Capital Bancorp Inc
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
CBNK$42.39-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001419536-24-000022
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001419536-24-000030
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 224 previous paragraphs and 222 current paragraphs.
164 unchanged; 54 reworded; 4 added; 5 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 33 previous and 33 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (4)
Current report
As of the closing, IFHI had more than $541 million in assets, $424 million in gross loans and $450 million in total deposits and operated one banking office located in North Riverside, Illinois.
Current report
The provision for credit losses for the three months ended September 30, 2024 was $3.7 million, an increase of $1.5 million from the same period in 2023. Net charge-offs for the three months ended September 30, 2024 were $2.7 million, or 0.51% on an annualized basis of average portfolio loans, compared to $1.8 million, or 0.38% on an annualized basis of average loans for the same period in 2023. Of the $2.7 million in net charge-offs during the quarter, $1.0 million related to secured and partially secured credit cards and $0.7 million related to unsecured credit cards. Further, $0.6 million of net charge-offs were related to commercial real estate loans and $0.4 million were related to commercial and industrial loans.
Current report
Noninterest expense was $88.7 million for the nine months ended September 30, 2024, as compared to $83.9 million for the nine months ended September 30, 2023, an increase of $4.8 million, or 5.8%. The change includes increases in salaries and employee benefits expenses of $2.4 million, or 6.5%, merger-related expenses of $1.3 million, occupancy and equipment expenses of $1.2 million, data processing expense of $0.9 million, advertising expenses of $0.6 million and other operating expenses of $0.5 million partially offset by a decrease in professional fees of $1.6 million and other operating losses of $0.4 million.
Current report
For the three months ended September 30, 2024, the provision for credit losses was $3.7 million, an increase of $1.5 million from the same period in 2023, attributable primarily to portfolio loan growth. Net charge-offs for the three months ended September 30, 2024 were $2.7 million, or 0.51% on an annualized basis of average portfolio loans, compared to $1.8 million, or 0.38% on an annualized basis of average portfolio loans for the same period in 2023. Of the $2.7 million in net charge-offs during the quarter, $1.0 million related to secured and partially secured credit cards and $0.7 million related to unsecured credit cards. Further, $0.6 million of net charge-offs were related to commercial real estate loans and $0.4 million were related to commercial and industrial loans.
Removed paragraphs (5)
Previous report
•risks related to the proposed merger with IFHI including, among others, (i) failure to complete the merger with IFHI or unexpected delays related to the merger or either party’s inability to satisfy closing conditions required to complete the merger, (ii) certain restrictions during the pendency of the proposed merger with IFHI that may impact the parties’ ability to pursue certain business opportunities or strategic transactions, (iii) diversion of management’s attention from ongoing business operations and opportunities, (iv) cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (v) the integration of each party’s management, personnel and operations will not be successfully achieved or may be materially delayed or will be more costly or difficult than expected, (vi) deposits attrition, customer or employee loss and/or revenue loss as a result of the proposed merger, and (vii) expenses related to the proposed merger being greater than expected;
Previous report
On July 9, 2024, the Company received regulatory approval from the Federal Reserve Bank of Richmond, acting on delegated authority from the Board of Governors of the Federal Reserve System for the Merger. Closing of the transaction, which is expected to occur in the fourth quarter of 2024, is contingent upon shareholder approval and approval of the Office of the Comptroller of the Currency, along with the satisfaction of other customary closing conditions. IFHI is headquartered in Raleigh, North Carolina with $548 million in total assets, $400 million in gross loans and $436 million in total deposits as of December 31, 2023. IFHI operates one banking office located in North Riverside, Illinois.
Previous report
The provision for credit losses for the three months ended June 30, 2024 was $3.4 million, an increase of $0.6 million from the same period in 2023. Net charge-offs for the three months ended June 30, 2024 were $1.9 million, or 0.39% on an annualized basis of average portfolio loans, compared to $1.6 million, or 0.35% on an annualized basis of average loans for the same period in 2023. Of the $1.9 million in net charge-offs during the quarter, $0.9 million related to secured and partially secured cards in the credit card portfolio and $0.6 million related to unsecured cards.
Previous report
For the three months ended June 30, 2024, the provision for credit losses was $3.4 million, an increase of $0.6 million from the same period in 2023. Net charge-offs for the three months ended June 30, 2024 were $1.9 million, or 0.39% on an annualized basis of average portfolio loans, compared to $1.6 million, or 0.35% on an annualized basis of average portfolio loans for the same period in 2023. Of the $1.9 million in net charge-offs during the quarter, $0.9 million related to secured and partially secured cards in the credit card portfolio and $0.6 million related to unsecured cards.
Previous report
Noninterest expense was $59.0 million for the six months ended June 30, 2024, as compared to $55.8 million for the six months ended June 30, 2023, an increase of $3.2 million, or 5.7%. The change includes increases in salaries and employee benefits expenses increased by $1.5 million, or 6.0%, advertising expenses of $0.9 million, merger-related expenses of $0.8 million, occupancy and equipment expenses of $0.7 million and other operating expenses of $0.7 million partially offset by a decrease in professional fees of $1.3 million.
Reworded paragraphs (54)
Previous wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.
Current wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.
Previous wording
•the effect of acquisitions we may make, such as our pending acquisition of Integrated Financial Holdings, Inc. (“IFHI”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;
Current wording
•the effect of acquisitions we may make, such as our recent acquisition of Integrated Financial Holdings, Inc. (“IFHI”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;
Previous wording
As you read and consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions and can change as a result of many possible events or factors, not all of which are known to us or in our control. Although we believe that these forward-looking statements are based on reasonable assumptions, beliefs, and expectations, if a change occurs or our beliefs, assumptions or expectations were incorrect, our business, financial condition, liquidity and/or results of operations may vary materially from those expressed in our forward-looking statements. You should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include those described under the heading “Risk
Current wording
As you read and consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions and can change as a result of many possible events or factors, not all of which are known to us or in our control. Although we believe that these forward-looking statements are based on reasonable assumptions, beliefs, and expectations, if a change occurs or our beliefs, assumptions or expectations were incorrect, our business, financial condition, liquidity and/or results of operations may vary materially from those expressed in our forward-looking statements. You should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include those described under the heading “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023 and those referenced herein and in other reports on file with the Securities and Exchange Commission (“SEC”).
Previous wording
We are Capital Bancorp, Inc., a bank holding company and a Maryland corporation incorporated in 1998, operating primarily through our wholly-owned subsidiary, Capital Bank, N.A., a commercial-focused community bank based in the Washington D.C. and Baltimore metropolitan areas. The Bank is headquartered in Rockville, Maryland, received its charter in 1999 and began operations the same year. We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C. and Baltimore, Maryland metropolitan areas through four commercial bank branches, one mortgage office, and two loan production offices.
Current wording
We are Capital Bancorp, Inc., a bank holding company and a Maryland corporation incorporated in 1998, operating primarily through our wholly-owned subsidiary, Capital Bank, N.A., a commercial-focused community bank based in the Washington D.C. and Baltimore metropolitan areas. The Bank is headquartered in Rockville, Maryland, received its charter in 1999 and began operations the same year. We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C. and Baltimore, Maryland metropolitan areas and Fort Lauderdale, Florida through five commercial bank branches, one mortgage office, and two loan production offices.
Previous wording
Pending Acquisition of Integrated Financial Holdings, Inc.
Current wording
Acquisition of Integrated Financial Holdings, Inc.
Previous wording
On March 27, 2024, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with IFHI, pursuant to which IFHI will merge with and into the Company (the “Merger”), with the Company surviving the Merger. Following the Merger, IFHI’s wholly-owned bank subsidiary, West Town Bank & Trust, will be merged with and into Capital Bank, with Capital Bank as the surviving institution. West Town Bank & Trust provides banking services through its full-service office located in North Riverside, Illinois and is a nationwide lender in government guaranteed lending across both U.S. Department of Agriculture (“USDA”) and U.S. Small Business Administration (“SBA”) government guaranteed lending. IFHI is also the parent company of Windsor Advantage, LLC, a loan service provider that offers community banks and credit unions with a comprehensive outsourced SBA 7(a) and USDA lending platform.
Current wording
On October 1, 2024, the Company completed its previously announced merger (the “Merger”) with IFHI pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 27, 2024. At the effective time of the Merger (the “Effective Time”), IFHI merged with and into the Company, with the Company continuing as the surviving corporation in the Merger. Immediately following the Merger, West Town Bank & Trust, merged with and into Capital Bank, with Capital Bank as the surviving bank.
Previous wording
In accordance with the terms of the Merger Agreement, IFHI’s shareholders will have the right to receive (i) 1.115 shares of the Company’s common stock, and (ii) subject to certain adjustments, $5.36 in cash, as well as cash in lieu of fractional shares of the Company’s common stock.
Current wording
In accordance with the terms of the Merger Agreement, each share of IFHI’s common stock, par value $1.00 per share was converted into the right to receive (i) 1.115 shares of the Company’s common stock, par value $0.01 per share, and (ii) subject to certain adjustments, $5.36 in cash per share of IFHI common stock, par value $1.00 per share, held immediately prior to the Effective Time, as well as cash in lieu of fractional shares of the Company’s common stock. In addition, each stock option granted by IFHI to purchase shares of IFHI common stock, whether vested or unvested, outstanding immediately prior to the Effective Time, was assumed by the Company and converted into an equivalent option to purchase the Company’s common stock, with the same terms and conditions as applied to the IFHI stock option.
Previous wording
Net income for the three months ended June 30, 2024 was $8.2 million, compared to net income of $7.3 million for the same period in 2023, a 12.1% increase. Net income, as adjusted to exclude the impact of merger-related expenses (non-GAAP, excluding merger-related expenses), was $8.3 million for the three months ended June 30, 2024. Net interest income increased by $1.7 million, or 4.9%, to $37.1 million when comparing the three months ended June 30, 2024 to the three months ended June 30, 2023, primarily due to increased average balances of $190.0 million in portfolio loans partially offset by significant increases in the cost of funding. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Current wording
Net income for the three months ended September 30, 2024 was $8.7 million, compared to net income of $9.8 million for the same period in 2023, an 11.4% decrease. Net income, as adjusted to exclude the impact of merger-related expenses (non-GAAP, excluding merger-related expenses), was $9.2 million for the three months ended September 30, 2024. Net interest income increased by $1.5 million, or 4.2%, to $38.4 million when comparing the three months ended September 30, 2024 to the three months ended September 30, 2023, primarily due to increased average balances of $205.8 million in portfolio loans partially offset by increases in the cost of funding. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Previous wording
For the three months ended June 30, 2024, noninterest income of $6.9 million increased $0.2 million, or 3.0%, from the same period in 2023. Credit card fees of $4.3 million decreased $0.4 million primarily related to lower interchange and other fee income.
Current wording
For the three months ended September 30, 2024, noninterest income of $6.6 million increased $0.3 million, or 4.9%, from the same period in 2023. Mortgage banking revenue of $1.9 million increased $0.6 million primarily due to increased mortgage loans sold while credit card fees of $4.1 million decreased $0.3 million primarily related to lower interchange and other fee income.
Previous wording
Noninterest expense was $29.5 million for the three months ended June 30, 2024, as compared to $29.6 million for the three months ended June 30, 2023. The change includes decreases in professional fees of $0.8 million, advertising expenses of $0.6 million, operational losses of $0.4 million and loan processing expenses of $0.2 million. Offsetting increases include salaries and employee benefits expenses of $1.1 million, occupancy and equipment expenses of $0.3 million, data processing expense of $0.2 million, other operating expense of $0.2 million and merger-related expenses of $0.1 million.
Current wording
Noninterest expense was $29.7 million for the three months ended September 30, 2024, as compared to $28.0 million for the three months ended September 30, 2023. The change includes increases in salaries and employee benefits expenses of $0.9 million, data processing expense of $0.5 million, merger-related expenses of $0.5 million, occupancy and equipment expenses of $0.4 million, loan processing expenses of $0.2 million and operational losses of $0.1 million. Offsetting decreases include professional fees of $0.4 million, advertising expenses of $0.3 million and other operating expense of $0.2 million.
Previous wording
Net income for the six months ended June 30, 2024 was $14.8 million, compared to net income of $17.1 million for the same period in 2023, a 13.4% decrease. Net interest income increased $2.2 million, or 3.2%, to $72.1 million when comparing the six months ended June 30, 2024 to the six months ended June 30, 2023, primarily due to increased average balances of $182.2 million in portfolio loans combined with an 11 basis point increase in the yield on portfolio loans, offset by increases in the cost of funding.
Current wording
Net income for the nine months ended September 30, 2024 was $23.4 million, compared to net income of $26.8 million for the same period in 2023, a 12.7% decrease. Net interest income increased $3.8 million, or 3.5%, to $110.4 million when comparing the nine months ended September 30, 2024 to the nine months ended September 30, 2023, primarily due to increased average balances of $190.1 million in portfolio loans combined with a 5 basis point increase in the yield on portfolio loans, offset by increases in the cost of funding.
Previous wording
The provision for credit losses for the six months ended June 30, 2024 was $6.1 million, an increase of $1.6 million, or 35.9%, from the provision for credit losses for the six months ended June 30, 2023, attributable primarily to portfolio loan growth and specific reserves of $1.1 million for collateral dependent loans at June 30, 2024 as compared to $0.3 million at June 30, 2023.
Current wording
The provision for credit losses for the nine months ended September 30, 2024 was $9.9 million, an increase of $3.1 million, or 45.4%, from the provision for credit losses for the nine months ended September 30, 2023, attributable primarily to portfolio loan growth and specific reserves of $1.0 million for collateral dependent loans at September 30, 2024 as compared to $0.7 million at September 30, 2023. Net charge-offs for the nine months ended September 30, 2024 were $6.6 million, or 0.44% on an annualized basis of average portfolio loans, compared to $6.0 million, or 0.45% on an annualized basis of average loans for the same period in 2023.
Previous wording
For the six months ended June 30, 2024, noninterest income was $12.9 million, an increase of $0.2 million, or 1.2%, from $12.7 million in the prior year period. Mortgage banking revenue of $3.4 million increased $1.0 million due to an increase in home loan sales while credit card fees of $8.2 million declined $0.7 million as the number of open customer accounts declined to 537,734 at June 30, 2024 from 540,058 at June 30, 2023, which resulted in lower interchange and other fee income recognized compared to the prior year.
Current wording
For the nine months ended September 30, 2024, noninterest income was $19.5 million, an increase of $0.5 million, or 2.4%, from $19.0 million in the prior year period. Mortgage banking revenue of $5.3 million increased $1.6 million due to an increase in home loan sales while credit card fees of $12.3 million declined $1.0 million from lower interchange and other fee income recognized compared to the prior year.
Previous wording
The table below presents the average balances and weighted average rates of the major categories of the Company’s assets, liabilities, and stockholders’ equity for the three and six months ended June 30, 2024 and 2023. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived by utilizing average daily balances for the time period shown. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yield/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
Current wording
The table below presents the average balances and weighted average rates of the major categories of the Company’s assets, liabilities, and stockholders’ equity for the three and nine months ended September 30, 2024 and 2023. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived by utilizing average daily balances for the time period shown. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yield/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
Previous wording
(3)For the three months ended June 30, 2024 and 2023, collectively, portfolio loans yield excluding credit card loans was 7.04% and 6.65%, respectively.
Current wording
(3)For the three months ended September 30, 2024 and 2023, collectively, portfolio loans yield excluding credit card loans was 7.15% and 6.76%, respectively.
Previous wording
(4)For the three months ended June 30, 2024 and 2023, collectively, credit card loans accounted for 246 and 257 basis points of the reported net interest margin, respectively.
Current wording
(4)For the three months ended September 30, 2024 and 2023, collectively, credit card loans accounted for 233 and 266 basis points of the reported net interest margin, respectively.
Previous wording
The net interest margin decreased 17 basis points to 6.46% for the three months ended June 30, 2024 from the same period in 2023 as the increase in the cost of deposits, including money market accounts and time deposits, outpaced the increase in portfolio loan yields, including credit card loans. Net interest margin, excluding credit card loans, decreased to 4.00% for the three months ended June 30, 2024, compared to 4.06% for the same period in 2023. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Current wording
The net interest margin decreased 30 basis points to 6.41% for the three months ended September 30, 2024 from the same period in 2023 as the increase in the cost of deposits, including money market accounts and time deposits, outpaced the increase in portfolio loan yields, including credit card loans. Net interest margin, excluding credit card loans, increased to 4.08% for the three months ended September 30, 2024, compared to 4.05% for the same period in 2023. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Previous wording
For the three months ended June 30, 2024, average interest earning assets increased $170.1 million, or 8.0%, to $2.3 billion as compared to the same period in 2023, and the average yield on interest earning assets increased to 8.82%, a 36 basis point increase from 8.46%. Compared to the same period in the prior year, average interest-bearing liabilities increased $164.4 million, or 13.2%, and the average cost of interest-bearing liabilities increased to 3.86%, a 73 basis point increase from 3.13%.
Current wording
For the three months ended September 30, 2024, average interest earning assets increased $204.5 million, or 9.4%, to $2.4 billion as compared to the same period in 2023, and the average yield on interest earning assets increased to 8.79%, a 9 basis point increase from 8.70%. Compared to the same period in the prior year, average interest-bearing liabilities increased $167.8 million, or 13.0%, and the average cost of interest-bearing liabilities increased to 3.90%, a 53 basis point increase from 3.37%.
Previous wording
(3)For the six months ended June 30, 2024 and 2023, collectively, portfolio loans yield excluding credit card loans was 7.00% and 6.48%, respectively.
Current wording
(3)For the nine months ended September 30, 2024 and 2023, collectively, portfolio loans yield excluding credit card loans was 7.05% and 6.57%, respectively.
Previous wording
(4)For the six months ended June 30, 2024 and 2023, collectively, credit card loans accounted for 242 and 270 basis points of the reported net interest margin, respectively.
Current wording
(4)For the nine months ended September 30, 2024 and 2023, collectively, credit card loans accounted for 239 and 268 basis points of the reported net interest margin, respectively.
Previous wording
The net interest margin decreased 29 basis points to 6.35% for the six months ended June 30, 2024 from the same period in 2023. Net interest margin, excluding credit card loans, was 3.93% for the six months ended June 30, 2024, compared to 3.94% for the same period in 2023. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Current wording
The net interest margin decreased 29 basis points to 6.37% for the nine months ended September 30, 2024 from the same period in 2023. Net interest margin, excluding credit card loans, was 3.98% for the nine months ended September 30, 2024 and 2023. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Previous wording
For the six months ended June 30, 2024, average interest earning assets increased $160.3 million, or 7.6%, to $2.3 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 31 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $154.2 million, or 12.4%, while the average cost of interest-bearing liabilities increased 85 basis points to 3.88% from 3.03%.
Current wording
For the nine months ended September 30, 2024, average interest earning assets increased $175.1 million, or 8.2%, to $2.3 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 24 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $158.7 million, or 12.6%, while the average cost of interest-bearing liabilities increased 74 basis points to 3.89% from 3.15%.
Previous wording
Total interest income was impacted by the effect of growth in average portfolio loan balances and increases in market interest rates when comparing the three months ended June 30, 2024 to the same period in 2023. The loan portfolio, excluding credit cards, continued to experience growth through the three months ended June 30, 2024, which contributed an additional $4.9 million in interest income. Total interest expense was impacted by growth in average balances of time deposits and money market accounts contributing $1.2 million and $0.5 million in interest expense and increased rates on time deposits and money market accounts, which contributed an additional $0.7 million and $1.1 million of interest expense.
Current wording
Total interest income was impacted by the effect of growth in average portfolio loan balances and increases in market interest rates when comparing the three months ended September 30, 2024 to the same period in 2023. The loan portfolio, excluding credit cards, continued to experience growth through the three months ended September 30, 2024, which contributed an additional $5.3 million in interest income. Total interest expense was impacted by growth in average balances of time deposits and money market accounts contributing $1.3 million and $0.5 million, respectively, in interest expense and increased rates on time deposits and money market accounts, which contributed an additional $0.5 million and $0.6 million, respectively, of interest expense.
Previous wording
When comparing the six months ended June 30, 2024 to the same period in 2023, the greatest positive impact to total interest income was the effect of growth in average portfolio loan balances and increases in market interest rates. The loan portfolio, excluding credit cards, contributed $6.6 million in interest income from volume and $4.3 million in interest income from an increase in market interest rates for the six months ended June 30, 2024 compared to the same period in the prior year. Total interest expense was impacted by growth in average balances of time deposits and money market accounts contributing $2.9 million and $1.3 million in interest expense and increased rates on time deposits and money market accounts, which contributed an additional $1.5 million and $2.9 million of interest expense.
Current wording
When comparing the nine months ended September 30, 2024 to the same period in 2023, the greatest positive impact to total interest income was the effect of growth in average portfolio loan balances and increases in market interest rates. The loan portfolio, excluding credit cards, contributed $10.1 million in interest income from volume and $6.1 million in interest income from an increase in market interest rates for the nine months ended September 30, 2024 compared to the same period in the prior year. Total interest expense was impacted by growth in average balances of time deposits and money market accounts contributing $4.2 million and $1.7 million, respectively, in interest expense and increased rates on time deposits and money market accounts, which contributed an additional $2.1 million and $3.5 million, respectively, of interest expense.
Previous wording
The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. The amount for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses, forecasted cash flows, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank. For a description of the factors taken into account by our management in determining the ACL, see Note 1 “Nature of Business and Basis of Presentation” to the “Notes to Unaudited Consolidated Financial Statements.”
Current wording
The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. The amount for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses, forecasted cash flows, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank. For a description of the factors taken into account by our management in determining the ACL, see Note 1 “Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Previous wording
For the six months ended June 30, 2024, the provision for credit losses was $6.1 million, an increase of $1.6 million from the same period in 2023, attributable primarily to portfolio loan growth and specific reserves of $1.1 million for collateral dependent loans at June 30, 2024, as compared to $0.3 million at June 30, 2023. Net charge-offs for the six months ended June 30, 2024 were $3.9 million, or 0.40% on an annualized basis of average portfolio loans, compared to $4.2 million, or 0.48% on an annualized basis of average portfolio loans, for the same period in 2023. The $3.9 million in net charge-offs during the six months ended June 30, 2024 was comprised primarily of credit card portfolio net charge-offs, with $2.1 million related to secured and partially secured cards while $1.1 million was related to unsecured cards.
Current wording
For the nine months ended September 30, 2024, the provision for credit losses was $9.9 million, an increase of $3.1 million from the same period in 2023, attributable primarily to portfolio loan growth and specific reserves of $1.0 million for collateral dependent loans at September 30, 2024, as compared to $0.7 million at September 30, 2023. Net charge-offs for the nine months ended September 30, 2024 were $6.6 million, or 0.44% on an annualized basis of average portfolio loans, compared to $6.0 million, or 0.45% on an annualized basis of average portfolio loans, for the same period in 2023. The $6.6 million in net charge-offs during the nine months ended September 30, 2024 was comprised primarily of credit card portfolio net charge-offs, with $3.1 million related to secured and partially secured cards while $1.8 million was related to unsecured cards. Further, $0.6 million of net charge-offs were related to commercial real estate loans, $0.6 million were related to multi-family loans and $0.5 million were related to commercial and industrial loans.
Previous wording
The ACL as a percent of portfolio loans was 1.53% at June 30, 2024 as compared to 1.50% at December 31, 2023. The maintenance of a high-quality loan portfolio, with an adequate allowance for expected credit losses, will continue to be a primary objective for the Company. See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at June 30, 2024 in “Financial Condition - Allowance for Credit Losses.”
Current wording
The ACL as a percent of portfolio loans was 1.51% at September 30, 2024 as compared to 1.50% at December 31, 2023. The maintenance of a high-quality loan portfolio, with an adequate allowance for expected credit losses, will continue to be a primary objective for the Company. See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at September 30, 2024 in “Financial Condition - Allowance for Credit Losses.”
Previous wording
Mortgage banking revenue of $2.0 million increased $0.7 million for the three months ended June 30, 2024 due to an increase in salable originations as compared to the prior year. Mortgage banking revenue of $3.4 million for the six months ended June 30, 2024 increased $1.0 million due to an increase in home loan sales as compared to the prior year. For the three months ended June 30, 2024, credit card fees of $4.3 million declined by $0.4 million as compared to the three months ended June 30, 2023, primarily related to lower interchange and other fee income. For the six months ended June 30, 2024, credit card fees of $8.2 million declined $0.7 million as the number of open customer accounts declined to 537,734 at June 30, 2024 from 540,058 year over year, which resulted in lower interchange and other fee income recognized compared to the prior year.
Current wording
Mortgage banking revenue of $1.9 million increased $0.6 million for the three months ended September 30, 2024 due to an increase in salable originations as compared to the prior year. Mortgage banking revenue of $5.3 million for the nine months ended September 30, 2024 increased $1.6 million due to an increase in home loan sales as compared to the prior year. For the three months ended September 30, 2024, credit card fees of $4.1 million declined by $0.3 million as compared to the three months ended September 30, 2023, primarily related to lower interchange and other fee income. For the nine months ended September 30, 2024, credit card fees of $12.3 million declined $1.0 million as a result of lower interchange and other fee income recognized compared to the prior year.
Previous wording
The Bank’s CBHL division experienced an increase of 34.0% in mortgage originations during the three months ended June 30, 2024 when compared to the same period in the prior year. Origination volumes increased $20.9 million, to $82.4 million, in the second quarter of 2024, when compared to $61.5 million in the second quarter of 2023. Gain on sale margins increased from 2.56% for the three months ended June 30, 2023, to 2.61% for the three months ended June 30, 2024.
Current wording
The Bank’s CBHL division experienced an increase of 49.3% in mortgage originations during the three months ended September 30, 2024 when compared to the same period in the prior year. Origination volumes increased $24.7 million, to $74.7 million, in the third quarter of 2024, when compared to $50.0 million in the third quarter of 2023. Gain on sale margins decreased from 2.57% for the three months ended September 30, 2023, to 2.44% for the three months ended September 30, 2024. Gain on sale margins decreased from 2.71% for the nine months ended September 30, 2023, to 2.65% for the nine months ended September 30, 2024.
Previous wording
Mortgage loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a specified period following loan funding and sale. The Bank has established a reserve under GAAP for possible repurchases. The reserve was $0.9 million and $1.0 million at June 30, 2024 and December 31, 2023, respectively. The Bank repurchased one loan totaling $0.3 million during the six months ended June 30, 2024. The Bank did not repurchase any loans during the six months ended June 30, 2023. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.
Current wording
Mortgage loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a specified period following loan funding and sale. The Bank has established a reserve under GAAP for possible repurchases. The reserve was $0.9 million and $1.0 million at September 30, 2024 and December 31, 2023, respectively. The Bank repurchased one loan totaling $0.3 million during the nine months ended September 30, 2024. The Bank did not repurchase any loans during the nine months ended September 30, 2023. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.
Previous wording
Noninterest expense was $29.5 million for the three months ended June 30, 2024, as compared to $29.6 million for the three months ended June 30, 2023, a decrease of $0.1 million. The change includes decreases in professional fees of $0.8 million, advertising expenses of $0.6 million, operational losses of $0.4 million and loan processing expenses of $0.2 million. Offsetting increases include salaries and employee benefits expenses of $1.1 million, occupancy and equipment expenses of $0.3 million, data processing expense of $0.2 million, other operating expenses of $0.2 million and merger-related expenses of $0.1 million.
Current wording
Noninterest expense was $29.7 million for the three months ended September 30, 2024, as compared to $28.0 million for the three months ended September 30, 2023, an increase of $1.7 million. The change includes increases in salaries and employee benefits expenses of $0.9 million, data processing expense of $0.5 million, merger-related expenses of $0.5 million, occupancy and equipment expenses of $0.4 million, loan processing expenses of $0.2 million and operational losses of $0.1 million. Offsetting decreases include professional fees of $0.4 million, advertising expenses of $0.3 million and other operating expenses of $0.2 million.
Previous wording
Noninterest expense was $59.0 million for the six months ended June 30, 2024, as compared to $55.8 million for the six months ended June 30, 2023, an increase of $3.2 million, or 5.7%. The change includes increases in salaries and employee benefits expenses of $1.5 million, or 6.0%, advertising expenses of $0.9 million, merger-related expenses of $0.8 million, occupancy and equipment expenses of $0.7 million and other operating expenses of $0.7 million partially offset by a decrease in professional fees of $1.3 million.
Current wording
Noninterest expense was $88.7 million for the nine months ended September 30, 2024, as compared to $83.9 million for the nine months ended September 30, 2023, an increase of $4.8 million, or 5.8%. The change includes increases in salaries and employee benefits expenses which increased by $2.4 million, or 6.5%, merger-related expenses of $1.3 million, occupancy and equipment expenses of $1.2 million, advertising expenses of $0.6 million and other operating expenses of $0.5 million partially offset by a decrease in professional fees of $1.6 million.
Previous wording
Income tax expense was $2.7 million and $4.8 million for the three and six months ended June 30, 2024 compared to $2.3 million and $5.2 million for the same periods, respectively, in 2023. Our effective tax rates increased from 23.6% for the three months ended June 30, 2023 to 25.0% for the three months ended June 30, 2024, and from 23.3% for the six months ended June 30, 2023 to 24.5% for the six months ended June 30, 2024, reflective of an increase in the weighted average state income tax rate.
Current wording
Income tax expense was $2.8 million and $7.6 million for the three and nine months ended September 30, 2024, respectively, compared to $3.0 million and $8.2 million for the same periods, respectively, in 2023. Our effective tax rates increased from 23.4% for the three months ended September 30, 2023 to 24.6% for the three months ended September 30, 2024, and from 23.3% for the nine months ended September 30, 2023 to 24.5% for the nine months ended September 30, 2024, reflective of an increase in the weighted average state income tax rate.
Previous wording
Total assets at June 30, 2024 increased $212.4 million from the balance at December 31, 2023. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.0 billion as of June 30, 2024, an increase of $118.3 million, or 6.2%, from $1.9 billion at December 31, 2023. Mortgage loans held for sale increased $11.7 million, or 156.9%, when comparing the period end balances at June 30, 2024 to December 31, 2023.
Current wording
Total assets at September 30, 2024 increased $334.6 million from the balance at December 31, 2023. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.1 billion as of September 30, 2024, an increase of $204.2 million, or 10.7%, from $1.9 billion at December 31, 2023. Mortgage loans held for sale increased $12.1 million, or 161.4%, when comparing the period end balances at September 30, 2024 to December 31, 2023.
Previous wording
Commercial Real Estate Loans. Commercial real estate loans are originated on owner-occupied and non-owner-occupied properties. These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $3.0 million as of June 30, 2024 and $14.1 million as of December 31, 2023, are included in the commercial real estate loan category. Business equity lines of credit are commercial purpose lines of credit primarily secured by the business owners residential properties. Lender finance loans totaling $33.3 million as of June 30, 2024 and $11.1 million as of December 31, 2023, are also included in the commercial real estate loan category. Lender finance loans are loans to companies used to purchase finance receivables or extend finance receivables to the underlying obligors and are secured primarily by the finance receivables held by our borrowers. The primary sources of repayment are the operating incomes of the borrowers and the collection of the finance receivables securing the loans. Commercial loans that are secured by owner-occupied commercial real estate and primarily collateralized by operating cash flows are included in the commercial real estate loan category. As of June 30, 2024, there were approximately $319.4 million of owner-occupied commercial real estate loans, representing approximately 15.8% of the loan portfolio as compared to $307.9 million, or 16.1% of the loan portfolio at December 31, 2023. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. The interest rates on commercial real estate loans generally have initial fixed rate terms that adjust typically at five years. Origination fees are routinely charged for services. Personal guarantees from the principal owners of the business are generally required, supported by a review of the principal owners’ personal financial statements and global debt service obligations. The properties securing the portfolio are diverse in type. This diversity may help reduce the exposure to adverse economic events that affect any single industry.
Current wording
Commercial Real Estate Loans. Commercial real estate loans are originated on owner-occupied and non-owner-occupied properties. These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $2.7 million as of September 30, 2024 and $14.1 million as of December 31, 2023, are included in the commercial real estate loan category. Business equity lines of credit are commercial purpose lines of credit primarily secured by the business owners residential properties. Lender finance loans totaling $29.5 million as of September 30, 2024 and $11.1 million as of December 31, 2023, are also included in the commercial real estate loan category. Lender finance loans are loans to companies used to purchase finance receivables or extend finance receivables to the underlying obligors and are secured primarily by the finance receivables held by our borrowers. The primary sources of repayment are the operating incomes of the borrowers and the collection of the finance receivables securing the loans. Commercial loans that are secured by owner-occupied commercial real estate and primarily collateralized by operating cash flows are included in the commercial real estate loan category. As of September 30, 2024, there were approximately $351.5 million of owner-occupied commercial real estate loans, representing approximately 16.6% of the loan portfolio as compared to $307.9 million, or 16.1% of the loan portfolio at December 31, 2023. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. The interest rates on commercial real estate loans generally have initial fixed rate terms that adjust typically at five years. Origination fees are routinely charged for services. Personal guarantees from the principal owners of the business are generally required, supported by a review of the principal owners’ personal financial statements and global debt service obligations. The properties securing the portfolio are diverse in type. This diversity may help reduce the exposure to adverse economic events that affect any single industry.
Previous wording
Credit Cards. Through the OpenSky™ credit card division, the Company offers secured, partially secured, and unsecured credit cards on a nationwide basis to under-banked populations and those looking to rebuild their credit scores through a fully digital and mobile platform. The secured lines of credit are secured by a noninterest-bearing demand account at the Bank in an amount equal to the full credit limit of the credit card. For the partially secured lines of credit, the Bank offers certain customers an unsecured line in excess of their secured line of credit by using a proprietary scoring model, which considers credit score and repayment history (typically a minimum of six months of on-time payments, but ultimately determined on a case-by-case basis). Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $91.0 million and $95.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of June 30, 2024 and December 31, 2023, respectively. Unsecured balances were $33.6 million and $30.8 million, respectively, at the same dates.
Current wording
Credit Cards. Through the OpenSky™ credit card division, the Company offers secured, partially secured, and unsecured credit cards on a nationwide basis to under-banked populations and those looking to rebuild their credit scores through a fully digital and mobile platform. The secured lines of credit are secured by a noninterest-bearing demand account at the Bank in an amount equal to the full credit limit of the credit card. For the partially secured lines of credit, the Bank offers certain customers an unsecured line in excess of their secured line of credit by using a proprietary scoring model, which considers credit score and repayment history (typically a minimum of six months of on-time payments, but ultimately determined on a case-by-case basis). Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $89.6 million and $95.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of September 30, 2024 and December 31, 2023, respectively. Unsecured balances were $39.7 million and $30.8 million, respectively, at the same dates.
Previous wording
Purchased Credit Deterioration. There were no loans purchased with credit deterioration during the three and six months ended June 30, 2024 or three and six months ended June 30, 2023.
Current wording
Purchased Credit Deterioration. There were no loans purchased with credit deterioration during the three and nine months ended September 30, 2024 or the three and nine months ended September 30, 2023.
Previous wording
Multi-family loans totaled $156.7 million at June 30, 2024 and are included in the real estate residential loan category. At June 30, 2024, the Company had approximately $56.1 million in multi-family loans in the District of Columbia secured by properties with tenants that could have some form of rent stabilization or rent control. Under the Rent Control Act in the District of Columbia, properties built prior to 1975 limit rent increases to no more than annually unless a unit becomes vacant, and increases are generally limited to the Consumer Price Index plus 2% not to exceed 10%. Further, there must be at least 30 days’ notice of rent increase. The Company does not have any multi-family loans in New York City or New York state.
Current wording
Multi-family loans totaled $170.5 million at September 30, 2024 and are included in the real estate residential loan category. At September 30, 2024, the Company had approximately $66.3 million in multi-family loans in the District of Columbia secured by properties with tenants, some of whom are beneficiaries of rent stabilization or rent control programs. Under the Rent Control Act in the District of Columbia, properties built prior to 1975 limit rent increases to no more than annually unless a unit becomes vacant, and increases are generally limited to the Consumer Price Index plus 2% not to exceed 10%. Further, there must be at least 30 days’ notice of rent increase. The Company does not have any multi-family loans in New York City or New York state.
Previous wording
(2)Other non-owner-occupied commercial real estate loans include a land loan of $12.0 million, skilled nursing loans of $9.9 million, special purpose loans of $6.3 million, and other loans of $9.9 million.
Current wording
(2)Other non-owner-occupied commercial real estate loans include a land loan of $12.7 million, skilled nursing loans of $9.2 million, special purpose loans of $9.2 million, and other loans of $8.9 million.
Previous wording
(3)Other owner-occupied commercial real estate loans include special purpose loans of $58.3 million, skilled nursing loans of $53.8 million, and other loans of $27.5 million.
Current wording
(3)Other owner-occupied commercial real estate loans include special purpose loans of $57.9 million, skilled nursing loans of $53.8 million, and other loans of $28.2 million.
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Previous report — wording carried elsewhere
Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023 and those referenced herein and in other reports on file with the Securities and Exchange Commission (“SEC”).