Capital Bancorp, Inc. Continued Deposit and Loan Growth Leads to Strong Net Interest Margin, Declares Quarterly Dividend of $0.08

Source: Nasdaq GlobeNewswire / 27 Jul 2023 18:00:18 America/New_York

ROCKVILLE, Md., July 27, 2023 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $7.3 million, or $0.52 per diluted share, for the second quarter 2023, compared to net income of $9.7 million, or $0.68 per diluted share, for the first quarter 2023 and $11.5 million, or $0.80 per diluted share, for the second quarter 2022. Total average deposits increased $110.4 million, or 25.0% annualized, the average loan portfolio grew $50.3 million and the net interest margin of 6.63% for the second quarter 2023 remained stable when compared to 6.65% for the first quarter 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans) of 4.06% for the second quarter 2023 grew on the back of steady loan and deposit growth, excluding brokered time deposits, when compared to adjusted net interest margin of 3.81% for the first quarter 2023.

The Company also declared a cash dividend on its common stock of $0.08 per share. The dividend is payable on August 23, 2023 to shareholders of record on August 7, 2023. The dividend declared of $0.08 is $0.02, or 33.3% higher than the prior quarter dividend.

"We saw a significant number of positive signs in our performance this quarter and are making investments in our future,” said Ed Barry, Chief Executive Officer of the Company and the Bank. “Core deposit growth remains a priority and we continue to see traction on building our franchise and in particular our noninterest-bearing deposits. Net interest margin was stable with adjusted net interest margin increasing as we continued to price loans based on the marginal cost of deposits to generate attractive spreads. OpenSky® open customer accounts increased, with growth in corresponding loan and deposit balances, as initiatives began to deliver. Credit remained stable and we maintain a well positioned balance sheet with a strong capital base in the current environment."

“Despite some of the year-over-year declines, the Board is pleased with Capital Bank’s performance during the quarter.” said Steven J. Schwartz, Chairman of the Company. “Our continued solid increases in tangible book value, average non-interest-bearing deposits, loans, and cardholders are a direct result of the Bank’s smart growth strategy. We are also pleased with the results of our continuing focus on maintaining outstanding capital and liquidity metrics, as reflected in our quarter-end numbers. Declines in EPS and ROE resulted primarily from a decision to invest more heavily in our credit card franchise, loan and deposit growth personnel and branding, as well as the industry-wide migration of our deposit book to more expensive products. We are gratified nonetheless that our net interest margin remains largely unaffected, and we believe the Bank continues to be well positioned for any macroeconomic challenges that may lie ahead.”

Second Quarter 2023 Highlights

Capital Bancorp, Inc.

Earnings Summary - Net income of $7.3 million, or $0.52 per diluted share, decreased $2.4 million compared to $9.7 million, or $0.68 per diluted share, for the first quarter 2023.

Net interest income of $35.3 million increased $0.9 million compared to $34.5 million for the first quarter 2023. Interest income of $45.1 million increased $1.7 million compared to $43.4 million for the first quarter 2023 driven by loan growth, as average portfolio loans increased $50.3 million compared to the first quarter 2023 in tandem with slightly higher rates in the second quarter 2023. Interest expense of $9.7 million increased $0.8 million compared to $8.9 million for the first quarter 2023 driven by an increase in the cost of funds. Interest expense from interest-bearing deposits increased $1.7 million, as average interest-bearing deposits increased $88.0 million while interest expense from borrowed funds decreased $0.8 million, as average borrowed funds decreased $75.2 million from the first quarter 2023.
The provision for credit losses was $2.9 million, an increase of $1.2 million from the first quarter 2023 driven by moderate changes to the economic forecast and loan growth.
Noninterest income of $6.7 million increased $0.7 million compared to $6.0 million for the first quarter of 2023. Credit card fees increased $0.5 million as the number of open customer accounts increased quarter over quarter, which resulted in higher interchange and other income.
Noninterest expense of $29.6 million increased $3.4 million compared to $26.2 million for the first quarter 2023. Within this category, significant variances included the following:
- Advertising expense of $2.6 million increased $2.1 million due to marketing efforts related to OpenSky^® customer acquisition.
- Other operating expenses of $3.4 million increased $0.8 million including $0.2 million related to outside service provider expense, $0.2 million related to FDIC assessment expense, with the remainder among other categories.
- Occupancy and equipment expense of $1.5 million increased $0.3 million related to software licensing expenses.
- Loan processing expense of $0.7 million increased $0.3 million in line with the growth in the loan portfolio.
- Professional fees of $2.6 million increased $0.2 million, attributable primarily to increases in third party consulting and legal fees.
- Salaries and employee benefits of $12.1 million decreased $0.4 million reflecting a seasonal increase in payroll taxes and benefit expense in the first quarter 2023.

Balance Sheet – Total assets of $2.2 billion at June 30, 2023 decreased $17.4 million, or 0.8%, from March 31, 2023.

Cash and cash equivalents decreased $21.0 million.
Net portfolio loans of $1.8 billion increased $50.9 million, representing 11.4% annualized growth.
Total deposits of $1.9 billion at June 30, 2023 decreased $10.0 million, or 0.5%, from March 31, 2023, while total average deposits increased $110.4 million, or 25.0% annualized, quarter over quarter. Federal Home Loan Bank advances decreased $10.0 million, or 31.3%, from March 31, 2023.
The investment securities portfolio continues to be classified as available for sale and had a fair market value of $208.5 million, or 9.4% of total assets, at June 30, 2023. The amortized cost of the investment securities portfolio was $229.9 million, with an effective duration of 3.48 years. U.S. Treasury securities represent 74.6% of the overall investment portfolio. Investment securities available for sale decreased $47.3 million, primarily due to $44.0 million of maturing U.S. Treasuries in the second quarter 2023. The accumulated other comprehensive loss ("AOCI Loss") on the investment securities portfolio increased $2.1 million during the quarter to $16.1 million as of June 30, 2023, which represents 6.8% of total stockholders' equity. The Company does not have a held to maturity ("HTM") investment securities portfolio.

Performance and Efficiency Ratios – Annualized return on average assets ("ROAA") and annualized return on average equity ("ROAE") were 1.34% and 12.30%, respectively, for the three months ended June 30, 2023, compared to 1.84% and 16.98%, respectively, for the three months ended March 31, 2023.

The efficiency ratio was 70.4% for the three months ended June 30, 2023, compared to 64.7% for the three months ended March 31, 2023. The change was primarily attributable to an increase in noninterest expense.

Stable Net Interest Margin - Net interest margin was 6.63% for the three months ended June 30, 2023, compared to 6.65% for the three months ended March 31, 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans), of 4.06%, increased 25 basis points compared to 3.81% for the three months ended March 31, 2023.

The average yield on interest earning assets increased 9 basis points compared to the first quarter 2023. The average yield on investment securities available for sale decreased 4 basis points to 1.99%, and the average yield on portfolio loans increased 1 basis point.
The average rate on interest-bearing liabilities increased 20 basis points compared to the first quarter 2023. Increases in average rates include money market accounts increasing 39 basis points to 3.47% and time deposits increasing 37 basis points to 4.30%, while average balances increased $20.7 million and $47.0 million, respectively, compared to the first quarter 2023. The average rate on borrowed funds decreased 95 basis points to 3.07%, while average balances decreased $75.2 million compared to the first quarter 2023.

Deposits and Cost of Funds - Total deposits at June 30, 2023 decreased by $10.0 million, or 0.5%, compared to March 31, 2023.

Total brokered time deposits of $128.7 million decreased $53.2 million, or 29.2%, compared to March 31, 2023. Excluding the decline in brokered time deposits during the quarter, total deposits increased $43.1 million, or 9.8% annualized.
Average noninterest-bearing deposits increased 3.4% compared to March 31, 2023, and represented 36.0% of total average deposits at June 30, 2023.
The elevated interest rate environment has driven up the cost of interest-bearing liabilities to 3.13% for the quarter ended June 30, 2023, compared to 2.93% for the first quarter 2023.

Robust Capital Positions - As of June 30, 2023, the Company reported a common equity tier 1 capital ratio of 14.96%, compared to 14.90% at March 31, 2023, and an allowance for credit losses to total loans ratio of 1.50%, compared to an allowance for credit losses to total loans ratio of 1.47% as March 31, 2023. Shares repurchased and retired during the three months ended June 30, 2023, as part of the Company's stock repurchase program totaled 138,407 shares at an average price of $16.72, for a total cost of $2.3 million including commissions. Tangible book value per common share grew 2.0% to $16.98 at June 30, 2023 when compared to March 31, 2023.

Liquidity - Total sources of available borrowings at June 30, 2023 totaled $665.8 million, including available collateralized lines of credit of $531.4 million, unsecured lines of credit with other banks of $76.0 million and unpledged investment securities available as collateral for potential additional borrowings of $58.5 million.

Commercial Bank

Continued Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $41.2 million, or 10.1% annualized, to $1.7 billion, gross, at June 30, 2023 compared to March 31, 2023. The increase in portfolio loans included $13.9 million from commercial real estate, $12.3 million from commercial and industrial, $9.3 million from residential real estate and $6.9 million from construction real estate.

Credit Metrics - Nonperforming assets ("NPAs") decreased 2 basis points to 0.71% of total assets at June 30, 2023 compared to 0.73% at March 31, 2023 as a result of a decrease in nonaccrual loans at June 30, 2023 to $15.7 million compared to $16.3 million at March 31, 2023. Included in nonperforming assets is a single $8.2 million, well-collateralized multi-unit residential real estate loan that was downgraded in the first quarter of 2023. At June 30, 2023 commercial real estate loans with office space exposure totaled $55.8 million, or 3.0% of total portfolio loans.

OpenSky^®

Revenues - Total revenue of $19.9 million decreased $0.5 million from the first quarter 2023. Interest income of $15.2 million decreased $1.0 million from the first quarter 2023 as income from late charges decreased $0.7 million. Noninterest income of $4.7 million increased $0.5 million due to credit card fees as compared to the first quarter 2023.

Noninterest Expense - Total noninterest expense of $12.1 million increased $2.6 million from the first quarter 2023 due to marketing expense of $2.3 million related to the Company’s strategy for OpenSky^®customer acquisition. During the second quarter 2023, the number of OpenSky^®credit card accounts increased by 12,827 to 540,058.

Loan Balances - OpenSky^®loan balances, net of reserves, of $122.9 million increased by $10.1 million, or 8.9% compared to the first quarter 2023. Corresponding deposit balances of $186.6 million increased $1.8 million, or 1.0%, compared to the first quarter 2023. Gross unsecured loan balances stood at $25.3 million at June 30, 2023 and $25.8 million at March 31, 2023.

OpenSky^®Credit - Card delinquencies and utilization remained stable in the second quarter 2023 when compared to the first quarter 2023. The provision for credit losses increased $0.3 million compared to the first quarter 2023, driven primarily by higher loan balances.

2023 Highlights

Capital Bancorp

Earnings Summary - Net income of $17.1 million, or $1.20 per diluted share for the six months ended June 30, 2023 decreased $4.7 million compared to $21.7 million, or $1.52 per diluted share for the six months ended June 30, 2022.

Improved interest income was offset by increased deposit costs that were a result of the rising interest rate environment and a shift within the portfolio from noninterest-bearing to interest-bearing deposits and increased time deposits and FHLB balances. Further, SBA-PPP income totaled $3.2 million for the six months ended June 30, 2022 with no comparable amount in 2023. A decline in card fees of $3.2 million resulted in lower total noninterest income of $12.7 million for the six months ended June 30, 2023, as compared to $16.7 million for the same period in 2022.

Balance Sheet Growth - Total assets of $2.2 billion at June 30, 2023 increased $73.0 million, or 3.4%, from June 30, 2022. Net portfolio loans increased $229.4 million, or 14.3% partially offset by a $131.5 million reduction in cash and cash equivalents. Total deposits of $1.9 billion at June 30, 2023 increased $45.4 million, or 2.4%, from June 30, 2022.

Performance and Efficiency Ratios - Annualized ROAA and ROAE were 1.59% and 14.60%, respectively, for the six months ended June 30, 2023 compared to 2.12% and 21.25%, respectively, for the six months ended June 30, 2022.

The efficiency ratio was 67.60% for the six months ended June 30, 2023, compared to 63.52% for the six months ended June 30, 2022.

Net Interest Margin - Net interest margin was 6.64%, or 3.94% excluding credit card and SBA-PPP loans, for the six months ended June 30, 2023, compared to 6.93%, or 3.84% excluding credit card and SBA-PPP loans, for the six months ended June 30, 2022. The lower margin is a result of a 260 basis point increase in the cost of interest-bearing liabilities despite a 127 basis point increase in yield for portfolio loans as the average balances of portfolio loans increased $256.0 million.

Robust Capital Positions - As of June 30, 2023, the Company reported a common equity tier 1 capital ratio of 14.96%, compared to 15.55% at June 30, 2022, and an allowance for loan losses to total loans ratio of 1.50%, compared to 1.64% in 2022. Tangible book value per common share grew 14.7% to $16.98 at June 30, 2023 as compared to $14.80 at June 30, 2022.

Commercial Bank

Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $226.2 million, or 15.7% to $1.7 billion, gross, at June 30, 2023 compared to June 30, 2022. The increase in portfolio loans included $123.0 million from residential real estate, $65.3 million from commercial real estate and $40.3 million from commercial and industrial.

OpenSky^®

Revenues - Total revenue of $40.2 million for the six months ended June 30, 2023, decreased $3.6 million as compared to the six months ended June 30, 2022. Interest income of $31.3 million in 2023 decreased $0.4 million compared to 2022 while noninterest income of $8.9 million decreased $3.2 million due primarily to a decrease in credit card fees resulting from a lower number of open customer accounts and balances.

Noninterest Expense - Total noninterest expense of $21.5 million for the six months ended June 30, 2023, decreased $3.3 million as compared to the six months ended June 30, 2022 including decreases in data processing expense of $2.4 million and outside service provider expense of $1.0 million.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited

	Quarter Ended									2Q23 vs 1Q23					2Q23 vs 2Q22
^{(in thousands except per share data)}	June 30, 2023			March 31, 2023			June 30, 2022			$ Change			% Change		$ Change			% Change
Earnings Summary
Interest income	$	45,080		$	43,416		$	36,556		$	1,664		3.8	%	$	8,524		23.3	%
Interest expense		9,740			8,929			1,156			811		9.1	%		8,584		742.6	%
Net interest income		35,340			34,487			35,400			853		2.5	%		(60	)	(0.2	)%
Provision for credit losses		2,862			1,660			2,035			1,202		72.4	%		827		40.6	%
Noninterest income		6,687			6,026			8,362			661		11.0	%		(1,675	)	(20.0	)%
Noninterest expense		29,592			26,203			27,130			3,389		12.9	%		2,462		9.1	%
Income before income taxes		9,573			12,650			14,597			(3,077	)	(24.3	)%		(5,024	)	(34.4	)%
Income tax expense		2,255			2,915			3,089			(660	)	(22.6	)%		(834	)	(27.0	)%
Net income	$	7,318		$	9,735		$	11,508		$	(2,417	)	(24.8	)%	$	(4,190	)	(36.4	)%

Pre-tax pre-provision net revenue ("PPNR") ⁽¹⁾	$	12,435		$	14,310		$	16,632		$	(1,875	)	(13.1	)%	$	(4,197	)	(25.2	)%
Weighted average common shares - Basic		14,025			14,159			14,007			(134	)	(0.9	)%		18		0.1	%
Weighted average common shares - Diluted		14,059			14,272			14,313			(213	)	(1.5	)%		(254	)	(1.8	)%
Earnings per share - Basic	$	0.52		$	0.69		$	0.82		$	(0.17	)	(24.6	)%	$	(0.30	)	(36.6	)%
Earnings per share - Diluted	$	0.52		$	0.68		$	0.80		$	(0.16	)	(23.5	)%	$	(0.28	)	(35.0	)%
Return on average assets (annualized)		1.34	%		1.84	%		2.23	%	(0.50		)%	(27.2	)%	(0.89		)%	(39.9	)%
Return on average assets, excluding impact of SBA-PPP loans (annualized)⁽¹⁾		1.34	%		1.84	%		2.04	%	(0.50		)%	(27.2	)%	(0.70		)%	(34.3	)%
Return on average equity (annualized)		12.30	%		16.98	%		22.16	%	(4.68		)%	(27.6	)%	(9.86		)%	(44.5	)%

	Six Months Ended
	June 30,
^{(in thousands except per share data)}		2023			2022		$ Change			% Change
Earnings Summary
Interest income	$	88,496		$	70,957		$	17,539		24.7	%
Interest expense		18,669			2,226			16,443		738.7	%
Net interest income		69,827			68,731			1,096		1.6	%
Provision for credit losses		4,522			2,987			1,535		51.4	%
Noninterest income		12,713			16,650			(3,937	)	(23.6	)%
Noninterest expense		55,795			54,232			1,563		2.9	%
Income before income taxes		22,223			28,162			(5,939	)	(21.1	)%
Income tax expense		5,170			6,443			(1,273	)	(19.8	)%
Net income	$	17,053		$	21,719		$	(4,666	)	(21.5	)%

Pre-tax pre-provision net revenue ("PPNR") ⁽¹⁾	$	26,745		$	31,149		$	(4,404	)	(14.1	)%
Weighted average common shares - Basic		14,092			13,998			94		0.7	%
Weighted average common shares - Diluted		14,210			14,323			(113	)	(0.8	)%
Earnings per share - Basic	$	1.21		$	1.55		$	(0.34	)	(21.9	)%
Earnings per share - Diluted	$	1.20		$	1.52		$	(0.32	)	(21.1	)%
Return on average assets (annualized)		1.59	%		2.12	%	(0.53		)%	(25.0	)%
Return on average assets, excluding impact of SBA-PPP loans (annualized)⁽¹⁾		1.59	%		1.86	%	(0.27		)%	(14.5	)%
Return on average equity (annualized)		14.60	%		21.25	%	(6.65		)%	(31.3	)%

	Quarter Ended						Quarter Ended
	June 30,						March 31,		December 31,		September 30,
^{(in thousands except per share data)}		2023		2022	% Change			2023		2022		2022
Balance Sheet Highlights
Assets	$	2,227,866	$	2,154,846	3.4	%	$	2,245,286	$	2,123,655	$	2,009,358
Investment securities available for sale		208,464		226,509	(8.0	)%		255,762		252,481		269,620
Mortgage loans held for sale		10,146		11,708	(13.3	)%		9,620		7,416		6,875
SBA-PPP loans, net of fees		1,090		15,864	(93.1	)%		2,037		2,163		2,662
Portfolio loans receivable ⁽²⁾		1,837,041		1,607,677	14.3	%		1,786,109		1,728,592		1,648,001
Allowance for credit losses		27,495		26,419	4.1	%		26,216		26,385		26,091
Deposits		1,934,361		1,888,920	2.4	%		1,944,374		1,758,072		1,737,591
FHLB borrowings		22,000		22,000	—	%		32,000		107,000		22,000
Other borrowed funds		12,062		12,062	—	%		12,062		12,062		12,062
Total stockholders' equity		237,435		207,316	14.5	%		234,517		224,015		214,005
Tangible common equity ⁽¹⁾		237,435		207,316	14.5	%		234,517		224,015		214,005

Common shares outstanding		13,981		14,010	(0.2	)%		14,083		14,139		14,039
Tangible book value per share⁽¹⁾	$	16.98	$	14.80	14.7	%	$	16.65	$	15.84	$	15.24

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

Operating Results - Comparison of Three Months Ended June 30, 2023 and 2022

For the three months ended June 30, 2023, net interest income of $35.3 million decreased slightly from $35.4 million in the same period in 2022, primarily due to significant increases in the cost of funding partially offset by increased average balances of $268.1 million in portfolio loans combined with a 64 basis point increase in yield for portfolio loans. The net interest margin decreased 43 basis points to 6.63% for the three months ended June 30, 2023, from the same period in 2022 as the increase in the costs of deposits, including money market accounts and time deposits, outpaced the increase in portfolio loan yields, including credit cards. Further SBA-PPP income totaled $1.1 million for the three months ended June 30, 2022 with no comparable amount in 2023. Net interest margin, excluding credit card and SBA-PPP loans, increased to 4.06% for the three months ended June 30, 2023, compared to 3.86% for the same period in 2022.

For the three months ended June 30, 2023, average interest earning assets increased $125.0 million, or 6.2%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 117 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $218.5 million, or 21.2%, and the average cost of interest-bearing liabilities increased to 3.13%, a 268 basis point increase from 0.45%.

For the three months ended June 30, 2023, the provision for credit losses was $2.9 million, an increase of $0.8 million from the same period in 2022. Contributors to the increase in the provision were loan portfolio growth and change in credit card mix from fully secured to partially or fully unsecured. Net charge-offs for the three months ended June 30, 2023, were $1.6 million, or 0.35% on an annualized basis of average portfolio loans, compared to $0.9 million, or 0.23% on an annualized basis of average loans for the same period in 2022. Of the $1.6 million in net charge-offs during the quarter, $1.5 million related to secured and partially secured cards in the credit card portfolio and $0.1 million related to unsecured cards.

For the three months ended June 30, 2023, noninterest income of $6.7 million decreased $1.7 million, or 20.0%, from the same period in 2022. Credit card fees declined by $1.5 million as the number of open customer accounts declined year over year, which resulted in lower interchange and other fee income compared to the prior year quarter.

Credit card loan balances, net of reserves, decreased by $19.2 million to $122.9 million as of June 30, 2023, from $142.2 million at June 30, 2022. The related deposit account balances decreased 12.9% to $186.6 million at June 30, 2023 when compared to $214.1 million at June 30, 2022 reflecting the reduction in the number of open customer accounts year over year.

The efficiency ratio for the three months ended June 30, 2023, was 70.41% compared to 62.00% for the three months ended June 30, 2022. The change was due primarily to a decline in noninterest income from credit card fees and an increase in noninterest expense from salaries and employee benefits.

For the three months ended June 30, 2023, noninterest expense of $29.6 million increased $2.5 million, or 9.1%, from the same period in 2022. The increase was primarily driven by increased salaries and employee benefits of $2.1 million.

Operating Results - Comparison of Six Months Ended June 30, 2023 and 2022

For the six months ended June 30, 2023, net interest income of $69.8 million increased $1.1 million, or 1.6%, from the same period in 2022, primarily due to increased average balances of $256.0 million in portfolio loans combined with the 82 basis point increase in yield for portfolio loans offset by significant increases in the cost of funding. The net interest margin decreased 29 basis points to 6.64% for the six months ended June 30, 2023, from the same period in 2022. Net interest margin, excluding credit card and SBA-PPP loans, was 3.94% for the six months ended June 30, 2023, compared to 3.84% for the same period in 2022.

For the six months ended June 30, 2023, average interest earning assets increased $119.3 million, or 6.0%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 127 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $203.8 million, or 19.6%, while the cost of interest-bearing liabilities increased 260 basis points to 3.03% from 0.43%.

For the six months ended June 30, 2023, the provision for credit losses was $4.5 million, an increase of $1.5 million from the prior year, attributable primarily to the credit card portfolio. Net charge-offs for the six months ended June 30, 2023, were $4.2 million, or 0.48% annualized of average portfolio loans, compared to $1.7 million, or 0.23% annualized of average portfolio loans, for the same period in 2022. The $4.2 million in net charge-offs during the six months ended June 30, 2023, was comprised primarily of credit card portfolio net charge-offs with $2.6 million related to secured and partially secured cards while $0.7 million was related to unsecured cards.

For the six months ended June 30, 2023, noninterest income of $12.7 million decreased $3.9 million, or 23.6%, from the same period in 2022. The decrease was primarily driven by the decline in credit card fees of $3.2 million as the number of open customer accounts declined to 540,058 at June 30, 2023 from 616,435 year over year, which resulted in lower interchange and other fee income recognized compared to the prior year. The elevated interest rate environment continues to put pressure on the mortgage market, resulting in declines in home loan sales and home loan refinances, which has resulted in a $0.8 million decrease in mortgage banking revenue compared to the prior year.

The efficiency ratio for the six months ended June 30, 2023, was 67.60% compared to 63.52% for the six months ended June 30, 2022.

For the six months ended June 30, 2023, noninterest expense of $55.8 million increased $1.6 million, or 2.9%, from the same period in 2022. The increase was primarily driven by a $4.3 million, or 21.2%, increase in salaries and benefits, partially offset by a $2.5 million, or 15.8%, decrease in data processing expense. The decrease of $2.5 million in data processing expense was the result of a contract renegotiation entered into in the first quarter 2022 in the OpenSky^® Division as well as fewer average open cards during the period.

Financial Condition

Total assets at June 30, 2023 were $2.2 billion, a decrease of $17.4 million, or 0.8%, from the balance at March 31, 2023 and an increase of $73.0 million, or 3.4%, from the balance at June 30, 2022. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.8 billion at June 30, 2023, an increase of $50.9 million, up 2.9% or 11.4% annualized, compared to March 31, 2023, and an increase of $229.4 million, or 14.3%, compared to $1.6 billion at June 30, 2022.

The Company recorded a provision for credit losses of $4.5 million during the six months ended June 30, 2023, which increased the allowance for credit losses to $27.5 million, or 1.5% of total loans at June 30, 2023, representing an increase of $1.3 million or 4.9%, from the balance at March 31, 2023. Nonperforming assets, which were comprised solely of nonperforming loans as of June 30, 2023, were $15.7 million, or 0.71% of total assets, down from $16.3 million, or 0.73% of total assets at March 31, 2023 and up from $7.3 million, or 0.34% of total assets at June 30, 2022.

Deposits were $1.9 billion at June 30, 2023, a slight decrease of $10.0 million, or 0.5%, from the balance at March 31, 2023 and an increase of $45.4 million, or 2.4%, from the balance at June 30, 2022. Average deposits of $1.9 billion for the three months ended June 30, 2023, increased $110.4 million, or 6.2%, as compared to the three months ended March 31, 2023. Rising interest rates have resulted in some customers moving balances from noninterest-bearing deposit accounts to interest-bearing deposit accounts. As a result of the migration, average noninterest-bearing deposit balances decreased $131.2 million to $676.4 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. These deposits represented 35.8% of total deposits at June 30, 2023 compared to 44.6% at June 30, 2022. Uninsured deposits were approximately $860.4 million as of June 30, 2023, representing 44.5% of the Company's deposit portfolio, compared to $888.9 million, or 45.7%, at March 31, 2023, and $915.0 million, or 48.4%, at June 30, 2022.

Stockholders’ equity increased to $237.4 million as of June 30, 2023, compared to $234.5 million at March 31, 2023 and $207.3 million at June 30, 2022. Shares repurchased and retired through June 30, 2023 as part of the Company's stock repurchase program totaled 285,344 shares at an average price of $17.65, for a total cost of $5.0 million including commissions. As of June 30, 2023, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

Consolidated Statements of Income (Unaudited)
	Three Months Ended										Six Months Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		June 30, 2023		June 30, 2022
Interest income
Loans, including fees	$	42,991	$	41,275	$	38,763	$	36,451	$	35,304	$	84,266	$	69,193
Investment securities available for sale		1,266		1,377		1,402		1,362		779		2,643		1,149
Federal funds sold and other		823		764		1,183		527		473		1,587		615
Total interest income		45,080		43,416		41,348		38,340		36,556		88,496		70,957

Interest expense
Deposits		9,409		7,754		4,377		1,386		964		17,163		1,847
Borrowed funds		331		1,175		1,772		277		192		1,506		379
Total interest expense		9,740		8,929		6,149		1,663		1,156		18,669		2,226

Net interest income		35,340		34,487		35,199		36,677		35,400		69,827		68,731
Provision for credit losses		2,862		1,660		2,384		1,260		2,035		4,522		2,987
Net interest income after provision for credit losses		32,478		32,827		32,815		35,417		33,365		65,305		65,744

Noninterest income
Service charges on deposits		245		229		222		199		183		474		346
Credit card fees		4,706		4,210		4,314		5,524		6,210		8,916		12,134
Mortgage banking revenue		1,332		1,155		554		969		1,528		2,487		3,318
Other income		404		432		471		416		441		836		852
Total noninterest income		6,687		6,026		5,561		7,108		8,362		12,713		16,650

Noninterest expenses
Salaries and employee benefits		12,143		12,554		11,769		10,747		10,071		24,697		20,381
Occupancy and equipment		1,536		1,213		1,388		1,138		1,313		2,749		2,339
Professional fees		2,608		2,374		2,426		3,848		2,417		4,982		4,738
Data processing		6,559		6,530		6,697		7,178		7,266		13,089		15,542
Advertising		2,646		517		726		1,632		2,223		3,163		3,862
Loan processing		660		349		350		625		335		1,009		727
Foreclosed real estate expenses, net		—		6		—		—		—		6		—
Other operating		3,440		2,660		3,378		2,926		3,505		6,100		6,643
Total noninterest expenses		29,592		26,203		26,734		28,094		27,130		55,795		54,232
Income before income taxes		9,573		12,650		11,642		14,431		14,597		22,223		28,162
Income tax expense		2,255		2,915		2,651		3,336		3,089		5,170		6,443
Net income	$	7,318	$	9,735	$	8,991	$	11,095	$	11,508	$	17,053	$	21,719

Consolidated Balance Sheets
	(unaudited)			(unaudited)			(audited)			(unaudited)			(unaudited)
^{(in thousands except share data)}	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Assets
Cash and due from banks	$	18,619		$	14,477		$	19,963		$	14,774		$	14,776
Interest-bearing deposits at other financial institutions		100,343			125,448			39,764			20,867			234,823
Federal funds sold		376			462			20,688			1,421			1,285
Total cash and cash equivalents		119,338			140,387			80,415			37,062			250,884
Investment securities available for sale		208,464			255,762			252,481			269,620			226,509
Marketable equity securities		—			—			—			232			245
Restricted investments		3,803			4,215			7,362			3,627			3,615
Loans held for sale		10,146			9,620			7,416			6,875			11,708
U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loans receivable, net of fees and costs		1,090			2,037			2,163			2,662			15,864
Portfolio loans receivable, net of deferred fees and costs		1,837,041			1,786,109			1,728,592			1,648,001			1,607,677
Less allowance for credit losses		(27,495	)		(26,216	)		(26,385	)		(26,091	)		(26,419	)
Total portfolio loans held for investment, net		1,809,546			1,759,893			1,702,207			1,621,910			1,581,258
Premises and equipment, net		5,494			5,367			3,386			3,212			3,315
Accrued interest receivable		10,155			9,985			9,489			7,890			7,276
Deferred tax asset		13,616			12,898			13,777			14,047			12,929
Bank owned life insurance		37,041			36,781			36,524			36,267			36,011
Other assets		9,173			8,341			8,435			5,954			5,232
Total assets	$	2,227,866		$	2,245,286		$	2,123,655		$	2,009,358		$	2,154,846

Liabilities
Deposits
Noninterest-bearing	$	693,129		$	705,801		$	674,313		$	806,033		$	842,363
Interest-bearing		1,241,232			1,238,573			1,083,759			931,558			1,046,557
Total deposits		1,934,361			1,944,374			1,758,072			1,737,591			1,888,920
Federal Home Loan Bank advances		22,000			32,000			107,000			22,000			22,000
Other borrowed funds		12,062			12,062			12,062			12,062			12,062
Accrued interest payable		3,029			1,977			1,031			481			300
Other liabilities		18,979			20,356			21,475			23,219			24,248
Total liabilities		1,990,431			2,010,769			1,899,640			1,795,353			1,947,530

Stockholders' equity
Common stock		140			141			141			140			140
Additional paid-in capital		55,856			57,277			58,190			56,532			55,762
Retained earnings		197,490			191,058			182,435			174,916			164,750
Accumulated other comprehensive loss		(16,051	)		(13,959	)		(16,751	)		(17,583	)		(13,336	)
Total stockholders' equity		237,435			234,517			224,015			214,005			207,316
Total liabilities and stockholders' equity	$	2,227,866		$	2,245,286		$	2,123,655		$	2,009,358		$	2,154,846

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

	Three Months Ended June 30, 2023						Three Months Ended March 31, 2023						Three Months Ended June 30, 2022
	Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate⁽¹⁾		Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate⁽¹⁾		Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate⁽¹⁾
	(in thousands)
Assets
Interest earning assets:
Interest-bearing deposits	$	66,401	$	733	4.43	%	$	62,566	$	615	3.99	%	$	218,251	$	429	0.79	%
Federal funds sold		1,638		20	4.90			2,054		18	3.62			1,655		2	0.48
Investment securities available for sale		255,057		1,266	1.99			274,685		1,377	2.03			215,172		779	1.45
Restricted investments		4,185		71	6.80			7,346		130	7.17			3,854		42	4.37
Loans held for sale		7,047		111	6.32			4,695		77	6.65			11,447		134	4.70
SBA-PPP loans receivable		1,808		7	1.55			2,099		8	1.50			28,870		1,120	15.56
Portfolio loans receivable⁽²⁾		1,800,800		42,872	9.55			1,750,539		41,191	9.54			1,532,671		34,050	8.91
Total interest earning assets		2,136,936		45,080	8.46			2,103,984		43,416	8.37			2,011,920		36,556	7.29
Noninterest earning assets		47,415						40,265						56,298
Total assets	$	2,184,351					$	2,144,249					$	2,068,218

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	207,264		67	0.13		$	186,184		70	0.15		$	259,192		38	0.06
Savings		5,822		2	0.14			6,502		1	0.05			9,913		1	0.04
Money market accounts		625,515		5,411	3.47			604,864		4,587	3.08			566,303		396	0.28
Time deposits		366,421		3,929	4.30			319,449		3,096	3.93			160,279		529	1.32
Borrowed funds		43,183		331	3.07			118,379		1,175	4.02			34,062		192	2.27
Total interest-bearing liabilities		1,248,205		9,740	3.13			1,235,378		8,929	2.93			1,029,749		1,156	0.45
Noninterest-bearing liabilities:
Noninterest-bearing liabilities		21,104						22,355						22,647
Noninterest-bearing deposits		676,358						654,025						807,558
Stockholders’ equity		238,684						232,491						208,264
Total liabilities and stockholders’ equity	$	2,184,351					$	2,144,249					$	2,068,218

Net interest spread					5.33	%					5.44	%					6.84	%
Net interest income			$	35,340					$	34,487					$	35,400
Net interest margin⁽³⁾					6.63	%					6.65	%					7.06	%

_______________
⁽¹⁾Annualized.
⁽²⁾Includes nonaccrual loans.
⁽³⁾For the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, collectively, SBA-PPP loans and credit card loans accounted for 257, 283 and 320 basis points of the reported net interest margin, respectively.

	Six Months Ended June 30,
		2023						2022
	Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate⁽¹⁾		Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate⁽¹⁾
	(in thousands)
Assets
Interest earning assets:
Interest-bearing deposits	$	64,494	$	1,348	4.21	%	$	208,043	$	530	0.51	%
Federal funds sold		1,845		38	4.15			3,148		2	0.13
Investment securities available for sale		264,817		2,643	2.01			197,965		1,149	1.17
Restricted investments		5,757		201	7.04			3,810		83	4.39
Loans held for sale		5,878		188	6.45			12,467		245	3.96
SBA-PPP loans receivable		1,953		15	1.55			55,917		3,186	11.49
Portfolio loans receivable⁽²⁾		1,775,809		84,063	9.55			1,519,857		65,762	8.73
Total interest earning assets		2,120,553		88,496	8.42			2,001,207		70,957	7.15
Noninterest earning assets		43,858						61,533
Total assets	$	2,164,411					$	2,062,740

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	196,782		137	0.14		$	276,490		74	0.05
Savings		6,160		3	0.10			9,098		3	0.07
Money market accounts		615,247		9,998	3.28			552,858		697	0.25
Time deposits		343,065		7,025	4.13			165,485		1,073	1.31
Borrowed funds		80,573		1,506	3.77			34,062		379	2.24
Total interest-bearing liabilities		1,241,827		18,669	3.03			1,037,993		2,226	0.43
Noninterest-bearing liabilities:
Noninterest-bearing liabilities		21,726						23,397
Noninterest-bearing deposits		665,253						795,221
Stockholders’ equity		235,605						206,129
Total liabilities and stockholders’ equity	$	2,164,411					$	2,062,740

Net interest spread					5.39	%					6.72	%
Net interest income			$	69,827					$	68,731
Net interest margin⁽³⁾					6.64	%					6.93	%

_______________
⁽¹⁾Annualized.
⁽²⁾Includes nonaccrual loans.
⁽³⁾For the six months ended June 30, 2023 and 2022, collectively, SBA-PPP loans and credit card loans accounted for 270 and 309 basis points of the reported net interest margin, respectively.

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

Segments

For the three months ended June 30, 2023

^{(in thousands)}

Commercial
Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

28,742

111

15,168

1,134

(75

)

45,080

Interest expense

9,537

—

236

(75

)

9,740

Net interest income

19,205

15,168

898

—

35,340

Provision for credit losses

735

—

2,127

—

2,862

Net interest income after provision

18,470

13,041

898

—

32,478

Noninterest income

810

1,161

4,714

—

6,687

Noninterest expense⁽¹⁾

15,918

1,481

12,059

134

—

29,592

Net income (loss) before taxes

3,362

(251

)

5,696

766

—

9,573

Total assets

2,047,400

10,605

116,123

260,309

(206,571

)

2,227,866

For the three months ended March 31, 2023

^{(in thousands)}

Commercial
Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

26,300

16,130

978

(69

)

43,416

Interest expense

8,739

—

229

(69

)

8,929

Net interest income

17,561

16,130

749

—

34,487

Provision (release of provision) for credit losses

(161

)

—

1,821

—

1,660

Net interest income after provision

17,722

14,309

749

—

32,827

Noninterest income

489

1,327

4,210

—

6,026

Noninterest expense⁽¹⁾

14,980

1,581

9,450

192

—

26,203

Net income (loss) before taxes

3,231

(207

)

9,069

557

—

12,650

Total assets

2,074,634

10,193

106,761

257,048

(203,350

)

2,245,286

For the three months ended June 30, 2022

^{(in thousands)}

Commercial
Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

18,912

134

16,780

758

(28

)

36,556

Interest expense

952

—

168

(28

)

1,156

Net interest income

17,960

16,780

590

—

35,400

Provision for loan losses

—

2,035

—

2,035

Net interest income after provision

17,960

14,745

590

—

33,365

Noninterest income

526

1,626

6,210

—

8,362

Noninterest expense⁽¹⁾

12,859

2,217

11,940

114

—

27,130

Net income (loss) before taxes

5,627

(521

)

9,015

476

—

14,597

Total assets

1,958,893

12,257

137,180

226,950

(180,434

)

2,154,846

_______________
⁽¹⁾Noninterest expense includes $5.9 million, $5.9 million and $6.7 million in data processing expense in OpenSky’s^® segment for the three months ended June 30, 2023 March 31, 2023, and June 30, 2022, respectively.
⁽²⁾The Corporate segment invests idle cash in revenue-producing assets including interest-bearing cash accounts, loan participations and other appropriate investments for the Company.

Segments

For the six months ended June 30, 2023

^{(in thousands)}

Commercial
Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

55,042

188

31,298

2,112

(144

)

88,496

Interest expense

18,276

—

465

(144

)

18,669

Net interest income

36,766

116

31,298

1,647

—

69,827

Provision for credit losses

574

—

3,948

—

4,522

Net interest income after provision

36,192

116

27,350

1,647

—

65,305

Noninterest income

1,299

2,488

8,924

—

12,713

Noninterest expense⁽¹⁾

30,898

3,062

21,509

326

—

55,795

Net income (loss) before taxes

6,593

(458

)

14,765

1,323

—

22,223

Total assets

2,047,400

10,605

116,123

260,309

(206,571

)

2,227,866

For the six months ended June 30, 2022

^{(in thousands)}

Commercial
Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

37,412

245

31,720

1,645

(65

)

70,957

Interest expense

1,805

145

—

341

(65

)

2,226

Net interest income

35,607

100

31,720

1,304

—

68,731

Provision for loan losses

—

2,987

—

2,987

Net interest income after provision

35,607

100

28,733

1,304

—

65,744

Noninterest income

1,083

3,433

12,134

—

16,650

Noninterest expense⁽¹⁾

24,922

4,316

24,822

172

—

54,232

Net income (loss) before taxes

11,768

(783

)

16,045

1,132

—

28,162

Total assets

1,958,893

12,257

137,180

226,950

(180,434

)

2,154,846

_______________
⁽¹⁾Noninterest expense includes $11.9 million and $14.3 million in data processing expense in OpenSky’s^® segment for the six months ended June 30, 2023 and 2022, respectively.
⁽²⁾The Corporate segment invests idle cash in revenue-producing assets including interest-bearing cash accounts, loan participations and other appropriate investments for the Company.

HISTORICAL FINANCIAL HIGHLIGHTS - Unaudited
	Quarter Ended
^{(in thousands except per share data)}	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Earnings:
Net income	$	7,318		$	9,735		$	8,991		$	11,095		$	11,508
Earnings per common share, diluted		0.52			0.68			0.62			0.77			0.80
Net interest margin		6.63	%		6.65	%		6.64	%		7.24	%		7.06	%
Net interest margin, excluding credit cards & SBA-PPP loans ⁽¹⁾		4.06	%		3.81	%		3.91	%		4.16	%		3.86	%
Return on average assets⁽²⁾		1.34	%		1.84	%		1.67	%		2.15	%		2.23	%
Return on average assets, excluding impact of SBA-PPP loans⁽¹⁾⁽²⁾		1.34	%		1.84	%		1.67	%		2.10	%		2.04	%
Return on average equity⁽²⁾		12.30	%		16.98	%		16.18	%		20.32	%		22.16	%
Efficiency ratio		70.41	%		64.68	%		65.59	%		64.16	%		62.00	%

Balance Sheet:
Total portfolio loans receivable, net deferred fees	$	1,837,041		$	1,786,109		$	1,728,592		$	1,648,001		$	1,607,677
Total deposits		1,934,361			1,944,374			1,758,072			1,737,591			1,888,920
Total assets		2,227,866			2,245,286			2,123,655			2,009,358			2,154,846
Total stockholders' equity		237,435			234,517			224,015			214,005			207,316

Asset Quality Ratios:
Nonperforming assets to total assets		0.71	%		0.73	%		0.46	%		0.43	%		0.34	%
Nonperforming assets to total assets, excluding the SBA-PPP loans ⁽¹⁾		0.71	%		0.73	%		0.46	%		0.43	%		0.34	%
Nonperforming loans to total loans		0.85	%		0.91	%		0.56	%		0.52	%		0.45	%
Nonperforming loans to portfolio loans ⁽¹⁾		0.86	%		0.91	%		0.56	%		0.52	%		0.46	%
Net charge-offs to average portfolio loans ⁽¹⁾⁽²⁾		0.35	%		0.61	%		0.49	%		0.39	%		0.23	%
Allowance for credit losses to total loans		1.50	%		1.47	%		1.52	%		1.58	%		1.64	%
Allowance for credit losses to portfolio loans ⁽¹⁾		1.50	%		1.47	%		1.53	%		1.58	%		1.64	%
Allowance for credit losses to non-performing loans		175.03	%		160.91	%		270.46	%		303.76	%		360.06	%

Bank Capital Ratios:
Total risk based capital ratio		14.08	%		14.09	%		14.21	%		14.65	%		14.34	%
Tier 1 risk based capital ratio		12.82	%		12.84	%		12.95	%		13.39	%		13.09	%
Leverage ratio		9.77	%		9.78	%		9.47	%		9.60	%		9.11	%
Common equity Tier 1 capital ratio		12.82	%		12.84	%		12.95	%		13.39	%		13.09	%
Tangible common equity		8.93	%		8.79	%		8.85	%		9.00	%		8.17	%
Holding Company Capital Ratios:
Total risk based capital ratio		16.81	%		16.75	%		16.33	%		17.41	%		17.66	%
Tier 1 risk based capital ratio		14.96	%		14.90	%		15.13	%		15.49	%		15.70	%
Leverage ratio		11.50	%		11.47	%		11.24	%		11.31	%		10.93	%
Common equity Tier 1 capital ratio		14.96	%		14.90	%		15.00	%		15.36	%		15.55	%
Tangible common equity		10.66	%		10.44	%		10.55	%		10.65	%		9.62	%
Composition of Loans:
SBA-PPP loans, net	$	1,090		$	2,037		$	2,163		$	2,662		$	15,864
Commercial real estate		674,141			660,218			664,551			626,030			608,646
Residential real estate	$	555,133		$	545,899		$	484,735		$	466,849		$	430,244
Construction real estate		258,400			251,494			238,099			235,045			241,249
Commercial and industrial		233,598			221,258			220,221			192,207			193,262
Credit card, net of reserve⁽³⁾		122,925			112,860			128,434			136,658			142,166
Other consumer loans		1,187			1,578			1,179			1,055			856
Portfolio loans receivable	$	1,845,384		$	1,793,307		$	1,737,219		$	1,657,844		$	1,616,423
Deferred origination fees, net		(8,343	)		(7,198	)		(8,627	)		(9,843	)		(8,746	)
Portfolio loans receivable, net	$	1,837,041		$	1,786,109		$	1,728,592		$	1,648,001		$	1,607,677

Composition of Deposits:
Noninterest-bearing	$	693,129		$	705,801		$	674,313		$	806,033		$	842,363
Interest-bearing demand		243,095			219,685			207,836			252,135			305,377
Savings		5,816			5,835			7,530			8,861			10,078
Money markets		631,148			632,087			574,978			518,184			570,298
Brokered time deposits		128,665			181,820			131,819			—			—
Other time deposits		232,508			199,146			161,596			152,378			160,804
Total deposits	$	1,934,361		$	1,944,374		$	1,758,072		$	1,737,591		$	1,888,920

Capital Bank Home Loan Metrics:
Origination of loans held for sale	$	61,480		$	44,448		$	43,956		$	60,516		$	84,417
Mortgage loans sold		49,231			40,483			43,415			65,349			89,745
Gain on sale of loans		1,262			1,223			912			1,340			1,918
Purchase volume as a % of originations		93.12	%		90.72	%		88.94	%		81.85	%		85.23	%
Gain on sale as a % of loans sold⁽⁴⁾		2.56	%		3.02	%		2.10	%		2.05	%		2.14	%
Mortgage commissions	$	621		$	378		$	451		$	587		$	772

OpenSky^® Portfolio Metrics:
Open customer accounts		540,058			527,231			533,855			576,844			616,435
Secured credit card loans, gross	$	100,218		$	89,078		$	104,157		$	111,842		$	118,938
Unsecured credit card loans, gross		25,254			25,782			26,795			27,335			25,641
Noninterest secured credit card deposits		186,566			184,809			187,412			201,277			214,110

_______________
⁽¹⁾Refer to Appendix for reconciliation of non-GAAP measures.
⁽²⁾Annualized.
⁽³⁾Credit card loans are presented net of reserve for interest and fees.
⁽⁴⁾Gain on sale percentage is calculated as gain on sale of loans divided by mortgage loans sold.

Appendix

Reconciliation of Non-GAAP Measures

Return on Average Assets, as Adjusted	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Net Income	$	7,318	$	9,735	$	8,991	$	11,095	$	11,508
Less: SBA-PPP loan income		7		8		28		263		1,120
Net Income, as Adjusted	$	7,311	$	9,727	$	8,963	$	10,832	$	10,388
Average Total Assets		2,184,351		2,144,249		2,136,156		2,049,078		2,068,218
Less: Average SBA-PPP Loans		1,808		2,099		2,435		5,906		28,870
Average Total Assets, as Adjusted	$	2,182,543	$	2,142,150	$	2,133,721	$	2,043,172	$	2,039,348
Return on Average Assets, as Adjusted		1.34%		1.84%		1.67%		2.10%		2.04%

Return on Average Assets, as Adjusted	Six Months Ended
^{(in thousands)}	June 30, 2023		June 30, 2022

Net Income	$	17,053	$	21,719
Less: SBA-PPP loan income		15		3,186
Net Income, as Adjusted	$	17,038	$	18,533
Average Total Assets		2,164,411		2,062,740
Less: Average SBA-PPP Loans		1,953		55,917
Average Total Assets, as Adjusted	$	2,162,458	$	2,006,823
Return on Average Assets, as Adjusted		1.59%		1.81%

Net Interest Margin, as Adjusted	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Net Interest Income	$	35,340	$	34,487	$	35,199	$	36,677	$	35,400
Less Credit card loan income		14,818		15,809		15,717		16,768		16,376
Less SBA-PPP loan income		7		8		28		263		1,120
Net Interest Income, as Adjusted	$	20,515	$	18,670	$	19,454	$	19,646	$	17,904
Average Interest Earning Assets		2,136,936		2,103,984		2,101,617		2,010,070		2,011,920
Less Average credit card loans		110,574		115,850		124,120		132,246		124,548
Less Average SBA-PPP loans		1,808		2,099		2,435		5,906		28,870
Total Average Interest Earning Assets, as Adjusted	$	2,024,554	$	1,986,035	$	1,975,062	$	1,871,918	$	1,858,502
Net Interest Margin, as Adjusted		4.06%		3.81%		3.91%		4.16%		3.86%

Net Interest Margin, as Adjusted	Six Months Ended
^{(in thousands)}	June 30, 2023		June 30, 2022

Net Interest Income	$	69,827	$	68,731
Less Credit card loan income		30,627		30,863
Less SBA-PPP loan income		15		3,186
Net Interest Income, as Adjusted	$	39,185	$	34,682
Average Interest Earning Assets		2,120,553		2,001,207
Less Average credit card loans		113,197		124,735
Less Average SBA-PPP loans		1,953		55,917
Total Average Interest Earning Assets, as Adjusted	$	2,005,403	$	1,820,555
Net Interest Margin, as Adjusted		3.94%		3.84%

Pre-tax, Pre-Provision Net Revenue ("PPNR")	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Net income	$	7,318	$	9,735	$	8,991	$	11,095	$	11,508
Add: Income Tax Expense		2,255		2,915		2,651		3,336		3,089
Add: Provision for Credit Losses		2,862		1,660		2,384		1,260		2,035
Pre-tax, Pre-Provision Net Revenue ("PPNR")	$	12,435	$	14,310	$	14,026	$	15,691	$	16,632

Pre-tax, Pre-Provision Net Revenue ("PPNR")	Six Months Ended
^{(in thousands)}	June 30, 2023		June 30, 2022

Net income	$	17,053	$	21,719
Add: Income Tax Expense		5,170		6,443
Add: Provision for Credit Losses		4,522		2,987
Pre-tax, Pre-Provision Net Revenue ("PPNR")	$	26,745	$	31,149

Allowance for Credit Losses to Total Portfolio Loans	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Allowance for Credit Losses	$	27,495	$	26,216	$	26,385	$	26,091	$	26,419
Total Loans		1,838,131		1,788,146		1,730,755		1,650,663		1,623,541
Less: SBA-PPP loans		1,090		2,037		2,163		2,662		15,864
Total Portfolio Loans	$	1,837,041	$	1,786,109	$	1,728,592	$	1,648,001	$	1,607,677
Allowance for Credit Losses to Total Portfolio Loans		1.50%		1.47%		1.53%		1.58%		1.64%

Nonperforming Assets to Total Assets, net SBA-PPP Loans	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Total Nonperforming Assets	$	15,709	$	16,293	$	9,756	$	8,589	$	7,338
Total Assets		2,227,866		2,245,286		2,123,655		2,009,358		2,154,846
Less: SBA-PPP loans		1,090		2,037		2,163		2,662		15,864
Total Assets, net SBA-PPP Loans	$	2,226,776	$	2,243,249	$	2,121,492	$	2,006,696	$	2,138,982
Nonperforming Assets to Total Assets, net SBA-PPP Loans		0.71%		0.73%		0.46%		0.43%		0.34%

Nonperforming Loans to Total Portfolio Loans	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Total Nonperforming Loans	$	15,709	$	16,293	$	9,756	$	8,589	$	7,338
Total Loans		1,838,131		1,788,146		1,730,755		1,650,663		1,623,541
Less: SBA-PPP loans		1,090		2,037		2,163		2,662		15,864
Total Portfolio Loans	$	1,837,041	$	1,786,109	$	1,728,592	$	1,648,001	$	1,607,677
Nonperforming Loans to Total Portfolio Loans		0.86%		0.91%		0.56%		0.52%		0.46%

Net Charge-offs to Average Portfolio Loans	Quarters Ended
^{(in thousands)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Total Net Charge-offs	$	1,583	$	2,633	$	2,090	$	1,588	$	868
Total Average Loans		1,802,608		1,752,638		1,677,869		1,607,452		1,561,541
Less: Average SBA-PPP loans		1,808		2,099		2,435		5,906		28,870
Total Average Portfolio Loans	$	1,800,800	$	1,750,539	$	1,675,434	$	1,601,546	$	1,532,671
Net Charge-offs to Average Portfolio Loans		0.35%		0.61%		0.49%		0.39%		0.23%

Tangible Book Value per Share	Quarters Ended
^{(in thousands, except per share amounts)}	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022

Total Stockholders' Equity	$	237,435	$	234,517	$	224,015	$	214,005	$	207,316
Less: Preferred equity		—		—		—		—		—
Less: Intangible assets		—		—		—		—		—
Tangible Common Equity	$	237,435	$	234,517	$	224,015	$	214,005	$	207,316
Period End Shares Outstanding		13,981,414		14,082,657		14,138,829		14,038,599		14,010,158
Tangible Book Value per Share	$	16.98	$	16.65	$	15.84	$	15.24	$	14.80

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 June 30, 2023. Capital Bancorp has been providing financial services since 1999 and now operates bank branches in four locations in the greater Washington, D.C. and Baltimore, Maryland markets. Capital Bancorp had assets of approximately $2.2 billion at June 30, 2023 and its common stock is traded in the NASDAQ Global Market under the symbol “CBNK.” More information can be found at the Company's website www.CapitalBankMD.com under its investor relations page.

FORWARD-LOOKING STATEMENTS

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

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing war in Ukraine; the magnitude and duration of the COVID-19 pandemic and related variants and mutations and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; volatility and disruptions in global capital and credit markets; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; and other factors that may affect our future results.

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

FINANCIAL CONTACT: Jay Walker (301) 468-8848 x1223

MEDIA CONTACT: Ed Barry (240) 283-1912

WEB SITE: www.CapitalBankMD.com

Capital Bancorp, Inc. Continued Deposit and Loan Growth Leads to Strong Net Interest Margin, Declares Quarterly Dividend of $0.08

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