,810             $ 35,340             $ 36,677      
Net interest margin(3)         6.71 %           6.63 %           7.24 %

_______________

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

   
  Nine Months Ended September 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 $ 72,116     $ 2,531     4.69 %   $ 172,033     $ 1,001     0.78 %
Federal funds sold   1,605       53     4.42       2,590       9     0.48  
Investment securities available for sale   252,993       3,732     1.97       234,294       2,510     1.43  
Restricted investments   5,184       270     6.96       3,913       133     4.54  
Loans held for sale   6,145       299     6.51       10,921       347     4.25  
SBA-PPP loans receivable   1,600       26     2.17       39,063       3,449     11.80  
Portfolio loans receivable(2)   1,799,755       129,326     9.61       1,547,386       101,849     8.80  
Total interest earning assets   2,139,398       136,237     8.51       2,010,200       109,298     7.27  
Noninterest earning assets   44,123               47,936          
Total assets $ 2,183,521             $ 2,058,136          
                       
Liabilities and Stockholders’ Equity                      
Interest-bearing liabilities:                      
Interest-bearing demand accounts $ 203,099       208     0.14     $ 265,854       114     0.06  
Savings   5,965       6     0.13       9,138       4     0.06  
Money market accounts   628,977       16,371     3.48       553,794       1,512     0.37  
Time deposits   353,635       11,281     4.27       161,982       1,604     1.32  
Borrowed funds   65,192       1,734     3.56       36,299       656     2.41  
Total interest-bearing liabilities   1,256,868       29,600     3.15       1,027,067       3,890     0.51  
Noninterest-bearing liabilities:                      
Noninterest-bearing liabilities   22,846               23,748          
Noninterest-bearing deposits   665,821               797,660          
Stockholders’ equity   237,986               209,661          
Total liabilities and stockholders’ equity $ 2,183,521             $ 2,058,136          
                       
Net interest spread         5.36 %           6.76 %
Net interest income     $ 106,637             $ 105,408      
Net interest margin(3)         6.66 %           7.01 %

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

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

 
Segments
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  
Release of 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 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 September 30, 2022                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 20,382     $ 102     $ 17,103     $ 812     $ (59 )   $ 38,340  
Interest expense     1,449       40       —       233       (59 )     1,663  
Net interest income     18,933       62       17,103       579       —       36,677  
Provision (release of provision) for loan losses     (980 )     —       2,240       —       —       1,260  
Net interest income after provision     19,913       62       14,863       579       —       35,417  
Noninterest income     468       1,115       5,524       1       —       7,108  
Noninterest expense(1)     13,798       2,017       12,101       178       —       28,094  
Net income (loss) before taxes   $ 6,583     $ (840 )   $ 8,286     $ 402     $ —     $ 14,431  
                         
Total assets   $ 1,823,049     $ 7,664     $ 128,842     $ 234,731     $ (184,928 )   $ 2,009,358  

________________________

(1)   Noninterest expense includes $6.1 million, $5.9 million and $6.6 million in data processing expense in OpenSky’s® segment for the three months ended September 30, 2023 June 30, 2023, and September 30, 2022, respectively.
(2)   The Corporate segment invests idle cash in revenue-producing assets including interest-bearing cash accounts, loan participations and other appropriate investments for the Company.

 
Segments
For the nine months ended September 30, 2023                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 85,451     $ 299     $ 47,441     $ 3,274     $ (228 )   $ 136,237  
Interest expense     29,012       104       —       712       (228 )     29,600  
Net interest income     56,439       195       47,441       2,562       —       106,637  
Provision for credit losses     849       —       5,823       130       —       6,802  
Release of credit losses on unfunded commitments     5       —       —       —       —       5  
Net interest income after provision     55,585       195       41,618       2,432       —       99,830  
Noninterest income     1,964       3,743       13,329       3       —       19,039  
Noninterest expense(1)     46,701       4,564       32,146       449       —       83,860  
Net income (loss) before taxes   $ 10,848     $ (626 )   $ 22,801     $ 1,986     $ —     $ 35,009  
                         
Total assets   $ 2,102,749     $ 5,280     $ 116,318     $ 264,950     $ (216,813 )   $ 2,272,484  
                         
For the nine months ended September 30, 2022                    
(in thousands)   Commercial Bank   CBHL   OpenSky®   Corporate(2)   Eliminations   Consolidated
Interest income   $ 57,794     $ 347     $ 48,823     $ 2,457     $ (123 )   $ 109,298  
Interest expense     3,255       185       —       573       (123 )     3,890  
Net interest income     54,539       162       48,823       1,884       —       105,408  
Provision (release of provision) for loan losses     (980 )     —       5,227       —       —       4,247  
Net interest income after provision     55,519       162       43,596       1,884       —       101,161  
Noninterest income     1,571       4,580       17,658       2       —       23,811  
Noninterest expense(1)     38,741       6,364       36,923       351       —       82,379  
Net income (loss) before taxes   $ 18,349     $ (1,622 )   $ 24,331     $ 1,535     $ —     $ 42,593  
                         
Total assets   $ 1,823,049     $ 7,664     $ 128,842     $ 234,731     $ (184,928 )   $ 2,009,358  

(1)   Noninterest expense includes $17.9 million and $20.9 million in data processing expense in OpenSky’s® segment for the nine months ended September 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)   September 30, 2023   June 30, 2023   March 31,
2023		   December 31,
2022		   September 30,
2022
Earnings:                    
Net income   $ 9,788     $ 7,318     $ 9,735     $ 8,991     $ 11,095  
Earnings per common share, diluted     0.70       0.52       0.68       0.62       0.77  
Net interest margin     6.71 %     6.63 %     6.65 %     6.64 %     7.24 %
Net interest margin, excluding credit cards & SBA-PPP loans(1)     4.05 %     4.06 %     3.81 %     3.91 %     4.16 %
Return on average assets(2)     1.75 %     1.34 %     1.84 %     1.67 %     2.15 %
Return on average assets, excluding impact of SBA-PPP loans(1)(2)     1.75 %     1.34 %     1.84 %     1.67 %     2.10 %
Return on average equity(2)     16.00 %     12.30 %     16.98 %     16.18 %     20.32 %
Efficiency ratio     65.02 %     70.41 %     64.73 %     65.59 %     64.16 %
                     
Balance Sheet:                    
Total portfolio loans receivable, net deferred fees   $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592     $ 1,648,001  
Total deposits     1,967,988       1,934,361       1,944,374       1,758,072       1,737,591  
Total assets     2,272,484       2,227,866       2,245,286       2,123,655       2,009,358  
Total stockholders' equity     242,878       237,435       234,517       224,015       214,005  
                     
Asset Quality Ratios:                    
Nonperforming assets to total assets     0.67 %     0.71 %     0.73 %     0.46 %     0.43 %
Nonperforming assets to total assets, excluding the SBA-PPP loans(1)     0.67 %     0.71 %     0.73 %     0.46 %     0.43 %
Nonperforming loans to total loans     0.82 %     0.85 %     0.91 %     0.56 %     0.52 %
Nonperforming loans to portfolio loans(1)     0.82 %     0.86 %     0.91 %     0.56 %     0.52 %
Net charge-offs to average portfolio loans(1)(2)     0.38 %     0.35 %     0.61 %     0.49 %     0.39 %
Allowance for credit losses to total loans     1.52 %     1.50 %     1.47 %     1.52 %     1.58 %
Allowance for credit losses to portfolio loans(1)     1.52 %     1.50 %     1.47 %     1.53 %     1.58 %
Allowance for credit losses to non-performing loans     185.61 %     175.03 %     160.91 %     270.46 %     303.76 %
                     
Bank Capital Ratios:                    
Total risk based capital ratio     14.51 %     14.08 %     14.09 %     14.21 %     14.65 %
Tier 1 risk based capital ratio     13.25 %     12.82 %     12.84 %     12.95 %     13.39 %
Leverage ratio     10.04 %     9.77 %     9.78 %     9.47 %     9.60 %
Common equity Tier 1 capital ratio     13.25 %     12.82 %     12.84 %     12.95 %     13.39 %
Tangible common equity     9.08 %     8.93 %     8.79 %     8.85 %     9.00 %
Holding Company Capital Ratios:                    
Total risk based capital ratio     17.61 %     16.81 %     16.75 %     16.33 %     17.41 %
Tier 1 risk based capital ratio     15.71 %     14.96 %     14.90 %     15.13 %     15.49 %
Leverage ratio     11.62 %     11.50 %     11.47 %     11.24 %     11.31 %
Common equity Tier 1 capital ratio     15.71 %     14.96 %     14.90 %     15.00 %     15.36 %
Tangible common equity     10.69 %     10.66 %     10.44 %     10.55 %     10.65 %
Composition of Loans:                    
SBA-PPP loans, net   $ 750     $ 1,090     $ 2,037     $ 2,163     $ 2,662  
Commercial real estate   $ 670,594     $ 674,141     $ 660,218     $ 664,551     $ 626,030  
Residential real estate     558,147       555,133       545,899       484,735       466,849  
Construction real estate     280,905       258,400       251,494       238,099       235,045  
Commercial and industrial     236,782       233,598       221,258       220,221       192,207  
Credit card, net of reserve(3)     122,533       122,925       112,860       128,434       136,658  
Other consumer loans     948       1,187       1,578       1,179       1,055  
Portfolio loans receivable   $ 1,869,909     $ 1,845,384     $ 1,793,307     $ 1,737,219     $ 1,657,844  
Deferred origination fees, net     (7,980 )     (8,343 )     (7,198 )     (8,627 )     (9,843 )
Portfolio loans receivable, net   $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592     $ 1,648,001  
                     
Composition of Deposits:                    
Noninterest-bearing   $ 680,803     $ 693,129     $ 705,801     $ 674,313     $ 806,033  
Interest-bearing demand     229,035       243,095       219,685       207,836       252,135  
Savings     5,686       5,816       5,835       7,530       8,861  
Money markets     668,774       631,148       632,087       574,978       518,184  
Brokered time deposits     128,665       128,665       181,820       131,819       —  
Other time deposits     255,025       232,508       199,146       161,596       152,378  
Total deposits   $ 1,967,988     $ 1,934,361     $ 1,944,374     $ 1,758,072     $ 1,737,591  
                     
Capital Bank Home Loan Metrics:        
Origination of loans held for sale   $ 50,023     $ 61,480     $ 44,448     $ 43,956     $ 60,516  
Mortgage loans sold     39,364       49,231       40,483       43,415       65,349  
Gain on sale of loans     1,011       1,262       1,223       912       1,340  
Purchase volume as a % of originations     92.29 %     93.12 %     90.72 %     88.94 %     81.85 %
Gain on sale as a % of loans sold(4)     2.57 %     2.56 %     3.02 %     2.10 %     2.05 %
Mortgage commissions   $ 528     $ 621     $ 378     $ 451     $ 587  
                     
OpenSky®Portfolio Metrics:        
Open customer accounts     529,205       540,058       527,231       533,855       576,844  
Secured credit card loans, gross   $ 98,138     $ 100,218     $ 89,078     $ 104,157     $ 111,842  
Unsecured credit card loans, gross     27,430       25,254       25,782       26,795       27,335  
Noninterest secured credit card deposits     181,185       186,566       184,809       187,412       201,277  

_______________

(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 Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Net Income $ 9,788     $ 7,318     $ 9,735     $ 8,991     $ 11,095  
Less: SBA-PPP loan income   11       7       8       28       263  
Net Income, as Adjusted $ 9,777     $ 7,311     $ 9,727     $ 8,963     $ 10,832  
Average Total Assets   2,221,117       2,184,351       2,144,249       2,136,156       2,049,078  
Less: Average SBA-PPP Loans   906       1,808       2,099       2,435       5,906  
Average Total Assets, as Adjusted $ 2,220,211     $ 2,182,543     $ 2,142,150     $ 2,133,721     $ 2,043,172  
Return on Average Assets, as Adjusted   1.75 %     1.34 %     1.84 %     1.67 %     2.10 %
                                       


Return on Average Assets, as Adjusted Nine Months Ended
(in thousands) September 30, 2023   September 30, 2022
       
Net Income $ 26,841     $ 32,814  
Less: SBA-PPP loan income   26       3,449  
Net Income, as Adjusted $ 26,815     $ 29,365  
Average Total Assets   2,183,521       2,058,136  
Less: Average SBA-PPP Loans   1,600       39,063  
Average Total Assets, as Adjusted $ 2,181,921     $ 2,019,073  
Return on Average Assets, as Adjusted   1.64 %     1.94 %
               


Net Interest Margin, as Adjusted Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Net Interest Income $ 36,810     $ 35,340     $ 34,487     $ 35,199     $ 36,677  
Less Credit card loan income   15,792       14,818       15,809       15,717       16,768  
Less SBA-PPP loan income   11       7       8       28       263  
Net Interest Income, as Adjusted $ 21,007     $ 20,515     $ 18,670     $ 19,454     $ 19,646  
Average Interest Earning Assets   2,176,477       2,136,936       2,103,984       2,101,617       2,010,070  
Less Average credit card loans   116,814       110,574       115,850       124,120       132,246  
Less Average SBA-PPP loans   906       1,808       2,099       2,435       5,906  
Total Average Interest Earning Assets, as Adjusted $ 2,058,757     $ 2,024,554     $ 1,986,035     $ 1,975,062     $ 1,871,918  
Net Interest Margin, as Adjusted   4.05 %     4.06 %     3.81 %     3.91 %     4.16 %
                                       


Net Interest Margin, as Adjusted Nine Months Ended
(in thousands) September 30, 2023   September 30, 2022
       
Net Interest Income $ 106,637     $ 105,408  
Less Credit card loan income   46,419       47,631  
Less SBA-PPP loan income   26       3,449  
Net Interest Income, as Adjusted $ 60,192     $ 54,328  
Average Interest Earning Assets   2,139,398       2,010,200  
Less Average credit card loans   114,416       127,266  
Less Average SBA-PPP loans   1,600       39,063  
Total Average Interest Earning Assets, as Adjusted $ 2,023,382     $ 1,843,871  
Net Interest Margin, as Adjusted   3.98 %     3.94 %
               


Pre-tax, Pre-Provision Net Revenue ("PPNR") Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Net income $ 9,788     $ 7,318     $ 9,735     $ 8,991     $ 11,095  
Add: Income Tax Expense   2,998       2,255       2,915       2,651       3,336  
Add: Provision for Credit Losses   2,280       2,862       1,660       2,384       1,260  
Add: Provision (release of provision) for Credit Losses on Unfunded Commitments   24       —       (19 )     —       —  
Pre-tax, Pre-Provision Net Revenue ("PPNR") $ 15,090     $ 12,435     $ 14,291     $ 14,026     $ 15,691  
                                       


Pre-tax, Pre-Provision Net Revenue ("PPNR") Nine Months Ended
(in thousands) September 30, 2023   September 30, 2022
       
Net income $ 26,841     $ 32,814  
Add: Income Tax Expense   8,168       9,779  
Add: Provision for Credit Losses   6,802       4,247  
Add: Provision for Credit Losses on Unfunded Commitments   5       —  
Pre-tax, Pre-Provision Net Revenue ("PPNR") $ 41,816     $ 46,840  
               


Allowance for Credit Losses to Total Portfolio Loans Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Allowance for Credit Losses $ 28,279     $ 27,495     $ 26,216     $ 26,385     $ 26,091  
Total Loans   1,862,679       1,838,131       1,788,146       1,730,755       1,650,663  
Less: SBA-PPP loans   750       1,090       2,037       2,163       2,662  
Total Portfolio Loans $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592     $ 1,648,001  
Allowance for Credit Losses to Total Portfolio Loans   1.52 %     1.50 %     1.47 %     1.53 %     1.58 %
                                       


Nonperforming Assets to Total Assets, net SBA-PPP Loans Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Total Nonperforming Assets $ 15,236     $ 15,709     $ 16,293     $ 9,756     $ 8,589  
Total Assets   2,272,484       2,227,866       2,245,286       2,123,655       2,009,358  
Less: SBA-PPP loans   750       1,090       2,037       2,163       2,662  
Total Assets, net SBA-PPP Loans $ 2,271,734     $ 2,226,776     $ 2,243,249     $ 2,121,492     $ 2,006,696  
Nonperforming Assets to Total Assets, net SBA-PPP Loans   0.67 %     0.71 %     0.73 %     0.46 %     0.43 %
                                       


Nonperforming Loans to Total Portfolio Loans Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Total Nonperforming Loans $ 15,236     $ 15,709     $ 16,293     $ 9,756     $ 8,589  
Total Loans   1,862,679       1,838,131       1,788,146       1,730,755       1,650,663  
Less: SBA-PPP loans   750       1,090       2,037       2,163       2,662  
Total Portfolio Loans $ 1,861,929     $ 1,837,041     $ 1,786,109     $ 1,728,592     $ 1,648,001  
Nonperforming Loans to Total Portfolio Loans   0.82 %     0.86 %     0.91 %     0.56 %     0.52 %
                                       


Net Charge-offs to Average Portfolio Loans Quarters Ended
(in thousands) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Total Net Charge-offs $ 1,780     $ 1,583     $ 2,633     $ 2,090     $ 1,588  
Total Average Loans   1,847,772       1,802,608       1,752,638       1,677,869       1,607,452  
Less: Average SBA-PPP loans   906       1,808       2,099       2,435       5,906  
Total Average Portfolio Loans $ 1,846,866     $ 1,800,800     $ 1,750,539     $ 1,675,434     $ 1,601,546  
Net Charge-offs to Average Portfolio Loans   0.38 %     0.35 %     0.61 %     0.49 %     0.39 %
                                       


Net Charge-offs to Average Portfolio Loans Nine Months Ended
(in thousands) September 30, 2023   September 30, 2022
       
Total Net Charge-offs $ 5,996     $ 1,749  
Total Average Loans   1,801,355       1,586,449  
Less: Average SBA-PPP loans   1,600       39,063  
Total Average Portfolio Loans $ 1,799,755     $ 1,547,386  
Net Charge-offs to Average Portfolio Loans   0.45 %     0.23 %
               


Tangible Book Value per Share Quarters Ended
(in thousands, except per share amounts) September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022   September 30, 2022
                   
Total Stockholders' Equity $ 242,878     $ 237,435     $ 234,517     $ 224,015     $ 214,005  
Less: Preferred equity   —       —       —       —       —  
Less: Intangible assets   —       —       —       —       —  
Tangible Common Equity $ 242,878     $ 237,435     $ 234,517     $ 224,015     $ 214,005  
Period End Shares Outstanding   13,896,062       13,981,414       14,082,657       14,138,829       14,038,599  
Tangible Book Value per Share $ 17.48     $ 16.98     $ 16.65     $ 15.84     $ 15.24  
                                       

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 September 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 $2.3 billion at September 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 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.