Capital Bancorp(CBNK) - 2023 Q2 - Quarterly Report

Loan Portfolio Performance - As of June 30, 2023, the total portfolio loans receivable amounted to $1,845,384,000, a decrease from $2,006,541,000 in the previous year[146] - The residential real estate loans classified as "Pass" totaled $83,840,000, down from $148,312,000 in 2022, indicating a significant decline[146] - The commercial real estate loans classified as "Pass" decreased to $23,048,000 from $191,053,000, reflecting a substantial reduction in this segment[146] - As of December 31, 2022, the total portfolio loans receivable amounted to $1,737,219,000, with $1,559,537,000 classified as Pass loans[150] - The outstanding loan commitments as of June 30, 2023, totaled $321,354,000, a decrease from $345,062,000 as of December 31, 2022, representing a decline of approximately 6.9%[150] - Net portfolio loans reached $1.837 billion as of June 30, 2023, an increase of $108.4 million, or 6.3%, from $1.728 billion at the end of 2022[253] - The gross portfolio loans totaled $1.845 billion, with residential loans accounting for $555.1 million and commercial loans for $674.1 million[264] Financial Performance - Net income for the three months ended June 30, 2023, was $7.3 million, a decrease of 36.4% compared to $11.5 million for the same period in 2022[206] - For the six months ended June 30, 2023, net income was $17.1 million, a decrease of 21.6% from $21.7 million in the same period in 2022[212] - Total noninterest income for the three months ended June 30, 2023, was $6.7 million, a decrease of 20.0% from $8.4 million in the same period in 2022[242] - Noninterest income decreased by 20.0% to $6.7 million for the three months ended June 30, 2023, primarily due to a decline in credit card fees[209] - Noninterest expenses increased by 9.1% to $29.6 million for the three months ended June 30, 2023, driven by higher salaries and employee benefits[210] - Noninterest expenses for the six months ended June 30, 2023, increased by 2.9% to $55.8 million, with a significant rise in salaries and employee benefits[215] Credit Losses and Allowances - The allowance for credit losses is under scrutiny, with potential regulatory requirements to increase reserves[145] - Provision for credit losses rose by 40.6% to $2.9 million for the three months ended June 30, 2023, attributed to loan growth and changes in credit card mix[208] - The allowance for credit losses (ACL) as a percentage of portfolio loans was 1.50% at June 30, 2023, compared to 1.53% at December 31, 2022[239] - The total allowance for credit losses was $27.5 million as of June 30, 2023, compared to $26.4 million on December 31, 2022[311] - The total net charge-offs for the six months ended June 30, 2023, amounted to $4.216 million, representing 0.24% of the average loan portfolio[275] - 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% for the same period in 2022[235] Economic and Regulatory Environment - The company faces risks associated with interest rate fluctuations, impacting earnings from interest-earning assets[145] - The overall economic conditions, including inflation and interest rates, are critical factors influencing the company's financial performance[145] - The effectiveness of internal controls over financial reporting is a priority, with ongoing efforts to address any material weaknesses[145] - The company is currently evaluating products and preparing to offer new rates in response to the discontinuation of LIBOR, with no material impact expected on financial statements[339] Deposits and Borrowings - Total deposits rose by $176.3 million, or 10.0%, from $1.758 billion to $1.934 billion during the same period[253] - Total deposits reached $1.83 billion as of June 30, 2023, with an average interest rate of 1.89%, an increase from 0.43% at year-end 2022[314] - Total borrowings decreased to $34.1 million as of June 30, 2023, down from $119.1 million at December 31, 2022, due to an increase in deposits[320] - Borrowings decreased significantly by $85.0 million, or 71.4%, from $119.1 million to $34.1 million[253] Asset Management - The fair value of loans held for sale increased to $10,146,000 as of June 30, 2023, compared to $7,416,000 as of December 31, 2022, reflecting a growth of approximately 36.9%[170] - The fair value of the loan portfolio as of June 30, 2023, was estimated at $1,800,999,000, compared to $1,659,283,000 as of December 31, 2022, showing an increase of about 8.5%[183] - The company has established underwriting guidelines and regularly monitors delinquency levels to maintain asset quality[267] - Nonperforming assets are monitored closely, with loans placed on nonaccrual status when they are 90 days past due or if collection is in doubt[265] Investments and Securities - As of June 30, 2023, the total investment securities available for sale amounted to $208,464,000, a decrease from $252,481,000 as of December 31, 2022, representing a decline of approximately 17.4%[167] - The weighted average yield on investment securities was 1.82% as of June 30, 2023, with total fair value at $208.5 million[259] - Unrealized losses on securities available for sale were $21.5 million as of June 30, 2023, down from $22.4 million as of December 31, 2022[336] Employee and Operational Costs - Salaries and employee benefits increased by $2.1 million, or 20.6%, for the three months ended June 30, 2023, due to growth in headcount[247] - The company recognized $260 thousand in income from bank-owned life insurance for the three months ended June 30, 2023, compared to $254 thousand for the same period in 2022[332]