CBNK - CBNK Quarterly Earnings Grow 13.7 Percent Year Over Year

ROCKVILLE, Md., April 20, 2022 (GLOBE NEWSWIRE) -- Capital Bancorp, Inc. (the "Company") (NASDAQ: CBNK), the holding company for Capital Bank, N.A. (the "Bank"), today reported net income of $10.2 million, or $0.71 per diluted share, for the first quarter of 2022. By comparison, net income was $9.0 million, or $0.65 per diluted share, for the first quarter of 2021. Portfolio loans, net, increased $213.9 million when compared to the period ended March 31, 2021.

“We started the year with another quarter of outstanding profitability at both the Commercial Bank and OpenSky ^® ," said Ed Barry, CEO of the Company and the Bank. "Loan production at the Commercial Bank was strong as new hires and strategic initiatives continue to gain momentum, but growth was negatively impacted by payoffs and selective offboarding of certain lower-quality credit relationships. OpenSky ^® profitability was stable as updated agreements with service providers delivered savings on data processing costs offsetting anticipated card holder attrition which resulted in a decline in open accounts for the quarter. We are optimistic that our business-wide strategic investments will begin to deliver both increased revenues and lower costs in the coming quarters."

Steven Schwartz, Chairman of the Board of the Company, said, "Despite the detrimental impact of rising interest rates on our mortgage refinance origination volume, we are pleased with the earnings for the quarter. I believe our commercial loan portfolio is well positioned to benefit from the anticipated interest rate increases and our continued focus on a diversified revenue model should maintain our superior results."

First Quarter 2022 Highlights

Capital Bancorp, Inc.

• Strong Earnings - Continued strong performance by the Commercial Bank and OpenSky ^® contributed to the first quarter's results. Quarterly net income increased to $10.2 million from $9.0 million in the first quarter of 2021. Earnings were $0.71 per diluted share for the three months ended March 31, 2022 and $0.65 for the three months ended March 31, 2021.
• Outstanding Performance Ratios - Return on average assets ("ROAA") and return on average equity ("ROAE") were 2.01% and 20.30%, respectively, for the three months ended March 31, 2022 compared to 1.87% and 22.30%, respectively, for the three months ended March 31, 2021.
• Expanded Net Interest Margin - Net interest margin was 6.79% for the three months ended March 31, 2022, compared to 5.15% for the same three month period last year. The margin expansion was primarily driven by increases in the yield on portfolio loans due to the recognition of deferred fees associated with the credit card portfolio, as well as an acceleration in the deferred fees related to forgiven loans in the Small Business Administration Payroll Protection Program ("SBA-PPP").
• Robust Capital Positions - As of March 31, 2022, the Company reported a common equity tier 1 capital ratio of 15.04% and an allowance for loan losses to total loans ratio of 1.60%, or 1.65% excluding SBA-PPP loans. Quarter over quarter, tangible book value per common share grew 18.5 percent to $14.39 at March 31, 2022.

Commercial Bank

• Strong Portfolio Loan Growth - Portfolio loans, excluding credit cards, increased by $179.6 million, or 14.6 percent, to $1.4 billion at March 31, 2022 compared to March 31, 2021. The quarter over quarter growth was mainly due to a 30.3 percent increase in commercial real estate loans of $131.4 million, of which $72.8 million was owner occupied. Also contributing to the quarter over quarter growth was a 17.2 percent increase in commercial and industrial loans of $26.1 million and an 11.0 percent increase in construction real estate loans of $24.4 million.
• Growth in Core Deposits and Reduced Cost of Funds - Noninterest bearing deposits increased 6.9 percent compared to March 31, 2021. The $53.3 million year over year increase was primarily due to an increase in commercial demand deposits reflecting management's ongoing strategic initiative to improve the deposit franchise. At March 31, 2022, noninterest bearing deposits represented 44.3% of total deposits compared to 41.4% at March 31, 2021. Overall, the cost of interest bearing liabilities was reduced 39 basis points, from 0.81% for the quarter ended March 31, 2021 to 0.42% for the quarter ended March 31, 2022.
• Improving Credit Metrics - Non-performing assets ("NPAs") decreased to 0.28% of total assets at March 31, 2022 compared to 0.58% at March 31, 2021 with the disposition of $3.3 million in other real estate owned and a reduction in nonaccrual loans of $2.8 million as management continues to focus on reducing non-performing assets. The provision for loan losses increased $449 thousand compared to the first quarter of 2021. The current provision for the three months ended March 31, 2022 was $952 thousand and was primarily related to the credit card portfolio and the cycling of accounts, not a deterioration in overall credit quality.
• SBA-PPP Loans - SBA-PPP loans, net of $1.3 million in unearned fees, totaled $51.1 million at March 31, 2022 which was comprised of $1.7 million in 2020 originations and $49.4 million of 2021 originations. As of March 31, 2022, the Company has obtained forgiveness for $323.3 million of SBA-PPP loans.

Capital Bank Home Loans

• Slowing Mortgage Originations - Origination volumes declined 68.8 percent, to $110.4 million, in the first quarter of 2022, when compared to $353.8 million in the first quarter of 2021. The continued steepening of the yield curve in the first quarter of 2022 slowed originations from the year earlier when low interest rates fueled refinance volumes.
• Purchase Volume - While purchase volumes increased to 73.2 percent of total originations for the first quarter of 2022, up from 24.6 percent during the first quarter of 2021, total purchase originations declined by 8.3% during the same period.

OpenSky ^®

• Strong Revenue Growth - OpenSky ^® revenue grew by 47.6 percent to $20.9 million for the quarter ended March 31, 2022 from the same period in 2021 due to an increase in average credit card loan balances as well as an increase in the yield on those credit card loans. The surge in new account originations over the past two years has slowed as government stimulus ended and competition increased. New account originations have reverted to a pace reminiscent of 2019, and is not enough to offset the normal customer lifecycle of the 2020 and 2021 vintages.
• Continued Growth in OpenSky ^® Loans and Deposits - OpenSky ^® loan balances, net of reserves, increased by $40.0 million to $123.7 million compared to $83.7 million in the first quarter of 2021. Corresponding deposit balances increased 2.1 percent or $4.5 million from $215.9 million at March 31, 2021 to $220.4 million at March 31, 2022.
• Expense Management Efforts Demonstrate Scale - Key contracts renegotiated during the first quarter of 2022 will engender cost saves and scale benefits throughout the remainder of the year and into the future.

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⁽¹⁾ Annualized for the quarterly periods
⁽²⁾ Refer to Appendix for reconciliation of non-GAAP measures.
⁽³⁾ Loans are reflected net of deferred fees and costs.

Operating Results - Comparison of Three Months Ended March 31, 2022 and 2021

For the three months ended March 31, 2022, net interest income increased $8.9 million, or 36.4 percent, to $33.3 million from the same period in 2021, primarily due to an increase in interest earned on the credit card loan portfolio. The net interest margin increased 164 basis points to 6.79% for the three months ended March 31, 2022 from the same period in 2021 due in large part to the acceleration of the deferred fees associated with the SBA-PPP loan forgiveness as well as the recognition of deferred fees on the credit card loans. Net interest margin, excluding credit card and SBA-PPP loans, was 3.82% for the first quarter of 2022 compared to 3.63% for the same period in 2021. For the three months ended March 31, 2022, average interest earning assets increased $66.9 million, or 3.5 percent, to $2.0 billion as compared to the same period in 2021, and the average yield on interest earning assets increased 139 basis points. Compared to the same period in the prior year, average interest-bearing liabilities decreased $55.4 million, or 5.0 percent, while the average cost of interest-bearing liabilities decreased 39 basis points to 0.42% from 0.81%.

The provision for loan losses of $952 thousand for the three months ended March 31, 2022 was primarily related to growth in the credit card portfolio and the cycling of credit card accounts. Net charge-offs for the first quarter of 2022 were $881 thousand, or 0.24% on an annualized basis of average portfolio loans, compared to $388 thousand, or 0.12% on an annualized basis of average loans for the first quarter of 2021. All of the $881 thousand in net charge-offs during the quarter were related to the credit card portfolio.

For the quarter ended March 31, 2022, noninterest income was $8.3 million, a decrease of $5.7 million, or 40.6 percent, from $14.0 million in the prior year quarter. The decrease was primarily the result of reduced mortgage banking revenue.

Net credit card loan balances increased by $40.0 million to $123.7 million as of March 31, 2022 from $83.7 million at March 31, 2021. The related deposit account balances increased 2.1 percent to $220.4 million at March 31, 2022 when compared to $215.9 million at March 31, 2021. For the three months ended March 31, 2022, OpenSky's ^® secured credit card accounts decreased by 30 thousand net compared to 74 thousand net new accounts for the same period in 2021 suggesting consumer behaviors may be returning to historical trends after being elevated in response to COVID-19 throughout 2020 and the first half of 2021.

The efficiency ratio for the three months ended March 31, 2022 decreased to 65.12% compared to 67.11% for the three months ended March 31, 2021.

Noninterest expense was $27.1 million for the three months ended March 31, 2022, as compared to $25.8 million for the three months ended March 31, 2021, an increase of $1.3 million, or 5.2 percent. The increase was primarily driven by increases in salaries and employee benefits of $1.7 million, advertising expenses of $806 thousand, and professional fees of $697 thousand and were offset by decreases in data processing expenses of $1.0 million, loan processing expenses of $660 thousand, and occupancy and equipment expense of $103 thousand.

Financial Condition

Total assets at March 31, 2022 were $2.1 billion, an increase of 1.5% from March 31, 2021. Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.5 billion as of March 31, 2022, an increase of 16.3 percent as compared to $1.3 billion at March 31, 2021.

While total deposits remained steady at $1.9 billion for the periods ended March 31, 2022 and March 31, 2021, the composition of the deposit portfolio shifted, with an increase in noninterest bearing deposits of $53.3 million, or 6.9%, when comparing March 31, 2022 to March 31, 2021. At March 31, 2022, there were no listing service or brokered deposits compared to $86.0 million at March 31, 2021.

The Company recorded a provision for loan losses of $952 thousand during the three months ended March 31, 2022, which increased the allowance for loan losses to $25.3 million, or 1.60% of total loans (1.65%, excluding SBA-PPP loans, on a non-GAAP basis) at March 31, 2022. Nonperforming assets were $6.0 million, or 0.28% of total assets, as of March 31, 2022, down from $12.1 million, or 0.58% of total assets, at March 31, 2021, and was comprised solely of nonperforming loans. Included in nonperforming loans at March 31, 2022 were troubled debt restructurings of $525 thousand.

Stockholders’ equity increased to $201.5 million as of March 31, 2022, compared to $167.0 million at March 31, 2021. This increase was primarily attributable to earnings during the period of $41.2 million which were offset by unrealized losses recorded net of tax on the available for sale securities in the rising interest rate environment creating a $7.8 million reduction in accumulated other comprehensive income during the period. As of March 31, 2022, the Bank's capital ratios continued to exceed the regulatory requirements for a “well-capitalized” institution.

The following table shows 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.

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⁽¹⁾ Annualized.
⁽²⁾ Includes nonaccrual loans.
⁽³⁾ For the three months ended March 31, 2022 and March 31, 2021, collectively, SBA-PPP loans and credit card loans accounted for 297 and 152 basis points of the reported net interest margin, respectively.

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⁽¹⁾ Refer to Appendix for reconciliation of non-GAAP measures.
⁽²⁾ Annualized.
⁽³⁾ Gain on sale percentage is calculated as gain on sale of loans divided by mortgage loans sold.

Appendix

Reconciliation of Non-GAAP Measures