What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-15 compared with 2023-03-15 · 57 added, 38 removed, 183 unchanged (34% of the section changed)

8 unchanged sentences

Capital Bank Home Loans and OpenSky ™ both leverage Capital Bank’s national banking charter to operate as national consumer business lines;

Capital Bank Home Loans acts as our residential mortgage origination platform and OpenSky ® provides nationwide, digitally-based, unsecured credit cards as well as secured credit cards to under-banked populations and those looking to rebuild their credit scores.

Capital Bank Home Loans acts as our residential mortgage origination platform and OpenSky ™ provides nationwide, digitally-based, unsecured

credit cards as well as secured credit cards to under-banked populations and those looking to rebuild their credit scores.

In addition to the three divisions of Capital Bank, Church Street Capital also operates as a wholly owned subsidiary of Capital Bancorp, Inc.

CSC originates and services a portfolio of primarily mezzanine loans with certain characteristics that do not meet Capital Bank’s general underwriting standards, but command a higher rate of return.

Initially, CSC typically sold participation interests in these loans to third parties (including to certain of the Company’s and Bank's directors), and retained exposure of as little as 10 percent.

Beginning in 2019, CSC more typically retained 100% of the exposures.

In all cases CSC had retained servicing of the loans, thereby maintaining a relationship with the customer.

In addition to its subsidiaries discussed above, Capital Bank, N.A.

5 unchanged sentences

Metropolitan Statistical Area (“MSA”), and its full service banking location in Columbia, Maryland in the Baltimore, Maryland MSA.

Additionally, we have two loan production offices,

one located in the Washington, D.C.

Additionally, we have two loan production offices, one located in the Washington, D.C.

area and one in Columbia, Maryland.

Our Commercial Banking division’s commercial loan officers and commercial real estate loan officers provide commercial and industrial, or C&I, commercial real estate and construction lending solutions to business clients in Capital Bank’s operating markets.

Our Commercial Banking division’s commercial loan officers and commercial real estate loan officers provide commercial and industrial, or C&I, commercial real estate, including lender finance loans, and construction lending solutions to business clients in Capital Bank’s operating markets.

Lender finance loans are loans to companies used to purchase finance receivables or extend finance receivables to the underlying obligors and are secured primarily by the finance receivables held by our borrowers.

Construction lending is a core competency of our Commercial Banking division.

Our construction loan portfolio provides Capital Bank with short duration and higher yield loans.

Our construction loan portfolio provides Capital Bank with short duration, higher yield loans.

Our construction lending is focused on commercial and residential construction projects within the Washington, D.C.

7 unchanged sentences

In 2023, as the mortgage refinance market continued to contract in response to increasing market interest rates, CBHL continued to focus on purchase originations.

Purchase origination volume was 80.6 percent for the year ended December 31, 2022, compared to 42.3 percent for the year ended December 31, 2021.

Approximately 69.7 percent of CBHL loan originations by volume occur within Capital Bank’s operating markets in Maryland, Virginia and Washington, D.C.

The remainder of originations are national in scope and derive primarily through a consumer direct channel utilizing consumer marketing, including through social media applications.

Purchase origination volume was 91.7% for the year ended December 31, 2023, compared to 80.6% for the year ended December 31, 2022.

Approximately 62.8% of CBHL loan originations by volume occur within Capital Bank’s operating markets in Maryland, Virginia and Washington, D.C.

The remainder of originations are national in scope and originate primarily through a consumer direct channel that utilizes consumer marketing, including through social media applications.

OpenSky ™ Secured Credit Card Division

The OpenSky ™ Division provides secured, partially secured and unsecured credit cards on a nationwide basis.

The secured credit cards require a minimum initial deposit of $200 and maximum initial deposits of $3,000 per card and $10,000 per individual and are focused on under-banked populations and those looking to rebuild their credit scores.

In order to obtain a secured credit card from us, the customer must select a credit line amount that they are willing to secure with a matching deposit amount.

The secured credit cards require a minimum initial deposit of $200 and permit maximum initial deposits of $3,000 per card and $10,000 per individual.

This business line focuses on under-banked populations and those looking to rebuild their credit scores.

In order to obtain a secured credit card from us, the customer must select a credit line amount that the customer is willing to secure with a matching deposit amount.

A deposit equal to the full credit limit of the card is made into a noninterest-bearing demand account with the Bank.

3 unchanged sentences

Given the secured nature of the cards, credit checks are not required at the time of application.

The partially secured credit card uses our proprietary scoring model, which considers among other things, credit score and repayment history (typically a minimum of six months of on-time repayments, but ultimately determined on a case-by-case basis), to offer certain customers an unsecured line in excess of their secured line of credit.

As each customer’s secured account ages, we obtain credit scores to baseline their improvement as an input into any decision to extend unsecured credit.

The partially secured credit card uses our proprietary scoring model, which considers among other things, credit score and repayment history (typically a minimum of six months of on-time repayments, but ultimately determined on a case-by-case basis), to offer certain existing customers an unsecured line in excess of their secured line of credit.

As each customer’s secured account ages, we obtain credit scores to baseline the customer’s improvement as an input into any decision to extend unsecured credit.

The unsecured credit card was added, for qualifying customers, in the fourth quarter of 2021 to expand the OpenSky ™ product offering.

The addition of the unsecured card allows for an uninterrupted experience for OpenSky ™ customers who can now more easily continue in their journey from a secured to unsecured credit card.

OpenSky ® cards operate on a fully digital and mobile platform with all marketing and application procedures conducted through its website or mobile application.

OpenSky ™ cards operate on a fully digital and mobile platform with all marketing and application procedures conducted through its website or mobile applications.

OpenSky ™ credit cards have floating interest rates, which are beneficial to us in a rising rate environment, and we believe the OpenSky ™ secured credit card product may provide a counter-cyclical benefit as more people may wish to enter its target segment of credit rebuilders during an economic downturn.

37 unchanged sentences

None of our employees are represented by any collective bargaining unit or are a party to a collective bargaining agreement.

We believe the relationship with our employees to be excellent and we were recently named a Best Bank to Work For by American Banker for the fourth consecutive year.

We believe the relationship with our employees to be excellent and we have been named a Best Bank to Work For by American Banker for four of the past five years.

Our ability to attract and retain employees is a key to our success.

We offer a competitive total rewards program to our employees, flexible work arrangements, and monitor the competitiveness of our compensation and benefits programs in our various market areas.

The Company prides itself on being a values-driven organization, where employees are empowered to share Ideas that keep the organization connected.

The Company prides itself on being a values-driven organization, where employees are empowered to share Ideas that keep the organization on track.

Our company core values guide each team member to:

4 unchanged sentences

We believe that these values enable our success with our customers and have helped us build a fun, vibrant and accountability driven culture.

In addition, we are committed to developing our staff through internal/external training programs, availability of a robust online training resource, and continuing to implement leadership development programs for all levels of leadership within the organization.

In addition, we are committed to developing our staff through internal/external training programs, including through use of online training resources and by affording all levels of leadership within the organization to participate in leadership development programs.

Available Information

The Company provides access to its SEC filings through its web site at www.capitalbankmd.com.

After accessing the web site, the filings are available upon selecting “Investor Relations.” Reports available include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.

The Company provides access to its SEC filings through its website at www.capitalbankmd.com.

After accessing the website, the filings are available upon selecting “Investor Relations.” Reports available include the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.

Further, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

7 unchanged sentences

The Federal Reserve may conduct examinations of BHCs and their subsidiaries.

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”), through the Deposit Insurance Fund (“DIF”).

result of this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank as well as all other FDIC insured institutions.

The Bank’s deposits are insured by the FDIC, through the Deposit Insurance Fund (“DIF”).

As a result of this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank as well as all other FDIC insured institutions.

The Company’s and the Bank’s regulators generally have broad discretion to impose restrictions and limitations on our operations.

22 unchanged sentences

Because our Bank’s deposits are insured by the FDIC to the maximum extent provided by law, it is also subject to certain FDIC regulations, and the FDIC has backup examination authority and some enforcement powers over our Bank.

If, as a result of an examination of our Bank, the regulators should determine that the financial condition, capital resources, asset quality,

earnings prospects, management, liquidity or other aspects of the Bank’s operations are unsatisfactory or that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators.

If, as a result of an examination of our Bank, the regulators should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the Bank’s operations are unsatisfactory or that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators.

Such remedies include the power to enjoin unsafe or unsound practices, require affirmative action to correct any conditions resulting from any violation or practice, issue an administrative order that can be judicially enforced, direct an increase in capital, restrict growth, assess civil monetary penalties and remove officers and directors.

8 unchanged sentences

Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “unsatisfactory.” A rating that is less than “satisfactory” may substantially inhibit the Bank’s opportunities for future growth.

An institution’s record in meeting the requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, and expansions into non-banking activities.

An institution’s record in meeting the

requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, and expansions into non-banking activities.

Our Bank received an “outstanding” rating in its most recent CRA evaluation which was in 2021.

In April 2018, the U.S.

Department of Treasury issued a memorandum to the federal banking regulators recommending changes to the CRA’s regulations to reduce their complexity and associated burden on banks, and in December 2019, the FDIC and the OCC proposed for public comment rules to modernize the agencies' regulations under the CRA.

In September 2020, the Federal Reserve released for public comment its proposed rules to modernize CRA regulations.

As of this issuance, the Federal Reserve has not moved forward in the rulemaking process.

In July 2021, the Federal Reserve, FDIC, and the OCC issued an interagency statement committing to joint agency action on CRA.

This may signal that additional regulatory action on this issue will be forthcoming in 2023.

In October 2023, the OCC, together with the FRB and FDIC, issued a joint final rule to modernize the CRA regulatory framework.

The final rule is intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models.

The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed.

The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets.

Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.

Anti-Terrorism, Money Laundering Legislation and OFAC

1 unchanged sentence

These statutes and related rules and regulations impose requirements and limitations on specified financial transactions and accounts and other relationships intended to guard against money laundering and terrorism financing.

The principal requirements for an insured depository institution include (i) establishment of an anti-money laundering program that includes training and audit components, (ii) establishment of a “know your customer” program involving due diligence to confirm the identities of persons seeking to open accounts and to decline to open accounts for those persons unable to demonstrate their identities, (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash and suspicious activities reports for activity that might signify money laundering,

tax evasion or other criminal activities, (iv) additional precautions for accounts sought and managed for non-U.S.

persons and (v) verification and certification of money laundering risk with respect to private banking and foreign correspondent banking relationships.

19 unchanged sentences

Our ability to pay dividends to our stockholders or to repurchase shares of our common stock is subject to the restrictions set forth in the MGCL.

Notification to the FRB is required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve‑month net earnings are

insufficient to fund the dividend amount, among other requirements.

Notification to the FRB is required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve‑month net earnings are insufficient to fund the dividend amount, among other requirements.

Under such circumstances, we may not pay a dividend should the FRB object until such time as we receive approval from the FRB or no longer need to provide notice under applicable regulations.

9 unchanged sentences

The GLBA requires disclosures to consumers on policies and procedures regarding the disclosure of such non-public personal information and, except as otherwise required by law, prohibits disclosing such information except as provided in the Bank’s policies and procedures.

We have implemented privacy policies addressing these restrictions that are distributed regularly to all existing and new customers of the Bank.

have implemented privacy policies addressing these restrictions that are distributed regularly to all existing and new customers of the Bank.

In March 2015, federal regulators issued two related statements regarding cybersecurity.

4 unchanged sentences

In November 2021, the federal bank regulatory agencies issued a joint rule establishing computer-security incident notification requirements for banking organizations and their service providers.

This rule requires new notification requirements where a banking organization experiences a computer-security incident.

This rule requires new notification requirements when a banking organization experiences a computer-security incident.

State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations.

1 unchanged sentence

Many states have also recently implemented or modified their data breach notification and data privacy requirements.

In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents experienced and describe the material aspects of their nature, scope and timing.

The rules, which supersede previously interpreted guidance published in February 2018, also require annual disclosures describing a company’s cybersecurity risk management, strategy and governance.

These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

Risk Factors for a further discussion of risks related to cybersecurity and Item 1C.

Cybersecurity for a further discussion of the Company’s risk management strategies and governance processes related to cybersecurity.

Interchange Fees

Under the Durbin Amendment to the Dodd-Frank Act, the FRB adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.

Interchange fees or “swipe” fees are charges that merchants pay to the Company and other card-issuing banks for processing electronic payment transactions.

The FRB has ruled that for financial institutions with assets of $10 billion or more the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction.

The FRB also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.

In October 2023, the Federal Reserve issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction.

While financial institutions with less than $10 billion in assets, like the Company, are exempt, there is concern that these requirements will eventually be pushed down to all financial institutions, which would negatively impact the Company’s non-interest income.

Consumer Financial Protection Bureau

The Dodd-Frank Act created a new, independent federal agency called the Consumer Financial Protection Bureau (“CFPB”), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy Provisions of the Gramm-Leach-Bliley Act, and certain other statutes.

The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets.

Smaller institutions are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking regulators for consumer compliance purposes.

The CFPB has authority to prevent unfair, deceptive, or abusive practices in connection with the offering of consumer financial products.

In January 2024, the CFPB proposed rules that would subject (with certain exceptions) overdraft services provided by financial institutions with more than $10 billion in assets to the provisions of the Truth in Lending Act and other consumer financial protection laws.

Although the CFPB excluded banks with under $10 billion in assets from this rule, the Company is currently evaluating the potential impact of the proposed rules and monitoring developments with respect thereto based on the CFPB’s apparent concern around deposit-related fee assessment.

On March 5, 2024, the CFPB issued a final rule amending provisions in Regulation Z that govern credit card late fee charges to lower the safe harbor amount for past due fees that a credit card issuer can charge on consumer credit card accounts from up to $41 to $8 and eliminates a higher safe harbor dollar amount for late fees for subsequent violations of the same type.

This rule only applies to card issuers, that together with their affiliates, have one million or more open credit card accounts.

Smaller card issuers, like the Bank, may continue to charge a higher safe harbor threshold for credit card late fees and automatically increase the safe harbor dollar amount based on the Consumer Price Index.

Although the final rule exempts smaller card issuers, the Company will continue to monitor penalty fee policies, particularly as the CFPB and other regulators have demonstrated a focus on regulating so-called junk fees.

Deposit Insurance

8 unchanged sentences

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 1. Business