What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-17 compared with 2024-03-15 · 618 added, 349 removed, 1293 unchanged (43% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Capital Bancorp, Inc.

To the Stockholders and the Board of Directors of

Capital Bancorp, Inc.

and Subsidiaries

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We have audited the accompanying consolidated balance sheets of Capital Bancorp, Inc.

and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the “financial statements”).

and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification No.

326, Financial Instruments – Credit Losses (“ASC 326”).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Our opinion is not modified with respect to this matter.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Critical Audit Matters

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matters, Continued

Allowance for Credit Losses

As described in Note 5 to the Company’s financial statements, the Company has a gross loan portfolio of $2.6 billion and related allowance for credit losses (“ACL”) of $48.7 million as of December 31, 2024.

As described by the Company in Note 1, the Company adopted ASC 326 on January 1, 2023.

In order to measure expected credit losses on a collective basis, the Company has elected to utilize a discounted cash flow methodology for all segments, except for the credit card and other consumer portfolio segments, which apply a simplified, non‐discounted cash flow calculation.

As described by the Company in Note 1, in order to measure expected credit losses on a collective basis, the Company utilizes a discounted cash flow methodology for all segments, except for the credit card and other consumer portfolio segments, which apply a simplified, non‐discounted cash flow calculation.

Loans not sharing similar risk characteristics are evaluated on an individual basis.

Within the collectively evaluated component, the Company uses regression analysis of historical internal and peer data to determine suitable loss drivers for modeling lifetime probability of default, loss given default, and lifetime loss rates.

For the credit card portfolio, the Company calculates the credit card ACL collectively, applying segmentation based on collateral positions:

secured, partially secured, and unsecured.

Management also collectively evaluates purchased credit deteriorated (“PCD”) loans that do not meet the individually evaluated criteria.

For these loans, management uses an adverse “through-the-cycle” (“TTC”) probably of default and loss given default to reflect the “greater-than-insignificant” credit deterioration.

These loans are separated from the non-PCD and originated pools to ensure that these loans receive a reserve that is calculated based on unpaid principal balance (“UPB”) and not amortized cost.

Within the collectively evaluated component, the Company uses regression analysis of historical internal and peer data to determine suitable loss drivers in order to incorporate a reasonable and supportable forecast of losses within the modeled future expected credit loss.

Additionally, a qualitative scorecard is used by management to assess the need for adjustments to expected credit loss estimates for information not already captured in the quantitative loss estimation process.

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We identified the Company’s estimate of the allowance for credit losses as a critical audit matter.

The principal considerations for our determination of the ACL as a critical audit matter related to the high degree of complexity and judgment in the determination of significant model assumptions, specifically, the qualitative factor adjustments to quantitative loss rates.

The principal considerations for our determination of the ACL as a critical audit matter relate to the high degree of complexity and judgment in the determination of significant model assumptions, specifically, the qualitative factor adjustments to quantitative loss rates.

Auditing these complex judgments and assumptions made by the Company involves challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address the critical audit matter include the following:

■ We evaluated the appropriateness of the methodology applied in the adoption of ASC 326.

■ We tested the design and operating effectiveness of controls relating to the Company’s determination of the allowance for credit losses, including controls over the establishment of qualitative factors.

■ We evaluated the relevance and the reasonableness of assumptions related to the evaluation of the loan portfolio, current and forecasted economic conditions, and other risk factors used in the development of the qualitative factors.

■ We tested the design and operating effectiveness of controls relating to the Company’s determination of the allowance for credit losses, including controls over management’s review and approval of qualitative factors.

■ We tested the completeness and accuracy of significant inputs to the model including the underlying data used to develop the qualitative factors.

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■ We performed analytical procedures to evaluate the directional consistency of changes that occurred in the allowance for credit losses for loans.

Critical Audit Matters, Continued

Business Combination - Valuation of Acquired Loan Portfolio

As described in Note 2 to the Company’s financial statements, on October 1, 2024, the Company acquired Integrated Financial Holdings, Inc.

The transaction has been accounted for as a business combination and accordingly, the assets acquired and liabilities assumed from IFH were recorded at fair value as of the acquisition date.

The fair value of acquired loans held for investments was $362.2 million.

Determining the fair value of acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.

The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the merger date.

We identified the fair value of acquired loans held for investment as a critical audit matter due to the high degree of complexity and auditor judgment involved and the extent of effort involved, including the use of professionals with specialized skill and knowledge, in testing the Company’s estimates and assumptions, including the discount rates and prepayment rates used in the discounted cash flow methodology.

The primary procedures we performed to address the critical audit matter include the following:

■ We tested the design and operating effectiveness of the Company’s process for estimating the acquired loans fair value, including management’s controls over establishing the discount rate used in the discounted cash flow methodology;

and evaluating the completeness and accuracy of key inputs and assumptions used in the discounted cash flow methodology, including loan data.

■ We tested the completeness and accuracy of certain underlying loan data provided by management that was significant to the discounted cash flow model.

■ We utilized internal valuation specialists to assist in evaluating management’s valuation methodologies and significant assumptions, including application of discount rates and prepayment rates by comparing management’s selected assumptions to independently developed ranges based on third party market data.

/s/ Elliott Davis, PLLC

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Capital Bancorp, Inc.

To the Stockholders and the Board of Directors of

Capital Bancorp, Inc.

and Subsidiaries

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ending December 31, 2023 of the Company and our report dated March 15, 2024 expressed an unqualified opinion.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024 of the Company and our report dated March 17, 2025 expressed an unqualified opinion.

As described in the Report by Management on Internal Control over Financial Reporting, management has excluded Integrated Financial Holdings, Inc.

(“IFH”) from its assessment of internal control over financial reporting as of December 31, 2024, because it was acquired by the Company in a business combination in the fourth quarter of 2024.

We have also excluded IFH from our audit of internal control over financial reporting.

Total assets and net interest income and noninterest income of IFH represent approximately 14.6% and 6.8%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2024.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Report by Management on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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As of December 31, 2024 and 2023

(dollars in thousands) 2023 2022

(dollars in thousands, except share data) 2024 2023

Cash and due from banks $ 25,433 $ 14,513

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Loans held for sale 21,270 7,481

Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans receivable, net of fees and costs 645 2,163

Portfolio loans receivable, net of deferred fees and costs 2,630,163 1,903,288

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Accrued interest receivable 16,664 11,494

Goodwill 21,126 —

Intangible assets 14,072 —

Core deposit intangibles 1,745 —

Loan servicing assets 5,511 —

Deferred tax asset 16,670 12,252

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Provision for credit losses 17,720 9,610

Release of credit losses on unfunded commitments ( 101 ) —

Provision for (release of) credit losses on unfunded commitments 385 ( 101 )

Net interest income after provision for credit losses 136,641 132,017

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Mortgage banking revenue 7,146 4,896

Government lending revenue 2,301 —

Government loan servicing revenue 3,993 —

Loan servicing rights (government guaranteed) 1,013 —

Non-recurring equity and debt investment write-down ( 2,620 ) —

Other income 2,695 1,842

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Loan processing 2,431 1,633

Foreclosed real estate expenses (income), net 7 ( 183 )

Foreclosed real estate expenses, net 2 7

Merger-related expenses 3,930 —

Operational losses 3,714 4,613

Outside service providers 1,878 1,932

Regulatory assessment expenses 1,937 1,649

Other operating 6,152 5,389

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Net income $ 30,972 $ 35,871

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities available for sale 5,066 ( 20,912 )

Income tax benefit (expense) relating to the items above ( 1,412 ) 5,237

Other comprehensive income (loss) 3,654 ( 15,675 )

Other comprehensive income:

Unrealized gain on investment securities available-for-sale 2,194 5,066

Income tax expense relating to the items above ( 566 ) ( 1,412 )

Other comprehensive income 1,628 3,654

Comprehensive income $ 32,600 $ 39,525

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Balance, December 31, 2022 14,138,829 $ 141 $ 58,190 $ 182,435 $ ( 16,751 ) $ 224,015

Cumulative effect adjustment due to adoption of the CECL standard — — — ( 29 ) — ( 29 )

Net income — — — 35,871 — 35,871

Unrealized loss on investment securities available for sale, net of income taxes — — — — ( 15,675 ) ( 15,675 )

Unrealized gain on investment securities available-for-sale, net of income taxes — — — — 3,654 3,654

Stock options exercised, net of shares withheld for purchase price 228,405 2 2,726 ( 937 ) — 1,791

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Stock-based compensation — — 1,757 — — 1,757

— — 1,662 — — 1,662

Cash dividends to stockholders ($ 0.28 per share)

— — — ( 3,920 ) — ( 3,920 )

Shares repurchased and retired ( 475,346 ) ( 4 ) ( 8,822 ) — — ( 8,826 )

Balance, December 31, 2023 13,922,532 139 54,473 213,345 ( 13,097 ) 254,860

Cumulative effect adjustment due to adoption of the CECL standard — — — ( 29 ) — ( 29 )

Net income — — — 30,972 — 30,972

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Shares repurchased and retired ( 67,869 ) — ( 1,399 ) — — ( 1,399 )

Issuance of common stock in acquisition of IFH 2,631,847 27 70,837 — — 70,864

Balance, December 31, 2024 16,662,626 $ 167 $ 128,598 $ 237,843 $ ( 11,469 ) $ 355,139

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Provision for credit losses 17,720 9,610

Release of credit losses on unfunded commitments ( 101 ) ( 54 )

(Release of) provision for mortgage put-back reserve, net ( 188 ) 9

Net amortization on investments 188 540

Provision for (release of) credit losses on unfunded commitments 385 ( 101 )

Release of mortgage put-back reserve, net ( 68 ) ( 188 )

Net amortization on investment securities available-for-sale 100 188

Premises and equipment depreciation 737 324

Lease asset amortization 1,215 149

Amortization of intangible assets 262 —

Extinguishment of leases ( 2,881 ) —

Increase in cash surrender value of BOLI ( 1,466 ) ( 1,187 )

Net change in loan servicing assets ( 996 ) —

Executive long-term incentive plan expense 516 148

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Director and employee compensation paid in Company stock 517 547

Deferred income tax expense 142 1,240

Deferred income tax (benefit) expense ( 1,814 ) 142

Valuation allowance on derivatives — 8

Gain on sale of foreclosed real estate — ( 20 )

Loss on disposal of premises and equipment — 14

Decrease in valuation of loans held for sale carried at fair value 32 6

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Originations of loans held for sale ( 292,872 ) ( 176,444 )

Government lending revenue ( 2,301 ) —

Changes in assets and liabilities:

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Net cash provided by operating activities 34,926 47,418

Cash flows from investing activities

Purchases of securities available-for-sale ( 65,396 ) ( 6,960 )

Proceeds from calls and maturities of securities available-for-sale 53,208 55,991

Net (purchases) sales of restricted investments ( 126 ) 3,009

Net increase in portfolio loans receivable ( 320,651 ) ( 180,722 )

Net purchases of premises and equipment ( 2,157 ) ( 2,156 )

Cash received from acquisitions, net 65,170 —

See Notes to Consolidated Financial Statements

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(in thousands) 2024 2023

Cash flows from investing activities

Purchases of securities available for sale ( 6,960 ) ( 113,078 )

Proceeds from calls and maturities of securities available for sale 55,991 23,846

Net sales (purchases) of restricted investments 3,009 ( 3,864 )

Net decrease in SBA-PPP loans receivable 1,518 106,122

Net increase in portfolio loans receivable ( 182,240 ) ( 210,037 )

Net purchases of premises and equipment ( 2,156 ) ( 1,550 )

Proceeds from sales of foreclosed real estate — 106

Net cash used in investing activities ( 269,952 ) ( 130,838 )

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Interest-bearing deposits 299,045 194,864

Federal Home Loan Bank (repayments) advances, net ( 85,000 ) 85,000

Federal Home Loan Bank repayments, net — ( 85,000 )

Other borrowed funds ( 15,000 ) 15,000

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Change in unrealized gains (losses) on investments $ 2,194 $ 5,066

Fair value of assets acquired, net of cash received 460,455 —

Goodwill from acquisition 21,126 —

Fair value of liabilities assumed 475,886 —

Common Stock issued related to acquisition 27 —

Cash paid during the period for:

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(the “Bank”).

The Company's primary operations are conducted by the Bank, which operates branches in Rockville and Columbia, Maryland;

Reston, Virginia;

and the District of Columbia.

The Company's primary operations are conducted by the Bank, which is headquartered in Rockville, Maryland.

The Company serves businesses, not-for-profit associations, entrepreneurs and others throughout Washington D.C., Baltimore, other Maryland metropolitan areas, Florida, Illinois and North Carolina through six commercial bank branches, one mortgage banking office, two loan production offices, three government loan servicing offices, and one credit card operations office.

The Bank is principally engaged in the business of investing in commercial, real estate, and credit card loans and attracting deposits.

The Company originates residential mortgages for sale in the secondary market through Capital Bank Home Loans (“CBHL”), the Bank’s residential mortgage banking arm, and issues credit cards through OpenSky ™ , a digitally-driven, nationwide credit card platform providing secured, partially secured, and unsecured credit solutions.

As discussed further in Note 2, on October 1, 2024 the Company completed its previously announced merger (the “Merger”) with Integrated Financial Holdings, Inc., a North Carolina corporation (“IFH”).

IFH was the holding company of West Town Bank & Trust, an Illinois state-chartered bank which provides banking services through its full-service office located in the greater Chicago area and is a nationwide originator of U.S.

Department of Agriculture (“USDA”) and U.S.

Small Business Administration (“SBA”) government guaranteed loans.

IFH was also the parent company of Windsor Advantage, LLC (“Windsor Advantage”), a loan service provider that offers community banks and credit unions a comprehensive outsourced SBA 7(a) and USDA lending platform.

Immediately following the Merger, West Town Bank & Trust merged with and into the Bank, with the Bank as the surviving bank.

The Company formed Church Street Capital, LLC (“Church Street Capital”) in 2014 to provide short-term secured real estate financing to Washington, D.C.

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At December 31, 2024, Church Street Capital had loans totaling $ 6.8 million with a collectively assessed allowance for credit losses (“ACL”) of $ 184 thousand.

Refer to Note 5 - Portfolio Loans Receivable to the Consolidated Financial Statements for further discussion of the consolidated ACL.

Refer to Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements for further discussion of the consolidated ACL.

In addition, the Company owns all of the stock of Capital Bancorp (MD) Statutory Trust I (the “Trust”).

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Basis of presentation:

The accompanying consolidated financial statements include the activity of the Company and its wholly-owned subsidiaries, the Bank and Church Street Capital.

The accompanying consolidated financial statements include the activity of the Company and its wholly-owned subsidiaries, the Bank, Windsor Advantage, and Church Street Capital.

All intercompany transactions have been eliminated in consolidation.

The Company reports its activities as four business segments:

The Company reports its activities as five business segments:

commercial banking;

mortgage lending;

mortgage banking;

credit cards;

government loan servicing;

and corporate activities.

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The preparation of consolidated financial statements in accordance with GAAP requires estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

The primary reference point for the estimates is on historical experience and assumptions believed to be reasonable regarding the value of certain assets and liabilities that are not readily available from other sources.

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Actual results may materially differ from these estimates under different assumptions or conditions.

Business Combinations

The Company accounts for its acquisitions under the Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting.

This method requires the use of fair values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at acquisition date, and identifiable intangible assets which are recorded at fair value.

Costs directly related to the business combinations are recorded as expenses as they are incurred.

Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

Cash and cash equivalents

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Generally, federal funds are sold for one-day periods.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 1 - Nature of Business and Basis of Presentation (continued)

Investment securities

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At December 31, 2024, there was no ACL related to the AFS portfolio.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

Loans held for sale

Mortgage loans originated and intended for sale are recorded at fair value, determined individually, as of the balance sheet date.

Fair value is determined based on outstanding investor commitments, or in the absence of such commitments, based on current investor yield requirements.

The fair value of mortgage loans are determined based on outstanding investor commitments, or in the absence of such commitments, based on current investor yield requirements.

Gains or losses on sales of government guaranteed loans are recognized based on the difference between the net sales proceeds and the carrying value of the sold portion of the loan, less the fair value of the servicing asset recognized, and are reflected as operating activities in the Consolidated Statements of Cash Flows.

The difference between the initial carrying balance of the retained portion of the loan and the relative fair value of the sold portion is recorded as a discount to the retained portion of the loan, establishing a new carrying balance.

The recorded discount is accreted to earnings on a level yield basis.

Government guaranteed loans are generally sold with servicing retained.

Gains and losses on loan sales are determined by the specific-identification method.

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Unrealized and realized gains on loan sales are determined using the specific-identification method and are recognized through mortgage banking activity in the Consolidated Statements of Income.

The Company elects to measure loans held for sale at fair value to better align reported results with the underlying economic changes in value of the loans on the Company’s balance sheet.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 1 - Nature of Business and Basis of Presentation (continued)

Small Business Administration Paycheck Protection Program

During the global COVID-19 pandemic, pursuant to the CARES Act and the Consolidated Appropriations Act, 2021, the United States Small Business Administration Payroll Protection Program (“SBA-PPP”) provided forgivable loans to small businesses to enable them to maintain payroll, hire back employees who had been laid off, and cover overhead.

SBA-PPP loans have an interest rate of 1%, have two or five year terms, and carry a 100% guarantee of the SBA.

The program ended on May 31, 2021.

SBA-PPP loans are eligible to be forgiven by the SBA.

Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate balance sheet item.

Origination fees received by the SBA are capitalized into the carrying amount of the loans.

The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method.

The remaining net deferred income is recognized upon forgiveness of the loan.

The Company elects to measure loans held for sale at fair value to better align reported results with the underlying economic changes in value of the loans on the Company’s Consolidated Balance Sheet.

Portfolio loans and the ACL

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Origination fees and costs are recognized as an adjustment to the related loan yield using approximate interest methods.

For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-line basis over a 12-month period.

For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-line basis over a 12 or 24 month period.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

For reporting purposes, the Company discontinues the accrual of interest at the earlier of the date any portion of the principal and/or interest is 90 days past due, or at such time as we determine that it is probable that not all principal and interest payments will be collected, and that collateral is insufficient to discharge the debt in full.

The Company discontinues the accrual of interest at the earlier of the date any portion of the principal and/or interest is 90 days past due, or at such time as we determine that it is probable that not all principal and interest payments will be collected, and that collateral is insufficient to discharge the debt in full.

When the interest accrual is discontinued, all unpaid accrued interest is reversed from income.

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Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.

Loans are generally charged-off in part or in full when management determines the loan to be uncollectible.

Loans are generally charged-off in part or in full when management determines the loan, or a portion of the loan is expected, to be uncollectible.

Factors for charge-off that may be considered include:

repayments deemed to be extended out beyond reasonable time frames, customer bankruptcy and lack of assets, and/or collateral deficiencies.

On January 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaces the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the Current Expected Credit Loss model (“CECL”).

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity (“HTM”) debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASU 2016-02 “Leases (Topic 842)”.

Capital Bancorp, Inc.

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Note 1 - Nature of Business and Basis of Presentation (continued)

On January 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments – Credit Losses (Topic 326):

In addition, ASU 2016-13 made changes to the accounting for AFS debt securities.

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The Company does not own HTM debt securities.

There was no ACL on available for sale securities at December 31, 2023.

There was no ACL on available-for-sale securities at December 31, 2024 or at December 31, 2023.

The following table illustrates the impact of the adoption of ASC 326, or the CECL standard.

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Reserve for unfunded commitments $ 1,682 $ 907 $ ( 775 )

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

We maintain an ACL that represents management’s estimate of the expected credit losses and risks inherent in our loan portfolio.

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The Company has elected to utilize a discounted cash flow methodology for all segments, except for the credit card and other consumer portfolio segments, which apply a simplified, non-discounted cash flow calculation.

Management also collectively evaluates purchased credit deteriorated ("PCD") loans that do not meet the individually evaluated criteria.

For those loans, management uses an adverse "through the cycle" probability of default (PD) and loss given default (LGD) to reflect the "greater than insignificant" credit deterioration.

These loans are separated from the non-PCD and originated pools to ensure that these loans receive a reserve that is calculated based on unpaid principal balance (UPB) and not amortized costs.

See further detail regarding our forecasting methodology in the “Cash Flow Method” section below.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 1 - Nature of Business and Basis of Presentation (continued)

Quarterly, the Company utilizes a Qualitative Scorecard to consider the need to qualitatively adjust expected credit loss estimates for information not already captured in the quantitative loss estimation process, which may impact expected credit losses.

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Purchased Credit Deterioration

Upon adoption of ASU 2016-13, loans which were identified as Purchase Credit Impaired under the incurred loss model are identified as Purchased Credit Deteriorated (“PCD”) loans at January 1, 2023 without reassessment.

In future acquisitions, the Company may purchase loans, some of which have experienced more than insignificant credit deterioration since origination.

Upon adoption of ASU 2016-13, loans which were previously identified as Purchase Credit Impaired under the incurred loss model are identified as Purchased Credit Deteriorated (“PCD”) loans at January 1, 2023 without reassessment.

When acquiring loans, some may have experienced more than insignificant credit deterioration since origination.

In those cases, the Company will consider certain criteria including days past due, accrual status, risk rating, credit mark, and other relevant factors in assessing whether purchased loans are PCD.

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Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as non-PCD loans, with changes to the ACL recorded through provision expense.

In connection with the business combination with IFH, the Company acquired PCD and non-PCD loans.

Information regarding the PCD and non-PCD activity can be found within Note 2 - Business Combination and Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses, respectively.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

Cash Flow Method

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For each of these loan segments, the Company generates cash flow projections at the instrument level.

Payment expectations are adjusted for estimated prepayment speed and for probability and severity of a loss.

Payment expectations are adjusted for estimated prepayments and for probability and severity of a loss.

The expected credit losses derived from the cash flow calculations are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

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For all DCF and loss rate models, the Company has elected to use a four quarter forecast period across all portfolio segments.

After the forecasted period, the models will revert to a long run average of each economic factor over four quarters.

After the forecasted period, the models will revert to a long run average of each economic factor over the following four quarters.

The Company uses economic projections from reputable and independent third parties to inform its loss driver forecast over the forecast period.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 1 - Nature of Business and Basis of Presentation (continued)

For the non-credit card and consumer portfolios, the combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level.

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The ACL reflects the difference between the amortized cost basis and the present value of the expected cash flows.

During 2024, as part of the Company's ongoing model monitoring procedures, the annual loss driver analysis was performed.

In addition, the Company performed new rates studies for prepayment rates, and funding rates.

These changes were part of the Company's standard process and included updates to the peer group and incorporated more recent historical data.

Individual Evaluation

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If a loan is not collateral dependent, the loan will be analyzed based on a forecast of future cash flows.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

Credit Losses on Off-Balance Sheet Credit Exposures

The Company’s financial instruments include off-balance sheet credit instruments such as unfunded commitments to make loans, commercial letters of credit issued, and commitments to fund other investments.

The Company’s financial instruments include off-balance sheet credit instruments such as unfunded commitments to originate loans, commercial letters of credit issued, and commitments to fund other investments.

The Company’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of the credit commitment.

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Increases or decreases in the reserve are charged to or released from the provision for credit losses for unfunded commitments in the consolidated statements of income.

The provision (credit) for credit losses on off-balance sheet exposures prior to January 1, 2023 was included in other noninterest expense in the consolidated statements of income.

The RUC on off-balance credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model based on the segment loss factor and the estimated utilization rate of the unfunded commitments.

The provision for (recovery of) credit losses for off-balance sheet exposures prior to January 1, 2023 was included in other noninterest expense in the consolidated statements of income.

The RUC for off-balance credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model based on the segment loss factor and the estimated utilization rate of the unfunded commitments.

The Company has analyzed its historic funding behavior at the segment level to determine an expected utilization rate.

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It is important to recognize that the related process, methodology, and underlying assumptions require a substantial degree of judgment.

Additional disclosure on the ACL, and qualitative factors can be found in Part II, Item 1A - Risk Factors and Note 5 - Portfolio Loans Receivable.

Credit Losses on SBA-PPP loans and interest receivable

The ACL for SBA-PPP loans was separately evaluated given the explicit government guarantee.

The Company has incorporated historical experience with similar SBA guarantees and underwriting adjusted for reasonable and supportable forecasts and concluded the expected credit loss is zero and, therefore, no allowance has been assigned to these loans.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 1 - Nature of Business and Basis of Presentation (continued)

The Company does not measure an ACL on accrued interest receivable balances because these balances are written off as a reduction to interest income when loans are placed on nonaccrual status.

Additional disclosure on the ACL, and qualitative factors can be found in Part II, Item 1A - Risk Factors and Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses.

Loan modifications

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Under ASU 2022-02, modifications to a loan for a borrower experiencing financial difficulty that have occurred in the current reporting period are disclosed along with the impact of the modifications.

During the year ended December 31, 2023, the Company did not have any such modifications.

During the years ended December 31, 2024 and 2023, the Company modified loans to borrowers experiencing financial difficulty as disclosed in Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

Loan servicing assets

When loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect included in noninterest income.

Fair value is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur and are included with noninterest income on the income statement.

The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported in the consolidated statements of income as loan servicing rights (government guaranteed), is recorded for fees earned for servicing loans.

The fees are based on a contractual percentage of the outstanding principal;

or a fixed amount per loan and are recorded as income when earned.

Late fees and ancillary fees related to loan servicing are not material.

Premises and equipment

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Additionally, as provided by ASU 2016-02, the Company elected not to apply the recognition requirements of ASC 842 to short-term leases, defined as leases with a term of 12 months or less, and to recognize the lease payments in net income on short-term leases on a straight-line basis over the lease term.

Derivative financial instruments

The Company may enter into commitments to fund residential mortgage loans (interest rate locks) with the intention of selling them in the secondary market.

The Company also enters into forward sales agreements for certain funded loans and loan commitments.

The Company records unfunded commitments intended for loans held for sale and forward sales agreements at fair value with changes in fair value recorded as a component of mortgage banking revenue.

Loans originated and intended for sale in the secondary market are carried at fair value.

For pipeline loans which are not pre-sold to an investor, the Company endeavors to manage the interest rate risk on rate lock commitments by entering into forward sale contracts, whereby the Company obtains the right to deliver securities to investors in the future at a specified price.

Such contracts are accounted for as derivatives and are recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in mortgage banking revenue.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 1 - Nature of Business and Basis of Presentation (continued)

The Company accounts for derivative instruments and hedging activities according to guidelines established in ASC 815-10, Accounting for Derivative Instruments and Hedging Activities , as amended.

The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value.

Changes in fair value of derivatives designated and accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive income, net of deferred taxes.

Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.

As of December 31, 2023, there were no derivative instruments held which would require recognition by the Company.

Fair value measurements

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In developing our fair value estimates, we strive to maximize the use of observable inputs and minimize the use of unobservable inputs.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 1 - Nature of Business and Basis of Presentation (continued)

The fair value hierarchy defines Level 1 valuations as those based on quoted prices (unadjusted) for identical assets or liabilities in active markets.

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Level 3 valuations are based on at least one significant assumption not observable in the market, or significant management judgment or estimation, some of which may be internally developed.

Financial assets that are recorded at fair value on a recurring basis include investment securities available for sale, loans held for sale, and derivative financial instruments.

Financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments.

Financial assets that are recorded at fair value on a recurring basis include investment securities available-for-sale, and loans held for sale.

See Note 17 - Fair Value.

Goodwill and Other Intangible Assets

The excess of the cost of an acquisition over the fair value of the net assets acquired consists primarily of goodwill.

The Company reviews long-lived assets and other intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded.

Goodwill is not amortized and is tested for impairment at least annually, or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed.

The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit.

An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary.

When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value.

If the calculated fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and no further testing is considered necessary.

If a reporting unit’s carrying amount exceeds its fair value, the Company will record an impairment charge based on the difference.

The impairment charge will be limited to the amount of goodwill allocated to the reporting unit.

Other intangible assets are intangible assets with finite useful lives, consisting primarily of customer list, trade name and core deposit intangibles.

Intangible assets are amortized using straight-line or accelerated methods over their estimated weighted average useful lives, ranging from 10 to 17 years years.

Intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Revenue Recognition

Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), establishes a revenue recognition model for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.

A description of the revenue-generating activities that are within the scope of ASC 606, and included in other income in the Company’s consolidated statements of income are as follows:

Interest Income and Fees

Interest income and fees on loans and investment securities are recognized based on the contractual provisions of the underlying arrangements.

Loan origination fees, direct loan origination costs, premiums and discounts on loans held for investment are deferred and generally amortized into interest income as yield adjustments over the contractual life and/or commitment period using the interest method.

For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-line basis over a 12 or 24 month period.

In addition to lending and related activities, the Company offers various services to customers that generate revenue, certain of which are governed by ASC Topic 606 Revenue from Contracts with Customers.

The Company's services that fall within the scope of this topic are presented within noninterest income and include service charges and fees and other transaction-based fees.

Revenue is recognized when the transactions occur or as services are preformed over primarily monthly or quarterly periods.

Payment is typically received in the period the transactions occur.

Fees may be fixed or, where applicable, based on a percentage of transaction size.

Capital Bancorp, Inc.

3 unchanged sentences

Note 1 - Nature of Business and Basis of Presentation (continued)

The unamortized premiums, discounts and other basis adjustments on investment securities are included as components of the investment securities’ carrying value and are generally recognized in interest income as yield adjustments over the contractual lives of the securities using the interest method.

However, premiums for certain callable investment securities are amortized to the earliest call date.

Finance charges and fees on credit card loans are recorded in revenue when earned and presented on our consolidated balance sheets within portfolio loans receivable.

Annual membership fees are classified as interest income in our consolidated statements of income and are deferred and amortized over 12 months on a straight-line basis.

Bank-owned life insurance

The Company has purchased life insurance policies on certain current and past key employees where the insurance policy benefits and ownership are retained by the employer.

These policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

The Company had $ 44.0 million of bank-owned life insurance at December 31, 2024 and $ 37.7 million at December 31, 2023.

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Comprehensive loss

The Company reports as comprehensive loss all changes in stockholders' equity during the year from non-stockholder sources.

The Company reports as comprehensive income (loss) all changes in stockholders' equity during the year from non-stockholder sources.

Other comprehensive loss refers to all components (income, expenses, gains, and losses) of comprehensive loss that are excluded from net income.

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Deferred tax benefit 3,687 4,253

Total accumulated comprehensive loss $ ( 13,097 ) $ ( 16,751 )

Total accumulated other comprehensive loss $ ( 11,469 ) $ ( 13,097 )

Reportable segments

The Company currently operates four divisions:

Commercial Banking, Capital Bank Home Loans, OpenSky ™ , and Windsor Advantage.

The Company reports its activities in five business segments:

commercial banking;

mortgage banking;

credit cards;

government loan servicing;

and corporate activities.

In determining the appropriateness of segment definition, the Company considers components of the business about which financial information is available and regularly evaluated relative to resource allocation and performance assessment.

The Company’s chief operating decision maker is the Chief Executive Officer of Capital Bancorp, Inc.

For further discussion of management’s operating segments, see Note 18 - Segments.

Capital Bancorp, Inc.

3 unchanged sentences

Note 1 - Nature of Business and Basis of Presentation (continued)

Recently issued accounting pronouncements:

In March 2020, the FASB released ASU 2020-04 - Reference Rate Reform, Topic 848, which provides temporary guidance to ease the potential accounting burden in accounting for, or recognizing the effects from, reference rate reform on financial reporting.

The new standard is a result of London Interbank Offered Rate (“LIBOR”) likely being discontinued as an available benchmark rate.

The standard is elective and provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued.

The amendments in the update are effective for all entities between March 12, 2020 and an extended sunset date of December 31, 2024 which was extended by ASU 2022-06 issued by FASB in December 2022.

The Company has completed the transition from LIBOR with no material impact on the Company’s financial position or results of operations.

Adoption of New Accounting Standards

In December 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures" ("ASU 2023-07").

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ASU 2023-07 is effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company will update its segment related disclosures upon adoption.

The Company adopted ASU 2023-07 effective December 31, 2024.

See Note 18 - Segments for new disclosures required by ASU 2023-07.

Recently issued accounting pronouncements:

In December 2023, the FASB issued Accounting Standards Update 2023-09, “Income Taxes (Topic 740), Improvements to Income Tax Disclosures" ("ASU 2023-09").

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The Company will update its income tax disclosures upon adoption.

In November 2024, the FASB issued Accounting Standards Update 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)" ("ASU 2024-03").

ASU 2024-03 requires public entities to provide disaggregated disclosures, in the notes to the financial statements, of certain categories of expenses that are included in expense line items on the face of the income statement.

ASU 2024-03 is effective for the Company for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company will update its expense disclosures upon adoption.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

6 unchanged sentences

December 31, 2024 and 2023

Note 2 - Cash and Cash Equivalents

Cash and cash equivalents include cash and amounts due from banks, interest-bearing deposits and federal funds sold.

The Bank is required by regulations to maintain an average cash reserve balance based on a percentage of deposits;

however, on March 15, 2020, the Federal Reserve announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020, due to economic conditions, which eliminated the reserve requirement for all depository institutions.

The reserve requirement is still at zero percent as of December 31, 2023.

Note 2 - Business Combination

On October 1, 2024, the Company completed its Merger with IFH, pursuant to the Merger Agreement, dated as of March 27, 2024.

On October 1 2024, IFH merged with and into the Company, with the Company continuing as the surviving corporation in the Merger.

Pursuant to the terms of the Merger Agreement, each share of IFH Common Stock was converted into the right to receive (a) 1.115 shares of the Company’s common stock, par value $ 0.01 per share (“Common Stock”);

and (b) $ 5.36 in cash per share of IFH Common Stock held immediately prior to the Merger, in addition to cash in lieu of fractional shares.

In addition, each stock option granted by IFH to purchase shares of IFH Common Stock, whether vested or unvested, outstanding immediately prior to the Merger, 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 IFH stock option.

The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date and have been accounted for under the acquisition method of accounting.

The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.

Goodwill is established when the fair value of consideration paid exceeds the fair value of the identifiable assets acquired and liabilities assumed.

Fair values are considered preliminary for a period not to exceed one year after the acquisition date and are subject to refinement as information relative to closing date fair values becomes available.

The following is a description of the valuation methodologies used to estimate the fair value of major categories of assets acquired and liabilities assumed.

In many cases, the fair values of the assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and applying the appropriate market discount rates.

Cash and cash equivalents :

The estimated fair value of cash and cash equivalents approximate their stated value.

The Company recorded $ 403.9 million of net acquired loans, including $ 41.7 million of loans held for sale.

The fair value for loans was based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors.

Loan cash flows were generated on an individual loan basis.

The probability of default, loss given default, exposure at default and prepayment assumptions are the key factors driving credit losses which are embedded into the estimated cash flows.

Deferred tax asset:

The Company recorded a deferred tax asset of $ 9.3 million related to tax attributes of IFH along with the effects of fair value adjustments resulting from acquisition accounting for the combination.

The deferred tax assets recorded were based on the expected federal and state tax benefits of when the acquired tax attributes and purchase accounting adjustments will reverse.

In recording the deferred tax asset, consideration was given to potential limitations on the realizability of such acquired tax attributes.

The Company recorded $ 459.0 million of assumed deposits.

The approximate fair value for deposits was determined by the acquisition date outstanding balance for nonmaturity deposits and by the contractual cash flows of the deposit accounts using prevailing market interest rates for time deposit accounts of similar type and duration for time deposits.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 2 - Business Combination (continued)

The following table summarizes the consideration paid for IFH and the amounts of the assets acquired and liabilities assumed at the acquisition date:

Purchase Price Consideration and Net Assets Acquired

(dollars in thousands, except shares issued and price per share)

Common share consideration

Shares of common stock issued 2,631,847

Price per share on September 30, 2024 $ 25.71

Common stock consideration $ 67,665

Cash consideration 12,652

Consideration for other equity instruments 3,199

Purchase price consideration $ 83,516

Cash and cash equivalents $ 77,822

Investment securities available-for-sale 1,019

Loans held for sale 41,723

Portfolio loans held for investment, net 362,180

Premises and equipment, net 7,104

Customer list intangible 12,200

Trade name intangible 2,100

Core deposits intangible 1,779

Loan servicing assets 4,515

Deferred tax asset 9,324

Bank owned life insurance 4,779

Other assets 13,731

Total assets acquired $ 538,276

Deposits $ 458,952

Other liabilities 16,934

Total liabilities assumed $ 475,886

Total identifiable net assets $ 62,390

Goodwill $ 21,126

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Supplementary Information on Acquired Loans

October 1, 2024

Par value $ 124,566

ACL at acquisition ( 11,325 )

Non-credit discount ( 5,797 )

Purchase price $ 107,444

Non-PCD loans:

Fair value $ 254,736

Gross contractual amounts receivable 260,183

Estimate of contractual cash flows not expected to be collected 4,110

Goodwill represents the intangible value of IFH’s business and reputation within the markets it previously served and is not expected to be deductible for income tax purposes.

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.

The fair value adjustments were determined using discounted contractual cash flows.

The Company believes that all contractual cash flows related to these financial instruments will be collected.

As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit deteriorated loans, which have shown evidence of credit deterioration since origination.

Receivables acquired that were not subject to these requirements include non-impaired loans, including loans held for sale, with a fair value and gross contractual amounts receivable of $ 296.5 million and $ 301.9 million on the date of acquisition.

The fair value of purchased financial assets with more-than-insignificant credit deterioration was $ 107.4 million on the date of acquisition.

The gross contractual amounts receivable relating to the purchased financial assets with more-than-insignificant credit deterioration was $ 124.6 million.

The Company estimates, on the date of acquisition, that $ 11.3 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

In connection with the business combination with IFH, the Company recorded $ 21.1 million of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired.

Information regarding the allocation of goodwill to the Company’s reportable segments, as well as the carrying amounts and amortization of other transaction related intangible assets, can be found within Note 18 – Segments and Note 8 - Goodwill and Intangible Assets, respectively.

The Company recorded $ 12.2 million of customer list intangible and $ 2.1 million of trade name intangible which is being amortized over its expected useful life of 17 years and 15 years, respectively, using the straight-line method.

The $ 1.8 million of core deposit intangible will be amortized over its expected useful life of 10 years using the sum-of-the-years-digits method.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 2 - Business Combination (continued)

The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2024.

The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects.

The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates:

(unaudited) (unaudited)

(in thousands) 2024 2023

Total revenue (1)

$ 225,443 $ 215,161

Net income $ 52,991 $ 46,322

(1) Total revenue is calculated by the sum of net interest income and noninterest income.

Note 3 - Investment Securities

The following table summarizes the amortized cost, fair value and allowance for credit losses of securities available-for-sale at December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

The following table summarizes the amortized cost, fair value and allowance for credit losses of securities available-for-sale at December 31, 2024 and 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

Cost Gross Unrealized

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Total $ 238,969 $ 74 $ ( 15,413 ) $ — $ 223,630

There was no ACL required on available-for-sale debt securities in an unrealized loss position at December 31, 2023.

The following table summarizes the amortized cost and fair value of securities available-for-sale at December 31, 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

Cost Gross Unrealized

Gains Gross Unrealized

(in thousands)

December 31, 2023

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Total $ 225,679 $ 17 $ ( 17,367 ) $ — $ 208,329

There was no ACL required on available-for-sale debt securities in an unrealized loss position at December 31, 2024 or 2023.

There were no securities sold during the year ended December 31, 2024 or December 31, 2023.

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79,939 77,275 40,491 38,271

$ 225,679 $ 208,329 $ 274,897 $ 252,481

Total $ 238,969 $ 223,630 $ 225,679 $ 208,329

(1) Asset-backed and Mortgage-backed securities are due in monthly installments.

There were no securities pledged at December 31, 2024 and 2023 to secure public deposits and repurchase agreements.

Pledged securities at the Federal Reserve's Bank Term Funding Program (“BTFP”) totaled $ 170.7 million at par value at December 31, 2023 and $ 0 at December 31, 2022.

Pledged securities at the Federal Reserve's Bank Term Funding Program (“BTFP”) totaled $ 170.7 million at par value at December 31, 2023 with no securities pledged as of December 31, 2024 as the program ended during the first quarter 2024.

At December 31, 2024 and 2023, there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in an amount greater than 10% of shareholders’ equity.

Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2024 and 2023, aggregated by major security type and length of time in a continuous unrealized loss position:

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Additional information related to the types of securities held at December 31, 2024, other than securities issued or guaranteed by U.S.

Government entities or agencies, is as follows:

Government entities or agencies including U.S.

Treasuries and substantially all of the Company’s mortgage-backed securities, is as follows:

Corporate Securities – There have been no payment defaults on any of the Company’s holdings of corporate debt securities.

There are 5 securities all of which are subordinated debt of other financial institutions with face amounts ranging from $ 0.5 million to $ 2 million.

There are five securities all of which are subordinated debt of other financial institutions with face amounts ranging from $ 0.5 million to $ 2 million.

Municipal Securities – All of the Company’s holdings of municipal bonds were investment grade and there have been no payment defaults.

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AAA – 82 % of the portfolio;

Asset-backed Securities – There were 3 investment grade asset-backed securities, and there have been no payment defaults on these securities.

Asset-backed Securities – There were three investment grade asset-backed securities, and there have been no payment defaults on these securities.

As such, it is deemed the above listed securities are not in an unrealized loss position due to credit-related issues and no further analysis is warranted as of December 31, 2024.

Note 4 - SBA-PPP Loans

SBA-PPP gross loans receivable totaled $ 0.7 million and $ 2.2 million at December 31, 2023 and 2022, respectively and were all rated as pass credits and were not past due, nonaccrual or otherwise impaired.

Unearned net fees associated with the SBA-PPP loans amounted to $ 15.3 thousand and $ 31.0 thousand at December 31, 2023 and 2022, respectively.

SBA-PPP loans generated income of $ 29.5 thousand for the year ended December 31, 2023 and $ 3.5 million for the year ended December 31, 2022, of which, earned fees, primarily on loans forgiven by the SBA, represented $ 15.7 thousand and $ 3.2 million of the income, respectively.

Note 4 - Loan Servicing

Activity for loan servicing rights and the related valuation allowance follows:

Loan servicing rights:

Beginning of year $ — $ —

Additions 5,096 —

Disposals — —

Other changes in fair value 415 —

End of year $ 5,511 $ —

The fair value at December 31, 2024 was determined using a discount rate of 13.5 %, prepayment speeds ranging from 12.8 % to 18.2 %, depending on the stratification of the specific right, and a weighted average default rate of 0.7 %.

There were no such loan servicing rights during 2023.

Capital Bancorp, Inc.

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(1) Credit card loans are presented net of reserve for interest and fees.

The following tables set forth the changes in the ACL and an allocation of the ACL by loan segment class for the year ended December 31, 2024 and 2023.

During the year ended December 31, 2023, the Company recorded a $ 284 thousand increase to the ACL, reflected in “Other,” from residual non-accretable discounts on acquired loans post CECL adoption.

The following tables set forth the changes in the ACL and an allocation of the ACL by loan segment class for the year ended December 31, 2023 and the activity in the allowance for loan losses by loan segment class for the year ended December 31, 2022.

Balance, Prior to Adoption of the CECL Standard Impact of Adopting the CECL Standard Other Provision (Release of Provision) for

Credit Losses Charge-Offs Recoveries Ending

(in thousands)

The ACL on loans at December 31, 2024 included $ 11.3 million of allowance for credit losses on acquired PCD loans established through acquisition accounting adjustments on the IFH acquisition date.

In addition, the provision for credit losses on loans in the year ended December 31, 2024 included $ 4.2 million to establish an ACL on non-PCD loans acquired in the IFH acquisition.

(in thousands) Beginning

Balance Initial Allowance on Acquired PCD Loans Provision for

Credit Losses (1)

Charge-Offs Recoveries Ending

Year Ended December 31, 2024

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Total $ 28,610 $ 11,325 $ 17,720 $ ( 9,228 ) $ 225 $ 48,652

(1) Includes $ 4.2 million initial provision for credit losses on non-PCD loans.

Capital Bancorp, Inc.

4 unchanged sentences

(in thousands) Beginning

Balance Provision (Release of Provision) for

Loan Losses Charge-Offs Recoveries Ending

Balance, Prior to Adoption of the CECL Standard Impact of Adopting the CECL Standard Other Provision (Release of Provision) for

Credit Losses Charge-Offs Recoveries Ending

Year Ended December 31, 2023

6 unchanged sentences

Total $ 26,385 $ 804 $ 284 $ 9,610 $ ( 8,787 ) $ 314 $ 28,610

The following tables present a summary of loan balances and the related allowance for loan losses summarized by loan category for each impairment method used as of December 31, 2022.

(in thousands) Allowance for Loan Losses

Ending Balance Evaluated

for Impairment:

Outstanding Portfolio

Loan Balances Evaluated

for Impairment:

December 31, 2022 Individually Collectively Individually Collectively

Residential $ — $ 5,481 $ 4,288 $ 480,447

Commercial — 8,098 1,563 662,988

Construction — 3,782 2,837 235,262

Commercial and Industrial 372 2,563 705 219,516

Credit card — 6,078 — 128,434

Other consumer — 11 — 1,179

Total $ 372 $ 26,013 $ 9,393 $ 1,727,826

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses (continued)

Past due loans, segregated by age and class of loans, as of December 31, 2024 and 2023 were as follows:

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Total $ 12,901 $ 11,534 $ 15,917 $ 40,352 $ 1,870,578 $ 1,910,930 $ 536 $ 16,042

There were $ 8.1 million and $ 1.3 million, respectively, of loans secured by one-to-four family residential properties in the process of foreclosure as of December 31, 2023 and 2022.

There were $ 7.2 million and $ 8.1 million of loans secured by one-to-four family residential properties in the process of foreclosure as of December 31, 2024 and 2023, respectively.

The increase in loans 60-89 days past due at December 31, 2024 from December 31, 2023 includes a single owner-occupied commercial real estate loan relationship with a total outstanding exposure amount of $ 11.6 million.

The borrower fell behind in payments due to unexpected timing delays in the collection of outstanding receivables.

Payments have resumed.

The borrower remains actively engaged with the Company in resolving the past due status.

Of the total outstanding exposure, $ 3.9 million is now considered current at December 31, 2024.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses (continued)

The following presents the nonaccrual loans as of December 31, 2024 and December 31, 2023:

December 31, 2023 December 31, 2022

Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Loss Total Nonaccrual Loans Interest Recognized on Nonaccrual Loans Total Nonaccrual Loans

December 31, 2024

Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Loss Total Nonaccrual Loans Interest Recognized on Nonaccrual Loans

(in thousands)

4 unchanged sentences

Total $ 15,816 $ 14,425 $ 30,241 $ 410

December 31, 2023

Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Loss Total Nonaccrual Loans Interest Recognized on Nonaccrual Loans

Residential $ 11,152 $ 246 $ 11,398 $ 236

Commercial 582 — 582 46

Construction 3,288 — 3,288 185

Commercial and Industrial 407 367 774 71

Total $ 15,429 $ 613 $ 16,042 $ 538

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty.

2 unchanged sentences

• Residential real estate loans are primarily secured by owner-occupied primary residences and, to a lesser extent, investor-owned residences.

• Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner-occupied investment commercial real estate.

Typically, owner-occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies.

Non-owner-occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development and/or industrial properties, as well as other commercial or industrial real estate.

• Construction loans are typically secured by owner-occupied commercial real estate or non-owner-occupied investment real estate.

Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction.

Non-owner-occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development and/or other commercial and industrial real estate in process of construction.

• Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable and/or other commercial property.

Capital Bancorp, Inc.

3 unchanged sentences

Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses (continued)

• Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner-occupied investment commercial real estate.

Non-owner-occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

• Construction loans are typically secured by owner-occupied commercial real estate or non-owner-occupied investment real estate.

Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction.

Non-owner-occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction.

• Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable, and other commercial property.

Collateral dependent loans amortized cost

(in thousands) December 31, 2023

(in thousands) December 31, 2024 December 31, 2023

Residential $ 8,780 $ 11,152

3 unchanged sentences

Total $ 34,435 $ 15,679

Of the collateral dependent loans as of December 31, 2023, a specific reserve of $ 115 thousand was assessed for commercial and industrial loans.

The Company had no modifications on loans to borrowers experiencing financial difficulty during the year ended December 31, 2023.

Prior to the adoption of the CECL standard, loans were considered impaired when, based on current information, management believed the Company would not collect all principal and interest payments according to contractual terms.

Generally, loans were reviewed for impairment when the risk grade for a loan was downgraded to a classified asset category.

For loans that were classified as impaired, an allowance was established when the collateral value, if the loan was collateral dependent, or the discounted cash flows of the impaired loan was lower than the carrying value of the loan.

Loans were generally charged-off in part or in full when management determined the loan to be uncollectible.

The following table presents information related to impaired loans by class of loans as of and for the years ended December 31, 2022:

Balance Recorded

Allowance Recorded

Allowance Total

Investment Related

Allowance Average

Investment Interest

(in thousands)

December 31, 2022

Residential $ 4,476 $ 4,288 $ — $ 4,288 $ — $ 4,629 $ 149

Commercial 1,647 1,563 — 1,563 — 1,656 52

Construction 2,939 2,837 — 2,837 — 2,938 75

Commercial and Industrial 899 247 458 705 372 1,199 77

Of the collateral dependent loans as of December 31, 2024, a specific reserve of $ 147 thousand, $ 4.1 million and $ 4.8 million was assessed for residential real estate, commercial real estate and commercial and industrial loans, respectively.

Of the collateral dependent loans as of December 31, 2023, a specific reserve of $ 9.0 million was assessed for commercial and industrial loans.

The Company made 13 loan modifications on loans to borrowers experiencing financial difficulty during the year ended December 31, 2024 as follows:

Modifications

(in thousands) Amortized Cost Basis % of Total Loan Type Financial Effect

Residential $ 806 0.126 % Payment recast based on new extended maturity to lower payments on one loan;

Reduced contractual interest rate from 8.375 % to 6.375 % on one loan.

Residential - Home Equity 90 0.181 % Reduced contractual interest rate from 10.490 % to 6.375 % on one loan.

Commercial 1,577 0.167 % Provided 3 months, 6 months and 12 months payment deferral on three different loans through the Bank’s standard deferral program.

The deferred payments were added to the end of the original loan terms.

Commercial and Industrial 2,530 0.456 % Provided 9 months payment deferral on two loans and 12 months payment deferral on two loans through the Bank’s standard deferral program.

The deferred payments were added to the end of the original loan terms;

Extended maturity date of one loan which reduced monthly payment amount for the borrower;

Reduced contractual floating interest rate based on Prime to 6.000 % fixed rate and extended terms for 60 months on one loan;

Reduced contractual floating interest rate based on Prime to 6.000 % fixed rate, extended terms for 60 months and provided 3 months payment deferral on one loan with the deferred payments added to the end of the original loan terms.

Total $ 5,003

The Company did not make any modifications on loans to borrowers experiencing financial difficulty during the year ended December 31, 2023.

Capital Bancorp, Inc.

70 unchanged sentences

Gross Charge-offs

Residential $ — $ — $ — $ — $ — $ 670 $ — $ 670

Commercial — — — — 943 — — 943

Residential real estate $ — $ — $ — $ — $ — $ 907 $ — $ 907

Commercial real estate — — 570 — — — — 570

Commercial and Industrial 84 80 306 — — 136 — 606

6 unchanged sentences

Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses (continued)

The following table presents the balances of classified loans based on the credit quality indicator:

(in thousands) Pass (1)

Special Mention Substandard Doubtful Ungraded (2)

December 31, 2022

$ 469,304 $ 9,966 $ 5,465 $ — $ — $ 484,735

657,411 5,577 1,563 — — 664,551

235,262 — 2,837 — — 238,099

December 31, 2023 Term Loans by Origination Year

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total

Residential – Real estate

Pass $ 140,394 $ 137,362 $ 76,556 $ 76,938 $ 36,122 $ 88,055 $ — $ 555,427

Special Mention — — 134 3,670 1,176 288 — 5,268

Substandard — 33 — — 26 12,350 — 12,409

Doubtful — — — — — — — —

Total 140,394 137,395 76,690 80,608 37,324 100,693 — 573,104

Commercial – Real estate

Pass 62,095 185,776 145,756 68,748 96,238 116,347 — 674,960

Special Mention — 6,897 — — 805 985 — 8,687

Substandard — — — — 582 — — 582

Doubtful — — — — — — — —

Total 62,095 192,673 145,756 68,748 97,625 117,332 — 684,229

Construction – Real estate

Pass 142,157 72,240 46,180 16,859 6,246 2,517 — 286,199

Special Mention — — — — — 614 — 614

Substandard — — — 1,254 597 1,444 — 3,295

Doubtful — — — — — — — —

Total 142,157 72,240 46,180 18,113 6,843 4,575 — 290,108

Commercial and Industrial

Credit card — — — — 128,434 128,434

Pass 70,540 71,689 28,007 9,364 18,036 37,392 — 235,028

Special Mention — 156 — 2,406 47 273 — 2,882

Substandard 30 814 211 — 42 201 — 1,298

Doubtful — — — — — — — —

Total 70,570 72,659 28,218 11,770 18,125 37,866 — 239,208

Other consumer

Pass 75 278 147 116 — 334 — 950

Special Mention — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total 75 278 147 116 — 334 — 950

Ungraded — — — — — — 123,331 123,331

Portfolio loans receivable, gross $ 415,291 $ 475,245 $ 296,991 $ 179,355 $ 159,917 $ 260,800 $ 123,331 $ 1,910,930

________________________

(1) Pass includes loans graded exceptional, very good, good, satisfactory and pass/watch in addition to credit cards and consumer credits that are not individually graded.

(2) Credit card loans are not individually graded.

Certain loans have been modified where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties disclosed as troubled debt restructurings (“TDRs”).

These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.

Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after confirmation of the borrower’s sustained repayment performance for a reasonable period, generally six months .

The status of TDRs is as follows:

Contracts Recorded Investment

(dollars in thousands) Performing Nonperforming Total

December 31, 2023

Residential 1 $ — $ 288 $ 288

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total

Gross Charge-offs

Residential real estate $ — $ — $ — $ — $ — $ 670 $ — $ 670

Commercial real estate — — — — 943 — — 943

Commercial and Industrial — 98 — — — — — 98

Credit card — — — — — — 7,076 7,076

Total $ — $ 98 $ — $ — $ 943 $ 670 $ 7,076 $ 8,787

At December 31, 2022 the Company had one defaulted TDR for $ 288 thousand.

In the 12 months ending December 31, 2022, four TDRs, totaling $ 215 thousand paid off.

Capital Bancorp, Inc.

30 unchanged sentences

Impact of adopting the CECL standard on January 1, 2023 — ( 775 )

Release of credit losses on unfunded commitments ( 101 ) ( 54 )

Provision for (release of) credit losses on unfunded commitments 385 ( 101 )

Balance at end of period $ 1,191 $ 806

6 unchanged sentences

Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses (continued)

The Company maintains a reserve for potential losses on mortgage loans sold, which is reflected in other liabilities, with changes being charged to or released from a provision for credit loss expense.

During the year ended December 31, 2022, this increase or decrease in reserve activity was included in other operating expense.

The Company maintains a reserve for potential losses on mortgage loans sold, which is reflected in other liabilities, with changes being charged to or released from operating expense.

Activity in this reserve is as follows for the periods presented:

1 unchanged sentence

Balance at beginning of period $ 985 $ 1,173

(Release of) provision for mortgage loan put-back reserve ( 188 ) 9

Provision for (release of) mortgage loan put-back reserve 1,275 ( 188 )

Balance at end of period $ 2,260 $ 985

The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of those loans is as follows:

(in thousands) 2024

Purchase price of loans at acquisition $ 107,444

Allowance for credit losses at acquisition 11,325

Non-credit discount at acquisition 5,797

Par value of acquired loans at acquisition $ 124,566

Note 6 - Premises and Equipment

6 unchanged sentences

Construction in progress 1,292 33

Building 6,320 —

19,489 10,240

Accumulated depreciation and amortization ( 9,228 ) ( 8,758 )

5 unchanged sentences

The Company’s primary leasing activities relate to certain real estate leases entered into in support of the Company’s branch operations and back office operations.

The Company leases four of its full service branches and four other locations for corporate/administration activities, operations, and loan production.

The Company leases five of its full service branches and seven other locations for corporate/administration activities, operations, and loan production.

All property leases under lease agreements have been designated as operating leases.

15 unchanged sentences

The Company has lease agreements with lease and non-lease components, which the Company has elected to account for separately as the non-lease component amounts are readily determinable under most leases.

As of December 31, 2023, the Company’s net lease ROU assets and related lease liabilities were $ 3.6 million and $ 3.8 million, respectively, and have remaining terms ranging from one to nine years , including extension options that the Company is reasonably certain will be exercised.

As of December 31, 2024, the Company’s net lease ROU assets and related lease liabilities were $ 5.3 million and $ 5.9 million, respectively, compared to December 31, 2023 balances of $ 3.6 million of ROU assets and $ 3.8 million of lease liabilities, and have remaining terms ranging from one to eight years , including extension options that the Company is reasonably certain will be exercised.

As of December 31, 2024, the Company had not entered into any material leases that have not yet commenced.

16 unchanged sentences

Present value of net future lease payments $ 5,872

Operating lease and rent expense totaled $ 1.3 million for both the years ended December 31, 2023 and 2022.

Operating lease and rent expense totaled $ 1.5 million and $ 1.3 million for the years ended December 31, 2024 and 2023, respectively.

Capital Bancorp, Inc.

2 unchanged sentences

December 31, 2024 and 2023

Note 8 - Derivative Financial Instruments

As part of its mortgage banking activities, the Company enters into interest rate lock commitments, which are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and customers have locked into that interest rate.

The Company then locks the loan and rate in with an investor and commits to deliver the loan if settlement occurs (Best Efforts).

Certain loans under rate lock commitments are covered under forward sales contracts.

Forward sales contracts are recorded at fair value with changes in fair value recorded in mortgage banking revenue.

Interest rate lock commitments and commitments to deliver loans to investors are considered to be derivatives.

The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets.

The Company determines the fair value of rate lock commitments by estimating the fair value of the underlying asset, which is impacted by current interest rates and takes into consideration the probability that the rate lock commitments will close or will be funded.

The following table reports the commitment and fair value amounts on the outstanding derivatives:

(in thousands) December 31, 2023 December 31, 2022

Notional amount of open forward sales agreements $ — $ 1,750

Fair value of open forward delivery sales agreements — 9

Notional amount of interest rate lock commitments — 626

Fair value of interest rate lock commitments — 1

Note 9 - Deposits

Time deposits that meet or exceed the FDIC Insurance Limit of $250,000 at year-end 2023 and 2022 were $ 124.7 million and $ 96.3 million.

Scheduled maturities of time deposits for the next five years were as follows:

Note 8 - Goodwill and Intangible Assets

The change in goodwill during the years ended December 31, 2024 and 2023 is as follows:

(in thousands) 2024 2023

2024 $ 350,658

Balance at beginning of period $ — $ —

Acquired goodwill 21,126 —

Impairment — —

Balance at end of period $ 21,126 $ —

At December 31, 2024, the Company’s reporting units where goodwill was pushed down had positive equity and earnings.

The Company has elected to perform a qualitative assessment annually as of October 1 to determine if it is more than likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill.

The qualitative assessment indicated that it was more than likely than not that the fair value of the reporting unit exceeded the carrying value, resulting in no impairment.

Acquired amortizing intangible assets were as follows at December 31:

Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

Amortized intangible assets:

Customer list intangible $ 12,200 $ ( 188 ) $ — $ —

Trade name intangible 2,100 ( 40 ) — —

Core deposits intangible 1,779 ( 34 ) — —

Total amortized intangible assets $ 16,079 $ ( 262 ) $ — $ —

Goodwill represents the intangible value of IFH’s business and reputation within the markets it previously served and is not expected to be deductible for income tax purposes.

The customer list intangible and trade name intangible will be amortized over its expected useful life of 17 years and 15 years, respectively, using the straight-line method.

The core deposit intangible will be amortized over its expected useful life of 10 years using the sum-of-the-years-digits method.

Aggregate amortization expense was $ 262,000 and zero for the years ended December 31, 2024 and 2023, respectively.

At December 31, 2024, scheduled amortization of the intangible assets for each of the next five years is as follows:

(in thousands)

Thereafter 10,631

Total $ 15,817

3 unchanged sentences

December 31, 2024 and 2023

Note 9 - Deposits

Time deposits that meet or exceed the FDIC Insurance Limit of $250,000 at year-end 2024 and 2023 were $ 250.8 million and $ 124.7 million.

Scheduled maturities of time deposits for the next five years were as follows:

(in thousands)

2025 $ 726,992

Thereafter 20

Total $ 881,934

Note 10 - Borrowed Funds

2 unchanged sentences

FHLB fixed rate advance due October 16, 2025 $ 22,000 0.93 % $ 22,000 0.93 %

FHLB fixed rate advance due March 20, 2023 — — 50,000 4.42

FHLB daily rate advance due September 13, 2023 — — 35,000 4.57

Total - FHLB advances $ 22,000 0.93 % $ 107,000 3.75 %

Junior subordinated debentures due June 15, 2036 $ 2,062 6.49 % $ 2,062 7.52 %

6 unchanged sentences

Concurrent with the issuance of the Capital Securities, the Trust issued trust common securities to the Company in the aggregate liquidation value of $ 62 thousand.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 10 - Borrowed Funds (continued)

The proceeds of the issuance of the Capital Securities and trust common securities were invested in the Company’s Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Floating Rate Debentures”).

8 unchanged sentences

The junior subordinated debentures are treated as Tier 1 capital by the Company, to a limited extent, by the Federal Reserve.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 10 - Borrowed Funds (continued)

Other subordinated notes

7 unchanged sentences

Department of Treasury, collaboratively approved certain actions with a stated intention to reduce stress across the financial system, support financial stability and minimize any impact on business, households, taxpayers, and the broader economy.

Among other actions, the Federal Reserve Board has created the BTFP to make additional funding available to eligible depository institutions to help assure institutions can meet the needs of their depositors.

Eligible institutions may obtain liquidity against a wide range of collateral, at par value.

BTFP advances can be requested through at least March 11, 2024.

At December 31, 2023, the Company had $ 15.0 million of BTFP borrowings.

In January 2024, the Company paid off the $ 15.0 million of BTFP borrowings.

Among other actions, the Federal Reserve Board created the BTFP to make additional funding available to eligible depository institutions to help assure institutions can meet the needs of their depositors.

During the first quarter of 2023, we established a line of credit under the BTFP.

As of March 31, 2024, participation in the BTFP had concluded and the Company had no outstanding balances under the BTFP at December 31, 2024.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 10 - Borrowed Funds (continued)

Available lines of credit

7 unchanged sentences

As of December 31, 2024 and 2023, the Company had pledged commercial loans to the Federal Reserve Bank of Richmond to secure a borrowing capacity totaling $ 20.6 million and $ 16.6 million, respectively, under its discount window program.

Further, the Company had pledged available-for-sale securities to the Federal Reserve Bank of Richmond to secure an additional borrowing capacity of $ 89.6 million at December 31, 2024 as compared to a borrowing capacity of $ 155.7 million under the BTFP as previously mentioned at December 31, 2023.

The Company limits its certificate of deposit funding through financial networks to 15 % of the Bank’s assets, or approximately $ 471.3 million and $ 326.5 million as of December 31, 2024 and 2023, respectively.

3 unchanged sentences

The Company contributes 3 % of eligible compensation on behalf of all full‑time employees up to limits prescribed by the Internal Revenue Code.

The Company’s contribution to the plan was $ 1.0 million in 2023 and $ 850 thousand in 2022.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 11 - Retirement Plans (continued)

The Company’s contribution to the plan was $ 1.1 million in 2024 and $ 1.0 million in 2023.

The Bank adopted a Long-Term Incentive Plan (“LTIP”) for executive management members in 2021.

7 unchanged sentences

Any executive not fulfilling either vesting requirement will forfeit any employer contributions.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 12 - Related-Party Transactions

31 unchanged sentences

Reserve for recourse on mortgage loans sold 553 242

Deferred loan fees - PPP — 8

Stock-based compensation 793 309

Long-term incentive program 497 372

Write-down of equity investments 1,054 —

Unrealized loss on investment securities available-for-sale 3,789 4,253

12,467 13,813

Lease liability, net of right of use asset 149 45

Purchase accounting adjustments - loans and deposits 4,137 —

Other reserves 904 16

Deferred tax asset before valuation allowance 23,804 12,467

Valuation allowance 1,054 —

Deferred tax asset 22,750 12,467

Deferred tax liabilities:

Accumulated depreciation 249 214

Intangible assets 2,405 —

Mortgage and other servicing rights 1,347 —

Purchase accounting adjustments - fixed assets 1,717 —

Deferred tax liability 6,080 215

Net deferred tax asset $ 16,670 $ 12,252

Based on the Company’s history of prior earnings and its expectations of the future, it is anticipated that operating income and the reversal pattern of its temporary differences will, more likely than not, be sufficient to realize a net deferred tax asset of $ 16.7 million at December 31, 2024 from continuing operations.

The Company reduces the carrying amounts of deferred tax assets by a valuation allowance, if, based on the available evidence, it is more likely than not that such assets will not be realized.

At December 31, 2024 a valuation allowance of $ 1.1 million was established for a deferred tax asset arising from the write-down of a legacy IFH equity investment for which realizability is uncertain.

At December 31, 2023, no valuation allowance was recognized.

The Company’s net deferred tax asset of $ 16.7 million at December 31, 2024 increased $ 4.4 million, compared to $ 12.3 million at December 31, 2024.

The variance in net deferred tax asset year over year included the allowance for credit losses of $ 4.7 million and was also augmented in part by the IFH acquisition, including net purchase accounting adjustments of $ 2.4 million, intangible assets of $ 2.4 million, mortgage and other servicing rights of $ 1.3 million and a write-down on an equity investment of $ 1.1 million for which a valuation allowance of $ 1.1 million was established.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 13 - Income Taxes (continued)

The differences between the federal income tax rate and the effective tax rate for the Company are reconciled as follows:

2 unchanged sentences

State income taxes, net of federal income tax benefit 3.63 3.13

Nondeductible expenses 0.73 0.56

Tax-exempt interest income and dividend income ( 0.55 ) ( 0.41 )

Valuation allowance on deferred tax asset 1.32 —

Nondeductible merger expenses 0.64 —

Stock-based compensation expense 0.56 ( 0.05 )

Bank-owned life insurance ( 0.74 ) ( 0.54 )

Tax credits, net of amortization ( 0.26 ) —

Tax-exempt interest and dividend income ( 0.01 ) 0.01

Other, net ( 0.18 ) ( 1.15 )

Effective Tax Rate 25.96 % 22.40 %

Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the net deferred tax assets to net realizable value.

As of December 31, 2023, management has determined that it is more likely than not that the majority of the deferred tax asset from continuing operations will be realized.

At December 31, 2023 and December 31, 2022, no valuation allowance was recognized.

The Company’s effective tax rate of 25.96 % for 2024 increased 3.56 %, compared to 22.40 % for 2023.

The change in effective tax rate was due, in part, to the write-down of a legacy IFH equity investment which resulted in a deferred tax asset with an offsetting valuation allowance, certain nondeductible merger related expenses and stock-based compensation expense.

Offsetting this includes tax credits, net of amortization, arising from the Company’s 2024 investment in low income housing tax credits reduced the effective tax rate in 2024.The Company does not have material uncertain tax positions and did not recognize any adjustments for unrecognized tax benefits.

The Company remains subject to examination of income tax returns for the years ending after December 31, 2020.

Capital Bancorp, Inc.

2 unchanged sentences

December 31, 2024 and 2023

Note 13 - Income Taxes (continued)

The Company does not have material uncertain tax positions and did not recognize any adjustments for unrecognized tax benefits.

The Company remains subject to examination of income tax returns for the years ending after December 31, 2019.

Note 14 - Regulatory Capital Matters

4 unchanged sentences

The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

Management believes as of December 31, 2023, the Company and Bank meet all capital adequacy requirements to which they are subject.

Management believes as of December 31, 2024, that the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications:

4 unchanged sentences

There are no conditions or events since that notification that management believes have changed the institution’s category.

Based on recent changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets, the Company is not currently subject to separate minimum capital measurements.

At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank.

For comparison purposes, the Company’s ratios are presented in the following table as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.

At December 31, 2024 the Company reached the $3 billion asset level and is subject to separate minimum capital measurements.

The Company exceeded the minimum capital measurements and remains “well-capitalized.”

Actual and required capital amounts and ratios are presented below at year-end.

9 unchanged sentences

December 31, 2024

Tier 1 leverage ratio (to average assets) $ 270,019 12.14 % $ 89,004 4.00 % N/A N/A

Tier 1 capital (to risk-weighted assets) 270,019 15.55 % 104,175 6.00 % N/A N/A

Tier 1 leverage ratio (to average assets) $ 346,840 11.07 % $ 125,348 4.00 % $ 156,685 5.00 %

Tier 1 capital (to risk-weighted assets) 346,840 13.83 % 150,512 6.00 % 200,683 8.00 %

Common equity tier 1 capital ratio (to risk-weighted assets)

267,957 15.43 % $ 78,132 4.50 % N/A N/A

Total capital ratio (to risk-weighted assets) 301,817 17.38 % $ 138,900 8.00 % N/A N/A

344,778 13.74 % 112,884 4.50 % 163,055 6.50 %

Total capital ratio (to risk-weighted assets) 388,425 15.48 % 200,683 8.00 % 250,853 10.00 %

Tier 1 leverage ratio (to average assets) $ 283,828 9.17 % $ 123,818 4.00 % $ 154,772 5.00 %

26 unchanged sentences

Stock options:

The Company currently has two incentive compensation plans with outstanding stock options, the 2002 Stock Option Plan and the 2017 Stock and Incentive Compensation Plan (the “Plan”).

The Company currently has two incentive compensation plans with outstanding stock options, the 2002 Stock Option Plan and the Amended and Restated 2017 Stock and Incentive Compensation Plan (the “Plan”).

Only the Plan, which authorizes the use of stock options, stock appreciation rights, restricted stock and/or restricted stock, is available to grant options and shares to employees and directors.

73 unchanged sentences

Retired on vesting ( 5,375 ) 18.12 ( 8,555 ) 16.46

Forfeited ( 1,333 ) 17.90 — —

Nonvested at end of year 46,950 $ 24.83 28,176 $ 21.66

13 unchanged sentences

Investment in Church Street Capital 7,357 6,574

Investment in Windsor 5,939 —

Investment in Trust 62 62

2 unchanged sentences

Accrued interest receivable 92 370

Goodwill 3,521 —

Intangible assets 14,072 —

Deferred income taxes ( 3,081 ) 165

44 unchanged sentences

Director and employee compensation paid in Company stock 517 547

Deferred income tax benefit ( 65 ) —

Deferred income tax expense (benefit) 4 ( 65 )

Amortization of intangible assets 228 —

Changes in assets and liabilities:

7 unchanged sentences

Capital contributions to subsidiaries ( 5,512 ) ( 1,729 )

Net cash provided (used) by investing activities 3,585 ( 12,981 )

Cash paid from acquisitions, net ( 6,416 ) —

Net cash (used) provided by investing activities ( 12,370 ) 3,585

Cash flows from financing activities

3 unchanged sentences

Net cash used by financing activities ( 5,597 ) ( 10,955 )

Net increase (decrease) in cash and cash equivalents 3,227 ( 358 )

Net increase in cash and cash equivalents 1,859 3,227

Cash and cash equivalents, beginning of year 3,499 272

18 unchanged sentences

For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing.

Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Matrix pricing, which is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans held for sale - The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).

Loan servicing assets - The fair values of loan servicing assets are determined at a tranche level, based on market prices for comparable servicing contracts (Level 2), when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.

The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).

Derivative financial instruments - The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

20 unchanged sentences

Loans held for sale $ 21,270 $ — $ 21,270 $ —

Derivative assets $ — $ — $ — $ —

Derivative liabilities $ — $ — $ — $ —

Loan servicing assets $ 5,511 $ — $ 5,511 $ —

December 31, 2023

7 unchanged sentences

Loans held for sale $ 7,481 $ — $ 7,481 $ —

Derivative assets $ 10 $ — $ 10 $ —

Derivative liabilities $ — $ — $ — $ —

Loan servicing assets $ — $ —

Financial instruments recorded using FASB ASC 825-10

13 unchanged sentences

Difference $ 4,549 $ 2,313

The Company elects to account for loans held for sale at fair value to eliminate the mismatch that would occur by recording changes in market value on derivative instruments used to hedge loans held for sale while carrying the loans at the lower of cost or market.

The Company has elected to account for loans held for sale at fair value to eliminate the mismatch that would occur by recording changes in market value on derivative instruments used to hedge loans held for sale while carrying the loans at the lower of cost or market.

As of December 31, 2024 and December 31, 2023, there were no held for sale loans which were classified as nonaccrual.

Fair value measurements on a nonrecurring basis

2 unchanged sentences

These assets are included as Level 3 fair values.

As of December 31, 2023 and December 31, 2022, the fair values consist of loan balances of $ 16.0 million and $ 9.4 million, with specific reserves of $ 422 thousand and $ 372 thousand, respectively.

As of December 31, 2024 and December 31, 2023, the fair values consist of loan balances of $ 34.9 million and $ 16.0 million, with specific reserves of $ 9.3 million and $ 0.4 million, respectively.

Foreclosed real estate - The Company's foreclosed real estate is measured at fair value less cost to sell.

3 unchanged sentences

As of December 31, 2024 and December 31, 2023, there was no foreclosed real estate held by the Company.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 17 - Fair Value (continued)

The Company has categorized its financial instruments measured at fair value on a nonrecurring basis as of December 31, 2024 and December 31, 2023 as follows:

Fair Value of Individually Evaluated Loans

4 unchanged sentences

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2024 and 2023:

Unobservable Inputs

Valuation Technique Unobservable Inputs General Range of Inputs

Individually evaluated loans Appraised Value/Discounted Cash Flows Discounts to appraisals or cash flows for estimated holding and/or selling costs 0 - 30 %

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Note 17 - Fair Value (continued)

Valuation Technique Unobservable Inputs General Range of Inputs

Individually evaluated loans Appraised Value/Discounted Cash Flows Discounts to appraisals or cash flows for estimated holding and/or selling costs 0 - 30 %

Fair value of financial instruments

4 unchanged sentences

Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

As of December 31, 2023, the technique used by the Company to estimate the exit price of the loan portfolio consists of similar procedures to those used as of December 31, 2022, but with added emphasis on both illiquidity risk and credit risk not captured by the previously applied entry price notion.

The fair value of the Company’s loan portfolio has always included a credit risk assumption in the determination of the fair value of its loans.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 17 - Fair Value (continued)

As of December 31, 2024, the techniques used by the Company to estimate the exit price of the loan portfolio consists of similar procedures to those used as of December 31, 2023.

The fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans.

This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.

1 unchanged sentence

The Company divides its loan portfolio into the following categories:

variable rate loans, impaired loans, and all other loans.

The results are then adjusted to account for credit risk as described above.

However, under the new guidance, the Company believes a further credit risk discount must be applied through the use of a discounted cash flow model to compensate for illiquidity risk, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan.

This consideration of enhanced credit risk provides an estimated exit price for the Company’s loan portfolio.

variable rate loans, individually analyzed loans, and all other loans.

The results are then adjusted to account for credit risk as described above and a further credit risk discount is applied through the use of a discounted cash flow model to compensate for illiquidity risk, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan.

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values.

Fair values for individually evaluated loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral.

The fair value of cash and cash equivalents, interest-bearing deposits at other financial institutions, federal funds sold and restricted investments is the carrying amount.

The fair value of cash and cash equivalents and investments in restricted stocks is the carrying amount.

Restricted investments includes equity of the Federal Reserve and other banker’s banks.

4 unchanged sentences

The fair value of borrowings is estimated by discounting the value of contractual cash flows using current market rates for borrowings with similar terms and remaining maturities.

The fair value of outstanding loan commitments, unused lines of credit, and letters of credit are not included in the table since the carrying value generally approximates fair value.

These instruments generate fees that approximate those currently charged to originate similar commitments.

Capital Bancorp, Inc.

3 unchanged sentences

Note 17 - Fair Value (continued)

The fair value of outstanding loan commitments, unused lines of credit, and letters of credit are not included in the table since the carrying value generally approximates fair value.

These instruments generate fees that approximate those currently charged to originate similar commitments.

The table below presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments (in thousands).

The table below presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments.

Fair Value of Financial Assets and Liabilities

7 unchanged sentences

58 58 407 407

Loans receivable, net

$ 1,874,678 $ 1,855,158 $ 1,704,370 $ 1,659,283

Accrued interest receivable $ 16,664 $ 16,664 $ 11,494 $ 11,494

Portfolio loans receivable, net $ 2,581,511 $ 2,499,578 $ 1,874,678 $ 1,855,158

Restricted investments

3 unchanged sentences

$ 810,928 $ 810,928 $ 617,373 $ 617,373

Accrued interest payable $ 9,393 $ 9,393 $ 5,583 $ 5,583

Interest-bearing deposits

7 unchanged sentences

Note 18 - Segments

The Company’s reportable segments represent business units with discrete financial information whose results are regularly reviewed by management.

The four segments include Commercial Banking, Capital Bank Home Loans (the Company’s mortgage loan division), and OpenSky ™ (the Company’s credit card division) and the Corporate Office.

The following schedule presents financial information for each reportable segment at and for the years ended December 31, 2023 and 2022.

The Company’s reportable segments represent business units with discrete financial performance and information whose results are regularly reviewed by management.

The five segments include Commercial Banking, Capital Bank Home Loans (the Company’s mortgage loan division), OpenSky ™ (the Company’s credit card division), Windsor Advantage (the Company’s government loan servicing division), and the Corporate Office.

The Company’s reportable segments are determined by the Chief Executive Officer, who is the designated chief operating decision maker, based upon organizational design, leadership structure and the Company’s products and services offered.

The Company’s reportable segments are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar.

The chief operating decision maker evaluates the financial performance of the Company’s business components by evaluating revenue streams, significant expenses, and variance to the annual financial plan to assess the performance of the Company’s segments and in the determination of allocating resources and investments.

The chief operating decision maker uses revenue streams and other relevant market data to evaluate product pricing and significant expenses to assess segment performance.

Segment pretax income or loss, return on assets and the efficiency ratio is used to assess the performance of the commercial bank segment by monitoring the margin between interest income and interest expense.

Segment pretax income or loss is used to assess the performance of the CBHL segment by monitoring the mortgage banking revenue from loan originations and sales.

Segment pretax income or loss is used to assess the performance of the OpenSky ™ segment by monitoring credit card interest income, interchange fees, and other fees.

Segment pretax income or loss is used to assess the performance of the Windsor Advantage segment by monitoring the service charge revenues from Windsor customers.

Loans, investments, and deposits and fees provide the revenues in the commercial bank, loan sales provide the revenues in CBHL, credit card loan interest and fees provide the revenues in OpenSky ™ , and service charges and ancillary fees provide the revenues in Windsor Advantage.

Interest expense, provisions for credit losses and personnel provide the significant expenses in the commercial bank, cost of loan sales and personnel provide the significant expenses in CBHL, data processing and personnel provide the significant expenses in OpenSky ™ , and personnel provide the significant expenses in Windsor Advantage.

Segment pretax income or loss is used to assess the performance of the Corporate segment by monitoring net interest income generated by revenue-producing assets from idle cash.

The Corporate segment includes non-recurring expenses, merger-related expenses, and operational expenses related to the Bank Holding Company.

All operations are domestic.

Effective January 1, 2024, the Company allocated certain expenses previously recorded directly to the Commercial Bank segment to the other segments.

These expenses are for shared services also consumed by OpenSky ™ , CBHL, Windsor Advantage and Corporate.

The Company performs an allocation process based on several metrics the Company believes more accurately ascribe shared service overhead to each segment.

The Company believes this reflects the cost of support for each segment that should be considered in assessing segment performance.

Historical information has been recast to reflect financial information consistently with the 2024 presentation.

Accounting policies for segments are the same as those described in Note 1.

Segment performance is evaluated using income (loss) before taxes.

Indirect expenses are allocated on revenue.

Transactions among segments are made at fair value.

The following schedule reported internally for performance assessment by the chief operating decision maker presents financial information for each reportable segment at and for the years ended December 31, 2024 and 2023.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 18 - Segments (continued)

For the Year Ended December 31, 2024

(in thousands) Commercial Bank CBHL OpenSky ™

Corporate (2)

Windsor Advantage Corporate (2)

Eliminations Consolidated

3 unchanged sentences

Provision for credit losses 10,331 — 7,329 — 60 — 17,720

Release of credit losses on unfunded commitments ( 101 ) — — — — ( 101 )

Provision for credit losses on unfunded commitments 385 — — — — — 385

Net interest income after provision 79,212 205 54,456 2,768 — 136,641

4 unchanged sentences

Total assets (3)

$ 2,994,356 $ 21,691 $ 125,913 $ 25,515 $ 359,337 $ ( 319,901 ) $ 3,206,911

For the Year Ended December 31, 2023

(in thousands) Commercial Bank CBHL OpenSky ™

Corporate (2)

Windsor Advantage Corporate (2)

Eliminations Consolidated

2 unchanged sentences

Net interest income 75,512 247 62,476 — 3,291 — 141,526

(Reversal of) provision for loan losses ( 980 ) — 7,611 — — 6,631

Provision for credit losses 1,540 — 7,948 — 122 — 9,610

Release of credit losses on unfunded commitments ( 101 ) — — — — — ( 101 )

Net interest income after provision 74,073 247 54,528 — 3,169 — 132,017

5 unchanged sentences

_______________

(1) Noninterest expense includes $ 23.7 million and $ 27.0 million in data processing expenses in OpenSky’s ™ segment for the years ended December 31, 2023 and 2022, respectively.

(1) Noninterest expense includes $ 24.9 million and $ 23.7 million in data processing expense in OpenSky’s™ segment for the years ended December 31, 2024 and 2023, respectively.

(2) The Corporate segment invests idle cash in revenue-producing assets including interest-bearing cash accounts, loan participations and other appropriate investments for the Company.

Beginning in 2024, the Company allocated certain expenses previously recorded directly to the Commercial Bank segment to the other segments.

This change in allocation will be reflected in 2024 segment performance reporting.

(3) Total assets includes goodwill and intangible assets of $ 19.3 million at the Commercial Bank and $ 17.6 million within Windsor Advantage.

(4) Commercial Bank’s return on assets of 1.08 % and 1.39 % for the years ended December 31, 2024 and 2023, respectively, is calculated by dividing net income before taxes by total assets.

(5) Commercial Bank’s efficiency ratio of 55.3 % and 61.8 % for the years ended December 31, 2024 and 2023, respectively, is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income).

(6) CBHL’s mortgage banking revenue from loans sales, included within noninterest income, totaled $ 6.1 million and $ 4.0 million for the years ended December 31, 2024 and 2023, respectively.

(7) OpenSky’s™ credit card interchange fees and other fees, included within noninterest income, totaled $ 16.0 million and $ 17.3 million for the years ended December 31, 2024 and 2023, respectively.

(8) Windsor Advantage’s service charge revenues from Windsor customers, included within noninterest income, totaled $ 4.6 million, including $ 0.6 million of Capital Bank related servicing fees, for the year ended December 31, 2024.

(9) Personnel expense for Commercial Bank, CBHL, OpenSky™ and Windsor Advantage, included within noninterest expense, totaled $ 44.5 million, $ 4.2 million, $ 6.0 million and $ 1.3 million, respectively, for the year ended December 31, 2024

(10) Personnel expense for Commercial Bank, CBHL and OpenSky™, included within noninterest expense, totaled $ 40.0 million, $ 3.6 million and $ 5.1 million, respectively, for the year ended December 31, 2023.

(11) CBHL’s cost of loan sales, or non-personnel noninterest expense, totaled $ 5.2 million and $ 4.6 million, respectively for the years ended December 31, 2024 and December 31, 2023.

Capital Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Note 19 - Litigation

In accordance with the current accounting standards for loss contingencies, the Company establishes reserves for litigation-related matters that arise in the ordinary course of its business activities when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss can be reasonably estimated.

In accordance with the current accounting standards for loss contingencies, the Company establishes reserves for litigation-related matters that arise in the ordinary course of its business activities when it is probable or reasonably possible that a loss associated with a claim or proceeding has been incurred and the amount of the loss can be reasonably estimated.

Litigation claims and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance.

1 unchanged sentence

None of the amounts the Company currently has recorded individually or in the aggregate are considered to be material to our financial condition as of December 31, 2024.

Note 20 - Subsequent Events

In January 2025, the Company’s Board of Directors declared a $ 0.10 per share dividend, payable on February 26, 2025 to shareholders of record on February 10, 2025.

Management has reviewed all events through the date the audited consolidated financial statements were filed with the SEC and concluded that no other events required accrual or disclosure.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data