Capital Bancorp Reports Second Quarter 2020 Net Income of $4.8 million


  • Record 64% growth in OpenSky® Credit Cards accounts drove a $47.2 million increase in noninterest bearing secured credit card deposits

  • Record Mortgage Loan Originations of $315.2 million and record Mortgage Banking Revenue of $10.1 million

  • Increase in Net Income Supported by Business Diversification

  • Robust Common Equity Tier 1 capital ratio of 12.39%

  • Credit provisions increased the ratio of the allowance for loan losses ("ALLL") to total loans to 1.30%, or 1.54% excluding Small Business Administration Payroll Protection Program ("PPP") loans

ROCKVILLE, Md., July 23, 2020 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $4.8 million, or $0.34 per diluted share, for the second quarter of 2020.  By comparison, net income was $4.0 million, or $0.29 per diluted share, for the second quarter of 2019.  Return on average assets was 1.19% for the second quarter of 2020, compared to 1.39% for the same period in 2019, and return on average equity was 13.70% for the second quarter of 2020, compared to 13.23% for the same period in 2019.  Included in net income was a provision for loan losses of $3.3 million, attributable to factors related to COVID-19.

"Our diversified earnings model and entrepreneurial and technology-enabled culture continues to be a source of strength in these difficult times," said Ed Barry, CEO of Capital Bancorp.  "We moved quickly to take advantage of market opportunities and dramatically increase OpenSky® card growth and mortgage originations while supporting our borrowers and the community with loan deferrals and PPP loans.  We are carefully monitoring credit quality while assisting borrowers affected by the disruption in the economy.  While we are optimistic, we also acknowledge the elevated uncertainty in the market.  Our loan loss provision reflects our prudent business practices and is supported by our strong core earnings."

Second Quarter 2020 Highlights

  • Record Number of OpenSky® Credit Card Accounts Opened - At June 30, 2020, the Bank had 401 thousand OpenSky® credit card accounts.  Growth was driven by a record 172 thousand new quarterly originations, as we launched several new marketing efforts in response to COVID-19 related changes in the competitive landscape.  Card balances, which typically lag new card production, increased to $54.7 million from $41.9 million in the second quarter of 2019, while the related deposit account balances increased 64 percent to $131.9 million.

  • Record Mortgage Originations and Revenues - In the second quarter of 2020, a record $315.2 million of mortgage loans were originated for sale, compared to $134.4 million in the second quarter of 2019.  Mortgage banking revenue for the second quarter of 2020 was a record $10.1 million compared to $3.7 million for the same period in 2019.  Mortgage banking revenue benefited from higher levels of refinancing and recent strategic hires that enhanced our mortgage banking platform, including our expansion to the Eastern Shore of Maryland.

  • Net Income Supported by Business Diversification - In the second quarter of 2020, net income increased 18.4 percent to $4.8 million from $4.0 million in the second quarter of 2019, despite a $2.6 million increase in the provision for loan losses.  Our strong operating results continue to demonstrate the benefits of our diversified business model.

  • COVID-19 Related Deferrals - Through June 30, 2020, the Bank has granted requests for modifications on 204 loans, excluding credit cards, with $144.0 million in principal balances outstanding, which represents 10.0% of total loans.

    Of the modifications granted, 11.9% were interest-only deferrals based on balances outstanding, 85.7% were 60 to 90 day principal and interest deferrals, and 2.4% were other types of deferrals.
Loan Modifications (1)          
(dollars in thousands)      Deferred Loans
SectorTotal Loans
Outstanding
June 30,
2020
  Balances
with SBA 7(a)
Guarantees (2)
  Balance
 # of
Loans
Deferred
PPP Loans
Extended
to Deferred
Borrowers
Accommodation & Food Services$83.9 $8.4 $42.6 36 $6.5 
Real Estate and Rental Leasing527.9  0.5  45.6 67 0.2 
Other Services Including Private Households193.8  0.6  17.3 36 0.2 
Educational Services20.4  0.6  9.8 6 0.6 
Construction220.4  3.6  4.2 6 2.4 
Professional, Scientific, and Technical Services88.4  1.8  5.0 11 0.3 
Arts, Entertainment & Recreation14.9  1.1  5.0 9 1.0 
Retail Trade25.5  0.8  3.0 8  
Healthcare & Social Assistance77.2  1.4  4.7 11 0.2 
Wholesale Trade13.0  2.5  0.9 1  
All other (1)175.7  6.0  5.9 13 1.5 
  Total$1,441.1 $27.3 $144.0 204 $12.9 

_______________

(1) Excludes modifications and deferrals made for our OpenSky secured card customers.
(2) Under the CARES Act, existing loans guaranteed by the SBA qualify for the payments to be made by the SBA for a period of six months.

  • Balance Sheet Supported By Robust Capital Ratios and Prudent Reserves - As of June 30, 2020, the Company reported a common equity tier 1 capital ratio of 12.39% and ALLL to total loans of 1.30%, or 1.54% excluding PPP loans. The Bank is well-capitalized and has taken measures to navigate COVID-19 related disruptions, including taking prudent loan loss provisions and maintaining higher-than-normal levels of liquidity on the balance sheet.

  • Stabilizing Core Net Interest Margin - Net interest margin ("NIM") decreased 107 basis points to 4.72% for the three months ended June 30, 2020 from 5.79% for the year earlier period. The decline in NIM was driven by a decline in interest rates and rapid growth of PPP loans. Adjusting for the impact of credit cards and PPP, second quarter 2020 core NIM was 3.96%, down 41 basis points from 4.37% in the prior year.  Compared to March 30, 2020, the NIM excluding secured credit cards and PPP loans has remained steady at 3.96%.  The Bank experienced a 77 basis point decline in asset yields, which was partially offset by a 35 basis point decline in the cost of interest bearing deposits combined with the effects of a $170 million increase in average noninterest bearing deposits.

  • SBA Paycheck Protection Program - The Bank originated 1,220 PPP loans (612 to non-customers) having outstanding balances totaling $236.3 million at June 30, 2020 to new and existing customers, generating $8.1 million in fees to be recognized over the life of these loans.  Existing customers received $113.0 million of these PPP loans, and new customers received $123.3 million of these PPP loans.  Each new customer that received a PPP loan opened an account with the Bank.  The Bank is currently working with its PPP loan recipients to facilitate various forms of loan-forgiveness in order to ensure compliance with SBA-mandated requirements.

  • Stable Asset Quality - Non-performing assets remained flat at $9.2 million at both June 30, 2020 and March 31, 2020.  Non-performing assets as a percentage of total assets decreased to 0.50% at June 30, 2020 compared to 0.61% at March 31, 2020 primarily due to the Bank's increase in total assets.  Non-performing assets as a percentage of total assets, excluding PPP loans, was 0.58%.

  • Loan Growth Supported by PPP Activities - For the quarter ended June 30, 2020, total loans increased by $253.3 million, or 21.3 percent, to $1.44 billion compared to $1.19 billion at March 31, 2020.  In addition to the increase of $236.3 million of PPP loans, commercial real estate loans increased by $3.5 million, or 1.0 percent, construction real estate loans increased by $8.9 million, or 4.4 percent, secured credit cards balances increased by $12.9 million, or 30.7 percent, while non-PPP commercial and industrial loans declined by $8.9 million, or 5.9 percent.

  • Growth of Noninterest Bearing Deposits and Reduced Costs of Interest Bearing Liabilities - Noninterest bearing deposits increased by $200.6 million, or 55.2 percent, during the quarter ended June 30, 2020.  This growth was primarily driven by PPP loan activity, an increase of $47.2 million in secured credit card deposits, and the Company's ongoing strategic initiative to improve the deposit portfolio mix by decreasing reliance on wholesale, internet and other non-core time deposits.  The cost of interest bearing liabilities decreased from 1.73% to 1.38% as we moved to reduce rates in line with the market.

  • Capitalized on Market Disruption to Attract Talent - Hired a team of seven commercial sales associates from a recently-merged competitor.  Hired a mortgage banking team in the first quarter to facilitate mortgage production in an adjacent market.
       
COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited
          
 Quarter Ended   Six Months Ended  
 June 30,   June 30,  
(dollars in thousands except per share data)2020 2019 % Change 2020 2019 % Change
Earnings Summary           
Interest income$22,000  $20,289  8.4% $43,744  $38,607  13.3%
Interest expense3,376  3,758  (10.2)% 7,433  7,332  1.4%
Net interest income18,624  16,531  12.7% 36,311  31,275  16.1%
Provision for loan losses3,300  677  387.4% 5,709  798  615.4%
Noninterest income13,825  5,927  133.3% 20,404  10,019  103.7%
Noninterest expense22,630  16,210  39.6% 40,472  30,540  32.5%
Income before income taxes6,519  5,571  17.0% 10,534  9,956  5.8%
Income tax expense1,759  1,548  13.6% 2,839  2,614  8.6%
Net income$4,760  $4,023  18.3% $7,695  $7,342  4.8%
            
Weighted average common shares - Basic13,817  13,719  0.7% 13,847  13,708  1.0%
Weighted average common shares - Diluted13,817  13,914  (0.7)% 13,877  13,888  (0.1)%
Earnings per share - Basic$0.34  $0.30  13.6% $0.56  $0.54  3.7%
Earnings per share - Diluted$0.34  $0.29  19.1% $0.55  $0.53  3.8%
Return on average assets (1)1.19% 1.39% (14.4)% 1.03% 1.30% (20.8)%
Return on average assets, excluding impact of PPP loans(1) (2)1.04% 1.39% (25.2)% 0.95% 1.30% (26.9)%
Return on average equity13.70% 13.23% 3.6% 11.17% 12.33% (9.4)%


 Quarter Ended 2Q20 vs. 2Q19 Quarter Ended
 June 30,  March 31, December 31, September 30,
(in thousands except per share data)2020 2019 % Change 2020 2019 2019
Balance Sheet Highlights           
Assets$1,822,365  $1,234,157  47.7% $1,507,847  $1,428,495  $1,311,406 
Investment securities available for sale56,796  39,157  45.0% 59,524  60,828  37,073 
Mortgage loans held for sale116,969  47,744  145.0% 73,955  71,030  68,982 
PPP loans, net of fees, included in loans receivable(3)229,646    N/A       
Loans receivable (3)1,441,123  1,056,290  36.4% 1,187,798  1,171,121  1,140,310 
Allowance for loan losses18,680  11,913  56.8% 15,513  13,301  12,808 
Deposits1,608,726  1,037,004  55.1% 1,302,913  1,225,421  1,112,444 
Borrowings and repurchase agreements25,556  38,889  (34.3)% 28,889  32,222  35,556 
Other borrowed funds17,392  15,409  12.9% 15,430  15,423  15,416 
Total stockholders' equity142,108  123,118  15.4% 136,080  133,331  127,829 
Tangible common equity(2)142,108  123,118  15.4% 136,080  133,331  127,829 
            
Common shares outstanding13,818  13,719  0.7% 13,817  13,895  13,783 
Tangible book value per share$10.28  $8.97  14.6% $9.85  $9.60  $9.27 

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


Operating Results - Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

For the three months ended June 30, 2020, net interest income increased $2.1 million, or 12.7 percent, to $18.6 million from the same period in 2019, primarily due to a $442.3 million, or 38.6 percent, increase in average interest-earning assets.  As a result of the declining interest rate environment, which began in the third quarter of 2019, and the rapid increase in PPP loans, net interest margin decreased 107 basis points to 4.72% for the three months ended June 30, 2020 from the same period in 2019. Net interest margin, excluding credit card and PPP loans was 3.96% for the second quarter of 2020 compared to 4.37% for the same period in 2019.  For the three months ended June 30, 2020, average interest earning assets increased $442.3 million, or 38.6 percent, to $1.6 billion as compared to the same period in 2019, and the average yield on interest earning assets decreased 153 basis points.  Period over period, average interest-bearing liabilities increased $212.8 million, or 27.5 percent, while the average cost decreased 57 basis points to 1.38% from 1.95%.

For the quarter ended June 30, 2020, the COVID-19 related deterioration in the macro-economic environment resulted in an additional provision for loan losses of $3.3 million. Net charge-offs for the second quarter of 2020 were $134 thousand, or 0.04% of average loans on an annualized basis, compared to $111 thousand, or 0.04% of average loans on an annualized basis for the second quarter of 2019.

For the quarter ending June 30, 2020, noninterest income was $13.8 million, an increase of $7.9 million (133.2 percent) from $5.9 million in the prior year quarter.  The increase was driven by significant growth in mortgage banking revenues (up $6.4 million) and credit card fees (up $943 thousand).

For the three months ended June 30, 2020, the Bank originated 172 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 401 thousand.  This compares to 36 thousand new originations for the same period last year, which increased total open accounts to 211 thousand.  As compared to the second quarter of 2019, card loan balances increased to $54.7 million from $40.1 million, while the related deposit account balances increased 79 percent to $131.9 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.  OpenSky® launched a relief program in March 2020 for customers affected by COVID-19 that provides for payment deferral and relief without impacting our customers' credit history.  As of June 30, 2020, 1,010 customers, or 0.26% of total customers, representing $303 thousand in balances outstanding, were participating in the relief program, a decrease from the peak of 3,164 customers early in the life of the program.  Unprecedented economic conditions have resulted in lower levels of interest and late fee income as customers are managing their finances amid government stimulus checks, deferred rents and mortgage payments and changing spending habits.

The Company's efficiency ratio for the three months ended June 30, 2020 decreased to 69.7% compared 72.2% for the three months ended June 30, 2019, primarily resulting from the Company's higher levels of revenue.

Noninterest expense was $22.6 million for the three months ended June 30, 2020, as compared to $16.2 million for the three months ended June 30, 2019 of $6.4 million, or 39.6 percent. The increase was primarily driven by a $3.2 million, or 39.3 percent, increase in salaries and benefits period over period.  Included in this metric are commissions paid on mortgage originations, which increased from $682 thousand to $2.8 million primarily due to an increase in the number of mortgage originations.  In the three month period ended June 30, 2020, $315.2 million of mortgage loans were originated for sale compared to $134.4 million in the three months ended June 30, 2019.   The Company's organic growth was supported by a 5.6 percent increase in employees to 244 at June 30, 2020, up from 231 at June 30, 2019.  The increase was due to the addition of 13 new employees in the revenue producing teams of the commercial banking and mortgage banking divisions.  In addition, there was an increase of $2.0 million in data processing expenses, given the higher volume of open credit cards and higher loan and deposit balances during the second quarter.

During the quarter ended June 30, 2020, Capital Bank's Results of Operations were impacted by the COVID-19 pandemic and include the deferral of $7.3 million of loan origination fees, net of costs, and the amortization of net fees of $592 thousand.  There were no significant COVID-19 related noninterest expenses recorded during the quarter ended June 30, 2020.

Operating Results - Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

For the six months ended June 30, 2020, net interest income increased $5.0 million, or 16.1 percent, to $36.3 million from the same period in 2019 primarily due to a $363 million, or 32.4 percent, increase in average interest-earning assets.  As a result of the declining interest rate environment, which began in the third quarter of 2019, and the rapid increase in PPP loans, net interest margin decreased 91 basis points to 4.72% for the six months ended June 30, 2020 from the same period in 2019. Net interest margin, excluding credit cards and PPP loans was 3.96% for the second quarter of 2020 compared to 4.34% for the same period in 2019.  For the six months ended June 30, 2020, average interest earning assets increased $363 million, or 32.4 percent, to $1.5 billion as compared to the same period in 2019, and the average yield on interest earning assets decreased 102 basis points.  Period over period, average interest-bearing liabilities increased $206.4 million, or 27.2 percent, while the average cost decreased 40 basis points to 1.55% from 1.95%.

For the six months ended June 30, 2020, the COVID-19 related deterioration in the macro-economic environment resulted in an additional provision for loan losses of $5.7 million. Net charge-offs for the six months ended June 30, 2020 were $330 thousand, or 0.05% of average loans, annualized, compared to $192 thousand, or 0.04% of average loans, annualized, for the same period in 2019.

For the six months ended June 30, 2020, noninterest income was $20.4 million, an increase of $10.4 million, or 103.7 percent, from the same period in 2019.  The increase was primarily driven by significant growth in mortgage banking revenues which were up $8.0 million and credit card fees which increased $1.5 million.

For the six months ended June 30, 2020, the Bank originated 215 thousand new OpenSky® secured credit card accounts, increasing the total number of open accounts to 401 thousand. This compares to 72 thousand new originations for the same period last year, which increased total open accounts to 211 thousand. As compared to the second quarter of 2019, card balances increased to $54.7 million from, while the related deposit account balances increased 79 percent to $131.9 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 Company's efficiency ratio for the six months ended June 30, 2020 decreased to 71.36% compared to 73.96% for the six months ended June 30, 2019, primarily resulting from the Company's higher levels of revenue.

Noninterest expense was $40.5 million for the six months ended June 30, 2020, as compared to $30.5 million for the six months ended June 30, 2019, an increase of $9.9 million, or 32.5 percent. The increase was primarily driven by a $4.9 million, or 32.6 percent, increase in salaries and benefits period over period.  Included in this metric are commissions paid on mortgage originations, which increased from $2.8 million to $5.4 million primarily due to an increase in the number of mortgage originations.  In the six months ended June 30, 2020, $491.9 million of mortgage loans were originated for sale compared to $208.5 million in the six months ended June 30, 2019. In addition, there was an increase of $2.8 million in data processing expenses, given the higher volume of open credit cards and higher loan and deposit balances during the second quarter.

During the six months ended June 30, 2020, Capital Bank's Results of Operations were impacted by the COVID-19 pandemic and include the deferral of $7.3 million of loan origination fees, net of costs, and the amortization of net fees of $592 thousand.  There were no significant COVID-19 related noninterest expenses recorded during the six months ended June 30, 2020.

Financial Condition

Total assets at June 30, 2020 were $1.82 billion, an increase of 47.7 percent as compared to $1.23 billion at June 30, 2019.  Loans, excluding mortgage loans held for sale, totaled $1.44 billion as of June 30, 2020, an increase of 36.4 percent as compared to $1.1 billion at June 30, 2019.  The increase in loans was primarily due to the $236.3 million increase in PPP loans.

Deposits at June 30, 2020 were $1.61 billion, an increase of 55.1 percent as compared to $1.04 billion at June 30, 2019. Noninterest bearing deposits increased by $285 million.  These deposits include fiduciary accounts of title company and property management accounts, as well as PPP loans and the secured card deposits highlighted above.  Interest bearing accounts increased by $287.2 million, mainly driven by a 47% increase in other 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 $5.7 million during the six months ended June 30, 2020, which increased our allowance for loan losses to $18.7 million, or 1.30% of total loans (1.54%, if excluding PPP loans, on a non-GAAP basis) at June 30, 2020.  This level of reserve provides approximately 318 percent coverage of nonperforming loans at June 30, 2020, compared to a reserve of $11.9 million, or 1.13 percent, of total loans, and approximately 174% coverage of nonperforming loans at June 30, 2019.  Nonperforming assets were $9.2 million, or 0.50% of total assets, as of June 30, 2020, up from $7.0 million, or 0.57% of total assets, at June 30, 2019.  Of the $9.2 million in total nonperforming assets as of June 30, 2020, nonperforming loans represented $5.9 million and OREO totaled $3.3 million.  Included in nonperforming loans at June 30, 2020 are troubled debt restructurings of $450 thousand.

Stockholders’ equity increased to $142.1 million as of June 30, 2020, compared to $123.1 million at June 30, 2019.  This increase was primarily attributable to earnings and net proceeds from the exercise of stock options.  Shares repurchased and retired in 2020 as part of the Company's stock repurchase program totaled 113,634 shares at a weighted average price of $11.38, for a total cost of $1.3 million including commissions.  As of June 30, 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 June 30, Six Months Ended June 30,
(in thousands)2020 2019 2020 2019
Interest income       
Loans, including fees$21,609  $19,804  $42,683  $37,648 
Investment securities available for sale316  234  656  492 
Federal funds sold and other75  251  405  467 
Total interest income22,000  20,289  43,744  38,607 
        
Interest expense       
Deposits2,954  3,195  6,567  6,438 
Borrowed funds422  563  866  894 
Total interest expense3,376  3,758  7,433  7,332 
        
Net interest income18,624  16,531  36,311  31,275 
Provision for loan losses3,300  677  5,709  798 
Net interest income after provision for loan losses15,324  15,854  30,602  30,477 
        
Noninterest income       
Service charges on deposits110  138  259  236 
Credit card fees2,913  1,970  4,921  3,462 
Mortgage banking revenue10,119  3,715  14,136  6,091 
Gain on sale of investment securities available for sale  26    26 
Loss on OREO(75)   (75)  
Other fees and charges758  78  1,163  204 
Total noninterest income13,825  5,927  20,404  10,019 
        
Noninterest expenses       
Salaries and employee benefits11,296  8,111  19,753  14,898 
Occupancy and equipment1,152  1,102  2,330  2,196 
Professional fees894  609  1,664  1,228 
Data processing5,667  3,716  9,784  7,029 
Advertising607  531  1,243  973 
Loan processing740  340  1,187  645 
Other real estate expenses, net8  28  53  50 
Other operating2,266  1,773  4,459  3,521 
Total noninterest expenses22,630  16,210  40,473  30,540 
Income before income taxes6,519  5,571  10,533  9,956 
Income tax expense1,759  1,548  2,839  2,614 
Net income$4,760  $4,023  $7,694  $7,342 


Consolidated Balance Sheets   
(in thousands except share data)(unaudited)
June 30, 2020
 December 31, 2019
Assets   
Cash and due from banks$15,636  $10,530 
Interest bearing deposits at other financial institutions180,379  102,447 
Federal funds sold3,698  1,847 
Total cash and cash equivalents199,713  114,824 
Investment securities available for sale56,796  60,828 
Restricted investments4,085  3,966 
Loans held for sale116,969  71,030 
Loans receivable, net of allowance for loan losses of $18,680 and $13,301 at June 30, 2020 and December 31, 2019, respectively1,422,443  1,157,820 
Premises and equipment, net5,544  6,092 
Accrued interest receivable6,865  4,770 
Deferred income taxes3,599  4,263 
Other real estate owned3,326  2,384 
Other assets3,025  2,518 
Total assets$1,822,365  $1,428,495 
    
Liabilities   
Deposits   
Noninterest bearing$563,995  $291,777 
Interest bearing1,044,731  933,644 
Total deposits1,608,726  1,225,421 
Federal Home Loan Bank advances25,556  32,222 
Other borrowed funds17,392  15,423 
Accrued interest payable1,284  1,801 
Other liabilities27,299  20,297 
Total liabilities1,680,257  1,295,164 
    
Stockholders' equity   
Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019   
Common stock, $.01 par value; 49,000,000 shares authorized; 13,818,223 and 13,894,842 issued and outstanding at June 30, 2020 and December 31, 2019, respectively138  139 
Additional paid-in capital51,052  51,561 
Retained earnings89,151  81,618 
Accumulated other comprehensive income1,767  13 
Total stockholders' equity142,108  133,331 
Total liabilities and stockholders' equity$1,822,365  $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 June 30,
 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$79,854  $19  0.09% $38,573  $198  2.06%
Federal funds sold1,889    0.05  2,111  12  2.20 
Investment securities available for sale58,860  316  2.16  42,031  234  2.23 
Restricted stock4,152  56  5.46  4,428  41  3.75 
 Loans held for sale78,254  687  3.53  34,635  681  7.88 
Loans(2) (3)1,365,371  20,922  6.16  1,024,306  19,123  7.49 
Total interest earning assets1,588,380  22,000  5.57  1,146,084  20,289  7.10 
Noninterest earning assets24,459      17,233     
Total assets$1,612,839      $1,163,317     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$182,095  171  0.38  $96,702  89  0.37 
Savings4,522  1  0.05  3,577  3  0.35 
Money market accounts472,802  1,280  1.09  333,248  1,434  1.73 
Time deposits282,695  1,503  2.14  277,402  1,669  2.41 
Borrowed funds44,672  421  3.79  63,083  563  3.58 
Total interest bearing liabilities986,786  3,376  1.38  774,012  3,758  1.95 
Noninterest bearing liabilities:           
Noninterest bearing liabilities21,647      15,963     
Noninterest bearing deposits464,702      251,408     
Stockholders’ equity139,704      121,934     
Total liabilities and stockholders’ equity$1,612,839      $1,163,317     
            
Net interest spread(4)    4.19%     5.15%
Net interest income  $18,624      $16,531   
Net interest margin(5)    4.72%     5.79%
Net interest margin, excluding credit card and PPP loans (6)    3.96%     4.37%

_______________

(1)  Annualized.
(2)  Includes nonaccrual loans.
(3)  Interest income includes amortization of deferred loan fees, net of deferred loan costs.
(4)  Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
(5)  Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.
(6)  Refer to Appendix for reconciliation of non-GAAP measures


 Six Months Ended June 30,
 2020 2019
 Average
Outstanding 
Balance
 Interest
Income/
Expense
 Average 
Yield/ 
Rate(1)
 Average
Outstanding 
Balance
 Interest
Income/
Expense
 Average
Yield/ 
Rate
 (Dollars in thousands)
Assets           
Interest earning assets:           
Interest bearing deposits$88,238  $278  0.63% $34,879  $374  2.16%
Federal funds sold1,479  4  0.51  1,869  1  0.06 
Investment securities available for sale59,628  656  2.21  44,259  492  2.24 
Restricted stock4,035  123  6.15  3,588  92  5.17 
Loans held for sale60,180  1,053  3.52  24,519  1,032  8.49 
Loans(2) (3)1,270,230  41,630  6.59  1,011,971  36,616  7.30 
Total interest earning assets1,483,790  43,744  5.93  1,121,085  38,607  6.94 
Noninterest earning assets21,279      14,712     
Total assets$1,505,069      $1,135,797     
            
Liabilities and Stockholders’ Equity           
Interest bearing liabilities:           
Interest bearing demand accounts$162,985  $398  0.49  $87,416  $167  0.38 
Savings4,463  4  0.17  3,460  6  0.35 
Money market accounts459,865  2,967  1.30  325,173  2,748  1.70 
Time deposits293,374  3,198  2.19  298,805  3,517  2.37 
Borrowed funds45,214  866  3.85  44,603  894  4.04 
Total interest bearing liabilities965,901  7,433  1.55  759,457  7,332  1.95 
Noninterest bearing liabilities:           
Noninterest bearing liabilities20,744      13,856     
Noninterest bearing deposits379,881      242,443     
Stockholders’ equity138,543      120,041     
Total liabilities and stockholders’ equity$1,505,069      $1,135,797     
            
Net interest spread(4)    4.38%     4.99%
Net interest income  $36,311      $31,275   
Net interest margin(5)    4.92%     5.63%
Net interest margin, excluding credit card and PPP loans (6)    3.96%     4.34%

_______________

(1)  Annualized.
(2)  Includes nonaccrual loans.
(3)  Interest income includes amortization of deferred loan fees, net of deferred loan costs.
(4)  Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
(5)  Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.
(6)  Refer to Appendix for reconciliation of non-GAAP measures.


HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited    
  Quarter Ended
(Dollars in thousands except per share data) June 30,
 2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
Earnings:          
Net income $4,761  $2,934  $5,073  $4,480  $4,023 
Earnings per common share, diluted $0.34  $0.21  $0.36  $0.32  $0.29 
Net interest margin 4.72% 5.16% 5.33% 5.83% 5.79%
Net interest margin, excluding credit cards & PPP loans (1) 3.96% 3.96% 4.02% 4.37% 4.37%
Return on average assets(2) 1.19% 0.84% 1.48% 1.42% 1.39%
Return on average assets excluding impact of PPP loans (1)(2) 1.04% 0.84% 1.48% 1.42% 1.39%
Return on average equity(2) 13.70% 8.59% 15.32% 14.04% 13.23%
Efficiency ratio 69.74% 73.53% 70.10% 71.75% 72.18%
Balance Sheet:          
Loans(3) $1,441,123  $1,187,798  $1,171,121  $1,140,310  $1,056,290 
Deposits $1,608,726  $1,302,913  $1,225,421  $1,112,444  $1,037,004 
Total assets $1,822,365  $1,507,847  $1,428,495  $1,311,406  $1,234,157 
Asset Quality Ratios:          
Nonperforming assets to total assets 0.50% 0.61% 0.50% 0.51% 0.57%
Nonperforming assets to total assets, excluding PPP loans (1) 0.58% 0.61% 0.50% 0.51% 0.57%
Nonperforming loans to total loans 0.41% 0.49% 0.40% 0.57% 0.65%
Nonperforming loans to total loans, excluding PPP loans (1) 0.48% 0.49% 0.40% 0.57% 0.65%
Net charge-offs to average loans (YTD annualized) 0.05% 0.07% 0.10% 0.04% 0.04%
Net charge-offs to average loans (YTD annualized), excluding PPP loans (1) 0.06% 0.07% 0.10% 0.04% 0.04%
Allowance for loan losses to total loans 1.30% 1.31% 1.14% 1.12% 1.13%
Allowance for loan losses to total loans, excluding PPP loans (1) 1.54% 1.31% 1.14% 1.12% 1.13%
Allowance for loan losses to non-performing loans 318.25% 268.13% 281.80% 195.76% 174.05%
Bank Capital Ratios:          
Total risk based capital ratio 12.35% 12.18% 11.98% 11.44% 11.90%
Tier 1 risk based capital ratio 11.10% 10.93% 10.73% 10.19% 10.65%
Leverage ratio 8.65% 8.61% 8.65% 8.60% 8.91%
Common equity Tier 1 capital ratio 11.10% 10.93% 10.73% 10.19% 10.65%
Tangible common equity 6.91% 8.03% 8.21% 8.21% 8.40%
Holding Company Capital Ratios:          
Total risk based capital ratio 15.02% 13.63% 13.56% 13.47% 14.01%
Tier 1 risk based capital ratio 12.58% 12.38% 12.31% 12.21% 12.76%
Leverage ratio 9.87% 9.83% 9.96% 10.37% 10.76%
Common equity Tier 1 capital ratio 12.39% 12.19% 12.12% 12.02% 12.55%
Tangible common equity 7.80% 11.08% 10.71% 10.26% 10.02%
Composition of Loans:          
Residential real estate $437,429  $430,870  $427,926  $443,961  $426,887 
Commercial real estate $364,071  $360,601  $348,091  $339,448  $297,890 
Construction real estate $212,957  $204,047  $198,702  $182,224  $169,225 
Commercial and industrial - Other $142,673  $151,551  $151,109  $132,935  $124,436 
Commercial and industrial - PPP Loans $236,324  $  $  $  $ 
Credit card $54,732  $41,881  $46,412  $44,058  $40,141 
Other $947  $1,103  $1,285  $1,148  $1,015 
Composition of Deposits:          
Noninterest bearing $563,995  $363,423  $291,777  $293,378  $279,484 
Interest bearing demand $268,150  $175,924  $174,166  $186,422  $129,199 
Savings $5,087  $4,290  $3,675  $3,994  $3,572 
Money Markets $507,432  $473,958  $429,078  $313,131  $347,701 
Time Deposits $264,062  $285,318  $326,725  $315,519  $277,048 
                     
Capital Bank Home Loan Metrics:        
Origination of loans held for sale $315,165  $180,421  $185,739  $197,754  $134,409 
Mortgage loans sold $272,151  $177,496  $183,691  $171,880  $105,418 
Gain on sale of loans $8,088  $4,580  $4,587  $5,088  $3,698 
Purchase volume as a % of originations 31.16% 32.79% 28.95% 44.02% 79.07%
Gain on sale as a % of loans sold(4) 2.97% 2.52% 2.44% 2.88% 3.39%
OpenSky Credit Card Portfolio Metrics:        
Active customer accounts 400,530  244,024  223,379  221,913  211,408 
Credit card loans $54,732  $41,881  $46,412  $44,058  $40,141 
Noninterest secured credit card deposits $131,854  $84,689  $78,223  $77,689  $73,666 

_______________

(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.


Return on Average Tangible Common Equity

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Net Income$7,109 $12,767 $16,895 $4,761 $7,695 
Less: Bargain Purchase Gain, net of taxes     
Add: Intangible Asset Amortization, net of taxes     
Net Income Excluding Intangible Amortization and Bargain Purchase Gain, net, as Adjusted$7,109 $12,767 $16,895 $4,761 $7,695 
Average Total Equity76,543 91,590 123,657 139,704 138,543 
Less: Average Preferred Equity     
Less: Average Intangible Assets     
Average Tangible Common Equity$76,543 $91,590 $123,657 $139,704 $138,543 
Return on Average Tangible Common Equity9.29%13.94%13.66%13.71%11.17%
           

Return on Average Tangible Common Equity, as Adjusted

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Net Income$7,109 $12,767 $16,895 $4,761 $7,695 
Less: Bargain purchase gain, net of taxes     
Add: Non-recurring foregone interest and fees2,370     
Add Non-recurring data processing expenses$2,275 $ $ $ $ 
Add: Non-recurring deferred tax revaluation1,386     
Less: Tax impact of conversion related items(1,847)    
Net Income, as Adjusted11,293 12,767 16,895 4,761 7,695 
Add: Intangible asset amortization, net of taxes$ $ $ $ $ 
Net Income Excluding Intangible Amortization and Bargain Purchase Gain, net, as Adjusted11,293 12,767 16,895 4,761 7,695 
Average Total equity76,543 91,590 123,657 139,704 138,543 
Less: Average preferred equity     
Less: Average intangible assets     
Average Tangible Common Equity$76,543 $91,590 $123,657 $139,704 $138,543 
Return on Average Tangible Common Equity, as Adjusted14.75%13.94%13.66%13.71%11.17%
           

Return on Average Assets, as Adjusted

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Net Income$7,109 $12,767 $16,895 $4,761 $7,695 
Less: Bargain purchase gain, net of taxes     
Add: Non-recurring foregone interest and fees2,370     
Add Non-recurring data processing expenses2,275     
Add: Non-recurring deferred tax revaluation1,386     
Less: Tax impact of conversion related items(1,847)    
Less: PPP loan income   (1,011)(1,011)
Net Income, as Adjusted$11,293 $12,767 $16,895 $3,750 $6,684 
Average Total Assets$964,946 $1,045,732 $1,219,909 $1,612,839 $1,505,069 
  Less: Average PPP loans      (168,490(84,245
Average Total Assets, as Adjusted$964,946 $1,045,732 $1,219,909 $1,444,349 $1,420,824 
Return on Average Assets, as Adjusted1.17%1.22%1.38%1.04%0.95%
           

Net Interest Margin, as Adjusted

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Net Interest Income$48,911 $57,888 $67,509 $18,624 $36,311 
Add: Non-recurring foregone interest and fees2,370      
Less Secured credit card loan income   (4,066)(8,593)
Less PPP loan income   (1,011)(1,011)
Net Interest Income, as Adjusted$51,281 $57,888 $67,509 $13,547 $26,707 
Average Interest Earning Assets 955,479  1,035,731  1,204,863  1,588,380  1,483,790 
Less Average secured credit card loans       (42,538) (42,546)
Less Average PPP Loans       (168,490) (84,245)
Total Average Interest Earning Assets$955,479 $1,035,731 $1,204,863 $1,377,352 $1,356,999 
Net Interest Margin, as Adjusted5.37%5.59%5.60%3.96%3.96%
           

Adjusted Revenue and Noninterest Income to Adjusted Revenue

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Noninterest Income$15,149 $16,124 $24,518 $13,825 $20,404 
Net Interest Income48,911 57,888 67,509 18,624 36,311 
Add: Noninterest income15,149 16,124 24,518 13,825 20,404 
Add: Non-recurring foregone interest and fees2,370     
Adjusted Revenue$66,430 $74,012 $92,027 $32,449 $56,715 
Noninterest Income to Adjusted Revenue22.80%21.70%26.64%42.60%35.98%
           

Efficiency Ratio, as Adjusted

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Noninterest Expense$47,306 $54,123 $66,525 $22,630 $40,472 
Less: Non-recurring data processing expenses(2,275)    
Adjusted Noninterest Expense45,031 54,123 66,525 22,630 40,472 
Net Interest Income48,911 57,888 67,509 18,624 36,311 
Add: Noninterest income15,149 16,124 24,518 13,825 20,404 
Add: Non-recurring foregone interest and fees2,370     
Adjusted Revenue$66,430 $74,012 $92,027 $32,449 $56,715 
Efficiency Ratio, as Adjusted67.79%73.13%72.29%69.74%71.36%
           

Diluted Earnings per Share, as Adjusted

Dollars in ThousandsYear Ended December 31,Quarter EndedYear to Date
 201720182019June 30, 2020June 30, 2020
      
Net Income$7,109 $12,767 $16,895 $4,761 $7,695  
Less: Bargain purchase gain, net of taxes     
Add: Non-recurring foregone interest and fees2370     
Add Non-recurring data processing expenses2275     
Add: Non-recurring deferred tax revaluation1386     
Less: Tax impact of conversion related items(1,847)    
Net Income, as Adjusted11,293 12,767 16,895 4,761 7,695 
Add: Convertible debt interest expense     
Net Income, as Adjusted for Diluted EPS$11,293 $12,767 $16,895 $4,761 $7,695  
Diluted Weighted Average Shares Outstanding11,428,000 12,462,138 13,968,585 13,817,349 13,877,326 
Diluted Earnings per Share, as Adjusted$0.99 $1.02 $1.21 $0.34 $0.55  
                 

Tangible Book Value per Share

Dollars in ThousandsYear Ended December 31, 
 201720182019June 30, 2020
     
Total Stockholders' Equity$80,119 $114,563 $133,331 $142,108  
Less:  Preferred equity     
Less: Intangible assets     
Tangible Common Equity$80,119 $114,563 $133,331 $142,108  
Period End Shares Outstanding11,537,196 13,672,479 13,894,842 13,818,223  
Tangible Book Value per Share$6.94 $8.38 $9.60 $10.28  


Allowance for Loan Losses to Total Loans, Excluding PPP Loans   
 Dollars in ThousandsYear Ended December 31,Quarter Ended
  201720182019June 30, 2020
      
 Allowance for Loan Losses$10,033 $11,308 $13,301 $18,680 
 Total Loans887,420 1,000,268 1,171,121 1,441,123 
 Less: PPP loans   (229,646
 Total Loans, Excluding PPP Loans$887,420 $1,000,268 $1,171,121 $1,211,477 
 Allowance for Loan Losses to Total Loans, Excluding PPP Loans1.13%1.13%1.14%1.54%
      
      
Nonperforming Assets to Total Assets, Excluding PPP Loans   
 Dollars in ThousandsYear Ended December 31,Quarter Ended
  201720182019June 30, 2020
      
 Total Nonperforming Assets$5,500 $4,821 $7,104 $9,195 
 Total Assets1,026,009 1,105,058 1,428,495 1,822,365 
 Less: PPP loans   (229,646
 Total Assets, Excluding PPP Loans$1,026,009 $1,105,058 $1,428,495 $1,592,719 
 Nonperforming Assets to Total Assets, Excluding PPP Loans0.54%0.44%0.50%0.58%
      
      
Nonperforming Loans to Total Loans, Excluding PPP Loans   
 Dollars in ThousandsYear Ended December 31,Quarter Ended
  201720182019June 30, 2020
      
 Total Nonperforming Loans$5,407 $4,679 $4,720 $5,869 
 Total Loans887,420 1,000,268 1,171,121 1,441,123 
 Less: PPP loans   (229,646)
 Total Loans, Excluding PPP Loans$887,420 $1,000,268 $1,171,121 $1,211,477 
 Nonperforming Loans to Total Loans, Excluding PPP Loans0.61%0.47%0.40%0.48%
      
      
Net Charge-offs to Average Loans, Excluding PPP Loans   
 Dollars in ThousandsYear Ended December 31,Year to Date
  201720182019June 30, 2020
      
 Total Net Charge-offs$1,219 $865 $798 $330 
 Total Average Loans831,293 921,823 1,064,421 1,270,230 
 Less: Average PPP loans   (84,245)
 Total Average Loans, Excluding PPP Loans$831,293 $921,823 $1,064,421 $1,185,985 
 Net Charge-offs (YTD annualized) to Average Loans Excluding PPP Loans0.15%0.09%0.08%0.06%


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 seventh largest bank headquartered in Maryland at March 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 $1.8 billion at June 30, 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 could be subject to any 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 experience 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