Capital Bancorp, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Capital Bancorp is a Maryland bank holding company operating primarily through Capital Bank, N.A. in the Washington, D.C. and Baltimore markets, with mortgage lending and nationwide OpenSky secured credit-card businesses.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income | $84.1 million | $66.3 million |
| Provision for loan losses | $11.2 million | $2.8 million |
| Noninterest income | $61.1 million | $25.7 million |
| Noninterest expense | $98.8 million | $66.5 million |
| Net income | $25.8 million | $16.9 million |
| Diluted earnings per share | $1.87 | $1.21 |
| Total assets at year-end | $1.877 billion | $1.428 billion |
| Deposits at year-end | $1.652 billion | $1.225 billion |
| Stockholders’ equity at year-end | $159.3 million | $133.3 million |
- Net income rose 52.8%. Growth reflected higher lending balances and substantial mortgage and credit-card fee revenue; increased credit-loss provisioning and operating costs partly offset those gains.
- Net interest margin was 5.14%, down from 5.51% in management’s discussion. Average earning assets grew 35.7%, while the average yield on earning assets fell to 5.95% from 6.82%. Average cost of interest-bearing liabilities declined to 1.29% from 1.93%.
- Mortgage banking revenue increased to $40.6 million from $16.0 million as originations more than doubled to $1.309 billion. OpenSky credit-card fees increased to $17.0 million from $7.6 million; active accounts reached 568,373 from 223,379.
- Cash and cash equivalents were $146.9 million at year-end. Operating cash flow was $5.5 million, investing cash flow was negative $385.5 million, and financing cash flow was positive $412.1 million. Deposit growth was the principal financing inflow.
- Portfolio loans, excluding PPP loans, were $1.316 billion gross, up from $1.173 billion. The allowance for loan losses rose to $23.4 million, or 1.78% of portfolio loans excluding PPP, from $13.3 million, or 1.14%. Net charge-offs were $1.1 million, or 0.09% of average loans.
- Nonperforming assets increased to $12.6 million, or 0.67% of assets, from $7.1 million, or 0.50%. Nonperforming loans were $9.2 million versus $4.7 million; foreclosed real estate was $3.3 million.
- Bank capital ratios remained above the filing’s well-capitalized thresholds: CET1 and Tier 1 risk-based capital were each 12.06%, total risk-based capital was 13.40%, and leverage was 7.44% at year-end.
Material changes and unusual items
- The Company originated approximately $238.7 million of SBA Paycheck Protection Program loans through year-end. PPP loans receivable were $204.9 million gross; the balance sheet reports $201.0 million net of fees. They carry a 100% SBA guarantee, and the Company assigned no loan-loss allowance to them.
- COVID-related payment deferrals on commercial and consumer loans declined to $30.5 million at December 31, 2020, from $144.0 million at June 30, 2020.
- Deposits grew 34.8%, including a substantial increase in noninterest-bearing balances. Wholesale time deposits declined by $59.3 million to $107.7 million. The Company reported $22.0 million in FHLB advances and $14.0 million in other borrowed funds; it refinanced $13.5 million of 6.95% subordinated notes with $10.0 million of new notes bearing 5.00% for the first five years.
- The Company repurchased 304,114 shares during 2020 for approximately $3.7 million. It has not paid common-stock dividends.
- Fourth-quarter 2020 net income was $9.7 million, compared with $5.1 million in fourth-quarter 2019.
Outlook, commentary and risks
No quantified earnings or financial guidance is provided. Management’s stated priorities include organic commercial loan and core-deposit growth, expanding mortgage purchase lending and OpenSky, leveraging technology, and pursuing selective acquisitions. Management said it expects deposit-gathering efforts to reduce reliance on wholesale funding.
The filing emphasizes uncertainty from COVID-19, including borrower repayment capacity, collateral values, tourism and business activity, loan-loss reserves, and operating continuity. Other significant exposures include geographic concentration in the D.C. and Baltimore markets, commercial real estate and construction lending, interest-rate and margin sensitivity, mortgage-market dependence, OpenSky credit and fraud risk, deposit concentration, cybersecurity, and regulatory requirements. At year-end, 13.5% of OpenSky balances were at least 30 days delinquent; management also cited historical first-year charge-offs of about 20% for new secured cards. Litigation arising from PPP administration and potential SBA guarantee disputes are identified as risks.
Management reported effective disclosure controls and internal control over financial reporting. The independent auditor gave an unqualified opinion on the financial statements; it did not attest to internal-control effectiveness because of the Company’s emerging-growth-company transition status. Management described ordinary-course legal proceedings as not expected to have a material adverse effect.
Important facts for investors to verify
- Reconcile the filing’s differing disclosures about the non-owner-occupied commercial real estate concentration ratio: one section reports 298.6% of capital, while another reports 341.6%. The construction-to-capital ratio also differs between sections (149.4% and 147.7%).
- Confirm the comparable 2019 net interest margin: management’s discussion and analysis shows 5.51%, while selected financial data shows 5.60%.
- Track performance and credit quality after pandemic deferrals expire, including the adequacy of the allowance, delinquencies, nonperforming assets, and OpenSky charge-offs.
- Assess whether unusually strong mortgage refinancing activity and rapid OpenSky account growth can be sustained, and how related commissions, technology costs, and credit risks evolve.
- Review liquidity and funding concentration, including the largest depositors, PPP-related funding, available borrowing capacity, and the maturity and repricing terms of debt and deposits.