CBNK Robust Loan Growth Drives Record Profits and Returns

Rhea-AI Summary

Capital Bancorp, Inc. (NASDAQ: CBNK) reported a strong performance for 3Q 2021, with net income increasing to $11.2 million or $0.79 per diluted share compared to $8.4 million or $0.61 in 3Q 2020. Key metrics include a ROAA of 2.13% and a ROAE of 23.87%. Portfolio loans surged 16.1% year-over-year, aided by a 39.7% increase in noninterest-bearing deposits. However, mortgage origination volumes declined 49.6% due to a rising interest rate environment, impacting revenue from this segment. Overall, robust growth in the Commercial Bank and OpenSky® was noted.

Positive

• Net income rose 32.5% year-over-year, reflecting strong operational performance.
• 44.3% annualized loan growth in OpenSky® indicates strong consumer engagement.
• 39.7% increase in noninterest-bearing deposits supports improved liquidity.
• Net interest margin enhanced to 6.27%, up 126 basis points year-over-year.

Negative

• Mortgage origination volumes fell 49.6% compared to 3Q 2020, affecting noninterest income.
• 27.9% decrease in noninterest income indicates challenges in mortgage banking.

Diluted EPS of $0.79, ROAA of 2.13%, and ROAE of 23.87% for 3Q 2021

ROCKVILLE, Md., Oct. 25, 2021 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $11.2 million, or $0.79 per diluted share, for the third quarter of 2021. By comparison, net income was $8.4 million, or $0.61 per diluted share, for the third quarter of 2020. Return on average assets ("ROAA") was 2.13% for the third quarter of 2021, compared to 1.89% for the same period in 2020. Return on average equity ("ROAE") was 23.87% for the third quarter of 2021, compared to 23.28% for the same period in 2020.

“Capital Bancorp’s diversified business model continued to outperform in the third quarter,” said Steven Schwartz, Chairman of the Board of the Company. “The Bank’s results highlight the success of ongoing strategic investments in technology and people that have positioned the Bank for continued profitable growth.”

"The third quarter’s record results were driven by strong growth in the Commercial Bank and OpenSky^® which more than made up for the anticipated slowdown of our mortgage business," said Ed Barry, CEO of the Company. "Regional economic activity and strategic hires contributed to 15.8 percent annualized portfolio loan growth quarter over linked-quarter on a consolidated basis. OpenSky^® remains an engine of growth as we engage with customers to provide additional value-added services. OpenSky^® annualized quarterly loan growth of 44.3 percent marked a return to historical trends. Customer attrition, which resulted in a modest decline in open accounts for the quarter, remains well-below historical levels.”

Third Quarter 2021 Highlights

Capital Bancorp, Inc.

• Record Earnings - Continued strong performance by the Commercial Bank and OpenSky^® contributed to the third quarter's record results. Quarterly net income increased to $11.2 million from $8.4 million in the third quarter of 2020. Earnings were $0.79 per diluted share for the three months ended September 30, 2021 compared to $0.61 per diluted share for the same period last year.
• Industry-Leading Performance Ratios - Return on average assets ("ROAA") and return on average equity ("ROAE") were 2.13% and 23.87%, respectively, for the three months ended September 30, 2021 compared to 1.89% and 23.28%, respectively, for the three months ended September 30, 2020.
• Expanded Net Interest Margin - The net interest margin was 6.27% for the three months ended September 30, 2021, which is an increase of 126 basis points compared to 5.01% for the same three month period last year and an increase quarter over quarter of 80 basis points, from 5.47%, for the three months ended June 30, 2021. The margin improvement quarter over quarter was driven by an increase in average loans outstanding, improving loan yields, and management's concentrated effort to lower funding costs.
• Robust Capital Positions - As of September 30, 2021, the Company reported a common equity tier 1 capital ratio of 14.34% and an allowance for loan losses to total loans ratio of 1.56%, or 1.71% excluding Small Business Administration Payroll Protection Program ("SBA-PPP") loans. During the preceding twelve months, tangible book value per common share grew 25.5 percent to $13.70 at September 30, 2021.

Commercial Bank

• Accelerating Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $156.2 million to $1.3 billion at September 30, 2021 compared to September 30, 2020, and by $41.6 million, or 13.0 percent annualized, compared to June 30, 2021. The year over year growth was mainly due to a 34.7 percent increase in commercial real estate loans of $129.6 million, a 6.2 percent increase in commercial and industrial loans of $8.4 million, and a 10.4 percent increase in construction real estate loans of $23.6 million.
• Growth in Core Deposits and Reduced Cost of Funds - Noninterest bearing deposits increased 39.7 percent compared to September 30, 2020. The $236.9 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 September 30, 2021, noninterest bearing deposits represented 43.4% of total deposits compared to 43.2% at June 30, 2021 and 35.9% at September 30, 2020. Overall, the cost of interest bearing liabilities was reduced 65 basis points, from 1.18% for the quarter ended September 30, 2020 to 0.53% for the quarter ended September 30, 2021.
• Credit Metrics - Non-performing assets ("NPAs") increased to 0.77% of total assets at September 30, 2021 compared to 0.54% at June 30, 2021 primarily due to the addition of one well-collateralized multi-family construction loan totaling $5.0 million and three residential mortgages totaling $523 thousand. Management continues to focus on reducing non-performing assets as evidenced by the disposition of two OREO properties totaling $3.1 million after September 30, 2021. Primarily as a result of improving market conditions, the provision for loan losses declined $2.5 million compared to the third quarter of 2020. The current provision for the three months ended September 30, 2021 was $975 thousand.
• SBA-PPP Loans - SBA-PPP loans, net of $4.3 million in unearned fees, totaled $137.2 million at September 30, 2021 which was comprised of $10.8 million in 2020 originations and $126.4 million of 2021 originations. As of September 30, 2021, the Company has obtained forgiveness for $237.7 million of SBA-PPP loans.

Capital Bank Home Loans

• Softening Mortgage Performance - The third quarter of 2021 saw mortgage origination volumes begin to slow after a record-breaking 2020. Origination volumes declined 49.6 percent, to $217 million, in the third quarter of 2021, when compared to $431 million in the third quarter of 2020. The steepening yield curve in the third quarter of 2021 has slowed originations from the year earlier period when low interest rates fueled refinance volumes. In the most recent quarter, mortgage origination volumes declined $48.7 million or 18.3 percent from the three months ended June 30, 2021 due to the rate-related slow-down in the mortgage industry which has disproportionately impacted refinance activity.
• Purchase Volume - Purchase volumes increased to 51.0 percent of total originations for the third quarter of 2021, up from 33.8 percent during the third quarter of 2020.

OpenSky^®

• Strong Revenue Growth - OpenSky^® revenue grew by 80.6 percent to $23.2 million for the quarter ended September 30, 2021 from the same period in 2020 and by 23.2 percent from the linked-quarter despite the linked-quarter decline in open accounts. 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, increased by $51.9 million to $135.0 million compared to $83.1 million in the third quarter of 2020 and from $121.4 million, or 11.2 percent, on a linked quarter basis. Corresponding deposit balances increased 37.2 percent or $65.7 million from $176.7 million at September 30, 2020 to $242.4 million at September 30, 2021. Strong growth in loans, deposits, and related-revenue appears to indicate that consumer behaviors may be returning to historical trends.

Year to Date 2021 Highlights

Capital Bancorp

• Diversified Businesses Drive Net Income - Net income for the nine months ended September 30, 2021 increased 84.7 percent to $29.8 million, or $2.11 per diluted share, from $16.1 million, or $1.17 per diluted share for the nine months ended September 30, 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.
• Elevated Performance Ratios - Improved earnings supported ROAA and ROAE of 1.97% and 22.88%, respectively, for the nine months ended September 30, 2021 compared to 1.35% and 15.35%, respectively, for the nine months ended September 30, 2020.
• Expanded Net Interest Margin - For the nine months ended September 30, 2021, net interest margin ("NIM") increased by 69 basis points to 5.65% compared to 4.96% for the nine months ended September 30, 2020. The margin improvement was largely driven by the increase in OpenSky^® income.
• Efficiency Ratio Continues to Improve - Increased revenue and active expense management improved the efficiency ratio to 65.78% for the nine months ended September 30, 2021 compared to 66.14% for the same nine month period in the prior year.
• Balance Sheet Growth - Total assets increased $293.0 million, or 20.9 percent on an annualized basis, during the nine months ended September 30, 2021. The growth of earning assets on the balance sheet consisted of increases in cash equivalents of $177.1 million, portfolio loans of $128.3 million which includes OpenSky^® loan growth of $32.8 million, investments available for sale of $89.4 million, and Bank Owned Life Insurance ("BOLI") of $35.3 million. Asset growth was offset by a decrease of $7.1 million in loans held for sale as well as a $63.8 million reduction in SBA-PPP loans. The asset growth was primarily funded by a $269.1 million increase in deposits.
  

Commercial Bank

• Strong Portfolio Loan Growth - Portfolio loans, excluding credit card loans, increased by $102.6 million, or 11.3 percent on an annualized basis, to $1.3 billion for the nine months ended September 30, 2021 compared to $1.2 billion at December 31, 2020. The growth was primarily due to a 28.0 percent increase in commercial real estate loans.
• Improved Deposit Franchise and Lower Cost of Funding - Noninterest bearing deposits increased by $224.6 million, or 36.9 percent, during the nine months ended September 30, 2021 and represent 43.4% of total deposits. The cost of interest bearing liabilities declined to 0.66% from 1.41% for the same period in the prior year, as higher priced time deposits continue to run-off or re-price.
• COVID-19 Related Deferrals - At September 30, 2021, outstanding loans deferred due to COVID-19 amounted to $7.3 million, a decrease of 75.9 percent from $30.3 million at September 30, 2020.
  

Capital Bank Home Loans

• Gain on Sale - The year-to-date gain on sale of mortgage loans grew modestly to $25.9 million at September 30, 2021 from $25.5 million at September 30, 2020, even as year to date origination volumes declined 8.2 percent, to $845 million at September 30, 2021 from $920 million at September 30, 2020. Gain on sale margins remained strong at 2.85% for the nine months ended September 30, 2021. The steepening yield curve in 2021 has slowed originations from the year earlier period when low interest rates fueled refinance volumes. Historically-low housing inventory, shortages in new home building materials, and fluctuating interest rates are likely to continue suppressing origination volumes throughout the remainder of 2021.
  

OpenSky^®

• Growth Elevates Performance - The 132 thousand increase in the number of accounts in the nine months ended September 30, 2021 resulted in a $49.9 million increase in noninterest bearing secured credit card deposits that totaled $242.4 million as of September 30, 2021. Credit card balances increased by $32.8 million, or 32.1 percent, for the nine months ended September 30, 2021 and totaled $135.0 million. Account growth led to higher credit card fees, which increased by 98.3 percent to $21.2 million compared to $10.7 million for the same nine month period last year, largely driven by the larger number of accounts in the portfolio.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited

	Quarter Ended														Nine Months Ended
	September 30,														September 30,
(amounts in thousands except per share data)	2021					2020					% Change				2021					2020					% Change
Earnings Summary
Interest income	$	33,528				$	25,189				33.1		%		$	89,455				$	68,933				29.8		%
Interest expense	1,469					3,150					(53.4	)	%		5,433					10,583					(48.7	)	%
Net interest income	32,059					22,039					45.5		%		84,022					58,350					44.0		%
Provision for loan losses	975					3,500					(72.1	)	%		2,259					9,209					(75.5	)	%
Noninterest income	12,597					17,477					(27.9	)	%		40,019					34,114					17.3		%
Noninterest expense	28,627					24,450					17.1		%		81,599					61,153					33.4		%
Income before income taxes	15,054					11,566					30.2		%		40,183					22,102					81.8		%
Income tax expense	3,877					3,128					23.9		%		10,376					5,968					73.9		%
Net income	$	11,177				$	8,438				32.5		%		$	29,807				$	16,134				84.7		%
Pre-tax pre-provision net revenue ("PPNR") (2)	$	16,029				$	15,066				6.4		%		$	42,442				$	31,311				35.5		%
Weighted average common shares - Basic	13,793					13,795					—		%		13,772					13,829					(0.4	)	%
Weighted average common shares - Diluted	14,228					13,795					3.1		%		14,110					13,832					2.0		%
Earnings per share - Basic	$	0.81				$	0.61				32.5		%		$	2.16				$	1.17				84.6		%
Earnings per share - Diluted	$	0.79				$	0.61				28.4		%		$	2.11				$	1.17				80.3		%
Return on average assets (1)	2.13			%		1.89			%		12.7		%		1.97			%		1.35			%		45.9		%
Return on average assets, excluding impact of SBA-PPP loans(1) (2)	1.99			%		1.80			%		10.6		%		1.74			%		0.95			%		83.2		%
Return on average equity	23.87			%		23.28			%		2.5		%		22.88			%		15.35			%		49.1		%

	Quarter Ended										3Q21 vs. 3Q20				Quarter Ended
	September 30,														June 30,					March 31,					December 31,
(in thousands except per share data)	2021					2020					% Change				2021					2021					2020
Balance Sheet Highlights
Assets	$	2,169,556				$	1,879,029				15.5		%		$	2,151,850				$	2,091,851				$	1,876,593
Investment securities available for sale	189,165					53,992					250.4		%		160,515					128,023					99,787
Mortgage loans held for sale	36,005					137,717					(73.9	)	%		47,935					60,816					107,154
SBA-PPP loans, net of fees	137,178					229,646					(40.3	)	%		265,712					201,018					233,349
Portfolio loans receivable (3)	1,445,126					1,244,613					16.1		%		1,392,471					1,312,375					1,315,503
Allowance for loan losses	24,753					22,016					12.4		%		24,079					23,550					23,434
Deposits	1,921,238					1,662,211					15.6		%		1,917,419					1,863,069					1,652,128
FHLB borrowings	22,000					22,222					(1.0	)	%		22,000					22,000					22,000
Other borrowed funds	12,062					17,516					(31.1	)	%		12,062					12,062					14,016
Total stockholders' equity	189,080					149,377					26.6		%		177,204					167,003					159,311
Tangible common equity(2)	189,080					149,377					26.6		%		177,204					167,003					159,311
Common shares outstanding	13,802					13,682					0.9		%		13,772					13,759					13,754
Tangible book value per share (2)	$	13.70				$	10.92				25.5		%		$	12.87				$	12.14				$	11.58

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

Operating Results - Comparison of Three Months Ended September 30, 2021 and 2020

For the three months ended September 30, 2021, net interest income increased $10.0 million, or 45.5 percent, to $32.1 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 126 basis point to 6.27% for the three months ended September 30, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.52% for the third quarter of 2021 compared to 3.84% for the same period in 2020. For the three months ended September 30, 2021, average interest earning assets increased $277.7 million, or 15.9 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 82 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $25.5 million, or 2.4 percent, while the average cost of interest bearing liabilities decreased 65 basis points to 0.53% from 1.18%.

The provision for loan losses of $975 thousand for the three months ended September 30, 2021 was related to growth in the credit card portfolio. On an annualized basis, net charge-offs for the third quarter of 2021 were $301 thousand, or 0.09% of average loans, compared to $163 thousand, or 0.06% of average loans on an annualized basis, for the third quarter of 2020. The $301 thousand in net charge-offs during the quarter was mainly comprised of $302 thousand in credit card charge-offs.

For the quarter ended September 30, 2021, noninterest income was $12.6 million, a decrease of $4.9 million, or 27.92 percent, from $17.5 million in the prior year quarter. The decrease was primarily the result of reduced mortgage banking revenue.

Net credit card loan balances increased by $51.9 million to $135.0 million as of September 30, 2021 from $83.1 million at September 30, 2020. The related deposit account balances increased 37.2 percent to $242.4 million at September 30, 2021 when compared to $176.7 million at September 30, 2020. For the three months ended September 30, 2021, OpenSky's^® secured credit card accounts decreased 7 thousand compared to 148 thousand net new accounts for the same period in 2020.

The efficiency ratio for the three months ended September 30, 2021 improved to 64.10% compared to 65.17% for the three months ended September 30, 2020 on higher levels of revenue and improved operating leverage.

Noninterest expense was $28.6 million for the three months ended September 30, 2021, as compared to $24.5 million for the three months ended September 30, 2020, an increase of $4.2 million, or 17.1 percent. The increase was primarily driven by a $2.3 million, or 28.9 percent, increase in data processing expenses, an increase in professional services of $1.2 million, or 95.4 percent, and an increase in salaries and employee benefits of $1.02 million, or 11.4 percent. The increase of $2.3 million in data processing expenses was mainly attributable to the higher volume of active credit cards during the third quarter of 2021, while the increases in professional services was primarily related to the preparatory activities for a possible expansion of credit card offerings.

Operating Results - Comparison of Nine Months Ended September 30, 2021 and 2020

For the nine months ended September 30, 2021, net interest income increased $25.7 million, or 44.0 percent, to $84.0 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 69 basis points to 5.65% for the nine months ended September 30, 2021 from the same period in 2020. Net interest margin, excluding credit card and SBA-PPP loans, was 3.57% for the nine months ended September 30, 2021 compared to 3.92% for the same period in 2020. For the nine months ended September 30, 2021, average interest earning assets increased $416.5 million, or 26.5 percent, to $2.0 billion as compared to the same period in 2020, and the average yield on interest earning assets increased 16 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $93.2 million, or 9.3 percent, while the average cost of interest-bearing liabilities decreased 75 basis points to 0.66% from 1.41%.

For the nine months ended September 30, 2021, the provision for loan losses was $2.3 million, a decrease of $6.9 million from the prior year to date period. Net charge-offs for the nine months ended September 30, 2021 were $941 thousand, or 0.09% of average portfolio loans on an annualized basis, compared to $494 thousand, or 0.05% of average portfolio loans on an annualized basis, for the same period in 2020. The $941 thousand in net charge-offs during the nine months ended September 30, 2021 was comprised of commercial loan net charge-offs of $33 thousand, construction loan net charge-offs of $161 thousand, and net charge-offs of $747 thousand in the credit card portfolio.

For the nine months ended September 30, 2021, noninterest income was $40.0 million, an increase of $5.9 million, or 17.3 percent, from the same period in 2020. The increase was primarily driven by significant growth in credit card fees, which increased by $10.5 million, which was partially offset by a decrease in mortgage banking revenues of $3.5 million.

For the nine months ended September 30, 2021, the Bank originated 272 thousand new OpenSky^® secured credit card accounts, increasing the total number of open accounts to 700 thousand. This compares to 363 thousand new originations for the same period last year, which increased total open accounts to 529 thousand.

The efficiency ratio for the nine months ended September 30, 2021 decreased to 65.78% compared to 66.14% for the nine months ended September 30, 2020, primarily resulting from increased revenue in addition to management's efforts to control expenses.

Noninterest expense was $81.6 million for the nine months ended September 30, 2021, as compared to $61.2 million for the nine months ended September 30, 2020, an increase of $20.4 million, or 33.4 percent. The increase was primarily driven by a $2.4 million, or 9.8 percent, increase in salaries and benefits, an increase in professional fees of 86.5 percent, or $2.6 million, a $11.9 million, or 67.5 percent, increase in data processing, and a $2.2 million, or 28.8 percent, increase in other operating expenses period over period. The increase of $11.9 million in data processing expenses was primarily due to the higher volume of open credit cards during the nine month period ended September 30, 2021. Additionally, operating expenses increased $2.2 million, primarily due to increases in outside service providers.

During the nine months ended September 30, 2021, results of operations were impacted by the COVID-19 pandemic and the resulting issuance of SBA-PPP loans. At September 30, 2021, SBA-PPP loans had remaining deferred origination fees of $5.2 million, and deferred costs of $0.9 million.

Financial Condition

Total assets at September 30, 2021 were $2.2 billion, an increase of 15.5 percent from September 30, 2020. Portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.4 billion as of September 30, 2021, an increase of 16.1 percent as compared to $1.2 billion at September 30, 2020.

Total deposits at September 30, 2021 were $1.9 billion, an increase of $259 million, or 15.6 percent, as compared to $1.7 billion at September 30, 2020. Noninterest bearing deposits increased by $236.9 million, or 39.7 percent, to $833.2 million at September 30, 2021 compared to the level at September 30, 2020 and comprise 91.5 percent of the total deposit growth between third quarter 2020 and third quarter 2021. Deposit balances grew year over year in certain fiduciary accounts of title and property management companies, as well as noninterest bearing SBA-PPP loan customers and OpenSky^® deposits.

The Company recorded a provision for loan losses of $2.3 million during the nine months ended September 30, 2021, which increased the allowance for loan losses to $24.8 million, or 1.56% of total loans (1.71%, excluding SBA-PPP loans, on a non-GAAP basis) at September 30, 2021. Nonperforming assets were $16.8 million, or 0.77% of total assets, as of September 30, 2021, up from $14.8 million, or 0.79% of total assets, at September 30, 2020. Of the $16.8 million in total nonperforming assets as of September 30, 2021, nonperforming loans represented $13.6 million and foreclosed real estate totaled $3.2 million. Management continues to focus on reducing the nonperforming assets as evidenced by further dispositions after September 30, 2021 totaling $3.1 million. Included in nonperforming loans at September 30, 2021 were troubled debt restructurings of $546 thousand.

Stockholders’ equity increased to $189.1 million as of September 30, 2021, compared to $149.4 million at September 30, 2020. This increase was primarily attributable to earnings during the period. As of September 30, 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 September 30,								Nine Months Ended September 30,
(in thousands)	2021				2020				2021				2020
Interest income
Loans, including fees	$	32,840			$	24,836			$	87,549			$	67,520
Investment securities available for sale	549				273				1,571				929
Federal funds sold and other	139				80				335				484
Total interest income	33,528				25,189				89,455				68,933
Interest expense
Deposits	1,285				2,634				4,874				9,201
Borrowed funds	184				516				559				1,382
Total interest expense	1,469				3,150				5,433				10,583
Net interest income	32,059				22,039				84,022				58,350
Provision for loan losses	975				3,500				2,259				9,209
Net interest income after provision for loan losses	31,084				18,539				81,763				49,141
Noninterest income
Service charges on deposits	160				119				473				378
Credit card fees	7,554				5,773				21,208				10,694
Mortgage banking revenue	4,465				10,690				17,478				20,984
Gain on sale of investment securities available for sale, net	—				—				153				—
Other fees and charges	418				895				707				2,058
Total noninterest income	12,597				17,477				40,019				34,114
Noninterest expenses
Salaries and employee benefits	9,962				8,940				27,279				24,849
Occupancy and equipment	998				1,328				3,322				3,658
Professional fees	2,555				1,307				5,542				2,971
Data processing	10,161				7,880				29,594				17,664
Advertising	1,027				633				3,153				1,875
Loan processing	644				1,264				2,670				2,451
Other real estate expenses, net	44				9				321				137
Other operating	3,236				3,089				9,718				7,548
Total noninterest expenses	28,627				24,450				81,599				61,153
Income before income taxes	15,054				11,566				40,183				22,102
Income tax expense	3,877				3,128				10,376				5,968
Net income	$	11,177			$	8,438			$	29,807			$	16,134

Consolidated Balance Sheets

(in thousands except share data)	(unaudited) September 30, 2021				December 31, 2020
Assets
Cash and due from banks	$	23,650			$	18,456
Interest bearing deposits at other financial institutions	299,033				126,081
Federal funds sold	1,315				2,373
Total cash and cash equivalents	323,998				146,910
Investment securities available for sale	189,165				99,787
Marketable equity securities	245				245
Restricted investments	3,498				3,713
Loans held for sale	36,005				107,154
U.S. Small Business Administration Payroll Protection Program ("SBA-PPP") loans receivable, net of fees	137,178				201,018
Portfolio loans receivable, net of deferred fees and costs and net of allowance for loan losses of $24,753 and $23,434	1,420,373				1,292,068
Premises and equipment, net	3,690				4,464
Accrued interest receivable	7,828				8,134
Deferred income taxes, net	7,172				6,818
Other real estate owned	3,236				3,326
Bank owned life insurance	35,268				—
Other assets	1,900				2,956
Total assets	$	2,169,556			$	1,876,593
Liabilities
Deposits
Noninterest bearing	$	833,187			$	608,559
Interest bearing	1,088,051				1,043,569
Total deposits	1,921,238				1,652,128
Federal Home Loan Bank advances	22,000				22,000
Other borrowed funds	12,062				14,016
Accrued interest payable	839				1,134
Other liabilities	24,337				28,004
Total liabilities	1,980,476				1,717,282
Stockholders' equity
Common stock, $.01 par value; 49,000,000 shares authorized; 13,801,936 and 13,753,529 issued and outstanding	138				138
Additional paid-in capital	52,123				50,602
Retained earnings	135,906				106,854
Accumulated other comprehensive income	913				1,717
Total stockholders' equity	189,080				159,311
Total liabilities and stockholders' equity	$	2,169,556			$	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 September 30,
	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	$	250,326			$	98			0.15	%		$	119,279			$	29			0.10	%
Federal funds sold	2,421				—				0.00			3,980				—				0.01
Investment securities available for sale	171,506				549				1.27			54,989				273				1.97
Restricted stock	3,480				41				4.64			4,007				51				5.04
Loans held for sale	32,660				248				3.02			112,890				856				3.02
SBA-PPP loans receivable	162,217				1,525				3.73			235,160				1,470				2.49
Portfolio loans receivable(2)	1,404,006				31,067				8.78			1,218,589				22,510				7.35
Total interest earning assets	2,026,616				33,528				6.55			1,748,894				25,189				5.73
Noninterest earning assets	58,156											22,768
Total assets	$	2,084,772										$	1,771,662
Liabilities and Stockholders’ Equity
Interest bearing liabilities:
Interest bearing demand accounts	$	301,272			45				0.06			$	218,415			156				0.28
Savings	7,025				1				0.05			5,126				1				0.05
Money market accounts	495,534				335				0.27			532,973				1,186				0.89
Time deposits	250,836				904				1.43			267,970				1,291				1.92
Borrowed funds	36,384				184				2.01			41,069				516				5.01
Total interest bearing liabilities	1,091,051				1,469				0.53			1,065,553				3,150				1.18
Noninterest bearing liabilities:
Noninterest bearing liabilities	21,138											22,702
Noninterest bearing deposits	786,784											539,220
Stockholders’ equity	185,799											144,187
Total liabilities and stockholders’ equity	$	2,084,772										$	1,771,662
Net interest spread									6.02	%										4.55	%
Net interest income					$	32,059										$	22,039
Net interest margin(3)									6.27	%										5.01	%

____________________
(1)	Annualized.
(2)	Includes nonaccrual loans.
(3)	For the three months ended September 30, 2021 and September 30, 2020, collectively, SBA-PPP loans and credit card loans accounted for 275 and 117 basis points of the reported net interest margin, respectively.

	Nine Months Ended September 30,
	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	$	238,648			$	211			0.12	%		$	98,661			$	306			0.41	%
Federal funds sold	3,121				—				0.00			2,319				4				0.22
Investment securities available for sale	139,643				1,571				1.50			58,071				929				2.14
Restricted stock	3,620				124				4.59			4,025				174				5.78
Loans held for sale	49,775				1,043				2.80			77,878				1,909				3.27
SBA-PPP loans receivable	215,524				6,266				3.89			134,130				2,482				2.49
Portfolio loans receivable(2)	1,339,010				80,240				8.01			1,197,719				63,129				7.04
Total interest earning assets	1,989,341				89,455				6.01			1,572,803				68,933				5.85
Noninterest earning assets	36,245											21,779
Total assets	$	2,025,586										$	1,594,582
Liabilities and Stockholders’ Equity
Interest bearing liabilities:
Interest bearing demand accounts	$	280,305			163				0.08			$	181,597			555				0.41
Savings	6,435				2				0.05			4,686				4				0.13
Money market accounts	475,875				1,217				0.34			484,412				4,153				1.15
Time deposits	295,705				3,492				1.58			284,844				4,489				2.11
Borrowed funds	34,265				559				2.18			43,823				1,382				4.21
Total interest bearing liabilities	1,092,585				5,433				0.66			999,362				10,583				1.41
Noninterest bearing liabilities:
Noninterest bearing liabilities	23,327											21,401
Noninterest bearing deposits	735,509											433,381
Stockholders’ equity	174,165											140,438
Total liabilities and stockholders’ equity	$	2,025,586										$	1,594,582
Net interest spread									5.35	%										4.44	%
Net interest income					$	84,022										$	58,350
Net interest margin(3)									5.65	%										4.96	%

____________________
(1)	Annualized.
(2)	Includes nonaccrual loans.
(3)	For the nine months ended September 30, 2021 and September 30, 2020, collectively, SBA-PPP loans and credit card loans accounted for 208 and 104 basis points of the reported net interest margin, respectively.

HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited

	Quarter Ended
(Dollars in thousands except per share data)	September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Earnings:
Net income	$	11,177			$	9,648			$	8,982			$	9,689			$	8,438
Earnings per common share, diluted	0.79				0.68				0.65				0.71				0.61
Net interest margin	6.27		%		5.47		%		5.15		%		5.57		%		5.01		%
Net interest margin, excluding credit cards & SBA-PPP loans (1)	3.52		%		3.55		%		3.70		%		3.80		%		3.84		%
Return on average assets(2)	2.13		%		1.90		%		1.87		%		2.08		%		1.89		%
Return on average assets, excluding impact of SBA-PPP loans (1)(2)	1.99		%		1.65		%		1.60		%		1.88		%		1.80		%
Return on average equity(2)	23.87		%		22.36		%		22.30		%		25.26		%		23.28		%
Efficiency ratio	64.10		%		66.37		%		67.11		%		66.63		%		65.17		%
Balance Sheet:
Portfolio loans receivable (3)	$	1,445,126			$	1,392,471			$	1,312,375			$	1,315,503			$	1,244,613
Deposits	1,921,238				1,917,419				1,863,069				1,652,128				1,662,211
Total assets	2,169,556				2,151,850				2,091,851				1,876,593				1,879,029
Asset Quality Ratios:
Nonperforming assets to total assets	0.77		%		0.54		%		0.58		%		0.67		%		0.79		%
Nonperforming assets to total assets, excluding the SBA-PPP loans (1)	0.83		%		0.60		%		0.66		%		0.75		%		0.90		%
Nonperforming loans to total loans	0.85		%		0.52		%		0.56		%		0.61		%		0.78		%
Nonperforming loans to portfolio loans (1)	0.94		%		0.60		%		0.67		%		0.70		%		0.92		%
Net charge-offs to average portfolio loans (1)(2)	0.14		%		0.10		%		0.12		%		0.19		%		0.06		%
Allowance for loan losses to total loans	1.56		%		1.51		%		1.49		%		1.54		%		1.49		%
Allowance for loan losses to portfolio loans (1)	1.71		%		1.73		%		1.79		%		1.78		%		1.77		%
Allowance for loan losses to non-performing loans	182.48		%		287.40		%		267.07		%		253.71		%		191.78		%
Bank Capital Ratios:
Total risk based capital ratio	13.86		%		13.51		%		13.55		%		12.60		%		12.74		%
Tier 1 risk based capital ratio	12.60		%		12.25		%		12.29		%		11.34		%		11.48		%
Leverage ratio	7.83		%		7.58		%		7.54		%		7.45		%		7.44		%
Common equity Tier 1 capital ratio	12.60		%		12.25		%		12.29		%		11.34		%		11.48		%
Tangible common equity	7.57		%		7.17		%		7.01		%		7.43		%		7.09		%
Holding Company Capital Ratios:
Total risk based capital ratio	15.75		%		16.14		%		16.07		%		15.19		%		15.35		%
Tier 1 risk based capital ratio	14.49		%		14.10		%		13.98		%		13.10		%		12.93		%
Leverage ratio	9.12		%		8.78		%		8.84		%		8.78		%		8.63		%
Common equity Tier 1 capital ratio	14.34		%		13.94		%		13.81		%		12.94		%		12.75		%
Tangible common equity	8.72		%		8.23		%		7.98		%		8.48		%		7.95		%
Composition of Loans:
Residential real estate	$	418,205			$	420,015			$	420,461			$	437,860			$	422,698
Commercial real estate	502,523				471,807				433,336				392,550				372,972
Construction real estate	251,256				223,832				221,277				224,904				227,661
Commercial and industrial - Other	143,244				158,392				149,914				157,127				134,889
SBA-PPP loans	141,437				208,094				272,090				204,920				238,736
Credit card	134,979				121,410				83,740				102,186				83,101
Other consumer loans	1,425				1,034				4,487				1,649				2,268
Composition of Deposits:
Noninterest bearing	$	833,187			$	828,308			$	771,924			$	608,559			$	596,239
Interest bearing demand	369,812				314,883				300,992				257,126				247,150
Savings	6,682				6,965				6,012				4,800				4,941
Money Markets	493,029				484,567				471,303				447,077				472,447
Time Deposits	218,528				282,696				312,838				334,566				341,435
Capital Bank Home Loan Metrics:
Origination of loans held for sale	$	217,175			$	265,517			$	353,774			$	382,267			$	431,060
Mortgage loans sold	229,111				278,384				400,112				412,830				410,312
Gain on sale of loans	6,108				7,763				12,008				12,950				12,837
Purchase volume as a % of originations	50.98		%		50.64		%		24.59		%		30.03		%		33.76		%
Gain on sale as a % of loans sold(4)	2.67		%		2.79		%		3.00		%		3.14		%		3.13		%
Mortgage commissions	$	1,884			$	2,364			$	3,320			$	3,405			$	3,669
OpenSky® Portfolio Metrics:
Active customer accounts	700,383				707,600				642,272				568,373				529,114
Credit card loans, net	$	134,979			$	121,410			$	83,740			$	102,186			$	83,101
Noninterest secured credit card deposits	242,405				241,724				215,883				192,520				176,708

____________________
(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 mortgage loans sold.

Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as Adjusted	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Net Income	$	11,177		$	9,648		$	8,982		$	9,689		$	8,438
Less: SBA-PPP loan income	1,525			2,272			2,205			1,998			1,470
Net Income, as Adjusted	$	9,652		$	7,376		$	6,777		$	7,691		$	6,968
Average Total Assets	2,084,772			2,041,232			1,949,265			1,854,846			1,771,662
Less: Average SBA-PPP Loans	162,217			250,040			232,371			227,617			238,071
Average Total Assets, as Adjusted	$	1,922,555		$	1,791,192		$	1,716,894		$	1,627,229		$	1,533,591
Return on Average Assets, as Adjusted	1.99		%	1.65		%	1.60		%	1.88		%	1.81		%

Net Interest Margin, as Adjusted	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Net Interest Income	$	32,059		$	27,520		$	24,444		$	25,719		$	22,039
Less Secured credit card loan income	15,086			10,497			7,660			9,306			6,632
Less SBA-PPP loan income	1,525			2,272			2,205			1,998			1,470
Net Interest Income, as Adjusted	$	15,448		$	14,751		$	14,579		$	14,415		$	13,937
Average Interest Earning Assets	2,026,616			2,016,801			1,923,463			1,836,337			1,748,894
Less Average secured credit card loans	124,771			100,456			93,520			95,739			68,585
Less Average SBA-PPP loans	162,217			250,040			232,371			227,617			235,160
Total Average Interest Earning Assets, as Adjusted	$	1,739,628		$	1,666,305		$	1,597,572		$	1,512,981		$	1,445,149
Net Interest Margin, as Adjusted	3.52		%	3.55		%	3.70		%	3.80		%	3.84		%

Tangible Book Value per Share	Quarters Ended
Dollars in thousands, except per share amounts	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total Stockholders' Equity	$	189,080		$	177,204		$	167,003		$	159,311		$	149,377
Less: Preferred equity	—			—			—			—			—
Less: Intangible assets	—			—			—			—			—
Tangible Common Equity	$	189,080		$	177,204		$	167,003		$	159,311		$	149,377
Period End Shares Outstanding	13,801,936			13,771,615			13,759,218			13,753,529			13,682,198
Tangible Book Value per Share	$	13.70		$	12.87		$	12.14		$	11.58		$	10.92

Allowance for Loan Losses to Total Portfolio Loans	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Allowance for Loan Losses	$	24,753		$	24,079		$	23,550		$	23,434		$	22,016
Total Loans	1,582,304			1,595,234			1,578,087			1,516,520			1,477,962
Less: SBA-PPP loans	137,178			202,763			265,712			201,018			233,349
Total Portfolio Loans	$	1,445,126		$	1,392,471		$	1,312,375		$	1,315,502		$	1,244,613
Allowance for Loan Losses to Total Portfolio Loans	1.71		%	1.73		%	1.79		%	1.78		%	1.77		%

Nonperforming Assets to Total Assets, net SBA-PPP Loans	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total Nonperforming Assets	$	16,801		$	11,615		$	12,112		$	12,563		$	14,806
Total Assets	2,169,556			2,151,850			2,091,851			1,876,593			1,879,029
Less: SBA-PPP loans	137,178			202,763			265,712			201,018			233,349
Total Assets, net SBA-PPP Loans	$	2,032,378		$	1,949,087		$	1,826,139		$	1,675,575		$	1,645,680
Nonperforming Assets to Total Assets, net SBA-PPP Loans	0.83		%	0.60		%	0.66		%	0.75		%	0.90		%

Nonperforming Loans to Portfolio Loans	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total Nonperforming Loans	$	13,565		$	8,378		$	8,818		$	9,237		$	11,480
Total Loans	1,582,304			1,595,234			1,578,087			1,516,520			1,477,962
Less: SBA-PPP loans	137,178			202,763			265,712			201,018			233,349
Total Portfolio Loans	$	1,445,126		$	1,392,471		$	1,312,375		$	1,315,502		$	1,244,613
Nonperforming Loans to Total Portfolio Loans	0.94		%	0.60		%	0.67		%	0.70		%	0.92		%

Net Charge-offs to Average Portfolio Loans	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total Net Charge-offs	$	301		$	640		$	388		$	615		$	163
Total Average Loans	1,569,198			1,567,973			1,532,093			1,494,278			1,477,962
Less: Average SBA-PPP loans	162,217			250,040			232,371			227,617			233,349
Total Average Portfolio Loans	$	1,406,981		$	1,317,933		$	1,299,722		$	1,266,661		$	1,244,613
Net Charge-offs to Average Portfolio Loans	0.08		%	0.19		%	0.12		%	0.19		%	0.05		%

Pre-tax, Pre-Provision Net Revenue ("PPNR")	Quarters Ended
Dollars in thousands	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Net income	$	11,177		$	9,648		$	8,982		$	9,689		$	8,438
Add: Income Tax Expense	3,877			3,357			3,143			3,347			3,128
Add: Provision for Loan Losses	975			781			503			2,033			3,500
Pre-tax, Pre-Provision Net Revenue ("PPNR")	$	16,029		$	13,786		$	12,628		$	15,069		$	15,066

ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the fifth largest bank headquartered in Maryland at September 30, 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 $2.2 billion at September 30, 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 the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

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

FINANCIAL CONTACT: Alan Jackson (240) 283-0402

MEDIA CONTACT: Ed Barry (240) 283-1912

WEB SITE: www.CapitalBankMD.com

FAQ

What were Capital Bancorp's net income results for 3Q 2021?

Capital Bancorp reported a net income of $11.2 million, or $0.79 per diluted share for 3Q 2021.

How did Capital Bancorp's loan portfolio perform in 3Q 2021?

The loan portfolio increased by 16.1% year-over-year, driven by strong growth in the Commercial Bank and OpenSky®.

What was the net interest margin for Capital Bancorp in 3Q 2021?

The net interest margin for Capital Bancorp was 6.27% for 3Q 2021, reflecting an improvement of 126 basis points year-over-year.

What challenges did Capital Bancorp face in mortgage banking during 3Q 2021?

Mortgage origination volumes declined by 49.6% in 3Q 2021 compared to the same quarter in 2020, impacting revenue from this segment.