Capital Bancorp (CBNK) Q3 2026 earnings review
Capital Bancorp core profit rises, but credit card earnings drop
Capital Bancorp grew its commercial lending and government servicing businesses while preparing to sell itself to Peoples Bancorp. Reported profit fell 13% because last year included a one-time deposit gain and this quarter carried merger bills, but profit per share excluding one-offs rose 24%. Chairman Steven J. Schwartz highlighted the pending buyout and Chicago branch sale alongside a 17% dividend hike.
| Revenue excluding last year's deposit gain | +16.5% from a year ago, by our math |
|---|---|
| Profit per share, excluding one-offs | $0.89 +23.6% from a year ago |
| Net interest margin | 5.81% +0.17 percentage points from last quarter |
| Share buyback outlook | Withdrawn suspended during Peoples Bancorp merger |
⚖️ Verdict: 🟢 Bullish
The story got better because commercial loan growth widened the lending spread and government servicing fees jumped. The bad news: pre-tax profit at the OpenSky credit card unit dropped by more than half as defaults rose on its newer unsecured cards, and seasonal outflows drained customer deposits.
The question now is whether rising defaults in OpenSky's unsecured cards and higher staff costs will eat into commercial bank gains before the Peoples merger closes. If unsecured card write-offs level off, strong business lending carries earnings; if defaults keep climbing, card losses will drag down returns. Next quarter's credit provision and customer deposit balances will tell.
🐂 Bull Case
Commercial Lending Lifted Net Interest Margin
Capital Bancorp, a Maryland commercial lender and credit card issuer, expanded its net interest margin (NIM), the spread between what it earns on loans and pays on deposits. Reported profit per share fell 10% from a year ago to $0.80 because last year included a $4.6 million gain from calling brokered deposits early and this quarter carried $1.6 million in costs as the bank "incurred merger-related expenses related to the pending merger with Peoples".
- Profit per share excluding one-offs: $0.89, up 23.6% from a year ago
- Net interest margin: 5.81%, up 0.17 percentage points from last quarter
- Net interest margin excluding credit cards: 4.18%, up 0.14 percentage points from last quarter
- Portfolio loans held for investment: $3.11 billion, up 10.4% from a year ago
When we strip out last year's one-time deposit gain, net interest income grew 12.0% from a year ago by our math. Commercial and industrial business loans grew $42.7 million during the quarter. Excluding $60.2 million of loans moved to held-for-sale for the Chicago branch exit, total portfolio loans rose $88.5 million, so loan demand and higher asset yields of 7.91% drove the core earnings beat.
What to watch: net interest margin excluding credit cards in the fourth quarter. Another rise above 4.18% would show commercial loan yields still beat deposit funding costs.
Government Loan Servicing Pushed Fee Revenue Up 36%
The lender has built a steady stream of noninterest income through Windsor Advantage, its unit that packages and services government-guaranteed loans for banks. Chief executive Ed Barry pointed to "continued progress on our strategic plan", and fee revenue rose 35.9% from a year ago to $15.0 million, making up 22.1% of total revenue.
Windsor Advantage generated $6.7 million in gross servicing fees as its servicing portfolio reached $3.5 billion, while gains on selling government-backed loans added $1.5 million. Because fee businesses do not tie up bank capital or require deposit funding, Windsor's pre-tax profit jumped 46.0% from a year ago by our math to $2.1 million.
What to watch: quarterly government-guaranteed loan closings at Windsor in the fourth quarter. A rebound from this quarter's $183.9 million would keep servicing portfolio growth on track.
🐻 Bear Case
OpenSky Unsecured Card Losses Cut Segment Profit
OpenSky is the bank's credit card division, which historically issued secured cards backed by cash deposits and now offers unsecured lines to graduating customers. Capital Bancorp said OpenSky's credit metrics matched expectations, but the segment's pre-tax profit fell 62.0% from a year ago by our math, dropping from $3.4 million to $1.3 million.
- OpenSky unsecured loans: $57.6 million, up 45.5% from a year ago
- OpenSky secured loans: $93.7 million, down 5.2% from a year ago
- OpenSky total customer accounts: 575.8 thousand, down 12.8 thousand from last quarter
- OpenSky provision for credit losses: $4.1 million, up from $2.8 million a year ago
This matters because the card book is shifting toward riskier unsecured lending just as total card accounts shrink. Net charge-offs, which are loans written off as uncollectible, rose $1.0 million from a year ago in the unsecured book and reached $3.2 million across OpenSky, eating up the extra interest income from higher card balances.
What to watch: OpenSky net charge-offs and provision expense in the fourth quarter. If loan write-offs climb above $3.2 million, unsecured card growth is costing more in defaults than it brings in.
Customer Deposits Fell and Brokered Funding Filled the Gap
A bank's cheapest funding comes from direct customer checking and deposit accounts rather than wholesale brokered deposits. During the third quarter, customer deposits fell by $151.8 million, or 4.8% from last quarter, to $2.99 billion, Including a $52.8 million drop in noninterest-bearing accounts that pay zero interest.
Capital Bancorp blamed seasonal outflows of $89.3 million from title companies and a $45.2 million withdrawal by a single large client. To replace part of that cash and fund loan growth, the lender added $99.9 million in brokered time deposits and drew down cash by $156.2 million, pushing its average loan-to-deposit ratio up to 96.0% from 94.3% last quarter.
What to watch: noninterest-bearing deposit balances in the fourth quarter. A drop below $844.5 million would force the bank to rely even more on wholesale funding.
Hiring and Consultant Bills Outpaced Revenue Growth
Operating expenses are growing faster than total revenue even before counting merger bills. Total noninterest expense rose 19.2% from a year ago to $45.7 million, and excluding $1.6 million of merger costs, operating expenses still climbed $6.5 million, or 17.3% from a year ago, to $44.1 million.
The company cited "planned expansion and investment in headcount across the organization" and higher outside consultant bills for shared services and OpenSky. By our math, salaries and employee benefits rose 2.9 percentage points of total revenue from a year ago to 31.0%, while professional fees rose 3.8 percentage points of revenue to 7.2%, pushing the efficiency ratio (expenses as a share of revenue) up to 67.1%.
What to watch: core noninterest expenses in the fourth quarter. Any figure above $44.1 million would mean overhead is still rising ahead of the merger close.
👓 Other Themes
Pending Peoples Merger and Chicago Branch Sale Reshape the Bank
"This was indeed a very busy quarter with the announcements of the merger with Peoples Bank and the sale of our Chicago branch," chairman Steven J. Schwartz said. On September 29, Capital Bancorp agreed to sell itself to Peoples Bancorp in an all-stock deal offering 1.11 Peoples shares per share, suspended stock buybacks, and agreed to sell its North Riverside, Illinois branch, moving $60.2 million of loans to held-for-sale.
💲 Other KPIs
Tangible book value per share — net worth per share excluding goodwill and intangible assets — rose 2.3% from last quarter and 12.4% from a year ago. Steady retained earnings drove the increase over the past four quarters despite a $2.9 million rise in unrealized bond losses this quarter.
Problem assets that are no longer paying interest or have been foreclosed stood at $60.5 million, down $0.3 million from last quarter. Because total assets shrank on lower cash balances, the ratio ticked up 0.03 percentage points from last quarter and 0.05 percentage points from a year ago.
The holding company's core regulatory capital ratio rose 0.09 percentage points from last quarter's 13.16% and 0.33 percentage points from the first quarter. Retained profit and the pause in share buybacks kept capital well above regulatory minimums.
🔮 Guidance
Raised. The board declared a quarterly cash dividend of $0.14 per common share payable on November 25, 2026, up 16.7% from the $0.12 per share paid in the previous four quarters.
Withdrawn. Management suspended the share buyback plan in connection with the Peoples Bancorp merger agreement and does not expect to buy back shares while the deal awaits approval.
New. OpenSky has started testing unsecured credit card offers to people who were never secured cardholders, and the bank plans to keep these test balances tiny through the end of the year while it watches repayment rates.
❓ Key Questions
When will Peoples Bancorp and Chicago branch deals close?
The release gave no target closing quarter for either the Peoples Bancorp acquisition or the North Riverside branch sale, leaving the timing of the estimated $3.2 million deposit premium open.
Why are total OpenSky card accounts shrinking?
OpenSky lost 12.8 thousand accounts this quarter to 575.8 thousand while advertising spend dropped from $0.6 million to $0.1 million. Management did not say if it is intentionally curbing customer acquisition ahead of the merger.
What caused special mention loans to rise 10% this quarter?
Special mention loans — credits showing early signs of weakness — rose $6.3 million from last quarter to $67.8 million, or 2.2% of total loans, and the release did not name the industry or borrowers behind the move.