ROCKVILLE, Md., Jan. 27, 2021 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $9.7 million, or $0.71 per diluted share, for the fourth quarter of 2020. By comparison, net income was $5.1 million, or $0.36 per diluted share, for the fourth quarter of 2019. Return on average assets was 2.08% for the fourth quarter of 2020, compared to 1.48% for the same period in 2019. Return on average equity was 25.3% for the fourth quarter of 2020, compared to 15.3% for the same period in 2019.

“Capital Bancorp finished 2020 with excellent fourth quarter results, bringing to a close a year in which we navigated a challenging environment while delivering record results,” said Steven Schwartz, Chairman of the Board of Capital Bancorp. “For the full year, net income increased by more than 50% and book value per share increased by more than 20% as loans grew, deposit costs decreased, and both OpenSky® and Capital Bank Home Loans exceeded expectations. We enter 2021 well-positioned for continued profitable growth as we expect, and certainly hope, the effects of the pandemic to recede.”

“We are pleased to have generated record earnings with our diversified revenue model despite the disruption caused by COVID-19. Our differentiated strategy of leveraging next-generation capabilities continues to build momentum and be a source of strength,” said Ed Barry, CEO of Capital Bancorp. “We were encouraged to see the return of commercial loan growth driven by our participation in the first round of the Small Business Administration Payroll Protection Program and anticipate similar success in the recently-launched second round. Additionally, our customers' financial health continues to show signs of improvement as we saw a sharp reduction in classified and non-performing loans. While significant uncertainty remains, we remain focused on executing and expanding on our technology-based strategy to drive profitable growth.”​

Fourth Quarter 2020 Highlights

Capital Bancorp

  • Record Net Income - Continued strong performance by the Commercial Bank, Capital Bank Home Loans and OpenSky® secured credit cards contributed to another quarter of record results. In the fourth quarter of 2020, net income increased 90.9 percent to a record $9.7 million from $5.1 million in the fourth quarter of 2019. On a per share basis, earnings were $0.71 per basic and diluted share for the three months ended December 31, 2020 compared to $0.37 per basic and $0.36 per diluted share for the same period last year.
  • Record Performance Ratios - Strong earnings performance by Capital Bank Home Loans and OpenSky® boosted return on average assets ("ROAA") and return on average equity ("ROAE"). ROAA and ROAE were 2.08% and 25.26%, respectively, for the three months ended December 31, 2020 compared to 1.48% and 15.32%, respectively, for the three months ended December 31, 2019.
  • Net Interest Margin Improvement - Net interest margin ("NIM") increased by 56 basis points to 5.57% from the prior quarter. The improvement in NIM was driven by active investment portfolio management, a lower cost of funds, and increased yields on OpenSky® assets.
  • Balance Sheet Supported By Robust Capital Levels, Elevated Reserves, and Surplus Liquidity - As of December 31, 2020, the Company reported a common equity tier 1 capital ratio of 12.94% and an allowance for loan and lease losses ("ALLL") to total loans ratio of 1.54%, or 1.78% excluding Small Business Administration Payroll Protection Program ("SBA-PPP") loans. The Bank is well-capitalized and has taken measures to navigate COVID-19 related disruptions, including taking additional loan loss provisions and maintaining higher than normal levels of liquidity on its balance sheet.
  • Subordinated Debt Cost Reduced - In December, the Company issued $10.0 million in subordinated notes due in 2030 to replace the outstanding higher yielding $13.5 million, reducing quarterly interest expense by approximately $110 thousand.

Commercial Bank

  • Focus on PPP Borrowers Delivers Results - Of the 1,220 SBA-PPP customers for whom we granted a total of $236.3 million in loans in 2020, during the quarter, we expanded relationships with more than 100 of those SBA-PPP borrowers who had no previous relationship with the Bank. As of December 31, 2020, 120 SBA-PPP loans totaling $33.6 million have been paid and forgiven.
  • Continued Portfolio Loan Growth - Portfolio loans, which excludes SBA-PPP loans, increased by $53.6 million, or 4.62 percent, for the quarter ended December 31, 2020 to $1.21 billion compared to $1.16 billion at September 30, 2020. The quarter over quarter growth was broad-based with commercial real estate loans increasing by 5.2 percent, and commercial and industrial loans increasing by 16.5 percent.
  • Growth in Core Deposits and Reduced Cost of Funds - Noninterest bearing deposits increased by $12.3 million, or 2.1 percent, during the quarter ended December 31, 2020 and now represent 36.8% of total deposits. Overall, the cost of interest bearing liabilities was reduced from 1.18% for the quarter ending September 30, 2020 to 0.95% for the quarter ending December 31, 2020 primarily due to the Bank's ongoing strategic initiative to improve its funding mix by decreasing reliance on non-core time deposits.
  • Continued Proactive Management of Elevated Risk Loans - Non-performing assets ("NPAs") decreased to 0.67% of total assets, or $12.6 million, in the fourth quarter of 2020 compared to 0.79% in the prior quarter. The net $2.2 million improvement resulted primarily from the resolution of $4.9 million of non-performing assets, partially offset by the inclusion of $3.1 million of well collateralized loans being downgraded to substandard.

Capital Bank Home Loans

  • Strong Mortgage Performance Supported by 30% Purchase Volume - In the fourth quarter of 2020, Capital Bank Home Loans continued to produce strong mortgage loan originations of $382 million and generated mortgage banking revenue of $12.2 million compared to $431 million in originations and $14.4 million in revenue for the previous quarter.

OpenSky®

  • Continued Robust Growth in OpenSky® Credit Card Accounts - Despite seasonally slower fourth quarter activity, OpenSky® Credit Card accounts grew by 7.4 percent to 568 thousand accounts since last quarter.
  • Account Growth Translates to Financial Performance - Consumer behavior, which had modified due to the pandemic, continued to normalize in the fourth quarter. This normalizing behavior, along with card growth, resulted in secured credit card loan balances increasing 22.7 percent to $104.3 million during the three months ended December 31, 2020. The normalizing behavior and higher loan balances drove record credit card revenue of $15.2 million for the quarter and resulted in a $15.8 million increase in noninterest bearing secured credit card deposits.

Full Year Highlights

Capital Bancorp

  • Diversified Businesses Drive Record Net Income - Net income for 2020 increased 52.8 percent to $25.8 million, or $1.87 per diluted share, from $16.9 million, or $1.21 per diluted share for the year ended 2019. Our continued strong operating results demonstrate the advantages of the Bank's diversified business lines that are complementary across economic cycles.
  • Improved Performance Ratios - Superior earnings provided ROAA and ROAE of 1.56% and 18.00%, respectively, for the year ended December 31, 2020 compared to 1.38% and 13.66% for the year ended December 31, 2019.
  • Net Interest Margin Above Peers - For the year ended December 31, 2020, net interest margin declined to 5.14%, 46 basis points below prior year levels. The year over year decline was driven by historically low interest rates which reduced the yield on earning assets at a higher pace than deposits. Other factors leading to the decline were lower yielding SBA-PPP loans and additional liquidity.
  • Improved Efficiency Ratio - Higher levels of revenue and controlled expense growth improved the efficiency ratio to 68.0%, despite higher levels of mortgage commissions, for the year ended December 31, 2020 compared to 72.3% for the prior year.
  • Asset Growth - Total assets increased $450.2 million, or 31.5 percent, during year ended December 31, 2020 primarily due to increases in SBA-PPP loans of $201.0 million, portfolio loans of $146.4 million and credit card loans of $57.8 million.
  • Stock repurchases - During the twelve months ended December 31, 2020, 304,114 shares were repurchased at an average price of $10.81 per share.

Commercial Bank

  • Strong Portfolio Loan Growth - Portfolio loans, which exclude SBA-PPP loans, increased by $87.0 million, or 7.72 percent to $1.21 billion for the year ended December 31, 2020 compared to $1.13 billion at December 31, 2019. Contributing to this growth were commercial and industrial loans which increased 4.0 percent, commercial real estate loans which increased 12.8 percent, and construction real estate loans which increased by 13.2 percent.
  • Improved Deposit Franchise and Lower Cost of Funding - Noninterest bearing deposits increased by $316.8 million, or 108.6 percent, December 31, 2020 and now represent 36.8% of total deposits. During the year ended, the cost of interest bearing liabilities declined to 1.29% from 1.93% in the prior year, in line with our market rates.
  • COVID-19 Related Deferrals - Outstanding loans deferred due to COVID-19 decreased by 78.9 percent from June 30, 2020 to December 31, 2020 as shown in the table below.
Loan Modifications (1)         
(dollars in millions)        
 December 31, 2020 September 30, 2020 June 30, 2020
  Deferred Loans Deferred Loans Deferred Loans
SectorTotal Loans OutstandingBalance# of Loans Deferred Balance# of Loans Deferred Balance# of Loans Deferred
Accommodation & Food Services$89.1 $14.7 16  $11.2 14  $42.6 36 
Real Estate and Rental Leasing508.7 5.5 10  9.3 16  45.6 67 
Other Services Including Private Households278.5 1.1 3  5.6 11  17.3 36 
Educational Services20.9       9.8 6 
Construction264.5    0.3 1  4.2 6 
Professional, Scientific, and Technical Services86.3 1.4 3  1.1 2  5.0 11 
Arts, Entertainment & Recreation39 0.7 2  1.4 2  5.0 9 
Retail Trade24.6 0.3 1     3.0 8 
Healthcare & Social Assistance88.5 0.9 1  0.9 1  4.7 11 
Wholesale Trade13.6       0.9 1 
All other (1)81.4 5.9 7  0.52  5.9 13 
Total$1,495.1 $30.5 43  $30.3 49  $144.0 204 

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


Capital Bank Home Loans

  • Record Mortgage Originations and Revenues - Capital Bank Home Loans benefited from favorable industry trends, strategic hires and our ability to originate purchase volume (as distinct from refinance volume) equal to 31.9% of our $1.3 billion of mortgage originations in 2020, which compares to mortgage originations of $592 million in 2019. Mortgage revenues increased to $40.6 million in 2020 compared to $16 million in 2019. Efforts to optimize product pricing and mix improved the average gain on sale to 3.02% compared to 2.43% in the prior year.

OpenSky®

  • 155% Annual Growth in OpenSky® Credit Card Accounts - Improved marketing and favorable market conditions resulted in the origination of 345 thousand new OpenSky® credit card accounts in 2020, increasing the number of accounts to 568 thousand at December 31, 2020.
  • Account Growth Contributing to Bank Performance - Annual account growth resulted in a $114.3 million increase in noninterest bearing secured credit card deposits that totaled $192.5 million at year end. Corresponding credit card loans increased by $57.8 million, or 124.6 percent, and totaled $104.3 million at December 31, 2020, driving a $9.4 million increase in credit card fees to $17.0 million for the year.
COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited      
          
 Quarter Ended   Twelve Months Ended  
 December 31,   December 31,  
(amounts in thousands except per share data)2020 2019 % Change 2020 2019 % Change
Earnings Summary           
Interest income$28,318  $22,393  26.5% $97,251  $83,354  16.7%
Interest expense2,599  4,339  (40.1)% 13,182  15,842  (16.8)%
Net interest income25,719  18,054  42.5% 84,069  67,512  24.5%
Provision for loan losses2,033  921  120.7% 11,242  2,791  302.8%
Noninterest income19,435  7,278  167.0% 61,061  24,518  149.0%
Noninterest expense30,085  17,757  69.4% 98,751  66,525  48.4%
Income before income taxes13,036  6,654  95.9% 35,137  22,714  54.7%
Income tax expense3,347  1,581  111.7% 9,314  5,819  60.1%
Net income$9,689  $5,073  91.0% $25,823  $16,895  52.8%
            
Weighted average common shares - Basic13,686  13,790  (0.8)% 13,793  13,733  0.4%
Weighted average common shares - Diluted13,707  14,091  (2.7)% 13,800  13,969  (1.2)%
Earnings per share - Basic$0.71  $0.37  92.4% $1.87  $1.23  52.0%
Earnings per share - Diluted$0.71  $0.36  96.3% $1.87  $1.21  54.5%
Return on average assets (1)2.08% 1.48% 40.5% 1.56% 1.38% 13.0%
Return on average assets, excluding impact of SBA-PPP loans(1) (2)1.88% 1.48% 27.0% 1.42% 1.38% 2.9%
Return on average equity25.26% 15.32% 64.9% 18.00% 13.66% 31.8%


 Quarter Ended    Quarter Ended
 December 31, 4Q20 vs. 4Q19 September 30, June 30, March 31,
(in thousands except per share data)2020 2019 % Change 2020 2020 2020
Balance Sheet Highlights           
Assets$1,878,659  $1,428,495  31.5% $1,879,029  $1,822,365  $1,507,847 
Investment securities available for sale99,787  60,828  64.0% 53,992  56,796  59,524 
Mortgage loans held for sale107,154  71,030  50.9% 137,717  116,969  73,955 
SBA-PPP loans, net of fees (3)201,018    100.0% 233,349  229,646   
Portfolio loans receivable (3)1,317,568  1,171,121  12.5% 1,244,613  1,211,477  1,187,798 
Allowance for loan losses23,434  13,301  76.2% 22,016  18,680  15,513 
Deposits1,652,128  1,225,421  34.8% 1,662,211  1,608,726  1,302,913 
FHLB borrowings22,000  32,222  (31.7)% 22,222  25,556  28,889 
Other borrowed funds14,016  15,423  (9.1)% 17,516  17,392  15,430 
Total stockholders' equity159,311  133,331  19.5% 149,377  142,108  136,080 
Tangible common equity(2)159,311  133,331  19.5% 149,377  142,108  136,080 
            
Common shares outstanding13,754  13,895  (1.0)% 13,682  13,818  13,817 
Tangible book value per share (2)$11.58  $9.60  20.7% $10.92  $10.28  $9.85 

______________

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

Operating Results - Comparison of Three Months Ended December 31, 2020 and 2019

For the three months ended December 31, 2020, net interest income increased $7.7 million, or 42.5 percent, to $25.7 million from the same period in 2019, primarily due to an increase in average interest earning assets and a decrease in average rates on interest bearing liabilities. The net interest margin increased 24 basis points to 5.57% for the three months ended December 31, 2020 from the same period in 2019 as interest rates on deposits were reduced faster than the decline in rates on loans and investments. Net interest margin, excluding credit card and SBA PPP loans, was 3.80% for the fourth quarter of 2020 compared to 4.02% for the same period in 2019. For the three months ended December 31, 2020, average interest earning assets increased $491.5 million, or 36.6 percent, to $1.8 billion as compared to the same period in 2019, and the average yield on interest earning assets decreased 48 basis points. Compared to the same period the prior year, average interest-bearing liabilities increased $162.6 million, or 17.6 percent, while the average cost decreased 91 basis points to 0.95% from 1.86%.

The provision for loan losses of $2.0 million for the three months ended December 31, 2020 was due primarily to the deterioration in the macro-economics environment as a result of the impact of COVID-19 and loan growth during the quarter. Net charge-offs for the fourth quarter of 2020 were $615 thousand, or 0.16% of average loans on an annualized basis, compared to $111 thousand, or 0.04% of average loans on an annualized basis, for the fourth quarter of 2019.

For the quarter ended December 31, 2020, noninterest income was $19.4 million, an increase of $12.2 million, or 167.0 percent from $7.3 million in the prior year quarter. The increase was primarily driven by significant growth in mortgage banking revenues of $7.2 million and credit card fees of $4.2 million resulting from the higher level of credit card accounts.

For the three months ended December 31, 2020, OpenSky® originated 82 thousand new secured credit card accounts, increasing the total number of open accounts to 568 thousand. This compares to 24 thousand new originations for the same period last year, which increased total open accounts to 223 thousand. Since December 31, 2019, credit card loan balances increased to $104.3 million from $46.4 million, while the related deposit account balances increased 146 percent to $192.5 million. The record growth in open accounts was primarily driven by enhanced marketing and economic conditions that led consumers to recognize the value and convenience of the Bank's secured credit card product.

The efficiency ratio for the three months ended December 31, 2020 decreased to 66.63% compared to 70.10% for the three months ended December 31, 2019. The period saw higher levels of mortgage commissions and increased data processing costs, which supported the generation of higher levels of revenue. Management continues its efforts to control expense growth and increase operational leverage.

Noninterest expense was $30.1 million for the three months ended December 31, 2020, as compared to $17.8 million for the three months ended December 31, 2019, an increase of $12.3 million, or 69.4 percent. The increase was primarily driven by a $5.0 million, or 115.7 percent increase in data processing, a $3.5 million, or 42.0 percent, increase in salaries and benefits, an increase in professional services of $1.0 million or 110.0 percent and an increase in operating expenses of $1.6 million, or 85.8 percent quarter over quarter. The increase of $5.0 million in data processing expenses is largely attributable to the higher volume of open credit cards, and increased portfolio and mortgage loan processing volumes during the fourth quarter of 2020. Included in salaries and benefits are commissions paid on mortgage originations, which increased from $1.3 million to $3.4 million, primarily due to an increase in the number of mortgage originations. By comparison, in the three month period ended December 31, 2020, $382.3 million of mortgage loans were originated for sale compared to $185.7 million in the three months ended December 31, 2019. The Company's organic growth was supported by a 5.6 percent increase in employees to 244 at December 31, 2020, up from 231 at December 31, 2019. The increase included the addition of 13 new employees in the revenue producing teams of the commercial banking and mortgage banking divisions. Additionally, operating expenses increased $1.6 million due to increases in marketing and advertising, credit expenses, FDIC insurance and miscellaneous expenses.

Operating Results - Comparison of Twelve Months Ended December 31, 2020 and 2019

For the twelve months ended December 31, 2020, net interest income increased $16.6 million, or 24.5 percent, to $84.1 million from the same period in 2019, primarily due to an increase in average interest-earning assets and a decrease in the average rate on interest-earning liabilities. The net interest margin decreased 46 basis points to 5.14% for the twelve months ended December 31, 2020 compared to 2019. The declining margin was a result of the declining interest rate environment, which began in the fourth quarter of 2019, and the rapid increase in SBA-PPP loans. Net interest margin, excluding credit cards and SBA-PPP loans, was 3.89% for the twelve months ended December 31, 2020 compared to 4.26% for the same period in 2019. For the twelve months ended December 31, 2020, average interest earning assets increased $430 million, or 35.7 percent, to $1.6 billion as compared to 2019, and the average yield on interest earning assets decreased 98 basis points. Comparing year ended 2020 to 2019, average interest-bearing liabilities increased $201.8 million, or 24.6 percent, while the average cost decreased 64 basis points to 1.29% from 1.93%.

Due primarily to the deterioration in the macro-economic environment as a result of the impact of COVID-19 in addition to organic loan growth, the Company recorded a provision for loan losses of $11.2 million during the twelve months ended December 31, 2020, an increase of $8.5 million from the year earlier. Net charge-offs for the twelve months ended December 31, 2020 were $1.1 million, or 0.09% of average portfolio loans, compared to $192 thousand, or 0.10% of average portfolio loans, for the same period in 2019.

For the twelve months ended December 31, 2020, noninterest income was $61.1 million, an increase of $36.5 million, or 149.0 percent, from the same period in 2019. The increase was primarily driven by significant growth in mortgage banking revenues, which were up $24.7 million, and credit card fees, which increased by $9.4 million.

For the twelve months ended December 31, 2020, the Bank originated 345 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 568 thousand. This compares to 72 thousand new originations for 2019, which increased total open accounts to 223 thousand. The record growth in open accounts was primarily driven by enhanced marketing and economic conditions that led consumers to recognize the value and convenience of OpenSky's secured credit card product.

The efficiency ratio for the year ended December 31, 2020 improved to 68.04% compared to 72.29% for the twelve months ended December 31, 2019, primarily resulting from increased revenue. The period saw higher levels of mortgage commissions and increased data processing costs, which supported the generation of higher levels of revenue. Management continues its efforts to control expense growth and increase operational leverage.

Noninterest expense was $98.8 million for the twelve months ended December 31, 2020, as compared to $66.5 million for the prior year, an increase of $32.2 million, or 48.4 percent. The increase was primarily driven by an $11.8 million, or 36.1 percent, increase in salaries and benefits, an $11.4 million, or 73.5 percent increase in data processing, a $2.0 million or 70.7 percent increase in professional fees, an increase in loan processing of 101.2 percent or $1.9 million and a $3.9 million, or 54.6 percent increase in other operating expenses year over year. Included in salaries and benefits are commissions paid on mortgage originations, which increased from $5.4 million to $10.9 million primarily due to an increase in the number of mortgage originations. By comparison, in the twelve months ended December 31, 2020, $1.3 billion of mortgage loans were originated for sale compared to $592 million in the twelve months ended December 31, 2019. The increase of $11.4 million in data processing expense was primarily due to the higher volume of open credit cards and increased mortgage loan processing volumes during the year. Additionally, operating expenses increased $3.9 million due to increases in marketing and advertising, credit expenses, FDIC insurance and miscellaneous expenses.

During the year ended December 31, 2020, results of operations were impacted by the COVID-19 pandemic and the resulting issuance of SBA-PPP loans. At December 31, 2020, SBA-PPP loans had remaining deferred origination fees of $4.7 million, and deferred costs of $831 thousand.

Financial Condition

Total assets at December 31, 2020 were $1.88 billion, an increase of 31.5 percent from December 31, 2019. Portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.32 billion as of December 31, 2020, an increase of 12.5 percent as compared to $1.17 billion at December 31, 2019.

Deposits at December 31, 2020 were $1.65 billion, an increase of 34.8 percent as compared to $1.23 billion at December 31, 2019. Noninterest bearing deposits increased by $317 million. These deposits include certain fiduciary accounts of title companies and property management companies, as well as SBA-PPP loan customers and the secured card deposits highlighted above. Interest bearing accounts increased by $109.9 million, mainly driven by a 76.2 percent increase in fiduciary accounts.

Due primarily to the deterioration in the macro-economic environment as a result of the impact of COVID-19, the Company recorded a provision for loan losses of $11.2 million during the twelve months ended December 31, 2020, which increased the allowance for loan losses to $23.4 million, or 1.54% of total loans (1.78%, excluding SBA-PPP loans, on a non-GAAP basis) at December 31, 2020. This level of reserve provides approximately 254 percent coverage of nonperforming loans at December 31, 2020, compared to the prior year's reserve of $13.3 million, or 1.14 percent of total loans, which represented a coverage ratio of 282 percent. Nonperforming assets were $12.6 million, or 0.67% of total assets, as of December 31, 2020, up from $7.1 million, or 0.50% of total assets, at December 31, 2019. Of the $12.6 million in total nonperforming assets as of December 31, 2020, nonperforming loans represented $9.2 million and foreclosed real estate totaled $3.3 million. The increase is primarily due to two residential loans totaling $3.1 million and one construction loan for $1.4 million. Included in nonperforming loans at December 31, 2020 are troubled debt restructurings of $440 thousand.

Stockholders’ equity increased to $159.3 million as of December 31, 2020, compared to $133.3 million at December 31, 2019. This increase was primarily attributable to earnings during the period. Shares repurchased and retired in 2020 as part of the Company's stock repurchase program totaled 304,114 shares at a weighted average price of $10.81, for a total cost of $3.3 million including commissions. As of December 31, 2020, the Bank's capital ratios continue to exceed the regulatory requirements for a “well-capitalized” institution.

Consolidated Statements of Income (Unaudited)      
 Three Months Ended December 31, Twelve Months Ended December 31,
(in thousands)2020 2019 2020 2019
Interest income       
Loans, including fees$27,848  $21,758  $95,367  $81,305 
Investment securities available for sale363  217  1,292  924 
Federal funds sold and other107  418  592  1,125 
Total interest income28,318  22,393  97,251  83,354 
        
Interest expense       
Deposits2,323  3,801  11,524  13,689 
Borrowed funds276  538  1,658  2,153 
Total interest expense2,599  4,339  13,182  15,842 
        
Net interest income25,719  18,054  84,069  67,512 
Provision for loan losses2,033  921  11,242  2,791 
Net interest income after provision for loan losses23,686  17,133  72,827  64,721 
        
Noninterest income       
Service charges on deposits143  159  520  542 
Credit card fees6,272  2,082  16,966  7,602 
Mortgage banking revenue12,153  4,964  40,649  15,955 
Gain on sale of investment securities available for sale, net20    20  26 
Other fees and charges847  73  2,906  393 
Total noninterest income19,435  7,278  61,061  24,518 
        
Noninterest expenses       
Salaries and employee benefits11,997  8,450  44,359  32,586 
Occupancy and equipment1,512  1,053  5,170  4,360 
Professional fees1,928  918  4,899  2,871 
Data processing9,253  4,290  26,917  15,512 
Advertising655  509  2,530  2,066 
Loan processing1,360  615  3,811  1,894 
Other real estate expenses (income), net(68) 66  69  122 
Other operating3,448  1,856  10,995  7,114 
Total noninterest expenses30,085  17,757  98,751  66,525 
Income before income taxes13,036  6,654  35,137  22,714 
Income tax expense3,347  1,581  9,314  5,819 
Net income$9,689  $5,073  $25,823  $16,895 


Consolidated Balance Sheets    
(in thousands except share data)(unaudited) December 31, 2020 December 31, 2019
Assets   
Cash and due from banks$18,456  $10,530 
Interest bearing deposits at other financial institutions126,081  102,447 
Federal funds sold2,373  1,847 
Total cash and cash equivalents146,910  114,824 
Investment securities available for sale99,787  60,828 
Restricted investments3,958  3,966 
Loans held for sale107,154  71,030 
U.S. Small Business Administration Payroll Protection Program ("SBA-PPP") loans receivable, net of fees201,018   
Portfolio loans receivable, net of deferred fees and costs and net of allowance for loan losses of $23,434 and $13,3011,294,134  1,157,820 
Premises and equipment, net4,464  6,092 
Accrued interest receivable8,134  4,770 
Deferred income taxes, net6,818  4,263 
Other real estate owned3,326  2,384 
Other assets2,956  2,518 
Total assets$1,878,659  $1,428,495 
    
Liabilities   
Deposits   
Noninterest bearing$608,559  $291,777 
Interest bearing1,043,569  933,644 
Total deposits1,652,128  1,225,421 
Federal Home Loan Bank advances22,000  32,222 
Other borrowed funds14,016  15,423 
Accrued interest payable1,134  1,801 
Other liabilities30,070  20,297 
Total liabilities1,719,348  1,295,164 
    
Stockholders' equity   
Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding   
Common stock, $.01 par value; 49,000,000 shares authorized; 13,753,529 and 13,894,842 issued and outstanding138  139 
Additional paid-in capital50,602  51,561 
Retained earnings106,854  81,618 
Accumulated other comprehensive income1,717  13 
Total stockholders' equity159,311  133,331 
Total liabilities and stockholders' equity$1,878,659  $1,428,495 

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

 Three Months Ended December 31,
 2020 2019
 Average
Outstanding
Balance
 Interest Income/
Expense
 Average
Yield/
Rate(1)
 Average
Outstanding
Balance
 Interest Income/
Expense
 Average
Yield/
Rate(1)
 (Dollars in thousands)
Assets           
Interest earning assets:           
Interest bearing deposits$152,720  $37  0.10% $85,148  $311  1.45%
Federal funds sold5,537    0.01  5,841  22  1.49 
Investment securities available for sale73,931  363  1.95  37,716  216  2.27 
Restricted stock3,947  70  7.08  4,505  84  7.42 
Loans held for sale105,922  701  2.63  71,941  972  5.36 
SBA-PPP loans receivable227,617  1,998  3.49       
Portfolio loans receivable(2)1,266,662  25,149  7.90  1,139,646  20,788  7.24 
Total interest earning assets1,836,336  28,318  6.13  1,344,797  22,393  6.61 
Noninterest earning assets18,509      15,043     
Total assets$1,854,845      $1,359,840     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$238,078  102  0.17  $147,521  284  0.77 
Savings4,828  1  0.05  3,552  3  0.33 
Money market accounts467,727  633  0.54  386,367  1,620  1.66 
Time deposits337,170  1,586  1.87  324,272  1,894  2.32 
Borrowed funds38,447  277  2.86  61,963  538  3.44 
Total interest bearing liabilities1,086,250  2,599  0.95  923,675  4,339  1.86 
Noninterest bearing liabilities:           
Noninterest bearing liabilities23,810      19,137     
Noninterest bearing deposits592,193      285,619     
Stockholders’ equity152,592      131,409     
Total liabilities and stockholders’ equity$1,854,845      $1,359,840     
            
Net interest spread    5.18%     4.75%
Net interest income  $25,719      $18,054   
Net interest margin(3)    5.57%     5.33%

_______________

(1) Annualized.
(2) Includes nonaccrual loans.
(3) For the three months ended December 31, 2020 and December 31, 2019, collectively, SBA-PPP loans and credit card loans accounted for 177 and 131 basis points of the reported net interest margin, respectively.

 Twelve Months Ended December 31,
 2020 2019
 Average
Outstanding
Balance
 Interest Income/
Expense
 Average
Yield/
Rate
 Average
Outstanding
Balance
 Interest Income/
Expense
 Average
Yield/
Rate
 (Dollars in thousands)
Assets           
Interest earning assets:           
Interest bearing deposits$112,249  $343  0.31% $47,762  $832  1.74%
Federal funds sold3,128  4  0.12  2,733  50  1.83%
Investment securities available for sale58,071  1,292  2.22  41,130  924  2.25%
Restricted stock4,025  244  6.07  4,334  243  5.61%
Loans held for sale84,928  2,610  3.07  44,483  2,899  6.52%
SBA-PPP loans receivable157,630  4,479  2.84      %
Portfolio loans receivable(1)1,215,049  88,279  7.27  1,064,421  78,406  7.37%
Total interest earning assets1,635,080  97,251  5.95  1,204,863  83,354  6.92%
Noninterest earning assets24,923      15,046     
Total assets$1,660,003      $1,219,909     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$195,794  656  0.34  $109,977  672  0.61 
Savings4,722  5  0.11  3,597  13  0.36 
Money market accounts480,218  4,786  1.00  344,272  5,822  1.69 
Time deposits297,997  6,077  2.04  302,149  7,182  2.38 
Borrowed funds42,471  1,658  3.90  59,387  2,153  3.63 
Total interest bearing liabilities1,021,202  13,182  1.29  819,382  15,842  1.93 
Noninterest bearing liabilities:           
Noninterest bearing liabilities22,007      16,144     
Noninterest bearing deposits473,301      260,726     
Stockholders’ equity143,493      123,657     
Total liabilities and stockholders’ equity$1,660,003      $1,219,909     
            
Net interest spread    4.66%     4.99%
Net interest income  $84,069      $67,512   
Net interest margin(2)    5.14%     5.60%

_______________

(1) Includes nonaccrual loans.
(2) For the twelve months ended December 31, 2020 and December 31, 2019, collectively, SBA-PPP loans and credit card loans accounted for 125 and 134 basis points of the reported net interest margin, respectively.

HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited    
  Quarter Ended
(Dollars in thousands except per share data) December 31, 2020 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
Earnings:          
Net income $9,689  $8,438  $4,761  $2,934  $5,073 
Earnings per common share, diluted 0.71  0.61  0.34  0.21  0.36 
Net interest margin 5.57% 5.01% 4.72% 5.16% 5.33%
Net interest margin, excluding credit cards & SBA-PPP loans (1) 3.80% 3.84% 3.96% 3.96% 4.02%
Return on average assets(2) 2.08% 1.89% 1.19% 0.84% 1.48%
Return on average assets excluding impact of SBA-PPP loans (1)(2) 1.88% 1.80% 1.04% 0.84% 1.48%
Return on average equity(2) 25.26% 23.28% 13.70% 8.59% 15.32%
Efficiency ratio 66.63% 65.17% 69.74% 73.53% 70.10%
Balance Sheet:          
Portfolio loans receivable (3) $1,317,568  $1,244,613  $1,211,477  $1,187,798  $1,171,121 
Deposits 1,652,128  1,662,211  1,608,726  1,302,913  1,225,421 
Total assets 1,878,659  1,879,029  1,822,365  1,507,847  1,428,495 
Asset Quality Ratios:          
Nonperforming assets to total assets 0.67% 0.79% 0.50% 0.61% 0.50%
Nonperforming assets to total assets, excluding the SBA-PPP loans (1) 0.75% 0.90% 0.58% 0.61% 0.50%
Nonperforming loans to total loans 0.61% 0.78% 0.41% 0.49% 0.40%
Nonperforming loans to portfolio loans (1) 0.70% 0.92% 0.48% 0.49% 0.40%
Net charge-offs to average portfolio loans (1)(2) 0.19% 0.12% 0.05% 0.07% 0.10%
Net charge-offs to average loans (2) 0.10% 0.12% 0.05% 0.07% 0.10%
Allowance for loan losses to total loans 1.54% 1.49% 1.30% 1.31% 1.14%
Allowance for loan losses to portfolio loans (1) 1.78% 1.77% 1.54% 1.31% 1.14%
Allowance for loan losses to non-performing loans 253.71% 191.78% 318.25% 268.13% 281.80%
Bank Capital Ratios:          
Total risk based capital ratio 12.60% 12.74% 12.35% 12.18% 11.98%
Tier 1 risk based capital ratio 11.34% 11.48% 11.10% 10.93% 10.73%
Leverage ratio 7.45% 7.44% 7.73% 8.61% 8.65%
Common equity Tier 1 capital ratio 11.34% 11.48% 11.10% 10.93% 10.73%
Tangible common equity 7.43% 7.09% 6.91% 8.03% 8.21%
Holding Company Capital Ratios:          
Total risk based capital ratio 15.19% 15.35% 15.02% 13.63% 13.56%
Tier 1 risk based capital ratio 13.10% 12.93% 12.58% 12.38% 12.31%
Leverage ratio 8.78% 8.63% 8.85% 9.83% 9.96%
Common equity Tier 1 capital ratio 12.94% 12.75% 12.39% 12.19% 12.12%
Tangible common equity 8.48% 7.95% 7.80% 11.08% 10.71%
Composition of Loans:          
Residential real estate $437,860  $422,698  $437,429  $430,870  $427,926 
Commercial real estate 392,550  372,972  364,071  360,601  348,091 
Construction real estate 224,904  227,661  212,957  204,047  198,702 
Commercial and industrial - Other 157,127  134,889  142,673  151,551  151,109 
SBA-PPP loans 204,920  238,735  236,325     
Credit card 104,252  84,964  54,732  41,881  46,412 
Other 1,649  2,268  947  1,103  1,285 
Composition of Deposits:          
Noninterest bearing $608,559  $596,239  $563,995  $363,423  $291,777 
Interest bearing demand 257,126  247,150  268,150  175,924  174,166 
Savings 4,800  4,941  5,087  4,290  3,675 
Money Markets 447,077  472,447  507,432  473,958  429,078 
Time Deposits 334,566  341,435  264,062  285,318  326,725 
Capital Bank Home Loan Metrics:        
Origination of loans held for sale $382,267  $431,060  $315,165  $180,421  $185,739 
Mortgage loans sold 412,830  410,312  272,151  177,496  183,691 
Gain on sale of loans 12,950  12,837  8,088  4,580  4,587 
Purchase volume as a % of originations 30.03% 33.76% 31.16% 32.79% 28.95%
Gain on sale as a % of loans sold(4) 3.14 % 3.13 % 2.97% 2.52% 2.44%
OpenSky Credit Card Portfolio Metrics:        
Active customer accounts 568,373  529,114  400,530  244,024  223,379 
Credit card loans $104,252  $84,964  $54,732  $41,881  $46,412 
Noninterest secured credit card deposits 192,520  176,708  131,854  84,689  78,223 

_______________

(1) Refer to Appendix for reconciliation of non-GAAP measures.
(2) Annualized.
(3) Loans are reflected net of deferred fees and costs.
(4) Gain on sale percentage is calculated as gain on sale of loans divided by the sum of gain on sale of loans and proceeds from loans held for sale, net of gains. 



Appendix

Reconciliation of Non-GAAP Measures 

Return on Average Assets, as AdjustedYear EndedYear EndedQuarter EndedQuarter Ended
Dollars in ThousandsDecember 31, 2020December 31, 2019December 31, 2020December 31, 2019
     
Net Income$25,823 $16,895 $9,689 $5,073 
Less: SBA-PPP loan income4,479  1,998  
Net Income, as Adjusted$21,344 $16,895 $7,691 $5,073 
Average Total Assets$1,660,003 1,219,909 $1,854,846 1,359,840 
Less: Average SBA-PPP Loans157,630  227,617  
Average Total Assets, as Adjusted$1,502,373 $1,219,909 $1,627,229 $1,359,840 
Return on Average Assets, as Adjusted1.42%1.38%1.88%1.48%


Net Interest Margin, as AdjustedYear EndedYear EndedQuarter EndedQuarter Ended
Dollars in ThousandsDecember 31, 2020December 31, 2019December 31, 2020December 31, 2019
     
Net Interest Income$84,069 $67,512 $25,719 $18,054 
Less Secured credit card loan income24,531 17,760 9,306 4,867 
Less SBA-PPP loan income4,479  1,998  
Net Interest Income, as Adjusted$55,059 $49,752 $14,415 13,187 
Average Interest Earning Assets$1,635,079 1,204,863 $1,836,337 1,344,797 
Less Average secured credit card loans$62,462 37,921 95,739 43,406 
Less Average SBA-PPP loans157,630  227,617  
Total Average Interest Earning Assets, as Adjusted$1,414,987 $1,166,942 $1,512,981 $1,301,392 
Net Interest Margin, as Adjusted3.89%4.26%3.80%4.02%


Tangible Book Value per ShareQuarter EndedQuarter EndedQuarter EndedQuarter EndedQuarter Ended
Dollars in ThousandsDecember 31, 2020December 31, 2019September 30, 2020June 30, 2020March 31, 2020
      
Total Stockholders' Equity$159,311 $133,331 $149,377 $142,108 $136,080 
Less: Preferred equity     
Less: Intangible assets     
Tangible Common Equity$159,311 $133,331 $149,377 $142,108 $136,080 
Period End Shares Outstanding13,753,529 13,894,842 13,682,198 13,818,223 13,816,723 
Tangible Book Value per Share$11.58 $9.60 $10.92 $10.28 $9.85 


 Allowance for Loan Losses to Total Portfolio Loans  
 Dollars in ThousandsDecember 31, 2020December 31, 2019
    
 Allowance for Loan Losses$23,434 $13,301 
 Total Loans1,518,586 1,171,121 
 Less: SBA-PPP loans201,018  
 Total Portfolio Loans$1,317,568 $1,171,121 
 Allowance for Loan Losses to Total Portfolio Loans1.78%1.14%
    
    
    
 Nonperforming Assets to Total Assets, net SBA-PPP Loans  
 Dollars in ThousandsDecember 31, 2020December 31, 2019
    
 Total Nonperforming Assets$12,563 $7,104 
 Total Assets$1,878,659 1,428,495 
 Less: SBA-PPP loans201,018  
 Total Assets, net SBA-PPP Loans$1,677,641 $1,428,495 
 Nonperforming Assets to Total Assets, net SBA-PPP Loans0.75%0.50%
    
    
    
 Nonperforming Loans to Portfolio Loans  
 Dollars in ThousandsDecember 31, 2020December 31, 2019
    
 Total Nonperforming Loans$9,237 $4,720 
 Total Loans1,518,586 1,171,121 
 Less: SBA-PPP loans201,018  
 Total Portfolio Loans$1,317,568 $1,171,121 
 Nonperforming Loans to Total Portfolio Loans0.70%0.40%
    
    
    
 Net Charge-offs to Average Portfolio LoansYear EndedYear Ended
 Dollars in ThousandsDecember 31, 2020December 31, 2019
    
 Total Net Charge-offs$1,109 $798 
 Total Average Loans1,215,049 1,064,421 
 Less: Average SBA-PPP loans157,630  
 Total Average Loans, Excluding SBA-PPP Loans$1,057,419 $1,064,421 
 Net Charge-offs to Average Portfolio Loans0.10%0.08%
    
    
    
 Net Charge-offs to Average Portfolio LoansQuarter EndedQuarter Ended
 Dollars in ThousandsDecember 31, 2020December 31, 2019
    
 Total Net Charge-offs$615 $438 
 Total Average Loans$1,494,278 $1,139,646 
 Less: Average SBA-PPP loans227,617  
 Total Average Loans, Excluding SBA-PPP Loans$1,266,662 $1,139,646 
 Net Charge-offs to Average Portfolio Loans0.19%0.15%
    

ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the fifth largest bank headquartered in Maryland at December 31, 2020. Capital Bancorp has been providing financial services since 1999 and now operates bank branches in five locations in the greater Washington, D.C. and Baltimore, Maryland markets. Capital Bancorp had assets of approximately $1.9 billion at December 31, 2020 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,” “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 factors that could affect these expectations, see risk factors and other cautionary language included in the Company's Annual Report on Form 10-K and other periodic and current reports filed with the Securities and Exchange Commission.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are exposed to all of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen as planned, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

These forward-looking statements are made as of the date of this communication, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

FINANCIAL CONTACT: Alan Jackson (240) 283-0402

MEDIA CONTACT: Ed Barry (240) 283-1912

WEB SITE: www.CapitalBankMD.com