Capital Bancorp, Inc. Reports Fourth Quarter 2023 Net Income of $9.0 million, or $0.65 per share

Source: Nasdaq GlobeNewswire / 22 Jan 2024 16:10:01 America/New_York

Diluted EPS of $0.65, ROAA of 1.63%, and ROAE of 14.44% for 4Q 2023
Tangible Book Value Per Share⁽¹⁾ of $18.31 for 4Q 2023 up 15.6% from 4Q 2022
Loan Growth of $40.7 million, or 8.7% annualized for 4Q 2023
Cash dividend of $0.08 per share declared

ROCKVILLE, Md., Jan. 22, 2024 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $9.0 million, or $0.65 per diluted share, for the fourth quarter 2023, compared to net income of $9.8 million, or $0.70 per diluted share, for the third quarter 2023 and $9.0 million, or $0.62 per diluted share, for the fourth quarter 2022.

The Company also declared a cash dividend on its common stock of $0.08 per share. The dividend is payable on February 21, 2024 to shareholders of record on February 5, 2024.

“Over the past two years, our strategy, which emphasizes both growth and profitability, has led to a 29% increase in book value," said Ed Barry, Chief Executive Officer of the Company and the Bank. “Despite persistent market volatility, we continue to identify opportunities to generate attractive loans and core deposits and expand our talented team. We are investing in our people and technology to build on our momentum, diversify our business, and achieve profitable expansion.”

“While acknowledging that net income year-over-year did not advance, there are many performance indicators that are cause for optimism about the Bank’s future,” said Steven J. Schwartz, Chairman of the Company. "Substantial stability of core net interest margin and core deposits year-over-year positions the Bank for continued outperformance of peers, as does our ongoing commitment to maintain a strong credit culture and eschew the assumption of undue interest rate risk. Moreover, our investment in best-in-class C-suite executives should give us competitive advantages as we seek to meaningfully grow both sides of our balance sheet. Also encouraging is the promise that our ongoing investments in technology applications will enable improvements to our already strong customer-facing and back office functions.”

⁽¹⁾Reconciliations of the non–U.S. generally accepted accounting principles ("GAAP") measures are set forth in the Appendix at the end of this press release.

Fourth Quarter 2023 Highlights

Capital Bancorp, Inc.

Earnings Summary - Net income of $9.0 million, or $0.65 per diluted share, decreased $0.8 million compared to $9.8 million, or $0.70 per diluted share, for the third quarter 2023.

Net interest income of $34.9 million decreased $1.9 million compared to $36.8 million for the third quarter 2023. Interest income of $47.0 million decreased $0.8 million compared to $47.7 million for the third quarter 2023 as interest income from credit card loans decreased $1.1 million. Interest expense of $12.1 million increased $1.2 million compared to $10.9 million for the third quarter 2023 reflecting the rising cost of interest-bearing deposits.
The provision for credit losses was $2.8 million, an increase of $0.5 million from the third quarter 2023. The provision for credit losses includes net charge-offs of $2.5 million in the fourth quarter 2023 including $1.9 million from credit card related loans and $0.6 million from commercial loans. Commercial loan net charge-offs include a charge-off of $0.7 million in the fourth quarter 2023 of which $0.4 million was specifically reserved in the third quarter 2023 on a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2023. This loan was classified as nonperforming in the first quarter of 2023. As of January 22, 2024, sales of three of the properties totaling $7.1 million are currently pending. The third quarter 2023 provision for credit losses included net charge-offs of $1.8 million primarily related to credit card loans.
Noninterest income of $5.9 million decreased $0.4 million compared to $6.3 million for the third quarter 2023. Credit card fees decreased $0.4 million primarily due to lower interchange and other fee income.
Noninterest expense of $26.9 million decreased $1.1 million compared to $28.0 million for the third quarter 2023. Within this category, significant variances included the following:
- Salaries and employee benefits of $11.6 million decreased $0.8 million primarily due to adjustments to annual incentive based compensation.
- Professional fees of $1.6 million decreased $0.4 million related to decreases in third party consulting fees.
- Data processing expense of $6.1 million decreased $0.3 million primarily from processor rebates.
- Loan processing expense of $0.2 million decreased $0.2 million.
- Other operating expenses of $4.0 million increased $0.6 million related to operational losses.
Income tax expense of $2.2 million, or 19.5% of pre-tax income for the fourth quarter 2023 decreased $0.8 million from $3.0 million, or 23.4% of pre-tax income for the third quarter 2023, reflecting a decrease in pre-tax income of $1.6 million. The lower effective tax rate for the fourth quarter 2023 when compared to the third quarter 2023 is primarily driven by the tax benefit recognized on the exercise of non-qualified stock options during the fourth quarter. The stock option exercises also contributed to the reduction in the total year effective tax rate.

Performance and Efficiency Ratios – Annualized return on average assets ("ROAA") and annualized return on average equity ("ROAE") were 1.63% and 14.44%, respectively, for the three months ended December 31, 2023, compared to 1.75% and 16.00%, respectively, for the three months ended September 30, 2023.

The efficiency ratio was 65.91% for the three months ended December 31, 2023, compared to 65.02% for the three months ended September 30, 2023.

Balance Sheet – Total assets of $2.2 billion at December 31, 2023 decreased $47.8 million, or 2.1%, from September 30, 2023.

Cash and cash equivalents of $54.0 million at December 31, 2023 decreased $92.2 million, or 63.1% from September 30, 2023, as total deposits decreased $72.0 million and total portfolio loans increased $40.4 million partially offset by an increase in other borrowed funds of $15.0 million.
Net portfolio loans of $1.9 billion increased $40.7 million, representing 8.7% annualized growth.
Total deposits of $1.9 billion at December 31, 2023 decreased $72.0 million, or 3.7%, from September 30, 2023, while total average deposits decreased $33.4 million quarter over quarter. The reduction in deposits is traditionally seasonal in nature, with title companies typically experiencing slower mortgage activity in the fourth quarter and some other commercial operating businesses typically drawing down demand deposits in the fourth quarter. Average portfolio loans-to-deposit ratio of 98.8% for the three months ended December 31, 2023 increased from 96.3% for the three months ended September 30, 2023.
The investment securities portfolio continues to be classified as available for sale and had a fair market value of $208.3 million, or 9.4% of total assets, at December 31, 2023 up slightly from $206.1 million at September 30, 2023. The amortized cost of the investment securities portfolio was $225.7 million, with an effective duration of 3.22 years. U.S. Treasury securities represented 71.5% of the overall investment portfolio at December 31, 2023. The accumulated other comprehensive loss ("AOCI Loss") on the investment securities portfolio decreased $4.7 million during the quarter to $13.1 million as of December 31, 2023, which represents 5.1% of total stockholders' equity. The Company does not have a held to maturity ("HTM") investment securities portfolio.

Net Interest Margin - Net interest margin decreased to 6.40% for the three months ended December 31, 2023, compared to 6.71% for the three months ended September 30, 2023. Adjusted net interest margin (excluding credit card and SBA-PPP loans), a non-GAAP measure, decreased to 3.92%, compared to 4.05% for the three months ended September 30, 2023.

The average yield on interest earning assets decreased 8 basis points compared to the third quarter 2023. The decrease in average yield was due to a 13 basis point decline in the yield for portfolio loans to 9.59% as interest income from credit card loans of $14.7 million in the fourth quarter 2023 declined $1.1 million from $15.8 million in the third quarter 2023. The yield on portfolio loans, as adjusted (excluding credit card loans), a non-GAAP measure, of 6.89% for the fourth quarter 2023 increased 13 basis points from 6.76% for the third quarter 2023. New portfolio loans (excluding credit card loans) originated in the fourth quarter 2023 totaled $91.1 million with a weighted average yield of 8.46% as compared to $98.9 million with a weighted average yield of 8.37% in the third quarter 2023.
The average rate on interest-bearing liabilities increased 31 basis points compared to the third quarter 2023. Increases in average rates include money market accounts increasing 31 basis points to 4.16% and time deposits increasing 21 basis points to 4.72%, while average balances increased $24.7 million and $6.3 million, respectively, compared to the third quarter 2023. Further, the average rate on interest-bearing demand accounts increased 3 basis points to 0.18%, while the average balance decreased $20.0 million compared to the third quarter 2023.

Deposits - Total deposits at December 31, 2023 decreased by $72.0 million, or 3.7%, compared to September 30, 2023.

Noninterest-bearing deposits of $617.4 million decreased $63.4 million, or 9.3%, compared to September 30, 2023. Interest-bearing deposits of $1.3 billion decreased $8.6 million, or 0.7%, compared to September 30, 2023 with a reduction in interest-bearing demand accounts of $29.7 million, money market accounts of $5.6 million and savings of $0.5 million while other time deposits increased $13.6 million. Brokered time deposits totaled $142.4 million at December 31, 2023, an increase of $13.7 million from September 30, 2023.

Cost of Interest-Bearing Liabilities - The elevated interest rate environment has driven up the average cost of interest-bearing liabilities to 3.68% for the quarter ended December 31, 2023, compared to 3.37% for the third quarter 2023.

Average noninterest-bearing deposits of $622.9 million decreased $44.0 million, or 6.6%, compared to September 30, 2023, and represented 33.0% of total average deposits at December 31, 2023.
Average borrowed funds of $41.8 million increased $6.9 million, or 19.7%, compared to September 30, 2023.

Robust Capital Positions - As of December 31, 2023, the Company reported a common equity tier 1 capital ratio of 15.43%, compared to 15.27% at September 30, 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 1.52% at September 30, 2023. Shares repurchased and retired during the three months ended December 31, 2023, as part of the Company's stock repurchase program, totaled 89,427 shares at an average price of $20.52, for a total cost of $1.8 million including commissions. Tangible book value per common share grew 4.5% to $18.31 at December 31, 2023 when compared to September 30, 2023. The Company did not have goodwill or other intangible assets during any of the periods presented and therefore, tangible book value per share is equal to book value per share.

Liquidity - Total sources of available borrowings at December 31, 2023 totaled $576.9 million, including available collateralized lines of credit of $463.7 million, unsecured lines of credit with other banks of $76.0 million and unpledged investment securities available as collateral for potential additional borrowings of $37.2 million.

Commercial Bank

Continued Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $39.6 million, to $1.8 billion, gross, at December 31, 2023 compared to September 30, 2023.

Net Interest Income - Interest income of $31.0 million increased $0.5 million compared to $30.4 million for the third quarter 2023, driven primarily by loan growth. Interest expense of $11.9 million increased $1.1 million, driven by an increase in the average cost of interest-bearing liabilities in the fourth quarter 2023.

Credit Metrics - Nonperforming assets ("NPAs") increased 5 basis points to 0.72% of total assets at December 31, 2023 compared to 0.67% at September 30, 2023 as a result of an increase in nonaccrual loans at December 31, 2023 to $16.0 million compared to $15.2 million at September 30, 2023. Included in nonperforming assets is a single $7.6 million, multi-unit residential real estate loan as previously mentioned. At December 31, 2023 commercial real estate loans with office space exposure totaled $56.3 million, or 3.0% of total portfolio loans, with a weighted average loan-to-value ("LTV") of 49.5%. Included in the total are owner-occupied commercial real estate loans with office exposure totaling $42.8 million with a weighted average LTV of 48.2% and non owner-occupied commercial real estate loans with office exposure totaling $13.5 million with a weighted average LTV of 54.2%.

OpenSky^®

Revenues - Total revenue of $19.0 million decreased $1.5 million from the third quarter 2023. Interest income of $15.0 million decreased $1.1 million from the third quarter 2023. Average OpenSky^® loan balances, net of reserves and deferred fees of $114.6 million for the fourth quarter 2023, decreased $2.3 million, or 1.9%, compared to $116.8 million for the third quarter 2023. Noninterest income of $4.0 million decreased $0.4 million due to a decline in credit card fees as compared to the third quarter 2023.

Noninterest Expense - Total noninterest expense of $10.4 million decreased $0.3 million from the third quarter 2023. Noninterest expense declined in the fourth quarter 2023 due primarily to a reduction in data processing expense of $0.4 million primarily from processor rebates. During the fourth quarter 2023, the number of OpenSky^®credit card accounts declined by 3,891 to 525,314.

Loan Balances - OpenSky^®loan balances, net of reserves, of $123.3 million at December 31, 2023 increased by $0.8 million, or 0.7%, compared to $122.5 million at September 30, 2023. Corresponding deposit balances of $173.9 million at December 31, 2023 decreased $7.3 million, or 4.0%, compared to $181.2 million at September 30, 2023. Gross unsecured loan balances of $30.8 million at December 31, 2023 increased $3.4 million, or 12.4%, compared to $27.4 million at September 30, 2023.

OpenSky^®Credit - Card delinquencies remained stable in the fourth quarter 2023 when compared to the third quarter 2023. The provision for credit losses increased $0.3 million compared to the third quarter 2023 as card balances, net of reserves, increased $0.8 million during the fourth quarter 2023 as compared to a decrease of $0.4 million during the third quarter 2023.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited

	Quarter Ended									4Q23 vs 3Q23					4Q23 vs 4Q22
(in thousands except per share data)	December 31, 2023			September 30, 2023			December 31, 2022			$ Change			% Change		$ Change			% Change
Earnings Summary
Interest income	$	46,969		$	47,741		$	41,348		$	(772	)	(1.6	)%	$	5,621		13.6	%
Interest expense		12,080			10,931			6,149			1,149		10.5	%		5,931		96.5	%
Net interest income		34,889			36,810			35,199			(1,921	)	(5.2	)%		(310	)	(0.9	)%
Provision for credit losses		2,808			2,280			2,384			528		23.2	%		424		17.8	%
(Release of) provision for credit losses on unfunded commitments		(106	)		24			—			(130	)	(541.7	)%		(106	)	—	%
Noninterest income		5,936			6,326			5,561			(390	)	(6.2	)%		375		6.7	%
Noninterest expense		26,907			28,046			26,734			(1,139	)	(4.1	)%		173		0.6	%
Income before income taxes		11,216			12,786			11,642			(1,570	)	(12.3	)%		(426	)	(3.7	)%
Income tax expense		2,186			2,998			2,651			(812	)	(27.1	)%		(465	)	(17.5	)%
Net income	$	9,030		$	9,788		$	8,991		$	(758	)	(7.7	)%	$	39		0.4	%

Pre-tax pre-provision net revenue ("PPNR")⁽¹⁾	$	13,918		$	15,090		$	14,026		$	(1,172	)	(7.8	)%	$	(108	)	(0.8	)%

Common Share Data
Earnings per share - Basic	$	0.65		$	0.70		$	0.64		$	(0.05	)	(7.1	)%	$	0.01		1.6	%
Earnings per share - Diluted	$	0.65		$	0.70		$	0.62		$	(0.05	)	(7.1	)%	$	0.03		4.8	%
Weighted average common shares - Basic		13,897			13,933			14,071
Weighted average common shares - Diluted		13,989			14,024			14,408

Return Ratios
Return on average assets (annualized)		1.63	%		1.75	%		1.67	%
Return on average assets, excluding impact of SBA-PPP loans (annualized)⁽¹⁾		1.63	%		1.75	%		1.67	%
Return on average equity (annualized)		14.44	%		16.00	%		16.18	%

______________

⁽¹⁾Refer to Appendix for reconciliation of non-GAAP measures.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited (Continued)

	Year Ended
	December 31,
(in thousands except per share data)		2023			2022		$ Change			% Change
Earnings Summary
Interest income	$	183,206		$	150,646		$	32,560		21.6	%
Interest expense		41,680			10,039			31,641		315.2	%
Net interest income		141,526			140,607			919		0.7	%
Provision for credit losses		9,610			6,631			2,979		44.9	%
(Release of) provision for credit losses on unfunded commitments		(101	)		—			(101	)	—	%
Noninterest income		24,975			29,372			(4,397	)	(15.0	)%
Noninterest expense		110,767			109,114			1,653		1.5	%
Income before income taxes		46,225			54,234			(8,009	)	(14.8	)%
Income tax expense		10,354			12,430			(2,076	)	(16.7	)%
Net income	$	35,871		$	41,804		$	(5,933	)	(14.2	)%

Pre-tax pre-provision net revenue ("PPNR")⁽¹⁾	$	55,734		$	60,865		$	(5,131	)	(8.4	)%

Common Share Data
Earnings per share - Basic	$	2.56		$	2.98		$	(0.42	)	(14.1	)%
Earnings per share - Diluted	$	2.55		$	2.91		$	(0.36	)	(12.4	)%
Weighted average common shares - Basic		14,003			14,025
Weighted average common shares - Diluted		14,081			14,362

Return Ratios
Return on average assets (annualized)		1.64	%		2.01	%
Return on average assets, excluding impact of SBA-PPP loans (annualized)⁽¹⁾		1.64	%		1.87	%
Return on average equity (annualized)		14.91	%		19.68	%

______________

⁽¹⁾Refer to Appendix for reconciliation of non-GAAP measures.

COMPARATIVE FINANCIAL HIGHLIGHTS - Unaudited (Continued)

	Quarter Ended						Quarter Ended
	December 31,						September 30,		June 30,		March 31,
(in thousands except per share data)		2023		2022	% Change			2023		2023		2022
Balance Sheet Highlights
Assets	$	2,224,667	$	2,123,655	4.8	%	$	2,272,484	$	2,227,866	$	2,245,286
Investment securities available for sale		208,329		252,481	(17.5	)%		206,055		208,464		255,762
Mortgage loans held for sale		7,481		7,416	0.9	%		4,843		10,146		9,620
SBA-PPP loans, net of fees		645		2,163	(70.2	)%		750		1,090		2,037
Portfolio loans receivable⁽²⁾		1,902,643		1,728,592	10.1	%		1,861,929		1,837,041		1,786,109
Allowance for credit losses		28,610		26,385	8.4	%		28,279		27,495		26,216
Deposits		1,895,996		1,758,072	7.8	%		1,967,988		1,934,361		1,944,374
FHLB borrowings		22,000		107,000	(79.4	)%		22,000		22,000		32,000
Other borrowed funds		27,062		12,062	124.4	%		12,062		12,062		12,062
Total stockholders' equity		254,860		224,015	13.8	%		242,878		237,435		234,517
Tangible common equity⁽¹⁾		254,860		224,015	13.8	%		242,878		237,435		234,517

Common shares outstanding		13,923		14,139	(1.5	)%		13,893		13,981		14,083
Book value per share	$	18.31	$	15.84	15.6	%	$	17.48	$	16.98	$	16.65
Tangible book value per share⁽¹⁾	$	18.31	$	15.84	15.6	%	$	17.48	$	16.98	$	16.65
Dividends per share	$	0.08	$	0.06	33.3	%	$	0.08	$	0.06	$	0.06

______________

⁽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 December 31, 2023 and 2022

For the three months ended December 31, 2023, net interest income of $34.9 million decreased slightly from $35.2 million in the same period in 2022. The net interest margin decreased 24 basis points to 6.40% for the three months ended December 31, 2023 from the same period in 2022 as interest income on credit card decreased $1.1 million. Net interest margin, excluding credit card and SBA-PPP loans, increased to 3.92% for the three months ended December 31, 2023, compared to 3.91% for the same period in 2022 as yields on interest-bearing deposits and portfolio loans generally kept pace with the rising costs of deposits, including money market accounts and time deposits.

For the three months ended December 31, 2023, average interest earning assets increased $60.8 million, or 2.9%, to $2.2 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 81 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $147.7 million, or 12.8%, and the average cost of interest-bearing liabilities increased to 3.68%, a 157 basis point increase from 2.11%.

For the three months ended December 31, 2023, the provision for credit losses was $2.8 million, an increase of $0.4 million from the same period in 2022. Net charge-offs for the three months ended December 31, 2023 were $2.5 million, or 0.53% on an annualized basis of average portfolio loans, compared to $2.1 million, or 0.49% on an annualized basis of average loans for the same period in 2022. The change in provision was partially due to a charge-off of $0.7 million in the fourth quarter 2023 of which $0.4 million was specifically reserved in the third quarter 2023 on a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2023. This loan was classified as nonperforming in the first quarter of 2023. As of January 22, 2024, sales of three of the properties totaling $7.1 million are currently pending. Of the $2.5 million in net charge-offs during the quarter, $1.4 million related to secured and partially secured cards in the credit card portfolio and $0.4 million related to unsecured cards.

For the three months ended December 31, 2023, noninterest income of $5.9 million increased $0.4 million, or 6.7%, from the same period in 2022. Mortgage banking revenue of $1.2 million increased $0.6 million due to an increase in home loan sales. Credit card fees of $4.0 million decreased $0.3 million as the number of open customer accounts declined year over year, which resulted in lower interchange and other fee income.

Credit card loan balances, net of reserves, decreased by $5.1 million to $123.3 million as of December 31, 2023, from $128.4 million at December 31, 2022. The related deposit account balances decreased 7.2% to $173.9 million at December 31, 2023 when compared to $187.4 million at December 31, 2022, reflective of the reduction in the number of open customer accounts year over year.

The efficiency ratio for the three months ended December 31, 2023 was 65.91% compared to 65.59% for the three months ended December 31, 2022.

For the three months ended December 31, 2023, noninterest expense of $26.9 million increased slightly from $26.7 million for the same period in 2022. The change includes increases in advertising expense of $0.7 million and other operating expense of $0.6 million, partially offset by decreases in data processing expense of $0.6 million and professional fees of $0.5 million.

Operating Results - Comparison of Year Ended December 31, 2023 and 2022

For the year ended December 31, 2023, net interest income of $141.5 million increased $0.9 million from the same period in 2022, primarily due to increased average balances of $235.9 million in portfolio loans combined with a 71 basis point increase in yield for portfolio loans, offset by significant increases in the cost of funding. The net interest margin decreased 32 basis points to 6.60% for the year ended December 31, 2023 from the same period in 2022. Net interest margin, excluding credit card and SBA-PPP loans, was 3.96% for the year ended December 31, 2023, compared to 3.93% for the same period in 2022.

For the year ended December 31, 2023, average interest earning assets increased $112.0 million, or 5.5%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 113 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $209.1 million, or 19.7%, while the average cost of interest-bearing liabilities increased 234 basis points to 3.29% from 0.95%.

For the year ended December 31, 2023, the provision for credit losses was $9.6 million, an increase of $3.0 million from the prior year, attributable primarily to the credit card portfolio. Net charge-offs for the year ended December 31, 2023 were $8.5 million, or 0.47% annualized of average portfolio loans, compared to $5.4 million, or 0.34% annualized of average portfolio loans, for the same period in 2022. The $8.5 million in net charge-offs during the year ended December 31, 2023 was comprised primarily of credit card portfolio net charge-offs, with $5.5 million related to secured and partially secured cards while $1.4 million was related to unsecured cards.

For the year ended December 31, 2023, noninterest income of $25.0 million decreased $4.4 million, or 15.0%, from the same period in 2022. The decrease was primarily driven by the decline in credit card fees of $4.7 million as the number of open customer accounts declined to 525,314 at December 31, 2023 from 533,855 year over year, which resulted in lower interchange and other fee income recognized compared to the prior year.

The efficiency ratio for the year ended December 31, 2023 was 66.53% compared to 64.19% for the year ended December 31, 2022.

For the year ended December 31, 2023, noninterest expense of $110.8 million increased $1.7 million, or 1.5%, from the same period in 2022. The increase was primarily driven by a $5.9 million, or 13.7%, increase in salaries and employee benefits and a $0.8 million, or 16.6%, increase in occupancy and equipment, partially offset by a $3.7 million, or 12.7%, decrease in data processing expense and a $1.7 million, or 15.8%, decrease in professional fees due to a reduction in third party consulting fees. The decrease 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 December 31, 2023 were $2.2 billion, a decrease of $47.8 million, or 2.1%, from the balance at September 30, 2023 and an increase of $101.0 million, or 4.8%, from the balance at December 31, 2022. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.9 billion at December 31, 2023, an increase of $40.7 million, up 2.2% or 8.7% annualized, compared to September 30, 2023, and an increase of $174.1 million, or 10.1%, compared to $1.7 billion at December 31, 2022.

The Company recorded a provision for credit losses of $9.6 million during the year ended December 31, 2023, which increased the allowance for credit losses to $28.6 million, or 1.50% of total loans at December 31, 2023, representing an increase of $0.3 million over the balance at September 30, 2023. Nonperforming assets, which were comprised solely of nonperforming loans as of December 31, 2023, were $16.0 million, or 0.72% of total assets, up from $15.2 million, or 0.67% of total assets at September 30, 2023, and up from $9.8 million, or 0.46% of total assets at December 31, 2022. Included in nonperforming assets at December 31, 2023 is a single $7.6 million, multi-unit residential real estate loan, with respect to which $0.7 million was charged off in the fourth quarter 2023.

Deposits were $1.9 billion at December 31, 2023, a decrease of $72.0 million, or 3.7%, from the balance at September 30, 2023 and an increase of $137.9 million, or 7.8%, from the balance at December 31, 2022. Average deposits of $1.9 billion for the three months ended December 31, 2023 decreased $33.4 million, or 1.7%, as compared to the three months ended September 30, 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 $112.5 million to $622.9 million as of December 31, 2023, as compared to December 31, 2022. Noninterest-bearing deposits represented 32.6% of total deposits at December 31, 2023 compared to 38.4% at December 31, 2022. Uninsured deposits were approximately $789.4 million as of December 31, 2023, representing 41.6% of the Company's deposit portfolio, compared to $857.7 million, or 43.6%, at September 30, 2023, and $784.6 million, or 44.6%, at December 31, 2022.

Stockholders’ equity increased to $254.9 million as of December 31, 2023, compared to $242.9 million at September 30, 2023 and $224.0 million at December 31, 2022. Shares repurchased and retired for the year ended December 31, 2023 as part of the Company's stock repurchase program totaled 475,346 shares at an average price of $18.12, for a total cost of $8.8 million including commissions. As of December 31, 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												Year Ended
(in thousands)	December 31, 2023			September 30, 2023		June 30, 2023		March 31, 2023			December 31, 2022		December 31, 2023			December 31, 2022
Interest income
Loans, including fees	$	45,109		$	45,385	$	42,991	$	41,275		$	38,763	$	174,760		$	144,408
Investment securities available for sale		1,083			1,089		1,266		1,377			1,402		4,815			3,912
Federal funds sold and other		777			1,267		823		764			1,183		3,631			2,326
Total interest income		46,969			47,741		45,080		43,416			41,348		183,206			150,646

Interest expense
Deposits		11,759			10,703		9,409		7,754			4,377		39,625			7,611
Borrowed funds		321			228		331		1,175			1,772		2,055			2,428
Total interest expense		12,080			10,931		9,740		8,929			6,149		41,680			10,039

Net interest income		34,889			36,810		35,340		34,487			35,199		141,526			140,607
Provision for credit losses		2,808			2,280		2,862		1,660			2,384		9,610			6,631
(Release of) provision for credit losses on unfunded commitments		(106	)		24		—		(19	)		—		(101	)		—
Net interest income after provision for credit losses		32,187			34,506		32,478		32,846			32,815		132,017			133,976

Noninterest income
Service charges on deposits		240			250		245		229			222		964			767
Credit card fees		3,970			4,387		4,706		4,210			4,314		17,273			21,972
Mortgage banking revenue		1,166			1,243		1,332		1,155			554		4,896			4,866
Other income		560			446		404		432			471		1,842			1,767
Total noninterest income		5,936			6,326		6,687		6,026			5,561		24,975			29,372

Noninterest expenses
Salaries and employee benefits		11,638			12,419		12,143		12,554			11,769		48,754			42,898
Occupancy and equipment		1,573			1,351		1,536		1,213			1,388		5,673			4,865
Professional fees		1,930			2,358		2,608		2,374			2,426		9,270			11,012
Data processing		6,128			6,469		6,559		6,530			6,697		25,686			29,418
Advertising		1,433			1,565		2,646		517			726		6,161			6,220
Loan processing		198			426		660		349			350		1,633			1,702
Foreclosed real estate expenses, net		—			1		—		6			—		7			(183	)
Other operating		4,007			3,457		3,440		2,679			3,378		13,583			13,182
Total noninterest expenses		26,907			28,046		29,592		26,222			26,734		110,767			109,114
Income before income taxes		11,216			12,786		9,573		12,650			11,642		46,225			54,234
Income tax expense		2,186			2,998		2,255		2,915			2,651		10,354			12,430
Net income	$	9,030		$	9,788	$	7,318	$	9,735		$	8,991	$	35,871		$	41,804

Consolidated Balance Sheets
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(audited)
(in thousands except share data)	December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022
Assets
Cash and due from banks	$	14,513		$	13,767		$	18,619		$	14,477		$	19,963
Interest-bearing deposits at other financial institutions		39,044			130,428			100,343			125,448			39,764
Federal funds sold		407			1,957			376			462			20,688
Total cash and cash equivalents		53,964			146,152			119,338			140,387			80,415
Investment securities available for sale		208,329			206,055			208,464			255,762			252,481
Restricted investments		4,353			4,340			3,803			4,215			7,362
Loans held for sale		7,481			4,843			10,146			9,620			7,416
U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loans receivable, net of fees and costs		645			750			1,090			2,037			2,163
Portfolio loans receivable, net of deferred fees and costs		1,902,643			1,861,929			1,837,041			1,786,109			1,728,592
Less allowance for credit losses		(28,610	)		(28,279	)		(27,495	)		(26,216	)		(26,385	)
Total portfolio loans held for investment, net		1,874,033			1,833,650			1,809,546			1,759,893			1,702,207
Premises and equipment, net		5,069			5,297			5,494			5,367			3,386
Accrued interest receivable		11,494			11,231			10,155			9,985			9,489
Deferred tax asset		12,252			13,644			13,616			12,898			13,777
Bank owned life insurance		37,711			37,315			37,041			36,781			36,524
Other assets		9,336			9,207			9,173			8,341			8,435
Total assets	$	2,224,667		$	2,272,484		$	2,227,866		$	2,245,286		$	2,123,655

Liabilities
Deposits
Noninterest-bearing	$	617,373		$	680,803		$	693,129		$	705,801		$	674,313
Interest-bearing		1,278,623			1,287,185			1,241,232			1,238,573			1,083,759
Total deposits		1,895,996			1,967,988			1,934,361			1,944,374			1,758,072
Federal Home Loan Bank advances		22,000			22,000			22,000			32,000			107,000
Other borrowed funds		27,062			12,062			12,062			12,062			12,062
Accrued interest payable		5,583			5,204			3,029			1,977			1,031
Other liabilities		19,166			22,352			18,979			20,356			21,475
Total liabilities		1,969,807			2,029,606			1,990,431			2,010,769			1,899,640

Stockholders' equity
Common stock		139			139			140			141			141
Additional paid-in capital		54,473			54,549			55,856			57,277			58,190
Retained earnings		213,345			206,033			197,490			191,058			182,435
Accumulated other comprehensive loss		(13,097	)		(17,843	)		(16,051	)		(13,959	)		(16,751	)
Total stockholders' equity		254,860			242,878			237,435			234,517			224,015
Total liabilities and stockholders' equity	$	2,224,667		$	2,272,484		$	2,227,866		$	2,245,286		$	2,123,655

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 December 31, 2023						Three Months Ended September 30, 2023						Three Months Ended December 31, 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	$	65,336	$	680	4.13	%	$	87,112	$	1,183	5.39	%	$	111,404	$	1,006	3.58	%
Federal funds sold		1,574		21	5.29			1,134		15	5.25			4,054		35	3.41
Investment securities available for sale		223,132		1,083	1.93			229,731		1,089	1.88			292,117		1,402	1.90
Restricted investments		4,518		76	6.67			4,058		69	6.75			10,111		142	5.57
Loans held for sale		4,601		83	7.16			6,670		111	6.60			6,062		88	5.74
SBA-PPP loans receivable		699		4	2.27			906		11	4.82			2,435		28	4.59
Portfolio loans receivable⁽²⁾⁽³⁾		1,862,599		45,022	9.59			1,846,866		45,263	9.72			1,675,434		38,647	9.15
Total interest earning assets		2,162,459		46,969	8.62			2,176,477		47,741	8.70			2,101,617		41,348	7.81
Noninterest earning assets		40,020						44,640						34,539
Total assets	$	2,202,479					$	2,221,117					$	2,136,156

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	195,539		90	0.18		$	215,527		71	0.13		$	218,518		61	0.11
Savings		5,184		2	0.15			5,582		3	0.21			8,261		1	0.05
Money market accounts		680,697		7,139	4.16			655,990		6,373	3.85			552,185		3,016	2.17
Time deposits		380,731		4,528	4.72			374,429		4,256	4.51			177,346		1,299	2.91
Borrowed funds		41,823		321	3.05			34,932		228	2.59			199,982		1,772	3.52
Total interest-bearing liabilities		1,303,974		12,080	3.68			1,286,460		10,931	3.37			1,156,292		6,149	2.11
Noninterest-bearing liabilities:
Noninterest-bearing liabilities		27,529						25,047						23,941
Noninterest-bearing deposits		622,941						666,939						735,416
Stockholders’ equity		248,035						242,671						220,507
Total liabilities and stockholders’ equity	$	2,202,479					$	2,221,117					$	2,136,156

Net interest spread					4.94	%					5.33	%					5.70	%
Net interest income			$	34,889					$	36,810					$	35,199
Net interest margin⁽⁴⁾					6.40	%					6.71	%					6.64	%

_______________

⁽¹⁾Annualized.
⁽²⁾Includes nonaccrual loans.
⁽³⁾For the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, collectively, portfolio loans yield excluding credit card loans was 6.89%, 6.76% and 5.86%, respectively.
⁽⁴⁾For the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, collectively, SBA-PPP loans and credit card loans accounted for 248, 266 and 273 basis points of the reported net interest margin, respectively.

	Year Ended December 31,
		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	$	70,407	$	3,211	4.56	%	$	156,751	$	2,007	1.28	%
Federal funds sold		1,597		74	4.63			2,959		44	1.49
Investment securities available for sale		245,466		4,815	1.96			248,869		3,912	1.57
Restricted investments		5,016		346	6.90			5,475		275	5.02
Loans held for sale		5,755		382	6.64			9,696		435	4.49
SBA-PPP loans receivable		1,373		30	2.18			29,831		3,477	11.66
Portfolio loans receivable⁽²⁾⁽³⁾		1,815,595		174,348	9.60			1,579,661		140,496	8.89
Total interest earning assets		2,145,209		183,206	8.54			2,033,242		150,646	7.41
Noninterest earning assets		43,090						44,559
Total assets	$	2,188,299					$	2,077,801

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	201,194		298	0.15		$	253,923		174	0.07
Savings		5,768		8	0.14			8,917		5	0.06
Money market accounts		642,013		23,510	3.66			553,388		4,529	0.82
Time deposits		360,464		15,809	4.39			165,854		2,903	1.75
Borrowed funds		59,302		2,055	3.47			77,556		2,428	3.13
Total interest-bearing liabilities		1,268,741		41,680	3.29			1,059,638		10,039	0.95
Noninterest-bearing liabilities:
Noninterest-bearing liabilities		24,026						23,797
Noninterest-bearing deposits		655,013						781,971
Stockholders’ equity		240,519						212,395
Total liabilities and stockholders’ equity	$	2,188,299					$	2,077,801

Net interest spread					5.25	%					6.46	%
Net interest income			$	141,526					$	140,607
Net interest margin⁽⁴⁾					6.60	%					6.92	%

⁽¹⁾Annualized.
⁽²⁾Includes nonaccrual loans.
⁽³⁾For the years ended December 31, 2023 and 2022, collectively, portfolio loans yield excluding credit card loans was 6.66% and 5.31%, respectively.
⁽⁴⁾For the years ended December 31, 2023 and 2022, collectively, SBA-PPP loans and credit card loans accounted for 264 and 299 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 year ended December 31, 2023 and December 31, 2022.

Segments
For the three months ended December 31, 2023
(in thousands)	Commercial Bank			CBHL			OpenSky^®		Corporate⁽²⁾			Eliminations			Consolidated
Interest income	$	30,957		$	83		$	15,035	$	964		$	(70	)	$	46,969
Interest expense		11,884			31			—		235			(70	)		12,080
Net interest income		19,073			52			15,035		729			—			34,889
Provision (release of provision) for credit losses		691			—			2,125		(8	)		—			2,808
Release of credit losses on unfunded commitments		(106	)		—			—		—			—			(106	)
Net interest income after provision		18,488			52			12,910		737			—			32,187
Noninterest income		773			1,166			3,996		1			—			5,936
Noninterest expense⁽¹⁾		15,135			1,437			10,378		(43	)		—			26,907
Net income (loss) before taxes	$	4,126		$	(219	)	$	6,528	$	781		$	—		$	11,216

Total assets	$	2,050,436		$	8,589		$	117,477	$	276,831		$	(228,666	)	$	2,224,667

For the three months ended September 30, 2023
(in thousands)	Commercial Bank			CBHL			OpenSky^®		Corporate⁽²⁾			Eliminations			Consolidated
Interest income	$	30,409		$	111		$	16,143	$	1,162		$	(84	)	$	47,741
Interest expense		10,736			32			—		247			(84	)		10,931
Net interest income		19,673			79			16,143		915			—			36,810
Provision for credit losses		275			—			1,875		130			—			2,280
Provision for credit losses on unfunded commitments		24			—			—		—			—			24
Net interest income after provision		19,374			79			14,268		785			—			34,506
Noninterest income		665			1,255			4,405		1			—			6,326
Noninterest expense⁽¹⁾		15,784			1,502			10,637		123			—			28,046
Net income (loss) before taxes	$	4,255		$	(168	)	$	8,036	$	663		$	—		$	12,786

Total assets	$	2,102,749		$	5,280		$	116,318	$	264,950		$	(216,813	)	$	2,272,484

For the three months ended December 31, 2022
(in thousands)	Commercial Bank			CBHL			OpenSky^®		Corporate⁽²⁾			Eliminations			Consolidated
Interest income	$	24,389		$	88		$	16,035	$	891		$	(55	)	$	41,348
Interest expense		5,990			33			—		181			(55	)		6,149
Net interest income		18,399			55			16,035		710			—			35,199
Provision for loan losses		—			—			2,384		—			—			2,384
Net interest income after provision		18,399			55			13,651		710			—			32,815
Noninterest income		550			696			4,314		1			—			5,561
Noninterest expense⁽¹⁾		13,811			2,085			10,724		114			—			26,734
Net income (loss) before taxes	$	5,138		$	(1,334	)	$	7,241	$	597		$	—		$	11,642

Total assets	$	1,939,601		$	7,936		$	122,418	$	245,399		$	(191,699	)	$	2,123,655

________________________

⁽¹⁾Noninterest expense includes $5.7 million, $6.1 million and $6.1 million in data processing expense in OpenSky’s^® segment for the three months ended December 31, 2023 September 30, 2023, and December 31, 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 year ended December 31, 2023

(in thousands)

Commercial Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

116,408

382

62,476

4,238

(298

)

183,206

Interest expense

40,896

135

—

947

(298

)

41,680

Net interest income

75,512

247

62,476

3,291

—

141,526

Provision for credit losses

1,540

—

7,948

122

—

9,610

Release of credit losses on unfunded commitments

(101

)

—

(101

)

Net interest income after provision

74,073

247

54,528

3,169

—

132,017

Noninterest income

2,737

4,909

17,325

—

24,975

Noninterest expense⁽¹⁾

61,836

6,001

42,524

406

—

110,767

Net income (loss) before taxes

14,974

(845

)

29,329

2,767

—

46,225

Total assets

2,050,436

8,589

117,477

276,831

(228,666

)

2,224,667

For the year ended December 31, 2022

(in thousands)

Commercial Bank

CBHL

OpenSky^®

Corporate⁽²⁾

Eliminations

Consolidated

Interest income

82,182

435

64,859

3,349

(179

)

150,646

Interest expense

9,245

218

—

755

(179

)

10,039

Net interest income

72,937

217

64,859

2,594

—

140,607

Provision (release of provision) for loan losses

(980

)

—

7,611

—

6,631

Net interest income after provision

73,917

217

57,248

2,594

—

133,976

Noninterest income

2,122

5,276

21,972

—

29,372

Noninterest expense⁽¹⁾

52,552

8,450

47,647

465

—

109,114

Net income (loss) before taxes

23,487

(2,957

)

31,573

2,131

—

54,234

Total assets

1,939,601

7,936

122,418

245,399

(191,699

)

2,123,655

⁽¹⁾Noninterest expense includes $23.7 million and $27.0 million in data processing expense in OpenSky’s^® segment for the years ended December 31, 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)	December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022
Earnings:
Net income	$	9,030		$	9,788		$	7,318		$	9,735		$	8,991
Earnings per common share, diluted		0.65			0.70			0.52			0.68			0.62
Net interest margin		6.40	%		6.71	%		6.63	%		6.65	%		6.64	%
Net interest margin, excluding credit cards & SBA-PPP loans⁽¹⁾		3.92	%		4.05	%		4.06	%		3.81	%		3.91	%
Return on average assets⁽²⁾		1.63	%		1.75	%		1.34	%		1.84	%		1.67	%
Return on average assets, excluding impact of SBA-PPP loans⁽¹⁾⁽²⁾		1.63	%		1.75	%		1.34	%		1.84	%		1.67	%
Return on average equity⁽²⁾		14.44	%		16.00	%		12.30	%		16.98	%		16.18	%
Efficiency ratio		65.91	%		65.02	%		70.41	%		64.73	%		65.59	%

Balance Sheet:
Total portfolio loans receivable, net deferred fees	$	1,902,643		$	1,861,929		$	1,837,041		$	1,786,109		$	1,728,592
Total deposits		1,895,996			1,967,988			1,934,361			1,944,374			1,758,072
Total assets		2,224,667			2,272,484			2,227,866			2,245,286			2,123,655
Total stockholders' equity		254,860			242,878			237,435			234,517			224,015
Total average portfolio loans receivable, net deferred fees		1,862,599			1,846,866			1,800,800			1,750,539			1,675,434
Total average deposits		1,885,092			1,918,467			1,881,380			1,771,024			1,691,726
Portfolio loans-to-deposit ratio (period-end balances)		100.35	%		94.61	%		94.97	%		91.86	%		98.32	%
Portfolio loans-to-deposit ratio (average balances)		98.81	%		96.27	%		95.72	%		98.84	%		99.04	%

Asset Quality Ratios:
Nonperforming assets to total assets		0.72	%		0.67	%		0.71	%		0.73	%		0.46	%
Nonperforming assets to total assets, excluding the SBA-PPP loans⁽¹⁾		0.72	%		0.67	%		0.71	%		0.73	%		0.46	%
Nonperforming loans to total loans		0.84	%		0.82	%		0.85	%		0.91	%		0.56	%
Nonperforming loans to portfolio loans⁽¹⁾		0.84	%		0.82	%		0.86	%		0.91	%		0.56	%
Net charge-offs to average portfolio loans⁽¹⁾⁽²⁾		0.53	%		0.38	%		0.35	%		0.61	%		0.49	%
Allowance for credit losses to total loans		1.50	%		1.52	%		1.50	%		1.47	%		1.52	%
Allowance for credit losses to portfolio loans⁽¹⁾		1.50	%		1.52	%		1.50	%		1.47	%		1.53	%
Allowance for credit losses to non-performing loans		178.34	%		185.61	%		175.03	%		160.91	%		270.46	%

Bank Capital Ratios:
Total risk based capital ratio		14.81	%		14.51	%		14.08	%		14.09	%		14.21	%
Tier 1 risk based capital ratio		13.56	%		13.25	%		12.82	%		12.84	%		12.95	%
Leverage ratio		10.51	%		10.04	%		9.77	%		9.78	%		9.47	%
Common equity Tier 1 capital ratio		13.56	%		13.25	%		12.82	%		12.84	%		12.95	%
Tangible common equity		9.91	%		9.08	%		8.93	%		8.79	%		8.85	%
Holding Company Capital Ratios:
Total risk based capital ratio		17.38	%		17.11	%		16.81	%		16.75	%		16.33	%
Tier 1 risk based capital ratio		15.55	%		15.27	%		14.96	%		14.90	%		15.13	%
Leverage ratio		12.14	%		11.62	%		11.50	%		11.47	%		11.24	%
Common equity Tier 1 capital ratio		15.43	%		15.27	%		14.96	%		14.90	%		15.00	%
Tangible common equity		11.71	%		10.69	%		10.66	%		10.44	%		10.55	%
Composition of Loans:
SBA-PPP loans, net	$	645		$	750		$	1,090		$	2,037		$	2,163
Commercial real estate, non owner-occupied	$	351,116		$	350,637		$	348,892		$	348,047		$	351,423
Commercial real estate, owner-occupied	$	307,911		$	305,802		$	311,972		$	299,966		$	300,809
Residential real estate		573,104			558,147			555,133			545,899			484,735
Construction real estate		290,108			280,905			258,400			251,494			238,099
Commercial and industrial		238,548			236,782			233,598			221,258			220,221
Lender finance		11,085			—			—			—			—
Business equity lines of credit		14,117			14,155			13,277			12,205			12,319
Credit card, net of reserve⁽³⁾		123,331			122,533			122,925			112,860			128,434
Other consumer loans		950			948			1,187			1,578			1,179
Portfolio loans receivable	$	1,910,270		$	1,869,909		$	1,845,384		$	1,793,307		$	1,737,219
Deferred origination fees, net		(7,627	)		(7,980	)		(8,343	)		(7,198	)		(8,627	)
Portfolio loans receivable, net	$	1,902,643		$	1,861,929		$	1,837,041		$	1,786,109		$	1,728,592

Composition of Deposits:
Noninterest-bearing	$	617,373		$	680,803		$	693,129		$	705,801		$	674,313
Interest-bearing demand		199,308			229,035			243,095			219,685			207,836
Savings		5,211			5,686			5,816			5,835			7,530
Money markets		663,129			668,774			631,148			632,087			574,978
Brokered time deposits		142,356			128,665			128,665			181,820			131,819
Other time deposits		268,619			255,025			232,508			199,146			161,596
Total deposits	$	1,895,996		$	1,967,988		$	1,934,361		$	1,944,374		$	1,758,072

Capital Bank Home Loan Metrics:
Origination of loans held for sale	$	45,152		$	50,023		$	61,480		$	44,448		$	43,956
Mortgage loans sold		34,140			39,364			49,231			40,483			43,415
Gain on sale of loans		1,015			1,011			1,262			1,223			912
Purchase volume as a % of originations		89.99	%		92.29	%		93.12	%		90.72	%		88.94	%
Gain on sale as a % of loans sold⁽⁴⁾		2.97	%		2.57	%		2.56	%		3.02	%		2.10	%
Mortgage commissions	$	465		$	528		$	621		$	378		$	451

OpenSky^®Portfolio Metrics:
Open customer accounts		525,314			529,205			540,058			527,231			533,855
Secured credit card loans, gross	$	95,300		$	98,138		$	100,218		$	89,078		$	104,157
Unsecured credit card loans, gross		30,817			27,430			25,254			25,782			26,795
Noninterest secured credit card deposits		173,857			181,185			186,566			184,809			187,412

_______________

⁽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

The Company has presented the following non-GAAP (U.S. Generally Accepted Accounting Principles) financial measures because it believes that these measures provide useful and comparative information to assess trends in the Company’s results of operations and financial condition. Presentation of these non-GAAP financial measures is consistent with how the Company evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry. Investors should recognize that the Company’s presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and the Company strongly encourages a review of its condensed consolidated financial statements in their entirety.

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

Net Income	$	9,030		$	9,788		$	7,318		$	9,735		$	8,991
Less: SBA-PPP Loan Income		4			11			7			8			28
Net Income, as Adjusted	$	9,026		$	9,777		$	7,311		$	9,727		$	8,963
Average Total Assets		2,202,479			2,221,117			2,184,351			2,144,249			2,136,156
Less: Average SBA-PPP Loans		699			906			1,808			2,099			2,435
Average Total Assets, as Adjusted	$	2,201,780		$	2,220,211		$	2,182,543		$	2,142,150		$	2,133,721
Return on Average Assets, as Adjusted		1.63	%		1.75	%		1.34	%		1.84	%		1.67	%

Return on Average Assets, as Adjusted	Year Ended
(in thousands)	December 31, 2023			December 31, 2022

Net Income	$	35,871		$	41,804
Less: SBA-PPP Loan Income		30			3,477
Net Income, as Adjusted	$	35,841		$	38,327
Average Total Assets		2,188,299			2,077,801
Less: Average SBA-PPP Loans		1,373			29,831
Average Total Assets, as Adjusted	$	2,186,926		$	2,047,970
Return on Average Assets, as Adjusted		1.64	%		1.87	%

Net Interest Margin, as Adjusted	Quarter Ended
(in thousands)	December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022

Net Interest Income	$	34,889		$	36,810		$	35,340		$	34,487		$	35,199
Less: Credit Card Loan Income		14,677			15,792			14,818			15,809			15,717
Less: SBA-PPP Loan Income		4			11			7			8			28
Net Interest Income, as Adjusted	$	20,208		$	21,007		$	20,515		$	18,670		$	19,454
Average Interest Earning Assets		2,162,459			2,176,477			2,136,936			2,103,984			2,101,617
Less: Average Credit Card Loans		114,551			116,814			110,574			115,850			124,120
Less: Average SBA-PPP Loans		699			906			1,808			2,099			2,435
Total Average Interest Earning Assets, as Adjusted	$	2,047,209		$	2,058,757		$	2,024,554		$	1,986,035		$	1,975,062
Net Interest Margin, as Adjusted		3.92	%		4.05	%		4.06	%		3.81	%		3.91	%

Net Interest Margin, as Adjusted	Year Ended
(in thousands)	December 31, 2023			December 31, 2022

Net Interest Income	$	141,526		$	140,607
Less: Credit Card Loan Income		61,096			63,348
Less: SBA-PPP Loan Income		30			3,477
Net Interest Income, as Adjusted	$	80,400		$	73,782
Average Interest Earning Assets		2,145,209			2,033,242
Less: Average Credit Card Loans		114,450			126,473
Less: Average SBA-PPP Loans		1,373			29,831
Total Average Interest Earning Assets, as Adjusted	$	2,029,386		$	1,876,938
Net Interest Margin, as Adjusted		3.96	%		3.93	%

Portfolio Loans Receivable Yield, as Adjusted	Quarter Ended
(in thousands)	December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022

Portfolio Loans Receivable Interest Income	$	45,022		$	45,263		$	42,872		$	41,191		$	38,647
Less: Credit Card Loan Income		14,677			15,792			14,818			15,809			15,717
Portfolio Loans Receivable Interest Income, as Adjusted	$	30,345		$	29,471		$	28,054		$	25,382		$	22,930
Average Portfolio Loans Receivable		1,862,599			1,846,866			1,800,800			1,750,539			1,675,434
Less: Average Credit Card Loans		114,551			116,814			110,574			115,850			124,120
Total Average Portfolio Loans Receivable, as Adjusted	$	1,748,048		$	1,730,052		$	1,690,226		$	1,634,689		$	1,551,314
Portfolio Loans Receivable Yield, as Adjusted		6.89	%		6.76	%		6.66	%		6.30	%		5.86	%

Portfolio Loans Receivable Yield, as Adjusted	Year Ended
(in thousands)	December 31, 2023			December 31, 2022

Portfolio Loans Receivable Interest Income	$	174,348		$	140,496
Less: Credit Card Loan Income		61,096			63,348
Portfolio Loans Receivable Interest Income, as Adjusted	$	113,252		$	77,148
Average Portfolio Loans Receivable		1,815,595			1,579,661
Less: Average Credit Card Loans		114,450			126,473
Total Average Portfolio Loans Receivable, as Adjusted	$	1,701,145		$	1,453,188
Portfolio Loans Receivable Yield, as Adjusted		6.66	%		5.31	%

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

Net Income	$	9,030		$	9,788	$	7,318	$	9,735		$	8,991
Add: Income Tax Expense		2,186			2,998		2,255		2,915			2,651
Add: Provision for Credit Losses		2,808			2,280		2,862		1,660			2,384
Add: (Release of) Provision for Credit Losses on Unfunded Commitments		(106	)		24		—		(19	)		—
Pre-tax, Pre-Provision Net Revenue ("PPNR")	$	13,918		$	15,090	$	12,435	$	14,291		$	14,026

Pre-tax, Pre-Provision Net Revenue ("PPNR")	Year Ended
(in thousands)	December 31, 2023			December 31, 2022

Net Income	$	35,871		$	41,804
Add: Income Tax Expense		10,354			12,430
Add: Provision for Credit Losses		9,610			6,631
Add: Release of Credit Losses on Unfunded Commitments		(101	)		—
Pre-tax, Pre-Provision Net Revenue ("PPNR")	$	55,734		$	60,865

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

Allowance for Credit Losses	$	28,610		$	28,279		$	27,495		$	26,216		$	26,385
Total Loans		1,903,288			1,862,679			1,838,131			1,788,146			1,730,755
Less: SBA-PPP Loans		645			750			1,090			2,037			2,163
Total Portfolio Loans	$	1,902,643		$	1,861,929		$	1,837,041		$	1,786,109		$	1,728,592
Allowance for Credit Losses to Total Portfolio Loans		1.50	%		1.52	%		1.50	%		1.47	%		1.53	%

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

Total Nonperforming Assets	$	16,042		$	15,236		$	15,709		$	16,293		$	9,756
Total Assets		2,224,667			2,272,484			2,227,866			2,245,286			2,123,655
Less: SBA-PPP Loans		645			750			1,090			2,037			2,163
Total Assets, net SBA-PPP Loans	$	2,224,022		$	2,271,734		$	2,226,776		$	2,243,249		$	2,121,492
Nonperforming Assets to Total Assets, net SBA-PPP Loans		0.72	%		0.67	%		0.71	%		0.73	%		0.46	%

Nonperforming Loans to Total Portfolio Loans	Quarter Ended
(in thousands)	December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022

Total Nonperforming Loans	$	16,042		$	15,236		$	15,709		$	16,293		$	9,756
Total Loans		1,903,288			1,862,679			1,838,131			1,788,146			1,730,755
Less: SBA-PPP Loans		645			750			1,090			2,037			2,163
Total Portfolio Loans	$	1,902,643		$	1,861,929		$	1,837,041		$	1,786,109		$	1,728,592
Nonperforming Loans to Total Portfolio Loans		0.84	%		0.82	%		0.86	%		0.91	%		0.56	%

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

Total Net Charge-offs	$	2,477		$	1,780		$	1,583		$	2,633		$	2,090
Total Average Loans		1,863,298			1,847,772			1,802,608			1,752,638			1,677,869
Less: Average SBA-PPP Loans		699			906			1,808			2,099			2,435
Total Average Portfolio Loans	$	1,862,599		$	1,846,866		$	1,800,800		$	1,750,539		$	1,675,434
Net Charge-offs to Average Portfolio Loans		0.53	%		0.38	%		0.35	%		0.61	%		0.49	%

Net Charge-offs to Average Portfolio Loans	Year Ended
(in thousands)	December 31, 2023			December 31, 2022

Total Net Charge-offs	$	8,473		$	5,427
Total Average Loans		1,816,968			1,609,492
Less: Average SBA-PPP Loans		1,373			29,831
Total Average Portfolio Loans	$	1,815,595		$	1,579,661
Net Charge-offs to Average Portfolio Loans		0.47	%		0.34	%

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

Total Stockholders' Equity	$	254,860	$	242,878	$	237,435	$	234,517	$	224,015
Less: Preferred Equity		—		—		—		—		—
Less: Intangible Assets		—		—		—		—		—
Tangible Common Equity	$	254,860	$	242,878	$	237,435	$	234,517	$	224,015
Period End Shares Outstanding		13,922,532		13,893,083		13,981,414		14,082,657		14,138,829
Tangible Book Value per Share	$	18.31	$	17.48	$	16.98	$	16.65	$	15.84

ABOUT CAPITAL BANCORP, INC.

Capital Bancorp, Inc., Rockville, Maryland is a registered bank holding company incorporated under the laws of Maryland. The Company’s wholly-owned subsidiary, Capital Bank, N.A., is the fourth largest bank headquartered in Maryland at December 31, 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 December 31, 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 wars in Ukraine and in the Middle East; 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; any failure to adequately manage the transition from USD LIBOR as a reference rate; 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; climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs; 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. Reports Fourth Quarter 2023 Net Income of $9.0 million, or $0.65 per share

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