CBNK Accelerating Loan Growth Drives Steady Profits and Returns

Rhea-AI Summary

Capital Bancorp, Inc. (NASDAQ: CBNK) reported a net income of $10.2 million for Q4 2021, equating to $0.71 per diluted share, consistent with Q4 2020. Portfolio loans increased by $78.9 million compared to the previous quarter and $208.5 million year-over-year. The net interest margin improved to 6.49%, a 92 basis point increase from last year. However, noninterest income fell by 33.8%, attributed to a slowdown in the mortgage banking sector. The return on average assets was 1.95%, indicating stable performance despite challenges.

Positive

• Net income rose 5.0% to $10.2 million compared to Q4 2020.
• Portfolio loans increased by $208.5 million, or 15.8%, year-over-year.
• Net interest margin improved to 6.49%, a 92 basis point increase from Q4 2020.
• Noninterest-bearing deposits increased by 29.4% year-over-year.

Negative

• Noninterest income decreased by 33.8% due to reduced mortgage banking revenue.
• Mortgage origination volumes fell 58.7% year-over-year.

Diluted EPS of $0.71, ROAA of 1.95%, and ROAE of 20.66% for 4Q 2021

ROCKVILLE, Md., Jan. 26, 2022 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $10.2 million, or $0.71 per diluted share, for the fourth quarter of 2021. By comparison, net income was $9.7 million, or $0.71 per diluted share, for the fourth quarter of 2020. Portfolio loans, net, increased $78.9 million when compared to the period ended September 30, 2021, and $208.5 million when compared to the period ended December 31, 2021.

“2021 was a tremendous year for Capital Bank,” said Steven Schwartz, Chairman of the Board of the Company. “The Commercial Bank, Capital Bank Home Loans and OpenSky® all outperformed expectations as investments in technology and people continued to deliver exceptional results. Building on the Bank’s success, we continue to seek out and invest in opportunities that will leverage our unique combination of technological innovation and community banking to build long-term shareholder value.”

"The fourth quarter’s results were driven by strong performance in the Commercial Bank and OpenSky^® which more than made up for the slowdown of our mortgage business," said Ed Barry, CEO of the Company. "Capitalizing on market disruption, we made several strategic hires in the Commercial Bank which contributed to a 21.9 percent annualized portfolio loan growth in the fourth quarter. OpenSky^® is poised to remain an engine of growth with the fourth quarter launch of our unsecured credit card line to our highest performing OpenSky^® secured card holders. OpenSky's^® annualized quarterly net loan growth of 18.1 percent continued to drive portfolio loan balances. Anticipated OpenSky^® card holder attrition resulted in a modest decline in open accounts for the quarter but remains well-below historical levels."

Fourth Quarter 2021 Highlights

Capital Bancorp, Inc.

• Stable Earnings - Continued strong performance by the Commercial Bank and OpenSky^® contributed to the fourth quarter's results. Quarterly net income increased to $10.2 million from $9.7 million in the fourth quarter of 2020. Earnings were $0.71 per diluted share for the three months ended December 31, 2021 and 2020.
• Outstanding Performance Ratios - Return on average assets ("ROAA") and return on average equity ("ROAE") were 1.95% and 20.66%, respectively, for the three months ended December 31, 2021 compared to 2.08% and 25.26%, respectively, for the three months ended December 31, 2020.
• Expanded Net Interest Margin - Net interest margin was 6.49% for the three months ended December 31, 2021, which is an increase of 92 basis points compared to 5.57% for the same three month period last year and an increase over linked quarter of 22 basis points, from 6.27%, for the three months ended September 30, 2021. The margin improvement over linked quarter was driven by an increase in average loans outstanding as well as management's concentrated effort to lower funding costs.
• Robust Capital Positions - As of December 31, 2021, the Company reported a common equity tier 1 capital ratio of 14.28% and an allowance for loan losses to total loans ratio of 1.54%, or 1.65% excluding Small Business Administration Payroll Protection Program ("SBA-PPP") loans. During the preceding twelve months, tangible book value per common share grew 22.4 percent to $14.17 at December 31, 2021.

Commercial Bank

• Accelerating Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $176.0 million, or 14.5 percent, to $1.4 billion at December 31, 2021 compared to December 31, 2020, and by $73.4 million, compared to September 30, 2021. The year over year growth was mainly due to a 41.7 percent increase in commercial real estate loans of $163.8 million, of which $102.2 million was owner occupied while $61.6 was non-owner occupied. Also contributing to the year over year growth was a 12.0 percent increase in commercial and industrial loans of $18.8 million and a 13.4 percent increase in construction real estate loans of $30.2 million. Offsetting total growth was a $36.3 million decrease in residential real estate loans.
• Growth in Core Deposits and Reduced Cost of Funds - Noninterest bearing deposits increased 29.4 percent compared to December 31, 2020. The $179.1 million year over year increase was primarily due to an increase in commercial demand deposits reflecting management's ongoing strategic initiative to improve the deposit franchise. At December 31, 2021, noninterest bearing deposits represented 43.8% of total deposits compared to 36.8% at December 31, 2020. Overall, the cost of interest bearing liabilities was reduced 53 basis points, from 0.95% for the quarter ended December 31, 2020 to 0.42% for the quarter ended December 31, 2021.
• Improving Credit Metrics - Non-performing assets ("NPAs") decreased to 0.56% of total assets at December 31, 2021 compared to 0.77% at September 30, 2021 primarily due to the disposition of $3.2 million in other real estate owned during the fourth quarter of 2021 and a reduction in nonaccrual loans of $2.3 million as management continues to focus on reducing non-performing assets. Primarily as a result of improving market conditions, the provision for loan losses declined $933.0 thousand compared to the fourth quarter of 2020. The current provision for the three months ended December 31, 2021 was $1.1 million and primarily related to the credit card portfolio.
• SBA-PPP Loans - SBA-PPP loans, net of $3.2 million in unearned fees, totaled $108.3 million at December 31, 2021 which was comprised of $4.4 million in 2020 originations and $103.9 million of 2021 originations. As of December 31, 2021, the Company has obtained forgiveness for $261.6 million of SBA-PPP loans.

Capital Bank Home Loans

• Softening Mortgage Performance - Origination volumes declined 58.7 percent, to $158.1 million, in the fourth quarter of 2021, when compared to $382.3 million in the fourth quarter of 2020. The continued steepening of the yield curve in the fourth quarter of 2021 slowed originations from the year earlier when low interest rates fueled refinance volumes. In the most recent quarter, mortgage origination volumes declined $59.1 million or 27.2 percent from the three months ended September 30, 2021 due to normal seasonal patterns as well as the rate-related slow-down in the mortgage industry which has disproportionately impacted refinance activity.
• Purchase Volume - Purchase volumes increased to 56.4 percent of total originations for the fourth quarter of 2021, up from 30.0 percent during the fourth quarter of 2020.

OpenSky^®

• Strong Revenue Growth - OpenSky^® revenue grew by 38.2 percent to $22.2 million for the quarter ended December 31, 2021 from the same period in 2020. As account growth, line usage and customer behaviors continue to revert to traditional seasonal patterns, management anticipates modest seasonal declines in open accounts as account opening and attrition normalize.
• Continued Growth in OpenSky^® Loans and Deposits - OpenSky^® loan balances, net of reserves, increased by $38.9 million to $141.1 million compared to $102.2 million in the fourth quarter of 2020 and from $135.0 million, or 4.5 percent, on a linked quarter basis. Corresponding deposit balances increased 19.2 percent or $37.0 million from $192.5 million at December 31, 2020 to $229.5 million at December 31, 2021.

2021 Highlights

Capital Bancorp

• Diversified Businesses Drive Net Income - Net income for the twelve months ended December 31, 2021 increased 54.8 percent to $40.0 million, or $2.84 per diluted share, from $25.8 million, or $1.87 per diluted share for the twelve months ended December 31, 2020. Continued strong operating results demonstrate the advantages of the Company's diversified business lines that are, in certain respects, non-correlated across economic cycles.
• Top Tier Performance Ratios - Improved earnings supported ROAA and ROAE of 1.96% and 22.27%, respectively, for the twelve months ended December 31, 2021 compared to 1.56% and 18.00%, respectively, for the twelve months ended December 31, 2020.
• Expanded Net Interest Margin - For the twelve months ended December 31, 2021, net interest margin increased by 72 basis points to 5.86% compared to 5.14% for the twelve months ended December 31, 2020. The margin improvement was largely driven by the increase in OpenSky^® income.
• Stable Efficiency Ratio - The efficiency ratio increased slightly to 65.79% for the twelve months ended December 31, 2021 compared to 65.44% for the same twelve month period in the prior year.
• Strong Balance Sheet Growth - Total assets increased $178.7 million, or 9.5 percent during the twelve months ended December 31, 2021 and was primarily funded by a $145.0 million increase in deposits. The growth of earning assets on the balance sheet consisted primarily of increases in cash equivalents of $36.5 million, portfolio loans net of deferred fees of $208.5 million which includes OpenSky^® net loan growth of $30.1 million, investments available for sale of $84.7 million, and Bank Owned Life Insurance ("BOLI") of $35.5 million. Asset growth was primarily offset by a decrease of $91.2 million in loans held for sale as well as a $92.7 million reduction in SBA-PPP loans.
  

Commercial Bank

• Strong Portfolio Loan Growth - Portfolio loans, excluding credit card loans, increased by $176.0 million, or 14.5 percent, to $1.4 billion at December 31, 2021 compared to $1.2 billion at December 31, 2020. The growth was primarily due to a 41.7 percent increase in commercial real estate loans of $163.8 million, of which $102.2 million was owner occupied while $61.6 was non owner occupied.
• Improved Deposit Franchise and Lower Cost of Funding - Noninterest bearing deposits increased by $179.1 million, or 29.4 percent, during the twelve months ended December 31, 2021 and represented 43.8 percent of total deposits at December 31, 2021. The cost of interest bearing liabilities declined to 0.61% from 1.29% for the same period in the prior year, due mainly to the average rate of interest bearing demand deposits dropping from 0.34% as of December 31, 2020 to 0.07% as of December 31, 2021.
• COVID-19 Related Deferrals - At December 31, 2021, outstanding loans deferred due to COVID-19 amounted to $4.0 million, a decrease of 86.9 percent from $30.5 million at December 31, 2020.
  

Capital Bank Home Loans

• Gain on Sale - The year-to-date gain on sale of mortgage loans decreased to $30.3 million at December 31, 2021 from $38.5 million at December 31, 2020 due mainly to the $314.4 million, or 24.0 percent, decline in mortgage originations. The steepening yield curve in 2021 has slowed originations from the year earlier period when low interest rates fueled refinance volumes. Gain on sale margins, down slightly from 3.02% for the twelve months ended December 31, 2020, remained strong at 2.79% for the twelve months ended December 31, 2021. Historically-low housing inventory, shortages in new home building materials, and fluctuating interest rates are likely to continue suppressing origination volumes into 2022.
  

OpenSky^®

• Growth Elevates Performance - The 92 thousand net increase in the number of accounts in the twelve months ended December 31, 2021 resulted in a $37.0 million increase in noninterest bearing secured credit card deposits that totaled $229.5 million as of December 31, 2021. Credit card balances increased by $38.9 million, or 38.1 percent, for the twelve months ended December 31, 2021 and totaled $141.1 million at December 31, 2021. Account growth led to higher credit card fees, which increased by 64.4 percent to $27.9 million compared to $17.0 million for the same twelve month period last year, largely driven by the increase in the number of accounts in the portfolio.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited
	Quarter Ended											Twelve months ended
	December 31,											December 31,
(amounts in thousands except per share data)	2021				2020				% Change			2021				2020				% Change
Earnings Summary
Interest income	$	33,788			$	28,318			19.3	%		$	123,243			$	97,251			26.7	%
Interest expense		1,117				2,599			(57.0	)%			6,550				13,182			(50.3	)%
Net interest income		32,671				25,719			27.0	%			116,693				84,069			38.8	%
Provision for loan losses		1,100				2,033			(45.9	)%			3,359				11,242			(70.1	)%
Noninterest income		10,617				16,030			(33.8	)%			50,636				50,144			1.0	%
Noninterest expense		28,495				26,680			6.8	%			110,094				87,834			25.3	%
Income before income taxes		13,693				13,036			5.0	%			53,876				35,137			53.3	%
Income tax expense		3,522				3,347			5.2	%			13,898				9,314			49.2	%
Net income	$	10,171			$	9,689			5.0	%		$	39,978			$	25,823			54.8	%
Pre-tax pre-provision net revenue ("PPNR") (2)	$	14,793			$	15,069			(1.8	)%		$	57,235			$	46,379			23.4	%
Weighted average common shares - Basic		13,877				13,686			1.4	%			13,799				13,793			—	%
Weighted average common shares - Diluted		14,290				13,707			4.3	%			14,081				13,800			2.0	%
Earnings per share - Basic	$	0.73			$	0.71			2.8	%		$	2.90			$	1.87			55.1	%
Earnings per share - Diluted	$	0.71			$	0.71			—	%		$	2.84			$	1.87			51.9	%
Return on average assets (1)		1.95	%			2.08	%		(6.3	)%			1.96	%			1.56	%		25.6	%
Return on average assets, excluding impact of SBA-PPP loans(1) (2)		1.80	%			1.88	%		(4.3	)%			1.75	%			1.42	%		23.2	%
Return on average equity		20.66	%			25.26	%		(18.2	)%			22.27	%			18.00	%		23.7	%

	Quarter Ended						4Q21 vs. 4Q20			Quarter Ended
	December 31,									September 30,			June 30,			March 31,
(in thousands except per share data)	2021			2020			% Change			2021			2021			2021
Balance Sheet Highlights
Assets	$	2,055,300		$	1,876,593		9.5	%		$	2,169,556		$	2,151,850		$	2,091,851
Investment securities available for sale		184,455			99,787		84.8	%			189,165			160,515			128,023
Mortgage loans held for sale		15,989			107,154		(85.1	)%			36,005			47,935			60,816
SBA-PPP loans, net of fees		108,285			201,018		(46.1	)%			137,178			202,763			265,712
Portfolio loans receivable (3)		1,523,982			1,315,502		15.8	%			1,445,126			1,392,471			1,312,375
Allowance for loan losses		25,181			23,434		7.5	%			24,753			24,079			23,550
Deposits		1,797,137			1,652,128		8.8	%			1,921,238			1,917,419			1,863,069
FHLB borrowings		22,000			22,000		—	%			22,000			22,000			22,000
Other borrowed funds		12,062			14,016		(13.9	)%			12,062			12,062			12,062
Total stockholders' equity		197,903			159,311		24.2	%			189,080			177,204			167,003
Tangible common equity(2)		197,903			159,311		24.2	%			189,080			177,204			167,003
Common shares outstanding		13,962			13,754		1.5	%			13,802			13,772			13,759
Tangible book value per share (2)	$	14.17		$	11.58		22.4	%		$	13.70		$	12.87		$	12.14

______________

⁽¹⁾ Annualized for the quarterly periods
⁽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, 2021 and 2020

For the three months ended December 31, 2021, net interest income increased $7.0 million, or 27.0 percent, to $32.7 million from the same period in 2020, primarily due to an increase in interest earning assets and a decrease in rates on interest bearing liabilities. The net interest margin increased 92 basis point to 6.49% for the three months ended December 31, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.70% for the fourth quarter of 2021 compared to 3.80% for the same period in 2020. For the three months ended December 31, 2021, average interest earning assets increased $160.0 million, or 8.7 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 58 basis points. Compared to the same period in the prior year, average interest-bearing liabilities decreased $37.8 million, or 3.5 percent, while the average cost of interest bearing liabilities decreased 53 basis points to 0.42% from 0.95%.

The provision for loan losses of $1.1 million for the three months ended December 31, 2021 was primarily related to growth in the credit card portfolio. Net charge-offs for the fourth quarter of 2021 were $671.6 thousand, or 0.18% on an annualized basis of average loans, compared to $615.0 thousand, or 0.19% on an annualized basis of average loans for the fourth quarter of 2020. The $671.6 thousand in net charge-offs during the quarter was related solely to the credit card portfolio.

For the quarter ended December 31, 2021, noninterest income was $10.6 million, a decrease of $5.4 million, or 33.8 percent, from $16.0 million in the prior year quarter. The decrease was primarily the result of reduced mortgage banking revenue.

Net credit card loan balances increased by $38.9 million to $141.1 million as of December 31, 2021 from $102.2 million at December 31, 2020. The related deposit account balances increased 19.2 percent to $229.5 million at December 31, 2021 when compared to $192.5 million at December 31, 2020. For the three months ended December 31, 2021, OpenSky's^® secured credit card accounts decreased by 40 thousand net compared to 39 thousand net new accounts for the same period in 2020 suggesting consumer behaviors may be returning to historical trends after being elevated in response to COVID-19 throughout 2020 and the first two quarters of 2021.

The efficiency ratio for the three months ended December 31, 2021 increased to 65.83% compared to 63.91% for the three months ended December 31, 2020 due mainly to the reduction in mortgage income generated.

Noninterest expense was $28.5 million for the three months ended December 31, 2021, as compared to $26.7 million for the three months ended December 31, 2020, an increase of $1.8 million, or 6.8 percent. The increase was primarily driven by increases in salaries and employee benefits of $2.0 million, advertising expenses of $994.7 thousand, and data processing expenses of $390.1 thousand. Offsetting these expenses were decreases in occupancy and equipment expense of $507.2 thousand, loan processing expenses of $503.2 thousand, and professional fees of $474.0 thousand.

Operating Results - Comparison of Twelve Months Ended December 31, 2021 and 2020

For the twelve months ended December 31, 2021, net interest income increased $32.6 million, or 38.8 percent, to $116.7 million from the same period in 2020, primarily due to an increase in interest earning assets and a decrease in rates on interest bearing liabilities. The net interest margin increased 72 basis points to 5.86% for the twelve months ended December 31, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.60% for the twelve months ended December 31, 2021 compared to 3.89% for the same period in 2020. For the twelve months ended December 31, 2021, average interest earning assets increased $356.1 million, or 21.8 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 24 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $60.3 million, or 5.9 percent, while the average cost of interest-bearing liabilities decreased 68 basis points to 0.61% from 1.29%.

For the twelve months ended December 31, 2021, the provision for loan losses was $3.4 million, a decrease of $7.9 million from the prior year. Net charge-offs for the twelve months ended December 31, 2021 were $1.6 million, or 0.12% of average portfolio loans, compared to $1.1 million, or 0.09% of average portfolio loans, for the same period in 2020. The $1.6 million in net charge-offs during the twelve months ended December 31, 2021 was comprised primarily of commercial real estate loan net charge-offs of $161.1 thousand and net charge-offs of $1.4 million in the credit card portfolio.

For the twelve months ended December 31, 2021, noninterest income was $50.6 million, an increase of $491.5 thousand, or 1.0 percent, from the same period in 2020. The increase was primarily driven by significant growth in credit card fees of $10.9 million, which was partially offset by a decrease in mortgage banking revenues of $8.9 million.

For the twelve months ended December 31, 2021, the Bank had net growth of 92 thousand new OpenSky^® secured credit card accounts, increasing the total number of open accounts to 660 thousand. This compares to 345 thousand new originations for the same period last year, which increased total open accounts to 568 thousand.

The efficiency ratio for the twelve months ended December 31, 2021 increased slightly to 65.79% compared to 65.44% for the twelve months ended December 31, 2020 due to increases in noninterest expense.

Noninterest expense was $110.1 million for the twelve months ended December 31, 2021, as compared to $87.8 million for the twelve months ended December 31, 2020, an increase of $22.3 million, or 25.3 percent. The increase was primarily driven by a $4.4 million, or 13.2 percent, increase in salaries and benefits, an increase in professional fees of 42.8 percent, or $2.1 million, a $12.3 million, or 45.8 percent, increase in data processing, a $2.3 million, or 89.8 percent, increase in advertising, and a $2.0 million, or 18.2 percent, increase in other operating expenses period over period. The increase of $12.3 million in data processing expenses was primarily due to the higher volume of open credit cards during the twelve months ended December 31, 2021. Additionally, operating expenses increased $2.0 million, primarily due to increases in outside service providers.

During the twelve months ended December 31, 2021, results of operations were impacted by the COVID-19 pandemic and the resulting issuance of SBA-PPP loans. At December 31, 2021, the $111.5 million of SBA-PPP loans had remaining deferred origination fees of $3.8 million, and deferred costs of $655.7 thousand.

Financial Condition

Total assets at December 31, 2021 were $2.1 billion, an increase of 9.5 percent from December 31, 2020. Portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.5 billion as of December 31, 2021, an increase of 15.8 percent as compared to $1.3 billion at December 31, 2020.

Total deposits at December 31, 2021 were $1.8 billion, an increase of $145.0 million, or 8.8 percent, as compared to $1.7 billion at December 31, 2020. Noninterest bearing deposits increased by $179.1 million, or 29.4 percent, to $787.7 million at December 31, 2021 compared to the level at December 31, 2020. Deposit balances grew year over year in certain fiduciary accounts of title and property management companies, as well as noninterest bearing OpenSky^® deposits.

The Company recorded a provision for loan losses of $3.4 million during the twelve months ended December 31, 2021, which increased the allowance for loan losses to $25.2 million, or 1.54% of total loans (1.65%, excluding SBA-PPP loans, on a non-GAAP basis) at December 31, 2021. Nonperforming assets were $11.5 million, or 0.56% of total assets, as of December 31, 2021, down from $12.6 million, or 0.67% of total assets, at December 31, 2020. Of the $11.5 million in total nonperforming assets as of December 31, 2021, nonperforming loans represented $11.4 million and foreclosed real estate totaled $86.4 thousand. Included in nonperforming loans at December 31, 2021 were troubled debt restructurings of $534 thousand.

Stockholders’ equity increased to $197.9 million as of December 31, 2021, compared to $159.3 million at December 31, 2020. This increase was primarily attributable to earnings during the period. As of December 31, 2021, the Bank's capital ratios continued 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)	2021			2020				2021			2020
Interest income
Loans, including fees	$	33,235		$	27,848			$	120,784		$	95,367
Investment securities available for sale		439			363				2,010			1,292
Federal funds sold and other		114			107				449			592
Total interest income		33,788			28,318				123,243			97,251
Interest expense
Deposits		934			2,323				5,808			11,524
Borrowed funds		183			276				742			1,658
Total interest expense		1,117			2,599				6,550			13,182
Net interest income		32,671			25,719				116,693			84,069
Provision for loan losses		1,100			2,033				3,359			11,242
Net interest income after provision for loan losses		31,571			23,686				113,334			72,827
Noninterest income
Service charges on deposits		136			143				609			520
Credit card fees		6,676			6,272				27,884			16,966
Mortgage banking revenue		3,365			8,748				20,843			29,732
Gain on sale of investment securities available for sale, net		—			20				153			20
Other fees and charges		440			847				1,147			2,906
Total noninterest income		10,617			16,030				50,636			50,144
Noninterest expenses
Salaries and employee benefits		10,564			8,592				37,843			33,442
Occupancy and equipment		1,005			1,512				4,327			5,170
Professional fees		1,454			1,928				6,996			4,900
Data processing		9,643			9,253				39,237			26,917
Advertising		1,650			655				4,803			2,530
Loan processing		857			1,360				3,527			3,811
Other real estate expenses, net		47			(68	)			368			69
Other operating		3,275			3,448				12,993			10,995
Total noninterest expenses		28,495			26,680				110,094			87,834
Income before income taxes		13,693			13,036				53,876			35,137
Income tax expense		3,522			3,347				13,898			9,314
Net income	$	10,171		$	9,689			$	39,978		$	25,823

Consolidated Balance Sheets
(in thousands except share data)	(unaudited) December 31, 2021				December 31, 2020
Assets
Cash and due from banks	$	42,914			$	18,456
Interest bearing deposits at other financial institutions		136,824				126,081
Federal funds sold		3,657				2,373
Total cash and cash equivalents		183,395				146,910
Investment securities available for sale		184,455				99,787
Marketable equity securities		245				245
Restricted investments		3,498				3,713
Loans held for sale		15,989				107,154
SBA-PPP loans receivable, net of fees		108,285				201,018
Portfolio loans receivable, net of deferred fees and costs		1,523,982				1,315,502
Less allowance for loan losses		(25,181	)			(23,434	)
Total portfolio loans held for investment, net		1,498,801				1,292,068
Premises and equipment, net		3,282				4,464
Accrued interest receivable		7,901				8,134
Deferred income taxes, net		9,793				6,818
Other real estate owned		86				3,326
Bank owned life insurance		35,506				—
Other assets		4,064				2,956
Total assets	$	2,055,300			$	1,876,593
Liabilities
Deposits
Noninterest bearing	$	787,650			$	608,559
Interest bearing		1,009,487				1,043,569
Total deposits		1,797,137				1,652,128
Federal Home Loan Bank advances		22,000				22,000
Other borrowed funds		12,062				14,016
Accrued interest payable		473				1,134
Other liabilities		25,725				28,004
Total liabilities		1,857,397				1,717,282
Stockholders' equity
Common stock, $.01 par value; 49,000,000 shares authorized; 13,962,334 and 13,753,529 issued and outstanding		140				138
Additional paid-in capital		54,306				50,602
Retained earnings		144,533				106,854
Accumulated other comprehensive income (loss)		(1,076	)			1,717
Total stockholders' equity		197,903				159,311
Total liabilities and stockholders' equity	$	2,055,300			$	1,876,593

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,
	2021									2020
	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	$	198,070		$	73		0.15	%		$	152,720		$	37		0.10	%
Federal funds sold		2,048			—		—				5,537			—		—
Investment securities available for sale		186,603			439		0.93				73,931			363		1.95
Restricted stock and equity securities		3,743			41		4.35				3,947			70		7.08
Loans held for sale		23,395			179		3.04				105,922			701		2.63
SBA-PPP loans receivable		116,595			1,347		4.58				227,617			1,998		3.49
Portfolio loans receivable(2)		1,465,878			31,709		8.58				1,266,662			25,149		7.90
Total interest earning assets		1,996,332			33,788		6.71				1,836,336			28,318		6.13
Noninterest earning assets		69,951									18,509
Total assets	$	2,066,283								$	1,854,845
Liabilities and Stockholders’ Equity
Interest bearing liabilities:
Interest bearing demand accounts	$	315,933			39		0.05			$	238,078			102		0.17
Savings		6,575			1		0.06				4,828			1		0.05
Money market accounts		501,070			267		0.21				467,727			633		0.54
Time deposits		190,795			627		1.30				337,170			1,586		1.87
Borrowed funds		34,062			183		2.13				38,447			277		2.86
Total interest bearing liabilities		1,048,435			1,117		0.42				1,086,250			2,599		0.95
Noninterest bearing liabilities:
Noninterest bearing liabilities		26,504									23,810
Noninterest bearing deposits		796,014									592,193
Stockholders’ equity		195,330									152,592
Total liabilities and stockholders’ equity	$	2,066,283								$	1,854,845
Net interest spread							6.29	%								5.18	%
Net interest income				$	32,671								$	25,719
Net interest margin(3)							6.49	%								5.57	%

_______________

⁽¹⁾   Annualized.
⁽²⁾   Includes nonaccrual loans.
⁽³⁾   For the three months ended December 31, 2021 and December 31, 2020, collectively, SBA-PPP loans and credit card loans accounted for 279 and 177 basis points of the reported net interest margin, respectively.

	Twelve Months Ended December 31,
	2021									2020
	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	$	228,420		$	283		0.12	%		$	112,249		$	343		0.31	%
Federal funds sold		2,850			—		—				3,128			4		0.12
Investment securities available for sale		151,479			2,010		1.33				58,071			1,292		2.22
Restricted stock and equity securities		3,774			166		4.40				4,025			244		6.07
Loans held for sale		43,126			1,224		2.84				84,928			2,610		3.07
SBA-PPP loans receivable		190,588			7,613		3.99				157,630			4,479		2.84
Portfolio loans receivable(1)		1,370,988			111,947		8.17				1,215,049			88,279		7.27
Total interest earning assets		1,991,225			123,243		6.19				1,635,080			97,251		5.95
Noninterest earning assets		44,619									24,923
Total assets	$	2,035,844								$	1,660,003
Liabilities and Stockholders’ Equity
Interest bearing liabilities:
Interest bearing demand accounts	$	289,285			202		0.07			$	195,794			656		0.34
Savings		6,470			3		0.05				4,722			5		0.11
Money market accounts		482,225			1,484		0.31				480,218			4,786		1.00
Time deposits		269,262			4,119		1.53				297,997			6,077		2.04
Borrowed funds		34,214			742		2.17				42,471			1,658		3.90
Total interest bearing liabilities		1,081,456			6,550		0.61				1,021,202			13,182		1.29
Noninterest bearing liabilities:
Noninterest bearing liabilities		24,128									22,007
Noninterest bearing deposits		750,760									473,301
Stockholders’ equity		179,500									143,493
Total liabilities and stockholders’ equity	$	2,035,844								$	1,660,003
Net interest spread							5.58	%								4.66	%
Net interest income				$	116,693								$	84,069
Net interest margin(2)							5.86	%								5.14	%

_______________

⁽¹⁾   Includes nonaccrual loans.
⁽²⁾   For the twelve months ended December 31, 2021 and December 31, 2020, collectively, SBA-PPP loans and credit card loans accounted for 226 and 125 basis points of the reported net interest margin, respectively.

HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited
		Quarter Ended
(Dollars in thousands except per share data)		December 31, 2021				September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020
Earnings:
Net income		$	10,171			$	11,177			$	9,648			$	8,982			$	9,689
Earnings per common share, diluted			0.71				0.79				0.68				0.65				0.71
Net interest margin			6.49	%			6.27	%			5.47	%			5.15	%			5.57	%
Net interest margin, excluding credit cards & SBA-PPP loans (1)			3.70	%			3.52	%			3.55	%			3.70	%			3.80	%
Return on average assets(2)			1.95	%			2.13	%			1.90	%			1.87	%			2.08	%
Return on average assets, excluding impact of SBA-PPP loans (1)(2)			1.80	%			1.99	%			1.65	%			1.60	%			1.88	%
Return on average equity(2)			20.66	%			23.87	%			22.36	%			22.30	%			25.26	%
Efficiency ratio			65.83	%			64.10	%			66.37	%			67.11	%			63.91	%
Balance Sheet:
Total assets		$	2,055,300			$	2,169,556			$	2,151,850			$	2,091,851			$	1,876,593
Asset Quality Ratios:
Nonperforming assets to total assets			0.56	%			0.77	%			0.54	%			0.58	%			0.67	%
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)			0.59	%			0.83	%			0.60	%			0.66	%			0.75	%
Nonperforming loans to total loans			0.70	%			0.85	%			0.52	%			0.56	%			0.61	%
Nonperforming loans to portfolio loans (1)			0.75	%			0.94	%			0.60	%			0.67	%			0.70	%
Net charge-offs to average portfolio loans (1)(2)			0.18	%			0.08	%			0.08	%			0.12	%			0.19	%
Allowance for loan losses to total loans			1.54	%			1.56	%			1.51	%			1.49	%			1.54	%
Allowance for loan losses to portfolio loans (1)			1.65	%			1.71	%			1.73	%			1.79	%			1.78	%
Allowance for loan losses to non-performing loans			220.40	%			182.48	%			287.40	%			267.07	%			253.71	%
Bank Capital Ratios:
Total risk based capital ratio			13.79	%			13.86	%			13.51	%			13.55	%			12.60	%
Tier 1 risk based capital ratio			12.53	%			12.60	%			12.25	%			12.29	%			11.34	%
Leverage ratio			8.36	%			7.83	%			7.58	%			7.54	%			7.45	%
Common equity Tier 1 capital ratio			12.53	%			12.60	%			12.25	%			12.29	%			11.34	%
Tangible common equity			8.36	%			7.57	%			7.17	%			7.01	%			7.43	%
Holding Company Capital Ratios:
Total risk based capital ratio			16.41	%			15.75	%			16.14	%			16.07	%			15.19	%
Tier 1 risk based capital ratio			14.43	%			14.49	%			14.10	%			13.98	%			13.10	%
Leverage ratio			9.73	%			9.12	%			8.78	%			8.84	%			8.78	%
Common equity Tier 1 capital ratio			14.28	%			14.34	%			13.94	%			13.81	%			12.94	%
Tangible common equity			9.63	%			8.72	%			8.23	%			7.98	%			8.48	%
Composition of Loans:
Residential real estate		$	401,607			$	418,205			$	420,015			$	420,461			$	437,860
Commercial real estate			556,339				502,523				471,807				433,336				392,550
Construction real estate			255,147				251,256				223,832				221,277				224,904
Commercial and industrial - Other			175,956				143,244				158,392				149,914				157,127
Credit card, net of reserve			141,120				134,979				121,410				83,740				102,186
Other consumer loans			1,033				1,425				1,034				4,487				1,649
Portfolio loans receivable		$	1,531,202			$	1,451,632			$	1,396,490			$	1,313,215			$	1,316,276
Deferred origination fees, net			(7,220	)			(6,506	)			(4,019	)			(840	)			(774	)
Portfolio loans receivable, net		$	1,523,982			$	1,445,126			$	1,392,471			$	1,312,375			$	1,315,502
SBA-PPP loans, net		$	108,285			$	137,178			$	202,763			$	265,712			$	201,018
Composition of Deposits:
Noninterest bearing		$	787,650			$	833,187			$	828,308			$	771,924			$	608,559
Interest bearing demand			330,924				369,812				314,883				300,992				257,126
Savings			6,994				6,682				6,965				6,012				4,800
Money Markets			493,919				493,029				484,567				471,303				447,077
Time Deposits			177,650				218,528				282,696				312,838				334,566
Total Deposits		$	1,797,137			$	1,921,238			$	1,917,419			$	1,863,069			$	1,652,128
Capital Bank Home Loan Metrics:
Origination of loans held for sale		$	158,051			$	217,175			$	265,517			$	353,774			$	382,267
Mortgage loans sold			178,068				229,111				278,384				400,112				412,830
Gain on sale of loans			4,423				6,108				7,763				12,008				12,950
Purchase volume as a % of originations			56.44	%			50.98	%			50.64	%			24.59	%			30.03	%
Gain on sale as a % of loans sold(3)			2.48	%			2.67	%			2.79	%			3.00	%			3.14	%
Mortgage commissions		$	1,462			$	1,884			$	2,364			$	3,320			$	3,405
OpenSky® Portfolio Metrics:
Active customer accounts			660,397				700,383				707,600				642,272				568,373
Credit card loans, net of reserve		$	141,120			$	134,979			$	121,410			$	83,740			$	102,186
Noninterest secured credit card deposits			229,530				242,405				241,724				215,883				192,520

_______________

⁽¹⁾   Refer to Appendix for reconciliation of non-GAAP measures.
⁽²⁾   Annualized.
⁽³⁾   Gain on sale percentage is calculated as gain on sale of loans divided by mortgage loans sold.   

Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as Adjusted	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Net Income	$	10,171		$	11,177		$	9,648		$	8,982		$	9,689
Less: SBA-PPP loan income		1,347			1,525			2,272			2,205			1,998
Net Income, as Adjusted	$	8,824		$	9,652		$	7,376		$	6,777		$	7,691
Average Total Assets		2,066,283			2,084,772			2,041,232			1,949,265			1,854,845
Less: Average SBA-PPP Loans		116,595			162,217			250,040			232,371			227,617
Average Total Assets, as Adjusted	$	1,949,688		$	1,922,555		$	1,791,192		$	1,716,894		$	1,627,228
Return on Average Assets, as Adjusted		1.80	%		1.99	%		1.65	%		1.60	%		1.88	%

Net Interest Margin, as Adjusted	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Net Interest Income	$	32,671		$	32,059		$	27,520		$	24,444		$	25,719
Less Secured credit card loan income		15,010			15,086			10,497			7,660			9,306
Less SBA-PPP loan income		1,347			1,525			2,272			2,205			1,998
Net Interest Income, as Adjusted	$	16,314		$	15,448		$	14,751		$	14,579		$	14,415
Average Interest Earning Assets		1,996,331			2,026,616			2,016,801			1,923,463			1,836,337
Less Average secured credit card loans		131,306			124,771			100,456			93,520			95,739
Less Average SBA-PPP loans		116,595			162,217			250,040			232,371			227,617
Total Average Interest Earning Assets, as Adjusted	$	1,748,430		$	1,739,628		$	1,666,305		$	1,597,572		$	1,512,981
Net Interest Margin, as Adjusted		3.70	%		3.52	%		3.55	%		3.70	%		3.80	%

Tangible Book Value per Share	Quarters Ended
Dollars in thousands, except per share amounts	December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020
Total Stockholders' Equity	$	197,903	$	189,080	$	177,204	$	167,003	$	159,311
Less: Preferred equity		—		—		—		—		—
Less: Intangible assets		—		—		—		—		—
Tangible Common Equity	$	197,903	$	189,080	$	177,204	$	167,003	$	159,311
Period End Shares Outstanding		13,962,334		13,801,936		13,771,615		13,759,218		13,753,529
Tangible Book Value per Share	$	14.17	$	13.70	$	12.87	$	12.14	$	11.58

Allowance for Loan Losses to Total Portfolio Loans	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Allowance for Loan Losses	$	25,181		$	24,753		$	24,079		$	23,550		$	23,434
Total Loans		1,632,267			1,582,304			1,595,234			1,578,087			1,516,520
Less: SBA-PPP loans		108,285			137,178			202,763			265,712			201,018
Total Portfolio Loans	$	1,523,982		$	1,445,126		$	1,392,471		$	1,312,375		$	1,315,502
Allowance for Loan Losses to Total Portfolio Loans		1.65	%		1.71	%		1.73	%		1.79	%		1.78	%
Nonperforming Assets to Total Assets, net SBA-PPP Loans	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Total Nonperforming Assets	$	11,512		$	16,801		$	11,615		$	12,112		$	12,563
Total Assets		2,055,300			2,169,556			2,151,850			2,091,851			1,876,593
Less: SBA-PPP loans		108,285			137,178			202,763			265,712			201,018
Total Assets, net SBA-PPP Loans	$	1,947,015		$	2,032,378		$	1,949,087		$	1,826,139		$	1,675,575
Nonperforming Assets to Total Assets, net SBA-PPP Loans		0.59	%		0.83	%		0.60	%		0.66	%		0.75	%
Nonperforming Loans to Portfolio Loans	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Total Nonperforming Loans	$	11,425		$	13,565		$	8,378		$	8,818		$	9,237
Total Loans		1,632,267			1,582,304			1,595,234			1,578,087			1,516,520
Less: SBA-PPP loans		108,285			137,178			202,763			265,712			201,018
Total Portfolio Loans	$	1,523,982		$	1,445,126		$	1,392,471		$	1,312,375		$	1,315,502
Nonperforming Loans to Total Portfolio Loans		0.75	%		0.94	%		0.60	%		0.67	%		0.70	%
Net Charge-offs to Average Portfolio Loans	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Total Net Charge-offs	$	672		$	301		$	251		$	388		$	615
Total Average Loans		1,582,473			1,569,198			1,567,973			1,532,093			1,494,279
Less: Average SBA-PPP loans		116,595			162,217			250,040			232,371			227,617
Total Average Portfolio Loans	$	1,465,878		$	1,406,981		$	1,317,933		$	1,299,722		$	1,266,662
Net Charge-offs to Average Portfolio Loans		0.18	%		0.08	%		0.08	%		0.12	%		0.19	%
Pre-tax, Pre-Provision Net Revenue ("PPNR")	Quarters Ended
Dollars in thousands	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
Net income	$	10,171		$	11,177		$	9,648		$	8,982		$	9,689
Add: Income Tax Expense		3,522			3,877			3,357			3,143			3,347
Add: Provision for Loan Losses		1,100			975			781			503			2,033
Pre-tax, Pre-Provision Net Revenue ("PPNR")	$	14,793		$	16,029		$	13,786		$	12,628		$	15,069

ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the fourth largest bank headquartered in Maryland at December 31, 2021. 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 $2.1 billion at December 31, 2021 and its common stock is traded in the NASDAQ Global Market under the symbol “CBNK.” More information can be found at the Company's website www.CapitalBankMD.com under its investor relations page.

FORWARD-LOOKING STATEMENTS

This earnings release contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” "optimistic," “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements.  Accordingly, we caution you that any such forward-looking statements are not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors. For details on some of the factors that could affect these expectations, see risk factors and other cautionary language included in the Company's Annual Report on Form 10-K and other periodic and current reports filed with the Securities and Exchange Commission.

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 decisions made by the Federal Open Market Committee of the Federal Reserve and other factors, our net interest margin and spread may decline, which would adversely affect our earnings; 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

FAQ

What was Capital Bancorp's diluted EPS for Q4 2021?

Capital Bancorp's diluted EPS for Q4 2021 was $0.71.

How much did Capital Bancorp's portfolio loans increase in Q4 2021?

Capital Bancorp's portfolio loans increased by $78.9 million in Q4 2021 compared to Q3 2021.

What was the net income for Capital Bancorp in Q4 2021?

The net income for Capital Bancorp in Q4 2021 was $10.2 million.

What is the return on average assets for CBNK in Q4 2021?

The return on average assets for CBNK in Q4 2021 was 1.95%.

How did Capital Bancorp's mortgage origination volumes change in Q4 2021?

Mortgage origination volumes declined by 58.7% in Q4 2021 compared to Q4 2020.