10q10k10q10k.net

What changed in Capital Bancorp Inc's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Capital Bancorp Inc's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+428 added−387 removedSource: 10-K (2025-03-17) vs 10-K (2024-03-15)

Top changes in Capital Bancorp Inc's 2024 10-K

428 paragraphs added · 387 removed · 296 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

58 edited+37 added−6 removed58 unchanged
Biggest changeIncrease scale in our consumer fee-based platforms through delivery of high value products and services • Utilize our customer acquisition system, Apollo, and leverage our investment in a new core processing system, together with our expertise in data, analytics and marketing, to deliver new products and services and grow our secured credit card business; • Retain OpenSky ™ customers that “graduate” from our secured credit product through the limited use of partially and fully unsecured credit products; and • Expand our purchase-oriented mortgage loan sales both in-market and in adjacent markets through the hiring of qualified mortgage originators and continue to improve on our direct to consumer marketing channels. 8 Pursue acquisitions opportunistically • Seek strategic acquisitions in the Washington, D.C., Baltimore, Maryland, and surrounding metropolitan areas; • Evaluate specialty finance company opportunities where we can add value through increasing interest and fee income and leveraging our management’s expertise and existing strategic assets; and • Use our management’s and Board’s expertise to structure transactions that minimize the integration and execution risk for the Bank.
Biggest changeIncrease scale in our fee-based platforms through delivery of high value products and services • Utilize our customer acquisition capabilities, and leverage our investment in our core processing systems, together with our expertise in data, analytics and marketing, to deliver new products and services and grow our secured credit card business; 9 • Retain OpenSky ™ customers that “graduate” from our secured credit product through the limited use of partially and fully unsecured credit products; • Expand our purchase-oriented mortgage loan sales both in-market and in adjacent markets through the hiring of qualified mortgage originators and continue to enhance our direct to consumer marketing channels; and • Utilize the systems, processes and technology within Windsor Advantage to participate in the processing and packaging of SBA and USDA loans originated by our financial institution clients and to grow associated servicing balances.
We are subject to comprehensive examination and supervision by the Board of Governors of the Federal Reserve (“Federal Reserve”), and the Bank is subject to comprehensive examination and supervision by the Office of the Comptroller of the Currency (“OCC”).
We are subject to examination and supervision by the Board of Governors of the Federal Reserve (“Federal Reserve”), and the Bank is subject to comprehensive examination and supervision by the Office of the Comptroller of the Currency (“OCC”).
An institution’s record in meeting the 11 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.
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. Bank regulation is intended to protect depositors and consumers and not shareholders.
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. 11 The Company’s and the Bank’s regulators generally have broad discretion to impose restrictions and limitations on our operations. Bank regulation is intended to protect depositors and consumers and not shareholders.
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 13 have implemented privacy policies addressing these restrictions that are distributed regularly to all existing and new customers of the Bank.
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.
Moreover, bank regulatory agencies appear to be increasingly aggressive in responding to concerns and trends identified in examinations, which could result in higher frequency initiation of enforcement actions against financial institutions to address credit quality, liquidity, risk management and capital adequacy, as well as other safety and soundness concerns. 10 Regulation of Capital Bancorp, Inc.
Moreover, bank regulatory agencies appear to be increasingly aggressive in responding to concerns and trends identified in examinations, which could result in higher frequency initiation of enforcement actions against financial institutions to address credit quality, liquidity, risk management and capital adequacy, as well as other safety and soundness concerns. Regulation of Capital Bancorp, Inc.
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 12 that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators.
These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. See Item 1A. 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.
These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. See Item 1A. Risk Factors for a further discussion of risks related to 16 cybersecurity and Item 1C. Cybersecurity for a further discussion of the Company’s risk management strategies and governance processes related to cybersecurity.
For many of these tasks, a bank must keep records to be made available to its primary federal regulator. Anti-money laundering rules and policies are developed by a bureau within the Financial Crimes Enforcement Network, but compliance by individual institutions is overseen by its primary federal regulator.
For many of these tasks, a bank must keep records to be made available to its primary federal regulator. Anti-money laundering rules and policies are 13 developed by a bureau within the Financial Crimes Enforcement Network, but compliance by individual institutions is overseen by its primary federal regulator.
Credit card eligibility for all product offerings is based on identity and income verification. Our prior experience has shown that approximately 20% of our secured credit cards will experience a charge-off within the first year of issuance primarily due to the relative inexperience of this under-banked population in effectively managing credit card debt.
Credit card eligibility for all product offerings is based on identity and income verification. Our prior experience has shown that approximately 30% of our secured credit cards will experience a charge-off within the first year of issuance primarily due to the relative inexperience of this under-banked population in effectively managing credit card debt.
A portion of the retained residential portfolio is represented by mortgage loans on primary residences within Capital Bank’s operating markets to individuals who own businesses where Capital Bank may also pursue a commercial lending relationship and has a vested interest in maintaining the fullest possible control of the lending relationship.
A portion of the retained residential portfolio is represented by mortgage loans on primary residences within Capital Bank’s operating markets to individuals who own businesses where Capital Bank may also pursue a commercial lending relationship and has a vested interest in maintaining the fullest possible banking relationship.
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.
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 issued guidance published in February 2018, also require annual disclosures describing a company’s cybersecurity risk management, strategy and governance.
Dividends and Share Repurchases The ability of the Company to pay dividends or to repurchase its common stock, and the ability of the Bank to pay dividends to the Company, may be restricted due to several factors including: (a) the Maryland General Corporate Law ("MGCL," in the case of the Company), (b) covenants contained in any subordinated debentures and borrowing agreements in existence now or that may exist in the future, (c) restrictions on the ability of the Bank to declare dividends under the National Bank Act and OCC regulations (in the case of the Bank), and (d) the general supervisory authority of the FRB and the OCC.
Dividends and Share Repurchases The ability of the Company to pay dividends or to repurchase its common stock, and the ability of the Bank to pay dividends to the Company, may be restricted due to several factors including: (a) the Maryland General Corporate Law ("MGCL," in the case of the Company), (b) covenants contained in any subordinated debentures and borrowing agreements in existence now or that may exist in the future, (c) restrictions on the ability of the Bank to declare dividends under the National Bank Act and OCC regulations (in the case of the Bank), and (d) the general supervisory authority of the Federal Reserve and the OCC.
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 have been named a Best Bank to Work For by American Banker for four of the past five years.
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 have been named a Best Bank to Work For by American Banker for five of the past six years.
Once the account is opened, the deposit is required to be maintained throughout the life of the card. The customer’s funding of the deposit account is collateral and it is not a consideration in the credit card approval process, but is a prerequisite to activating the credit line.
Once the account is opened, the deposit is required to be maintained throughout the life of the card. The customer’s funding of the deposit account is collateral and while it is not a consideration in the credit card approval process, it is a prerequisite to activating the credit line.
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.
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 supplementary to their secured line of credit.
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. 9 Available Information The Company provides access to its SEC filings through its website at www.capitalbankmd.com.
In addition, we are committed to developing our staff through internal/external training programs, including the use of online training resources and by affording all levels of leadership within the organization an opportunity to participate in leadership development programs. Available Information The Company provides access to its SEC filings through its website at www.capitalbankmd.com.
Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 14, Capital Standards” for additional regulatory capital information, including the Bank’s and Company’s Leverage Ratio as of December 31, 2023.
Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 14, Capital Standards” for additional regulatory capital information, including the Bank’s and Company’s Leverage Ratio as of December 31, 2024.
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 Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve 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.
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 Federal Reserve 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.
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 Federal Reserve 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.
Capital Bank Home Loans Division Capital Bank Home Loans (“CBHL”) originates conventional and government-guaranteed residential mortgage loans on a national basis, for sale into the secondary market and in certain circumstances for our loan portfolio. Loans sold into the secondary market are sold servicing released.
Capital Bank Home Loans Division Capital Bank Home Loans (“CBHL”) originates conventional and government-guaranteed residential mortgage loans on a nationwide basis primarily for sale into the secondary market and, in certain circumstances, for our loan portfolio. Loans sold into the secondary market are sold servicing released.
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.
In order to obtain a secured credit card from us, the customer must select a credit line amount that the customer secures 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.
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. In addition, prior approval of the FRB may be required in certain circumstances prior to our repurchasing shares of our common stock.
Under such circumstances, we may not pay a dividend should the Federal Reserve object until such time as we receive approval from the Federal Reserve or no longer need to provide notice under applicable regulations. In addition, prior 14 approval of the Federal Reserve may be required in certain circumstances prior to our repurchasing shares of our common stock.
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 remainder of originations are national in scope and originate primarily through a consumer direct-to-consumer model that utilizes consumer marketing, and social media applications. OpenSky ™ Secured Credit Card Division The OpenSky ™ Division provides secured, partially secured and unsecured credit cards on a nationwide basis.
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.
The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
Once the customer’s deposit account has been funded, the credit line is activated and the collateral funds are generally available to absorb any losses on the account that may occur. Given the secured nature of the cards, credit checks are not required at the time of application.
Once the customer’s deposit account has been funded, the credit line is activated and the collateral funds are generally available to absorb potential losses on the account that may occur. Given the secured nature of the cards, credit history inquiries are not required at the time of application.
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 5 credit cards as well as secured credit cards to under-banked populations and those looking to rebuild their credit scores.
Capital Bank Home Loans and OpenSky ™ both leverage Capital Bank’s national banking charter to operate national consumer business lines; Capital Bank Home Loans acts as our residential mortgage origination platform and OpenSky ™ provides nationwide, digitally-originated and served, secured, partially-secured, and unsecured credit cards to under-banked populations and those looking to rebuild their credit scores.
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.
OpenSky ™ credit cards have variable interest rates, which are beneficial to us in a rising rate environment. We believe the OpenSky ™ secured credit card product may provide a counter-cyclical benefit as more people may enter our target segment of credit rebuilders during an economic downturn.
Customer Information Privacy and Cybersecurity The FRB and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non‑public customer information.
Customer Information Privacy and Cybersecurity The Federal Reserve and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non‑public customer information.
Our Bank received an “outstanding” rating in its most recent CRA evaluation which was in 2021. In October 2023, the OCC, together with the FRB and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
Our Bank received an “outstanding” rating in its most recent CRA evaluation which was in 2024. In October 2023, the OCC, together with the Federal Reserve and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
Essential to this mission is our commitment to provide long-term, sustainable financial and social value to our stakeholders, including the communities we serve, our shareholders and our employees. Employees and Human Capital Resources At December 31, 2023, we employed 299 persons, of which 277 were employed on a full-time basis.
Essential to this mission is our commitment to provide long-term, sustainable financial and social value to our stakeholders, including the communities we serve, our shareholders and our employees. 10 Employees and Human Capital Resources At December 31, 2024, we employed 407 persons, of which 389 were employed on a full-time basis.
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.
The secured credit cards require a minimum initial deposit of $100 and permit maximum initial deposits of $3,000 per card and $10,000 per individual. OpenSky ™ focuses on under-banked populations and those looking to rebuild their credit scores.
We have adopted the following strategies that we believe will continue to drive growth while maintaining consistent profitability and enhancing shareholder value: Deliver premium advice-based solutions that drive organic loan and core deposit growth with corresponding net interest margin • Serve as financial partners to our customers, helping them to grow their businesses through advice-based financial solutions; • Endeavor to provide comprehensive loan and deposit solutions to our customers that are tailored to their needs, and leverage data, analytics, and financial technology to improve the customer experience; • Scale our consumer fee-based platforms by investing in fintech capabilities and digital marketing to deliver high impact products and services and differentiated customer experience; • Capitalize on market dislocation from recent in-market acquisitions to continue to attract top sales talent, and acquire new commercial banking relationships from local competitors; and • Selectively add banking centers where sales teams have already proved an ability to capture market share and leverage customer relationships.
While regulations, technology and competition have fundamentally impacted the economics of the banking sector, we continue to adopt strategies that we believe will drive growth while maintaining consistent profitability and enhancing shareholder value, including: Deliver premium advice-based solutions that drive organic loan and core deposit growth with corresponding net interest income and fee revenues • Serve as financial partners to our customers, helping them to grow their businesses through advice-based financial solutions; • Endeavor to provide comprehensive loan and deposit solutions to our customers that are tailored to their needs, and leverage data, analytics and financial technology to improve the customer experience; • Scale our consumer fee-based platforms by investing in fintech and other capabilities, while leveraging digital marketing to deliver high impact products and services and differentiated customer experience; • Grow new loan and deposit verticals and products where we have a competitive advantage; • Capitalize on market dislocation from recent in-market acquisitions to attract top sales talent, and acquire new commercial banking relationships from local competitors; and • Selectively add banking centers where sales teams have already proved an ability to capture market share and leverage customer relationships.
In addition to its loan officers who have incentives and goals to drive core deposit growth, our Commercial Banking division currently has a team of business development officers concentrating on continuing to diversify Capital Bank’s funding sources away from wholesale funding and towards core deposit funding.
In addition to its loan officers, who have incentives and goals to drive core deposit growth, our Commercial Banking division currently has a team of business development officers concentrating on continuing to diversify and grow Capital Bank’s core deposit funding and lessen the dependency on wholesale funding.
In 2023, as the mortgage refinance market continued to contract in response to increasing market interest rates, CBHL continued to focus on purchase originations.
In 2024, as the mortgage refinance market continued to contract in response to elevated market interest rates, CBHL continued to focus on purchase originations.
Under the FDIC's risk-based deposit premium assessment system, the assessment rates for an insured depository institution are determined by an assessment rate calculator, which is based on a number of elements that measure the risk each institution poses to the Deposit Insurance Fund.
The applicable statutory limit for FDIC insurance for most types of accounts is $250,000. Under the FDIC's risk-based deposit premium assessment system, the assessment rates for an insured depository institution are determined by an assessment rate calculator, which is based on a number of elements that measure the risk each institution poses to the Deposit Insurance Fund.
These real-time monitoring capabilities give our management insight into the credit trends of our portfolio on a consumer-by-consumer basis, allowing us to identify potential fraud situations and mitigate any associated losses, as well as to obtain insights into how to optimize the profitability and life cycle of each account.
These real-time monitoring capabilities give management insight into the credit trends of the portfolio on a consumer-by-consumer basis, enabling us to identify many potential fraud situations and mitigate associated losses, as well as to obtain insights into how to optimize the profitability and life cycle of each account. The model utilizes data proprietary to Capital Bank.
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 applications.
The addition of the unsecured card allows for an uninterrupted experience for OpenSky ™ customers who can now more easily transition from a secured to unsecured credit card. OpenSky ™ cards operate on a digital and mobile enabled platform with almost all marketing and application procedures being conducted through website and mobile applications.
Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC. The Bank has implemented policies and procedures to comply with the foregoing requirements. 12 Federal Home Loan Bank Membership The Bank is a member of the FHLB.
Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC. The Bank has implemented policies and procedures to comply with the foregoing requirements. Federal Home Loan Bank Membership The Bank is a member of the FHLB. Each member of the FHLB is required to maintain a minimum investment in the Class B stock of the FHLB.
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 The Bank is a national banking association, regulated by the OCC.
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.
Purchase origination volume was 91.7% for the year ended December 31, 2023, compared to 80.6% for the year ended December 31, 2022. 6 Approximately 62.8% of CBHL loan originations by volume occur within Capital Bank’s operating markets in Maryland, Virginia and Washington, D.C.
Purchase origination volume was 93.5% for the year ended December 31, 2024, compared to 91.7% for the year ended December 31, 2023. 7 Approximately 62.8% of CBHL loan originations by volume occur within Maryland, Virginia and Washington, D.C.
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.
In December 2024, the CFPB issued a final rule that subjects (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.
Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase the level of investment in the FHLB depends entirely upon the occurrence of a future event, the Company is unable to determine the extent of future required potential payments to the FHLB.
Because the extent of any obligation to increase the level of investment in the FHLB depends entirely upon the occurrence of a future event, the Company is unable to determine the extent of future required potential payments to the FHLB.
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.
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. Government guaranteed lending serves customers throughout the country in need of, and qualifying for, USDA and SBA loans.
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.
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. In addition to its subsidiaries discussed above, Capital Bank, N.A. and Church Street Capital, Capital Bancorp, Inc. owns all of the stock of Capital Bancorp (MD) Statutory Trust I (the “Trust”).
Commercial Banking Division The Commercial Banking division operates out of four full service banking locations, each of which is in the Washington, D.C. 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. area and one in Columbia, Maryland.
Metropolitan Statistical Area (“MSA”), and its full service banking locations in Columbia, Maryland in the Baltimore, Maryland MSA, in Ft. Lauderdale, Florida in the Miami Metro Area MSA, and in Chicago, Illinois in the Chicago MSA. Additionally, we have two loan production offices, one located in the Washington, D.C. area and one in Columbia, Maryland.
ITEM 1. BUSINESS We are Capital Bancorp, Inc., a bank holding company and a Maryland corporation established in 1998, operating primarily through our wholly owned subsidiary, Capital Bank, N.A., a commercial-focused community bank based in the Washington, D.C. and Baltimore metropolitan areas. We serve businesses, not-for-profit associations and entrepreneurs throughout the region.
ITEM 1. BUSINESS We are Capital Bancorp, Inc., a bank holding company and a Maryland corporation incorporated in 1998, operating primarily through our wholly-owned subsidiary, Capital Bank, N.A., a commercial-focused community bank based in the Washington, D.C. and Baltimore metropolitan areas. The Bank is headquartered in Rockville, Maryland, received its charter in 1999 and began operations the same year.
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. 14 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.
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 model utilizes data proprietary to Capital Bank. 7 Our Business Strategy Regulations, technology and competition have fundamentally impacted the economics of the banking sector. We believe that by using technology-enabled strategies and advice-based solutions, we can deliver attractive shareholder returns in excess of our cost of capital.
Our Business Strategy We believe that by using technology-enabled strategies and advice-based solutions, we can deliver attractive shareholder returns in excess of our cost of capital.
Our Commercial Banking division operates primarily in the Washington, D.C. and Baltimore metropolitan areas and focuses on providing personalized service to commercial clients throughout our area of operations.
Our Commercial Banking division operates primarily in the Washington, D.C. and Baltimore metropolitan areas and focuses on providing personalized service to commercial clients throughout our area of operations supplemented by lending outside of our primary market, and nationwide deposit verticals. Additionally, the commercial bank engages in government-guaranteed lending on a national basis.
Each member of the FHLB is required to maintain a minimum investment in the Class B stock of the FHLB. The Board of Directors of the FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements.
The Board of Directors of the FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency.
Sustainability We aspire to be the most valued and trusted community bank within the markets we serve. We understand our obligation to both our shareholders and the communities we serve -- to be an institution that achieves superior financial performance, while contributing to society through the delivery to our customers of services that enlarge access, equity and opportunity.
We understand our obligation to both our shareholders and the communities we serve -- to be an institution that achieves superior financial performance, while contributing to the communities we serve by delivering products and services to our customers that enhance and strengthen access, equity and opportunity.
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, higher yield loans.
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.
As of December 31, 2023, approximately 12.3% of our secured credit card portfolio was delinquent by 30 days or more. Capital Bank evaluates its OpenSky ™ customers using analytics that track consumer behaviors and score each customer on risk and behavior metrics.
Capital Bank evaluates OpenSky ™ customers using analytics that track consumer behaviors and score each customer on risk and behavior metrics.
The Company prides itself on being a values-driven organization, where employees are empowered to share Ideas that keep the organization on track.
Our ability to attract and retain employees is a key to our success. We believe we offer a competitive total compensation and benefits program and a congenial work environment to our employees. The Company prides itself on being a values-driven organization, where employees are empowered to share ideas that keep the organization moving forward.
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.
Although the CFPB excluded banks with under $10 billion in assets from this rule, the Company is currently evaluating this rule and assessing its potential impact on the Company and the Bank. With the recent change in presidential administration and control of Congress, the scope of regulation by the CFPB and other federal agencies remains uncertain.
The Bank accepts deposits, and those deposits have the benefit of FDIC insurance up to the applicable limits established by law. The applicable statutory limit for FDIC insurance for most types of accounts is $250,000.
The extent to which these recent or other future developments will ultimately impact the CFPB’s regulation of the Bank’s business remains uncertain. 17 Deposit Insurance The Bank is a national banking association, regulated by the OCC. The Bank accepts deposits, and those deposits have the benefit of FDIC insurance up to the applicable limits established by law.
Removed
Capital Bank is headquartered in Rockville, Maryland and operates a branch-lite model through four commercial bank branches, one mortgage office and two loan production offices. Capital Bank currently operates three divisions: Commercial Banking, Capital Bank Home Loans, and OpenSky ™ .
Added
We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C. Baltimore, other Maryland metropolitan areas, Florida, and Illinois through six commercial bank branches, one mortgage banking office, two loan production offices, three government loan servicing offices, and one credit card operations office.
Removed
In addition to its subsidiaries discussed above, Capital Bank, N.A. and Church Street Capital, Capital Bancorp, Inc. owns all of the stock of Capital Bancorp (MD) Statutory Trust I (the “Trust”). The Trust is a special purpose non-consolidated entity organized for the sole purpose of issuing trust preferred securities.
Added
On October 1, 2024, the Company completed its previously announced merger (the “Merger”) with Integrated Financial Holdings, Inc., a North Carolina corporation (“IFH”) pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 27, 2024.
Removed
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.
Added
At the effective time of the merger, IFH merged with and into the Company, with the Company continuing as the surviving corporation in the merger.
Removed
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.
Added
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 SBA government guaranteed loans.
Removed
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.
Added
IFH was also the parent company of Windsor Advantage, LLC (“Windsor Advantage”), a loan service provider that offers community banks and credit unions with a comprehensive outsourced SBA 7(a) and USDA lending platform. Immediately following the Merger, West Town Bank & Trust, merged with and into Capital Bank, with Capital Bank as the surviving bank.
Removed
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.
Added
Windsor Advantage now operates as a wholly owned subsidiary of Capital Bancorp, Inc. 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.
Added
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 accompanying consolidated financial statements have been prepared in accordance with GAAP, and conform to general practices within the banking industry.
Added
Windsor Advantage generates fee income for the Company through its servicing, processing and packaging of SBA and USDA loans for its financial institution clients. In addition to the four divisions of Capital Bank, Church Street Capital also operates as a wholly owned subsidiary of Capital Bancorp, Inc.
Added
The Trust is a special purpose, non-consolidated entity organized for the sole purpose of issuing trust preferred securities. 6 Commercial Banking Division The Commercial Banking division operates out of six full service banking locations, three of which are in the Washington, D.C.
Added
We generally sell the government guaranteed portion of USDA and SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. This allows us to realize one time gain on sale income along with a recurring servicing and interest revenue stream.
Added
In addition to the business development officers upon whom we rely to generate new business, we also have a dedicated servicing, portfolio management and workout staff with specialized expertise in U.S. government guaranteed loans. Construction lending is a core competency of our Commercial Banking division. Our construction loan portfolio provides Capital Bank with short duration, higher yield loans.
Added
These officers seek to grow deposits generally across the commercial client customer base and through several specialized deposit channels serving multiple sectors nationwide including the homeowner’s association sector, the title insurance sector, political action committees and not-for-profits.
Added
Windsor Advantage Division Windsor Advantage is a loan service provider that offers community banks and credit unions a comprehensive outsourced SBA and USDA lending platform. Windsor Advantage generates fee income for the Company in through its servicing, processing and packaging of such loans for its financial institution clients, including Capital Bank.
Added
Gross government loan servicing revenue totaled $4.6 million, 8 including $0.6 million of Capital Bank related servicing fees, during the fourth quarter 2024. Windsor Advantage's total servicing portfolio was $2.5 billion, including $1.1 billion attributable to Capital Bank at December 31, 2024.
Added
Pursue acquisitions opportunistically • Seek strategic acquisitions that complement or supplement our existing product offerings and geographic footprint, advance our business strategies and diversify our revenue and balance sheet mix; • Evaluate specialty finance and non-bank financial company opportunities where we can add value through increasing interest and fee income and leveraging our management’s expertise and existing strategic assets; and • Use our management’s and Board’s expertise to structure transactions in ways that minimize the integration and execution risk for the Bank.
Added
Sustainability We aspire to be the most valued and trusted community bank within the markets we serve.

… 21 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

90 edited+41 added−33 removed89 unchanged
Biggest changeWe compete with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating within or near the areas we serve. In addition, many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business.
Biggest changeIn addition, many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business. Our inability to compete successfully in the markets in which we operate could have a material adverse effect on our business, financial condition or results of operations.
Our performance could be negatively impacted to the extent there is deterioration in business and economic conditions, including persistent inflation, supply chain issues or labor shortages, which have direct or indirect impacts on us, our customers and/or our counterparties.
Our performance could be negatively impacted to the extent there is deterioration in business, and/or economic conditions, including persistent inflation, supply chain issues or labor shortages, which have direct or indirect impacts on us, our customers and/or our counterparties.
Temporary layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area, and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as to a wide variety of commercial and retail businesses and the local housing market.
Temporary layoffs, staffing freezes, salary reductions and/or furloughs of government employees or government contractors could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area, and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as to a wide variety of commercial and retail businesses and the local housing market.
In addition, we may be required to fund additional amounts to complete a project, incur taxes, maintenance and compliance costs for a foreclosed property and may have to hold the property for an indeterminate period of time, any of which could materially and adversely affect our business, financial condition and results of operations.
In addition, we may be required to fund additional amounts to complete a project and, incur taxes, maintenance and compliance costs for a foreclosed property and we may have to hold the property for an indeterminate period of time, any of which could materially and adversely affect our business, financial condition and results of operations.
A successful penetration or circumvention of system security could cause us serious negative consequences, including our loss of customers and business opportunities, costs associated with maintaining business relationships after an attack or breach, significant business disruption to our operations and business, misappropriation, exposure or destruction of our confidential information, intellectual property, funds and/or those of our customers; or damage to our or our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, and could materially and adversely impact our results of operations, liquidity and financial condition.
A successful penetration or circumvention of system security could cause us serious negative consequences, including a loss of customers and business opportunities, costs associated with maintaining business relationships after an attack or breach, significant business disruption to our operations and business, misappropriation, exposure or destruction of our confidential information, intellectual property, funds and/or those of our customers; or damage to our or our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, and could materially and adversely impact our results of operations, liquidity and financial condition.
If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO, and our allowance for credit losses may not reflect accurate loan impairments. This could have a material, adverse effect on our business, financial condition or results of operations.
If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO, and our allowance for credit losses may not reflect accurate loan impairments. This could have a material, adverse effect on our business, financial condition and/or results of operations.
At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates.
At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from a higher interest rate environment. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates.
If an OpenSky ™ cardholder exceeds his or her credit limit as a result of purchases in one of these categories, we may incur losses for amounts in excess of the collateral deposited if the borrower fails to repay such excess amounts. Customers can also exceed their credit limit by making intra-period payments to replenish their available lines.
If an OpenSky ™ cardholder exceeds his or her credit limit as a result of purchases in one of these categories, we may incur losses for amounts in excess of the 24 collateral deposited if the borrower fails to repay such excess amounts. Customers can also exceed their credit limit by making intra-period payments to replenish their available lines.
Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply, international economic weakness and disorder and instability in domestic and foreign financial markets. Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans.
Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply, international economic weakness and disorder and instability in domestic and foreign financial markets. 26 Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans.
A downturn in the local economy generally could make it more difficult for our borrowers to repay their loans and may lead to loan losses that would not be offset by operations in other markets; it may also reduce the ability of our depositors to make or maintain deposits with us.
Such a downturn in the local economy generally could make it more difficult for our borrowers to repay their loans and may lead to loan losses that would not be offset by operations in other markets; it may also reduce the ability of our depositors to make or maintain deposits with us.
If new state or federal laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers, such could have a materially adverse effect on our business, financial condition and results of operation. A lack of liquidity could impair our ability to fund operations and adversely impact our business, financial condition and results of operations.
If new state or federal laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or impose outright barriers, such could have a materially adverse effect on our business, financial condition and results of operation. A lack of liquidity could impair our ability to fund operations and adversely impact our business, financial condition and results of operations.
As of the date of this filing, the Company is not aware of any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. For further discussion, please see Item 1A. “Risk Factors” for a discussion of cybersecurity risks.
As of the date of this filing, the Company is not aware of any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. For further discussion, please see Item 1A. “Risk Factors” for a discussion of cybersecurity risks. 34
As a result of these factors, we cannot be certain that we will be able to maintain or increase the volume or percentage of revenue or net income produced by our residential mortgage business. We earn income by originating residential mortgage loans for resale in the secondary mortgage market, and disruptions in that market could reduce our operating income.
As a result of these various factors, we cannot be certain that we will be able to maintain or increase the volume or percentage of revenue or net income produced by our residential mortgage business. We earn income by originating residential mortgage loans for resale in the secondary mortgage market, and disruptions in that market could reduce our operating income.
The CRO/CISO informs senior management and the Board Risk Chair and Board Audit Committee Chair as soon as practical if a significant security incident occurs. Formal incident reports, if/when applicable, are reviewed by ITSC, ERMC, and the Board Risk Committee. The Company employs third parties in fulfilling certain aspects of its information security and cybersecurity programs.
The CRO informs senior management and the Board Risk Chair and Board Audit Committee Chair as soon as practical if a significant security incident occurs. Formal incident reports, if/when applicable, are reviewed by ITSC, ERMC, and the Board Risk Committee. The Company employs third parties in fulfilling certain aspects of its information security and cybersecurity programs.
ITEM 1A. RISK FACTORS. Ownership of our common stock involves certain risks. The risks and uncertainties described below are not the only ones we face. You should carefully consider the risks described below, as well as all other 15 information contained in this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS. Ownership of our common stock involves certain risks. The risks and uncertainties described below are not the only ones we face. You should carefully consider the risks described below, as well as all other information contained in this Annual Report on Form 10-K.
These cyber-attackers can attempt to gain unauthorized access to our digital systems for purposes including, but not limited to: misappropriation of company assets, accessing Company confidential or sensitive customer non-public information, corrupting data, causing operational disruptions, or as part of a ransom demand for payment.
These cyber-attackers can attempt to gain unauthorized access to our digital systems for malicious purposes including, but not limited to: misappropriation of company assets, accessing Company confidential or sensitive customer non-public information, corrupting data, causing operational disruptions, or as part of a ransom demand for payment.
However, when a cybersecurity incident does occur, the Company has in place an incident response program to guide our assessment of and response to the incident. The CRO/CISO coordinates the Company’s response to a cybersecurity incident, including investigating, recording and evaluating any potential, suspected or confirmed incidents involving non-public customer information or Company confidential information.
However, when a cybersecurity incident does occur, the Company has in place an incident response program to guide our assessment of and response to the incident. The CISO coordinates the Company’s response to a cybersecurity incident, including investigating, recording and evaluating any potential, suspected or confirmed incidents involving non-public customer information or Company confidential information.
Despite efforts to ensure the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate 20 all security breaches, nor may we be able to implement sufficient preventive measures against such security breaches, which may expose us to material losses and other material adverse consequences.
Despite efforts to ensure the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement sufficient preventive measures against such security breaches, which may expose us to material losses and other material adverse consequences.
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of the Company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Furthermore, the failure of other financial institutions may cause deposit outflows as customers spread deposits among 16 several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed “too big to fail” or remove deposits from the banking system entirely.
Furthermore, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed “too big to fail” or remove deposits from the banking system entirely.
Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our internet banking services by current and potential customers.
Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and 27 inhibit the use of our internet banking services by current and potential customers.
The risk of a security breach caused by a cyber-attack on a vendor or by unauthorized vendor access has also increased in recent years. Cyber-attacks or other security breaches, whether directed at us or third parties, may result in a material loss or have other material adverse consequences.
The risk of a security breach caused by a cyber-attack on a vendor or by unauthorized vendor access has also increased in recent years. 28 Cyber-attacks or other security breaches, whether directed at us or third parties, may result in a material loss or have other material adverse consequences.
The CRO/CISO assigns quarterly cyber security training to all Company employees and ERMC reviews and approves the training curriculum on an annual basis. Additionally, the CRO/CISO ensures the Board receives annual cyber security training. We strive to minimize the occurrence of cybersecurity incidents and the risks resulting from such incidents.
The CISO assigns quarterly cyber security training to all Company employees and ERMC reviews and approves the training curriculum on an annual basis. Additionally, the CISO ensures the Board receives annual cyber security training. We strive to minimize the occurrence of cybersecurity incidents and the risks resulting from such incidents.
All of these factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable. Adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.
All of these factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable. Adverse economic conditions could have a material adverse effect on our business, and/or the the financial condition of our customers and our results of operations.
Our inability to manage the amount of costs 21 or the risks associated with the ownership of real estate, or write-downs in the value of OREO, could have a material adverse effect on our business, financial condition and results of operations.
Our inability to manage the amount of costs or the risks associated with the ownership of real estate, or write-downs in the value of OREO, could have a material adverse effect on our business, financial condition and results of operations.
We expect that we will 24 periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.
We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.
The program addresses the roles and responsibilities of the Board, its committees, management, management’s committees, as well as each individual Company employee. The Board of Directors is ultimately responsible for the oversight of cybersecurity risk management, with the Board Risk Committee assisting the Board with oversight of the Company’s cybersecurity risk program and reporting.
The program addresses the roles and responsibilities of the Board, its committees, management, management’s committees, as well as each individual Company employee. 33 The Board of Directors is ultimately responsible for the oversight of cybersecurity risk management, with the Board Risk Committee assisting the Board with oversight of the Company’s cybersecurity risk program and reporting.
Our Allowance for Credit Losses may prove to be insufficient to absorb life-time losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations.
Our Allowance for Credit Losses (“ACL”) may prove to be insufficient to absorb life-time losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations.
Notwithstanding the investments made in mitigating our cybersecurity risks, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on the 31 Company.
Notwithstanding the investments made in mitigating our cybersecurity risks, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on the Company.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock 31 will have on the market price of our common stock.
The third line of defense is independent Internal Audit, led by our Head of Internal Audit, who is responsible for ensuring that the first and second line of defenses are both designed and operationally effective in mitigating cybersecurity risk through internal audits of including but not limited to: cybersecurity, electronic banking, GLBA/Privacy, information security, information technology, and vendor risk management.
The third line of defense is independent Internal Audit, led by our Head of Internal Audit, who is responsible for ensuring that the first and second lines of defense are both designed and operationally effective in mitigating cybersecurity risk through internal audits of including but not limited to: cybersecurity, electronic banking, GLBA/Privacy, information security, information technology, and vendor risk management.
The stock market and the market for financial institution stocks has experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur.
The stock market and the market for financial institution stocks has experienced substantial fluctuations in recent years, which in some cases have been unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur.
Thus, an increase in the amount of nonperforming assets would have a material adverse impact on net interest income. We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates continue to increase or economic and market conditions deteriorate.
Thus, an increase in the amount of nonperforming assets would have a material adverse impact on net interest income. We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid in a timely 17 manner or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure.
The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid in a timely manner or at all or that the value of any collateral supporting the loan will be insufficient to cover our 20 outstanding exposure.
The Head of Internal Audit is independent of management and reports to the Board Audit Committee Chair. Our BISO, CRO/CISO, and Head of Internal Audit have nearly seven decades of combined work experience, including six decades in banking and financial services risk management and information security roles, and all maintain several industry licenses and certifications through continuing professional education.
The Head of Internal Audit is independent of management and reports to the Board Audit Committee Chair. Our CISO, CRO, CIO, and Head of Internal Audit have nearly seven decades of combined work experience, including six decades in banking and financial services risk management and information security roles, and maintain several industry licenses and certifications through continuing professional education.
Our methodologies revert back to historical loss information on a straight-line basis over eight quarters when it can no longer develop reasonable and supportable forecasts. Loans that do not share risk characteristics are evaluated on an individual basis.
Our methodologies revert back to historical loss information on a straight-line basis over eight quarters when the methodology can no longer develop reasonable and supportable forecasts. Loans that do not share risk characteristics are evaluated on an individual basis.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. Even the most advanced internal control environment may be vulnerable to compromise.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, including artificial intelligence, and the use of the internet and telecommunications technologies to conduct financial transactions. Even the most advanced internal control environment may be vulnerable to compromise.
As of December 31, 2023 we had outstanding approximately $10.0 million in aggregate principal amount of subordinated notes and $2.1 million in aggregate principal amount of junior subordinated debentures.
As of December 31, 2024, we had outstanding approximately $10.0 million in aggregate principal amount of subordinated notes and $2.1 million in aggregate principal amount of junior subordinated debentures.
We have invested in technology and systems to prevent and detect fraudulent behavior and mitigate losses but such investments may not be adequate, and our systems may not adequately monitor or mitigate potential losses arising from these risks.
We have invested in technology and systems designed to detect fraudulent behavior and somewhat mitigate losses but such investments may not be adequate, and our systems may not adequately monitor or mitigate potential losses arising from these risks.
The CRO/CISO delivers an annual report to the full Board of Directors on the status and effectiveness of the Company’s written information security program, and reports to the Board Risk Committee any emerging threats or cyber risks on a periodic basis throughout the year. The Board Risk Committee has also approved an Information Security and Cybersecurity Risk Appetite Statement.
The CRO and CISO deliver reports to the full Board of Directors on the status and effectiveness of the Company’s written information security program, and reports to the Board Risk Committee any emerging threats or cyber risks on a periodic basis throughout the year. The Board Risk Committee has also approved an Information Security and Cybersecurity Risk Appetite Statement.
If the payments are made via the Automated Clearing House (“ACH”) and were fraudulent, we could incur the cost of the payment. Finally, losses to our credit card portfolio may arise if cardholders cease to maintain the account in good standing with timely payments.
If the payments are made via the Automated Clearing House (“ACH”) and were fraudulent, we could incur the cost of the payment. Losses to our credit card portfolio also arise when cardholders cease to maintain the account in good standing with timely payments.
Unexpected deterioration in the credit quality of our commercial real estate loan portfolio could require us to increase our allowance for credit losses, which would reduce our profitability and could have a material adverse effect on our business, financial condition and results of operations.
Unexpected deterioration in the credit quality of our commercial real estate loan portfolio could require us to increase our ACL, which would reduce our profitability and could have a material adverse effect on our business, financial condition and results of operations.
Our three lines of defense enterprise risk management framework includes processes and procedures used to identify, assess, mitigate, and monitor the risks faced by the Company, including cybersecurity risk.
Our defense enterprise risk management framework includes processes and procedures used to identify, assess, mitigate, and monitor the risks faced by the Company, including cybersecurity risk.
For example, we engage third parties to: monitor our network 24/7/365, escalate security alerts, when applicable, perform penetration testing, conduct social engineering tests and assist management with technology upgrades/installations. The BISO assists the CRO/CISO in assessing and monitoring information risks posed by third parties and any non-compliance with the controls created to address such risks.
For example, we engage third parties to: monitor our network 24/7/365, escalate security alerts, when applicable, perform penetration testing, conduct social engineering tests and assist management with technology upgrades/installations. The CISO monitors information risks posed by third parties and any non-compliance with the controls created to address such risks.
With respect to cybersecurity incidents affecting our third-party service providers, the CRO/CISO works with our service providers to understand and document any incidents, along with managing the impact to us and reporting such significant incidents to senior management, ITSC, ERMC, and the Board Risk Committee.
With respect to cybersecurity incidents affecting our third-party service providers, the CISO, CRO, and their respective teams, work with our service providers to understand and document any incidents, along with managing the impact to us and reporting such significant incidents to senior management, ITSC, ERMC, and the Board Risk Committee.
Within the three lines of defense framework for cybersecurity risk, the first line of defense is provided by the Information Technology department, which is responsible for the design and execution of information security practices and risk mitigation, led by the Company’s Business Information Security Officer (“BISO”).
Within the three lines of defense framework for cybersecurity risk, the first line of defense is provided by the Information Technology department and business lines, which are responsible for the design and execution of information security practices and risk mitigation.
In either case, if market interest rates move contrary to our position, this gap will negatively impact our earnings. The impact on earnings is more adverse when the slope of the yield curve flattens; that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates.
In either case, if market interest rates move contrary to our position, this gap will negatively impact our earnings. The impact on earnings is more adverse when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates, or in circumstances of a flattened or inverted yield curve.
If real estate values decline, it is more likely that we would be required to increase our allowance for credit losses, which would adversely affect our business, financial condition and results of operations.
If real estate values decline, it is likely that we would be required to increase our ACL, which would adversely affect our business, financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds, including the resulting media coverage, have in the past and may in the future lead to market-wide liquidity problems and eroded customer confidence in the banking system.
Actual events involving limited funding liquidity, customer defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about similar events, including the potential negative media coverage, have in the past and may in the future lead to market-wide liquidity problems and erode customer confidence in the banking system.
Our mortgage banking division may not continue to provide us with significant noninterest income. The residential mortgage business is highly competitive and highly susceptible to changes in market interest rates, consumer confidence levels, employment statistics, the capacity and willingness of secondary market purchasers to acquire and hold or securitize loans, and other factors beyond our control.
The residential mortgage banking business is highly competitive and highly susceptible to changes in market interest rates, consumer confidence levels, employment statistics, the capacity and willingness of secondary market purchasers to acquire and hold or securitize loans, and other factors beyond our control.
The CRO/CISO is independent of management and reports to the Board Risk Committee Chair.
The CISO has dotted-line reporting to the CRO. The CRO is independent of management and reports to the Board Risk Committee Chair.
As of December 31, 2023, our directors, directors of the Bank, our named executive officers and their respective family members and affiliated entities beneficially owned an aggregate of 5,147,875 shares, or approximately 37.0% of our issued and outstanding common stock.
As of December 31, 2024, our directors, directors of the Bank, our named executive officers and their respective family members and affiliated entities beneficially owned an aggregate of 5,452,014 shares, or approximately 32.7% of our issued and outstanding common stock.
As of December 31, 2023, approximately 41.6% of our deposits were uninsured and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
As of December 31, 2024, approximately 57.1% of our deposits were insured and protected and 42.9% of our deposits were uninsured and unprotected. We rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Because a significant portion of our loan portfolio depends on commercial real estate, a change in the regulatory capital requirements applicable to us or a decline in our regulatory capital could limit our ability to leverage our capital as a result of these policies, which could have a material adverse effect on our business, financial condition and results of operations. 27 We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio.
Because a significant portion of our loan portfolio depends on commercial real estate, a change in the regulatory capital requirements applicable to us or a decline in our regulatory capital could limit our ability to leverage our capital as a result of these policies, which could have a material adverse effect on our business, financial condition and results of operations.
We may incur additional indebtedness in the future to increase our capital resources or if our total capital ratio or the total capital ratio of the Bank falls below the required minimums.
We may incur additional indebtedness in the future to increase our capital resources or if our total capital ratio or the total capital ratio of the Bank falls below the required minimums. Furthermore, our common stock is subordinate to any series of preferred stock we may issue in the future.
The majority of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates.
We are subject to interest rate risk as fluctuations in interest rates may adversely affect our earnings. The majority of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates.
The Company’s information security program is designed to preserve the confidentiality, integrity, and availability of Company confidential information, customer non-public personal information, and other data on our systems as well as securing our interfaces with our critical third-party service providers. 30 Our information security program takes a risk-based approach to identifying and assessing the cybersecurity risks that exist within our business and information technology systems.
The Company’s information security program is designed to preserve the confidentiality, integrity, and availability of Company confidential information, customer non-public personal information, and other data on our systems as well as securing our interfaces with our critical third-party service providers.
The BISO reports to the Chief Information Officer, who leads the Company’s Information Technology department. The second line of defense is provided by the Enterprise Risk Management department, which is led by the Company’s CRO/CISO. The department seeks to identify, assesses, and monitors cyber risk, in collaboration with our first line, while maintaining independent oversight of our information security program.
The second line of defense is provided by the Enterprise Risk Management department (led by the Company’s Independent Chief Risk Officer (“CRO”)) and the CISO (reporting to the CIO). The second line of defense seeks to identify, assess, and monitor cyber risk, in collaboration with our first line, while maintaining independence in the oversight of our information security program.
In addition, some laws and regulations may be subject to litigation or other challenges that delay or modify their implementation and impact on us. 26 Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could adversely affect us.
Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could adversely affect us.
We maintain an allowance for credit losses, which we believe to be adequate to cover credit losses inherent in our OpenSky ™ portfolio, but we cannot be certain that the allowance will be sufficient to cover actual credit losses.
We maintain an ACL, which we believe to be adequate to cover credit losses inherent in our OpenSky ™ portfolio, but we cannot be certain that the allowance will be sufficient to cover actual credit losses. If credit losses from our OpenSky ™ portfolio exceed our ACL, our net income will be reduced by the excess of such credit losses.
The impact of a decline in federal government spending, a reallocation of government spending to different industries or different areas of the country or a delay in payments to such contractors could have a ripple effect.
In addition, federal government employees make up a significant proportion of the population of the Washington, D.C. metropolitan area. The impact of a decline in federal government spending, a reallocation of government spending to different industries or different areas of the country or a delay in payments to such contractors could have a ripple effect.
Furthermore, our common stock is subordinate to any series of preferred stock we may issue in the future. 28 Provisions in our governing documents and Maryland law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
Provisions in our governing documents and Maryland law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
Risks Related to Ownership of Our Common Stock The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired.
Integration efforts could also divert management attention and resources. These integration matters could have an adverse effect on the combined Company. Risks Related to Ownership of Our Common Stock The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired.
We invest a portion of our total assets (9.4% as of December 31, 2023) in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested and managing interest rate risk.
We invest a portion of our total assets in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested and managing interest rate risk. Factors beyond our control can significantly and adversely influence the fair value of securities in our portfolio.
Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise materially and adversely affect our business, financial condition and results of operations. Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise materially and adversely affect our business, financial condition and results of operations.
Our inability to compete successfully in the markets in which we operate could have a material adverse effect on our business, financial condition or results of operations. 25 Risks Related to the Regulation of Our Industry We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, could adversely affect us.
Risks Related to Our Operations and the Regulation of Our Industry We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, could adversely affect us. Banking is highly regulated under federal and state law.
In connection with high-profile bank failures, uncertainty and concern has been, and may in the future be further, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
Such high-profile bank failures also highlighted the speed at which deposits can be moved in the digital economy, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
Our operations are also dependent upon our ability to protect our computer systems and network infrastructure, including our digital, mobile and internet banking activities, against damage from physical break-ins, cybersecurity breaches and other disruptive problems.
Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Our operations are also dependent upon our ability to protect our computer systems and network infrastructure, including our digital, mobile and internet banking activities, against damage from physical break-ins, cybersecurity breaches and other disruptive problems.
We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Consequently, the occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.
We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources.
We face strong competition from financial services companies and other companies that offer banking services. We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets.
We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets. We compete with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating within or near the areas we serve.
Although we cannot determine the effects of such policies on us at this time, such policies could materially and adversely affect our business, financial condition and results of operations. Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability.
If we become 29 subject to such regulatory actions, our business, financial condition, results of operations and reputation would be materially and adversely affected. Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability.
Our customers and businesses in the Washington, D.C. metropolitan area may be adversely impacted as a result of changes in government spending. The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.
These announcements could have an adverse effect on the economy of the Washington, D.C. metropolitan area, which in turn could adversely affect the Company. The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.
Banking is highly regulated under federal and state law. As such, we are subject to extensive regulation, supervision and legal requirements that govern almost all aspects of our operations. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional operating costs.
As such, we are subject to extensive regulation, supervision and legal requirements that govern almost all aspects of our operations. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, including potential changes in federal policy and at regulatory agencies as a result of changes in U.S.
Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose us to credit losses and could materially and adversely affect our business, financial condition and results of operations. 19 System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.
Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose us to credit losses and could materially and adversely affect our business, financial condition and results of operations. 22 Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned and repossessed personal property may not accurately describe the net value of the asset.
Management has implemented controls to monitor our commercial real estate lending concentrations, but we cannot predict the extent to which regulatory guidelines will impact our operations or capital requirements.
Further, management has implemented controls to monitor our commercial real estate lending concentrations, but we cannot predict the extent to which regulatory guidelines will impact our operations or capital requirements. Severe weather, earthquakes, other natural disasters, climate change, pandemics, acts of war or terrorism and other external and geopolitical events could significantly impact the business.
We do not know if we will be able to retain existing customers or attract new customers, or that we will be able to increase account balances for new or existing customers.
The inability of our OpenSky ™ credit card division to continue its growth rate could adversely affect our earnings. We do not know if we will be able to retain existing customers or attract new customers, or that we will be able to increase account balances for new or existing customers.
Additional credit losses will likely occur in the future and may occur at a rate greater than we have previously experienced. We may be required to take additional provisions for credit losses in the future to further supplement our ACL, either due to management’s decision to do so or requirements by our banking regulators.
We may be required to take additional provisions for credit losses in the future to further supplement our ACL, either due to management’s decision to do so or requirements by our banking regulators. In addition, bank regulatory agencies will periodically review our ACL and the value attributed to nonaccrual loans or to real estate acquired through foreclosure.
As a result, we may not be able to maintain or grow the income we receive from originating and reselling residential mortgage loans.
Disruptions in the secondary market may not only affect us but also the ability and desire of mortgage investors and other banks to purchase residential mortgage loans that we originate. As a result, we may not be able to maintain or grow the income we receive from originating and reselling residential mortgage loans.
We have several large depositor relationships, the loss of which could force us to fund our business through more expensive and less stable sources. As of December 31, 2023, our 10 largest non-brokered depositors accounted for $267.7 million in deposits, or approximately 14.1% of our total deposits.
We have several large depositor relationships, the loss of which could force us to fund our business through more expensive and less stable sources.
Under these arrangements, we originate single-family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding. 22 Disruptions in the secondary market may not only affect us but also the ability and desire of mortgage investors and other banks to purchase residential mortgage loans that we originate.
Under these arrangements, we originate single-family mortgages that are priced and underwritten to conform to previously agreed upon criteria before loan funding and are delivered to the investor shortly after funding.

… 84 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

2 edited+0 added−0 removed0 unchanged
Biggest changeItem 1C. Cybersecurity 30 Item 2. Properties 32 Item 3. Legal Proceedings 33 Item 4. Mine Safety Disclosures 33 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 34 Item 6 [Reserved] 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A.
Biggest changeItem 1C. Cybersecurity 33 Item 2. Properties 35 Item 3. Legal Proceedings 36 Item 4. Mine Safety Disclosures 36 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 37 Item 6 [Reserved] 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39 Item 7A.
Quantitative and Qualitative Disclosures about Market Risk 65 Item 8. Financial Statements and Supplementary Data 68
Quantitative and Qualitative Disclosures about Market Risk 66 Item 8. Financial Statements and Supplementary Data 69

Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−0 removed0 unchanged
Biggest changeTruman Parkway Suite 100 Annapolis, MD 21401 Leased 11/30/2026 Mortgage Office 10700 Parkridge Boulevard Suite 180 Reston, VA 20191 Leased 5/31/2024 Commercial Branch, Mortgage Office, and OpenSky ™ Headquarters 1400 W Street, NW Suite 170 Washington, DC 20009 Leased 2/28/2033 Commercial Branch 1900 Campus Commons Drive Suite 130 Reston, VA 20191 Leased 9/30/2031 Commercial Branch, Mortgage Office, and OpenSky ™ Headquarters 1104 Kenilworth Drive Suite 210 Towson, MD 21204 Leased 1/31/2027 LPO 32
Biggest changeTruman Parkway Suite 100 Annapolis, MD 21401 Leased 11/30/2026 Mortgage Office 1400 W Street, NW Suite 170 Washington, DC 20009 Leased 2/28/2033 Commercial Branch 1900 Campus Commons Drive Suite 130 Reston, VA 20191 Leased 1/31/2032 Commercial Branch, Mortgage Office, and OpenSky ™ Headquarters 1104 Kenilworth Drive Suite 210 Towson, MD 21204 Leased 1/31/2027 LPO 550 South Andrews Avenue Suite 640 Fort Lauderdale, FL 33301 Leased 8/31/2029 Commercial Branch 8450 Falls of Neuse Road Suite 204 Raleigh, NC 27615 Owned West Town Bank & Trust Operations Headquarters 7820 West 26th Street North Riverside, IL 60546 Owned Commercial Branch 320 North Meridian Street Suite 212 Indianapolis, IN 46204 Leased 6/30/2026 Windsor Advantage Office 444 North Wells Street Suites 205 & 206 Chicago, IL 60654 Leased 7/31/2030 Windsor Advantage Office 997 Morrison Drive Suite 503 Charleston, SC 29403 Leased 6/30/2027 Windsor Advantage Office 35
ITEM 2. PROPERTIES Our headquarters are currently located at 2275 Research Boulevard, Suite 600, Rockville, Maryland 20850. The following table summarizes pertinent details of our commercial bank branch locations, mortgage banking offices, loan production offices, or LPOs, and our credit card operations office. Our mortgage offices typically contain both origination and operations professionals.
ITEM 2. PROPERTIES Our headquarters are currently located at 2275 Research Boulevard, Suite 600, Rockville, Maryland 20850. The following table summarizes pertinent details of our commercial bank branch locations, mortgage banking offices, loan production offices (“LPO”), government loan servicing offices, and our credit card operations office. Our mortgage offices typically contain both origination and operations professionals.
Location Owned/Leased Lease Expiration Type of office One Church Street Suite 100 Rockville, MD 20850 Leased 12/31/2026 Commercial Branch 2275 Research Blvd. Suite 600 Rockville, MD 20850 Sub-Leased 10/31/2024 Corporate 6711 Columbia Gateway Drive Suite 170 Columbia, MD 21046 Leased 11/30/2027 Commercial Branch/LPO 110 Gibraltar Road Suite 130 Horsham, PA 19044 Leased 8/31/2026 OpenSky ™ Operations 185 Harry S.
Suites 600 & 700 Rockville, MD 20850 Leased 12/31/2026 Corporate 6711 Columbia Gateway Drive Suite 170 Columbia, MD 21046 Leased 11/30/2027 Commercial Branch/LPO 110 Gibraltar Road Suite 130 Horsham, PA 19044 Leased 8/31/2026 OpenSky ™ Operations 185 Harry S.
Added
Location Owned/Leased Lease Expiration Type of office One Church Street Suite 100 Rockville, MD 20850 Leased 12/31/2026 Commercial Branch 2275 Research Blvd.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+4 added−4 removed4 unchanged
Biggest changePlan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders: Capital Bancorp, Inc. 2017 Stock and Incentive Compensation Plan 550,718 $ 19.21 792,846 Equity compensation plans not approved by security holders — — — Total 550,718 $ 19.21 792,846 34 Unregistered Sales and Issuer Repurchases of Common Stock There were no unregistered sales of the Company’s stock during the year ended December 31, 2023.
Biggest changeEquity Compensation Plan Information The following table provides information as of December 31, 2024, with respect to options and restricted stock units (“RSUs”) outstanding and shares available for future awards under the Company’s active equity incentive plans. 37 Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders: Capital Bancorp, Inc.
As of March 13, 2024, there were approximately 158 holders of record of our common stock. Dividends Commencing with the third quarter of 2021, shareholders have received quarterly cash dividends on shares of common stock. Dividends paid in 2023 totaled $3.9 million.
As of March 13, 2025, there were approximately 244 holders of record of our common stock. Dividends Commencing with the third quarter of 2021, shareholders have received quarterly cash dividends on shares of common stock. Dividends paid in 2024 totaled $5.3 million.
On July 25, 2022, the Company announced a new stock repurchase program. Under the new program, the Company is authorized to repurchase up to $10.0 million of its outstanding common stock, or 500,000 shares of Common Stock, par value $0.01 per share (“Common Stock”).
Under the program, the Company is authorized to repurchase up to $10.0 million of its outstanding common stock, or 500,000 shares of Common Stock, par value $0.01 per share (“Common Stock”). On April 13, 2023, the Company announced approval of up to an additional $5.0 million or 175,000 shares of Common Stock incremental to the July 2022 announcement.
During the three months ended December 31, 2023, the Company repurchased Common Stock under the stock repurchase program as reflected in the following table.
During the three months ended December 31, 2024, the Company did not repurchase any Common Stock under the stock repurchase program. On February 21, 2025, the Company announced a new stock repurchase program.
Removed
Various statutory provisions restrict the amount of dividends that the Bank can pay without regulatory approval. Equity Compensation Plan Information The following table provides information as of December 31, 2023, with respect to options and restricted stock units (“RSUs”) outstanding and shares available for future awards under the Company’s active equity incentive plans.
Added
Various statutory provisions restrict the amount of dividends that the Bank can pay without regulatory approval. Repurchases of Common Stock On July 25, 2022, the Company announced a stock repurchase program.
Removed
On April 13, 2023, the Company announced approval of up to an additional $5.0 million or 175,000 shares of Common Stock incremental to the July 2022 announcement. The program will expire on December 31, 2024. There were no stock repurchases by the Company under the repurchase program announced on July 25, 2022, prior to the quarter ended March 31, 2023.
Added
In connection with the acquisition of IFH, the Company temporarily suspended repurchases under its stock program during the first quarter of 2024. The Company repurchased 543,215 shares of Common Stock under the stock repurchase program, which expired on December 31, 2024.
Removed
Shares repurchased and retired for the year ended December 31, 2023 as part of the Company's stock repurchase program totaled 475,346 shares at an average price of $18.57, for a total cost of $8.8 million including commissions.
Added
Under the new stock repurchase program, the Company is authorized to repurchase up to $15 million of its Common Stock, or an aggregate of 483,559 shares of Common Stock. The new stock repurchase program will expire on February 28, 2026, but may be limited or terminated at any time without prior notice.
Removed
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 to October 31, 2023 19,830 $ 19.75 405,749 $ 7,615,183 November 1, 2023 to November 30, 2023 53,562 20.40 459,311 6,522,616 December 1, 2023 to December 31, 2023 16,035 21.86 475,346 6,172,016
Added
Amended and Restated 2017 Stock and Incentive Compensation Plan 614,360 $ 21.02 446,794 Equity compensation plans not approved by security holders — — — Total 614,360 $ 21.02 446,794 Unregistered Sales of Common Stock There were no unregistered sales of the Company’s stock during the year ended December 31, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

133 edited+48 added−47 removed55 unchanged
Biggest changeReturn on Average Assets, as Adjusted Year Ended (in thousands) December 31, 2023 December 31, 2022 Net Income $ 35,871 $ 41,804 Less: SBA-PPP Loan Income 30 3,477 Net Income, as Adjusted $ 35,841 $ 38,327 Average Total Assets 2,188,299 2,077,801 Less: Average SBA-PPP Loans 1,373 29,831 Average Total Assets, as Adjusted $ 2,186,926 $ 2,047,970 Return on Average Assets, as Adjusted 1.64% 1.87% Net Interest Margin, as Adjusted Year Ended (in thousands) December 31, 2023 December 31, 2022 Net Interest Income $ 141,526 $ 140,607 Less: Credit Card Loan Income 61,096 63,348 Less: SBA-PPP Loan Income 30 3,477 Net Interest Income, as Adjusted $ 80,400 $ 73,782 Average Interest Earning Assets 2,145,209 2,033,242 Less: Average Credit Card Loans 114,450 126,473 Less: Average SBA-PPP Loans 1,373 29,831 Total Average Interest Earning Assets, as Adjusted $ 2,029,386 $ 1,876,938 Net Interest Margin, as Adjusted 3.96% 3.93% Portfolio Loans Receivable Yield, as Adjusted Year Ended (in thousands) December 31, 2023 December 31, 2022 Portfolio Loans Receivable Interest Income $ 174,348 $ 140,496 Less: Credit Card Loan Income 61,096 63,348 Portfolio Loans Receivable Interest Income, as Adjusted $ 113,252 $ 77,148 Average Portfolio Loans Receivable 1,815,595 1,579,661 Less: Average Credit Card Loans 114,450 126,473 Total Average Portfolio Loans Receivable, as Adjusted $ 1,701,145 $ 1,453,188 Portfolio Loans Receivable Yield, as Adjusted 6.66% 5.31% 62 Pre-tax, Pre-Provision Net Revenue ("PPNR") Year Ended (in thousands) December 31, 2023 December 31, 2022 Net Income $ 35,871 $ 41,804 Add: Income Tax Expense 10,354 12,430 Add: Provision for Credit Losses 9,610 6,631 Add: Release of Credit Losses on Unfunded Commitments (101) — Pre-tax, Pre-Provision Net Revenue ("PPNR") $ 55,734 $ 60,865 Allowance for Credit Losses to Total Portfolio Loans Year Ended (in thousands) December 31, 2023 December 31, 2022 Allowance for Credit Losses $ 28,610 $ 26,385 Total Loans 1,903,288 1,730,755 Less: SBA-PPP Loans, net of fees and costs 645 2,163 Total Portfolio Loans $ 1,902,643 $ 1,728,592 Allowance for Credit Losses to Total Portfolio Loans 1.50% 1.53% Nonperforming Assets to Total Assets, net SBA-PPP Loans Year Ended (in thousands) December 31, 2023 December 31, 2022 Total Nonperforming Assets $ 16,042 $ 9,756 Total Assets 2,226,176 2,123,655 Less: SBA-PPP Loans, net of fees and costs 645 2,163 Total Assets, net SBA-PPP Loans $ 2,225,531 $ 2,121,492 Nonperforming Assets to Total Assets, net SBA-PPP Loans 0.72% 0.46% Nonperforming Loans to Total Portfolio Loans Year Ended (in thousands) December 31, 2023 December 31, 2022 Total Nonperforming Loans $ 16,042 $ 9,756 Total Loans 1,903,288 1,730,755 Less: SBA-PPP Loans, net of fees and costs 645 2,163 Total Portfolio Loans $ 1,902,643 $ 1,728,592 Nonperforming Loans to Total Portfolio Loans 0.84% 0.56% Net Charge-offs to Average Portfolio Loans Year Ended (in thousands) December 31, 2023 December 31, 2022 Total Net Charge-offs $ 8,473 $ 5,427 Total Average Loans 1,816,968 1,609,492 Less: Average SBA-PPP Loans, net of fees and costs 1,373 29,831 Total Average Portfolio Loans $ 1,815,595 $ 1,579,661 Net Charge-offs to Average Portfolio Loans 0.47% 0.34% 63 Tangible Book Value per Share Year Ended (in thousands, except per share amounts) December 31, 2023 December 31, 2022 Total Stockholders' Equity $ 254,860 $ 224,015 Less: Preferred Equity — — Less: Intangible Assets — — Tangible Common Equity $ 254,860 $ 224,015 Period End Shares Outstanding 13,922,532 14,138,829 Tangible Book Value per Share $ 18.31 $ 15.84 64
Biggest changeEarnings Metrics, as Adjusted Year Ended (in thousands, except per share data) December 31, 2024 December 31, 2023 Net Income $ 30,972 $ 35,871 Add: Merger-Related Expenses, net of tax 3,308 — Add: Non-Recurring Equity and Debt Investment Write-Down 2,620 — Add: IFH Non-PCD ACL Provision, Net of Tax 3,169 — Net Income, as Adjusted $ 40,069 $ 35,871 Weighted Average Common Shares - Diluted 14,640 14,081 Earnings per Share - Diluted $ 2.12 $ 2.55 Earnings per share - Diluted, as Adjusted $ 2.74 $ 2.55 Average Assets $ 2,554,049 $ 2,188,299 Return on Average Assets 1.21 % 1.64 % Return on Average Assets, as Adjusted 1.57 % 1.64 % Average Equity $ 287,420 $ 240,519 Return on Average Equity 10.78 % 14.91 % Return on Average Equity, as Adjusted 13.94 % 14.91 % Net Interest Income (a) $ 154,746 $ 141,526 Noninterest Income 31,410 24,975 Total Revenue $ 186,156 $ 166,501 Noninterest Expense $ 126,219 $ 110,767 Efficiency Ratio (1) 67.80 % 66.53 % Noninterest Income $ 31,410 $ 24,975 Add: Non-Recurring Equity and Debt Investment Write-Down 2,620 — Noninterest Income, as Adjusted (b) $ 34,030 $ 24,975 Total Revenue, as Adjusted (a) + (b) $ 188,776 $ 166,501 Noninterest Expense $ 126,219 $ 110,767 Less: Merger-Related Expenses 3,930 — Noninterest Expense, as Adjusted $ 122,289 $ 110,767 Efficiency Ratio, as Adjusted (1) 64.78 % 66.53 % _______________ (1) The efficiency ratio is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income). 63 Net Interest Margin, as Adjusted Year Ended (in thousands) December 31, 2024 December 31, 2023 Net Interest Income $ 154,746 $ 141,526 Less: Credit Card Loan Income 59,821 61,096 Net Interest Income, as Adjusted $ 94,925 $ 80,430 Average Interest Earning Assets 2,487,607 2,145,209 Less: Average Credit Card Loans 115,581 114,450 Total Average Interest Earning Assets, as Adjusted $ 2,372,026 $ 2,030,759 Net Interest Margin, as Adjusted 4.00% 3.96% Portfolio Loans Receivable Yield, as Adjusted Year Ended (in thousands) December 31, 2024 December 31, 2023 Portfolio Loans Receivable Interest Income $ 202,346 $ 174,378 Less: Credit Card Loan Income 59,821 61,096 Portfolio Loans Receivable Interest Income, as Adjusted $ 142,525 $ 113,282 Average Portfolio Loans Receivable 2,142,638 1,816,968 Less: Average Credit Card Loans 115,581 114,450 Total Average Portfolio Loans Receivable, as Adjusted $ 2,027,057 $ 1,702,518 Portfolio Loans Receivable Yield, as Adjusted 7.03% 6.65% Pre-tax, Pre-Provision Net Revenue ("PPNR") Year Ended (in thousands) December 31, 2024 December 31, 2023 Net Income $ 30,972 $ 35,871 Add: Income Tax Expense 10,860 10,354 Add: Provision for Credit Losses 17,720 9,610 Add: Provision for (Release of) Credit Losses on Unfunded Commitments 385 (101) PPNR $ 59,937 $ 55,734 PPNR, as Adjusted Year Ended (in thousands) December 31, 2024 December 31, 2023 Net Income $ 30,972 $ 35,871 Add: Income Tax Expense 10,860 10,354 Add: Provision for Credit Losses 17,720 9,610 Add: Provision for (Release of) Credit Losses on Unfunded Commitments 385 (101) Add: Merger-Related Expenses 3,930 — Add: Non-Recurring Equity and Debt Investment Write-Down 2,620 — PPNR, as Adjusted $ 66,487 $ 55,734 Allowance for Credit Losses to Total Portfolio Loans Year Ended (in thousands) December 31, 2024 December 31, 2023 Allowance for Credit Losses $ 48,652 $ 28,610 Total Portfolio Loans $ 2,630,163 $ 1,903,288 Allowance for Credit Losses to Total Portfolio Loans 1.85% 1.50% 64 Nonperforming Assets to Total Assets Year Ended (in thousands) December 31, 2024 December 31, 2023 Total Nonperforming Assets $ 30,241 $ 16,042 Total Assets $ 3,206,911 $ 2,226,176 Nonperforming Assets to Total Assets 0.94% 0.72% Nonperforming Loans to Total Portfolio Loans Year Ended (in thousands) December 31, 2024 December 31, 2023 Total Nonperforming Loans $ 30,241 $ 16,042 Total Portfolio Loans $ 2,630,163 $ 1,903,288 Nonperforming Loans to Total Portfolio Loans 1.15% 0.84% Net Charge-Offs to Average Portfolio Loans Year Ended (in thousands) December 31, 2024 December 31, 2023 Total Net Charge-Offs $ 9,003 $ 8,473 Total Average Portfolio Loans $ 2,142,638 $ 1,816,968 Net Charge-Offs to Average Portfolio Loans 0.42% 0.47% Tangible Book Value per Share Year Ended (in thousands, except share and per share data) December 31, 2024 December 31, 2023 Total Stockholders' Equity $ 355,139 $ 254,860 Less: Preferred Equity — — Less: Intangible Assets 42,454 — Tangible Common Equity $ 312,685 $ 254,860 Period End Shares Outstanding 16,662,626 13,922,532 Tangible Book Value per Share $ 18.77 $ 18.31 Return on Average Tangible Common Equity Year Ended (in thousands) December 31, 2024 December 31, 2023 Net Income $ 30,972 $ 35,871 Add: Intangible Amortization, Net of Tax 198 — Net Tangible Income $ 31,170 $ 35,871 Average Equity 287,420 240,519 Less: Average Intangible Assets 6,951 — Net Average Tangible Common Equity $ 280,469 $ 240,519 Return on Average Equity 10.78 % 14.91 % Return on Average Tangible Common Equity 11.11 % 14.91 % Core Return on Average Tangible Common Equity Year Ended (in thousands) December 31, 2024 December 31, 2023 Net Income, as Adjusted $ 40,069 $ 35,871 Add: Intangible Amortization, Net of Tax 198 — Net Tangible Income, as Adjusted $ 40,267 $ 35,871 Core Return on Average Equity, as Adjusted 14.01 % 14.91 % Core Return on Average Tangible Common Equity, as Adjusted 14.36 % 14.91 % 65
Non-GAAP Financial Measures This document contains non-GAAP financial measures denoted throughout our MD&A by reference to “non-GAAP.” We believe these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions.
Non-GAAP Financial Measures This document contains non-GAAP financial measures denoted throughout our MD&A by reference to “non-GAAP.” We believe these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and to make day-to-day operating decisions.
Maintaining an adequate level of liquidity depends on the Bank’s ability to meet both expected and unexpected cash flows and collateral needs efficiently without adversely affecting either daily operations or the financial condition of the Bank.
Maintaining an adequate level of liquidity depends on the Bank’s ability to meet both expected and unexpected cash flows and collateral needs efficiently and without adversely affecting either daily operations or the financial condition of the Bank.
In addition, we believe our non-GAAP results in any given reporting period reflect our on-going financial performance in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of non-GAAP results increases comparability of period-to-period results.
In addition, we believe our non-GAAP results in any given reporting period reflect our on-going financial performance in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of non-GAAP results increases comparability of period-to-period results.
Other companies may use similarly titled non-GAAP financial measures that may be calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies.
Other companies may use similarly titled non-GAAP financial measures that may be calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies.
Critical elements of our liquidity risk management include: corporate governance consisting of oversight by the board of directors and active involvement by management; strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are believed to be commensurate with the complexity and business activities of the Bank; active management of intraday liquidity and collateral; a diverse mix of existing and potential future funding sources; holding liquid marketable securities that can be used to meet liquidity needs in situations of stress; contingency funding plans that address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes believed to be sufficient to assure the adequacy of the institution’s liquidity risk management process.
Critical elements of our liquidity risk management include: corporate governance consisting of oversight by the board of directors and active involvement by management; strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are believed to be commensurate with the 57 complexity and business activities of the Bank; active management of intraday liquidity and collateral; a diverse mix of existing and potential future funding sources; holding liquid marketable securities that can be used to meet liquidity needs in situations of stress; contingency funding plans that address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes believed to be sufficient to assure the adequacy of the institution’s liquidity risk management process.
The Company frequently 47 transitions the end purchaser to permanent financing or re-underwriting and sale into the secondary market through Capital Bank Home Loans. According to underwriting standards, the ratio of loan principal to collateral value, as established by an independent appraisal, cannot exceed 75% for investor-owned and 80% for owner-occupied properties, although exceptions are sometimes made.
The Company frequently transitions the end purchaser to permanent financing or re-underwriting and sale into the secondary market through Capital Bank Home Loans. According to underwriting standards, the ratio of loan principal to collateral value, as established by an independent appraisal, cannot exceed 75% for investor-owned and 80% for owner-occupied properties, although exceptions are sometimes made.
The focus of each meeting is to identify and promptly determine any necessary required action within this loan 51 population, which consists of loans that, although considered satisfactory and performing to terms, may exhibit special risk features that warrant management’s attention. Management is intent on maintaining a strong credit review function and risk rating process.
The focus of each meeting is to identify and promptly determine any necessary required action within this loan population, which consists of loans that, although considered satisfactory and performing to terms, may exhibit special risk features that warrant management’s attention. Management is intent on maintaining a strong credit review function and risk rating process.
Our lending activities, outside of credit cards, are principally directed to our market area consisting of the Washington, D.C. and Baltimore, Maryland metropolitan areas. Residential Real Estate Loans . One-to-four family mortgage loans are primarily secured by owner-occupied primary and secondary residences and, to a lesser extent, investor-owned residences.
Our lending activities, outside of credit cards, are principally directed to our market area consisting of the Washington, D.C. and Baltimore, Maryland metropolitan areas. 50 Residential Real Estate Loans . One-to-four family mortgage loans are primarily secured by owner-occupied primary and secondary residences and, to a lesser extent, investor-owned residences.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory 58 accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators.
We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly 35 comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.
We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.
The weighted average yields were calculated by multiplying the amortized cost of each individual security by its yield, dividing that figure by the portfolio total, and then summing the value of these results to arrive at the weighted average yield. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
The weighted average yields were calculated by multiplying the amortized cost of each individual security by its yield, dividing that figure by the portfolio total, and then summing the value of these results to arrive at the weighted 49 average yield. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
Personal guaranties from the borrower or other principal are generally obtained. Credit Cards . Through the OpenSky ™ credit card division, the Company offers secured, partially secured, and unsecured credit cards on a nationwide basis to under-banked populations and those looking to rebuild their credit scores through a fully digital and mobile platform.
Personal guaranties from the borrower or other principal are generally obtained. Credit Cards . Through the OpenSky ™ credit card division, the Company offers secured, partially secured, and unsecured credit cards on a nationwide basis to under-banked populations and those 51 looking to rebuild their credit scores through a fully digital and mobile platform.
The capital levels required to be maintained by the Company and Bank may be impacted as a result of the Bank’s concentrations in commercial real estate loans. See “Risks Related to the Regulation of Our Industry” in Part I, Item 1A - Risk Factors.
The capital levels required to be maintained by the Company and Bank may be impacted as a result of the Bank’s concentrations in commercial real estate loans. See “Risks Related to Our Operations and the Regulation of Our Industry” in Part I, Item 1A - Risk Factors.
We analyze our ability to maximize income generated from interest earning assets and control the 38 interest expenses associated with our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest margin is a ratio calculated as net interest income divided by average interest earning assets for the same period.
We analyze our ability to maximize income generated from interest earning assets and control the interest expenses associated with our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest margin is a ratio calculated as net interest income divided by average interest earning assets for the same period.
Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Loans are generally charged-off in part or in full when management determines the loan to be uncollectible.
Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Loans are generally charged-off in part or in full when management determines the loan to be uncollectible.
Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Company’s Board of Directors. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations.
Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations.
Although we believe we have established our ACL in accordance with GAAP and that the ACL is currently adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio. 53 The following table shows the allocation of the ACL among loan categories as of the dates indicated.
Although we believe we have established our ACL in accordance with GAAP and that the ACL is currently adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio. 54 The following table shows the allocation of the ACL among loan categories as of the dates indicated.
However, most other operating expenses are sensitive to changes in levels of inflation. 61 Non-GAAP Financial Measures and Reconciliations The Company has presented the following non-GAAP financial measures because it believes that these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions.
However, most other operating expenses are sensitive to changes in levels of inflation. 62 Non-GAAP Financial Measures and Reconciliations The Company has presented the following non-GAAP financial measures because it believes that these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions.
To the extent unrealized losses on investment securities available for sale result from credit losses, unrealized losses are recorded as a charge against earnings. The investment securities section of the MD&A and Notes 1 and 3 to the consolidated financial statements provide additional information concerning management’s evaluation of investment securities available for sale for credit losses at December 31, 2023.
To the extent unrealized losses on investment securities available-for-sale result from credit losses, unrealized losses are recorded as a charge against earnings. The investment securities section of the MD&A and Notes 1 and 3 to the consolidated financial statements provide additional information concerning management’s evaluation of investment securities available-for-sale for credit losses at December 31, 2024.
Accordingly, the Company’s significant accounting policies are discussed in detail in “Note 1 - Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Part II, Item 8 "Financial Statements and Supplementary Data.” 37 The critical accounting and reporting policies include the Company’s accounting for the ACL.
Accordingly, the Company’s significant accounting policies are discussed in detail in “Note 1 - Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Part II, Item 8 "Financial Statements and Supplementary Data.” The critical accounting and reporting estimates include the Company’s accounting for the ACL.
Further, management reviewed the Company’s holdings as of December 31, 2023 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2023, other than securities issued or guaranteed by U.S.
Further, management reviewed the Company’s holdings as of December 31, 2024 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2024, other than securities issued or guaranteed by U.S.
Financial Statements and Supplementary Data - Notes to Financial Statements - Note 1. Summary of Significant Accounting Policies.” Results of Operations for the Years Ended December 31, 2023 and 2022 Net Income The following table sets forth the principal components of net income for the periods indicated.
Financial Statements and Supplementary Data - Notes to Financial Statements - Note 1. Summary of Significant Accounting Policies.” Results of Operations for the Years Ended December 31, 2024 and 2023 Net Income The following table sets forth the principal components of net income for the periods indicated.
Summary ratings information at December 31, 2023, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA – 82% of the portfolio; AA+ – 8%; AA – 10%.
Summary ratings information at December 31, 2024, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA – 82% of the portfolio; AA+ – 8%; AA – 10%.
However, we intend to monitor and control our growth relative to our earnings in order to remain in compliance with all regulatory capital standards applicable to us. 58 The following table presents the regulatory capital ratios for the Company and the Bank as of the dates indicated.
However, we intend to monitor and control our growth relative to our earnings in order to remain in compliance with all regulatory capital standards applicable to us. 59 The following table presents the regulatory capital ratios for the Company and the Bank as of the dates indicated.
The classifications of loans reflect a judgment about the risks of default and loss associated with each loan. Credit ratings are reviewed regularly and adjusted regularly to reflect the degree of risk and loss that our management believes to be appropriate for each credit.
The classifications of loans reflect 52 a judgment about the risks of default and loss associated with each loan. Credit ratings are reviewed regularly and then adjusted regularly to reflect the degree of risk and loss that our management believes to be appropriate for each credit.
There were no outstanding balances on the lines of credit from correspondent banks at December 31, 2023. Liquidity Liquidity is defined as the Bank’s capacity to meet its cash and collateral obligations at a reasonable cost.
There were no outstanding balances on the lines of credit from correspondent banks at December 31, 2024. Liquidity Liquidity is defined as the Bank’s capacity to meet its cash and collateral obligations at a reasonable cost.
The following tables summarize the contractual maturities, without consideration of call features or pre-refunding dates, and weighted-average yields of investment securities at December 31, 2023 and the amortized cost and carrying value of those securities as of the indicated dates.
The following tables summarize the contractual maturities, without consideration of call features or pre-refunding dates, and weighted-average yields of investment securities at December 31, 2024 and the amortized cost and carrying value of those securities as of the indicated dates.
Our liquidity monitoring and management consider both present and future demands for and sources of liquidity. The following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of December 31, 2023.
Our liquidity monitoring and management consider both present and future demands for and sources of liquidity. The following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of December 31, 2024.
These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $14.1 million as of December 31, 2023 and $12.3 million as of December 31, 2022, are included in the commercial real estate loan category.
These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $3.1 million as of December 31, 2024 and $14.1 million as of December 31, 2023, are included in the commercial real estate loan category.
The Company has an experienced Credit Administration function, which provides independent analysis of credit requests and the management of problem credits. The Credit Department has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system, and continues to adapt and enhance the monitoring of the loan portfolio.
The Company has an experienced credit administration function, which provides independent analysis of credit requests and the management of problem credits. The credit department has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system, and continually endeavors to adapt and enhance the monitoring of the loan portfolio.
Unsecured balances were $30.8 million and $26.8 million, respectively, at the same dates. Other Consumer Loans . To a limited extent and typically as an accommodation to existing customers, personal consumer loans, such as term loans, car loans and boat loans are offered. Purchased Credit Deterioration .
Unsecured balances were $42.4 million and $30.8 million, respectively, at the same dates. Other Consumer Loans . To a limited extent and typically as an accommodation to existing customers, personal consumer loans, such as term loans, car loans and boat loans are offered. Purchased Credit Deterioration .
The Bank’s obligations, and the funding sources used to meet them, depend significantly on our business mix, balance sheet structure and the cash flow profiles of our on- and off-balance sheet obligations. In managing our cash flows, management regularly addresses situations that can give rise to increased liquidity risk.
The Bank’s obligations, and the funding sources used to meet them, depend significantly on our business mix, balance sheet structure and the cash flow profiles of our on- and off-balance sheet obligations. In managing our cash flows, management endeavors to anticipate situations that can give rise to increased liquidity risk.
Commercial and Industrial . In addition to other loan products, general commercial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, letters of credit and other loan products, are offered, primarily in target markets, and underwritten based on each borrower’s ability to service debt from income.
Commercial and Industrial . In addition to other loan products, general commercial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, letters of credit, government guaranteed loans and solar energy related loans and other loan products, are offered, primarily in target markets, and underwritten based on each borrower’s ability to service debt from income.
The principal amount of the Floating Rate Debentures has not changed since issuance, and they accrue interest at a floating rate equal to the three-month CME Term SOFR plus a spread adjustment of 0.26161% (or 26.161 basis points) plus 187 basis points, payable quarterly. As of December 31, 2023, the rate for the Floating Rate Debentures was 7.52%.
The principal amount of the Floating Rate Debentures has not changed since issuance, and they accrue interest at a floating rate equal to the three-month CME Term SOFR plus a spread adjustment of 0.26161% (or 26.161 basis points) plus 187 basis points, payable quarterly. As of December 31, 2024, the rate for the Floating Rate Debentures was 6.49%.
The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $13.1 million at December 31, 2023 and $16.8 million at December 31, 2022. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity.
The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $11.5 million at December 31, 2024 and $13.1 million at December 31, 2023. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity.
The Company uses several indicators of capital strength. The most commonly used measure is common equity to total assets (computed as equity divided by total assets), which was 11.45% at December 31, 2023 and 10.55% at December 31, 2022. 57 The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.
The Company uses several indicators of capital strength. The most commonly used measure is common equity to total assets (computed as equity divided by total assets), which was 11.07% at December 31, 2024 and 11.45% at December 31, 2023. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.
Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $95.3 million and $109.4 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of December 31, 2023 and December 31, 2022, respectively.
Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $87.2 million and $95.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of December 31, 2024 and December 31, 2023, respectively.
The following table presents the maturities of our certificates of deposit as of December 31, 2023.
The following table presents the maturities of our certificates of deposit as of December 31, 2024.
As of December 31, 2023, we had $291.5 million of available borrowing capacity from the FHLB, $16.6 million of available borrowing capacity from the Federal Reserve Bank of Richmond Borrower in Custody program and available lines of credit of $76.0 million with other correspondent banks.
As of December 31, 2024, we had $485.5 million of available borrowing capacity from the FHLB, $20.6 million of available borrowing capacity from the Federal Reserve Bank of Richmond Borrower in Custody program and available lines of credit of $76.0 million with other correspondent banks.
The Special Asset Committee reviews the Problem Loan Status Report on a quarterly basis for borrowers with an overall loan exposure in excess of $250,000. At December 31, 2023, the recorded investment in individually assessed loans was $16.0 million, requiring a specific reserve of $0.4 million.
The Special Asset Committee reviews the Problem Loan Status Report on a quarterly basis for borrowers with an overall loan exposure in excess of $250,000. At December 31, 2024, the recorded investment in individually assessed loans was $34.9 million, requiring a specific reserve of $9.3 million.
Uninsured deposits were approximately $789.4 million as of December 31, 2023, representing 41.6% of the Company's deposit portfolio, compared to $784.6 million, or 44.6%, at December 31, 2022. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.
Uninsured deposits were approximately $703.2 million as of December 31, 2024, representing 25.5% of the Company's deposit portfolio, compared to $789.4 million, or 41.6%, at December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.
For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.” Financial Performance The following summary should be read in conjunction with the MD&A section in its entirety. Net income of $35.9 million for the year ended December 31, 2023 decreased $5.9 million, or 14.2% when compared to the prior year.
For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.” Financial Performance The following summary should be read in conjunction with the MD&A section in its entirety. Net income of $31.0 million for the year ended December 31, 2024 decreased $4.9 million, or 13.7% when compared to the prior year.
Net charge-offs for the year ended December 31, 2023 were $8.5 million, or 0.47% of average portfolio loans, compared to $5.4 million, or 0.34% of average portfolio loans, for the same period in 2022.
Net charge-offs for the year ended December 31, 2024 were $9.0 million, or 0.42% of average portfolio loans, compared to $8.5 million, or 0.47% of average portfolio loans, for the same period in 2023.
Net charge-offs for the year ended December 31, 2023 were $8.5 million, or 0.47% of average portfolio loans, compared to $5.4 million, or 0.34% of average portfolio loans, for the same period in 2022.
Net charge-offs for the year ended December 31, 2024 were $9.0 million, or 0.42% of average portfolio loans, compared to $8.5 million, or 0.47% of average loans for the same period in 2023.
Deposits securing our OpenSky ™ card lines of credit and deposits from title companies represent the largest concentrations in the deposit portfolio. As of December 31, 2023, these concentrations represented 9% and 12% of deposits, respectively.
Deposits securing our OpenSky ™ card lines of credit and deposits from title companies represent the largest concentrations in the deposit portfolio. As of December 31, 2024, these concentrations represented 6% and 11% of deposits, respectively.
Business equity lines of credit are commercial purpose lines of credit primarily secured by the business owners residential properties. Lender finance loans totaling $11.1 million as of December 31, 2023 are included in the commercial real estate loan category.
Business equity lines of credit are commercial purpose lines of credit primarily secured by the business owners residential properties. Lender finance loans totaling $28.6 million as of December 31, 2024 are also included in the commercial real estate loan category.
For a description of the factors taken into account by our management in determining the ACL, see “Financial Condition— Allowance for Credit Losses.” For the year ended December 31, 2023, the provision for credit losses was $9.6 million, an increase of $3.0 million from the recorded provision for loan losses of $6.6 million for the year ended December 31, 2022.
For a description of the factors taken into account by our management in determining the ACL, see “Financial Condition— Allowance for Credit Losses.” For the year ended December 31, 2024, the provision for credit losses was $17.7 million, an increase of $8.1 million from the recorded provision for credit losses of $9.6 million for the year ended December 31, 2023.
The difference between amortized cost and fair value of investment securities, net of deferred income tax, is included in accumulated other comprehensive loss within stockholders’ equity. Accumulated other comprehensive loss is excluded from the Bank’s and Company’s regulatory capital ratios.
The Company’s total stockholders’ equity is affected by fluctuations in the fair values of investment securities available-for-sale. The difference between amortized cost and fair value of investment securities, net of deferred income tax, is included in accumulated other comprehensive loss within stockholders’ equity. Accumulated other comprehensive loss is excluded from the Bank’s and Company’s regulatory capital ratios.
The Bank’s Capital Bank Home Loans division saw a decline in mortgage originations during the year ended December 31, 2023 when compared to the prior year. A rising interest rate environment dampened home loan sales and home loan refinances.
The Bank’s Capital Bank Home Loans division saw an increase in mortgage originations during the year ended December 31, 2024 when compared to the prior year. An elevated interest rate environment dampened home loan sales and home loan refinances.
The Company has also issued junior subordinated debentures and other subordinated notes. At December 31, 2023, these other borrowings amounted to $12.1 million, consisting of Floating Rate Junior Subordinated Deferrable Interest Debentures and subordinated notes. At December 31, 2023, our Floating Rate Junior Subordinated Deferrable Interest Debentures amounted to $2.1 million.
At December 31, 2024, these other borrowings amounted to $12.1 million, consisting of Floating Rate Junior Subordinated Deferrable Interest Debentures and subordinated notes. At December 31, 2024, our Floating Rate Junior Subordinated Deferrable Interest Debentures amounted to $2.1 million.
The asset-backed securities are comprised of student loan collateral issued by the Federal Family Education Loan Program, which includes a minimum of a 97% government repayment guarantee, as well as additional support in excess of the government guaranteed portion.
Treasuries, high-quality mortgage-backed securities (“MBS”), government agency bonds, asset-backed securities and high-quality municipal and corporate bonds. The asset-backed securities are comprised of student loan collateral issued by the Federal Family Education Loan Program, which includes a minimum of a 97% government repayment guarantee, as well as additional support in excess of the government guaranteed portion.
As of December 31, 2023 and December 31, 2022, our credit card customers accounted for $173.9 million and $187.4 million, or 28.2% and 27.8%, respectively, of our total noninterest-bearing deposit balances.
As of December 31, 2024 and December 31, 2023, our credit card customers accounted for $166.4 million and $173.9 million, or 20.5% and 28.2%, respectively, of our total noninterest-bearing deposit balances.
The $8.5 million in net charge-offs during the year ended December 31, 2023 was comprised primarily of credit card portfolio net charge-offs, with $5.5 million related to secured and partially secured cards while $1.4 million was related to unsecured cards.
The $9.0 million in net charge-offs during the year ended December 31, 2024 was comprised primarily of credit card portfolio net charge-offs, with $3.6 million related to secured and partially secured cards while $3.4 million was related to unsecured cards.
For the year ended December 31, 2023, average interest earning assets increased $112.0 million, or 5.5%, to $2.1 billion as compared to the same period in 2022, and the average yield on interest earning assets increased 113 basis points.
For the year ended December 31, 2024, average interest earning 39 assets increased $342.4 million, or 16.0%, to $2.5 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 3 basis points.
The yield on portfolio loans, as adjusted (non-GAAP, excluding credit card loans) was 6.66% for the year ended December 31, 2023, compared to 5.31% for the prior year. Compared to the same period in the prior year, average interest-bearing liabilities increased $209.1 million, or 19.7%, while the average cost of interest-bearing liabilities increased 234 basis points to 3.29% from 0.95%.
The yield on portfolio loans, as adjusted (non-GAAP, excluding credit card loans) was 7.03% for the year ended December 31, 2024, compared to 6.65% for the prior year. Compared to the same period in the prior year, average interest-bearing liabilities increased $288.5 million, or 22.7%, while the average cost of interest-bearing liabilities increased 47 basis points to 3.76% from 3.29%.
Unlike many industrial companies, substantially all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
Net interest margin, as adjusted (non-GAAP, excluding credit card and SBA-PPP loans), was 3.96% for the year ended December 31, 2023, compared to 3.93% for the prior year.
Core net interest margin, excluding credit card loans (as adjusted, non-GAAP), was 4.00% for the year ended December 31, 2024, compared to 3.96% for the prior year.
The Bank’s Capital Bank Home Loans division contributed a net loss before taxes of $0.8 million for the year ended December 31, 2023 as compared to a net loss before taxes of $3.0 million in the prior year.
The Bank’s Capital Bank Home Loans division including shared service and corporate allocations contributed a net loss before taxes of $2.5 million for the year ended December 31, 2024 as compared to a net loss before taxes of $3.0 million in the prior year.
Growth in the loan portfolio, excluding credit cards, contributed $16.5 million to the increase in interest income, while the heightened interest rates on portfolio loans contributed $19.6 million for the year ended December 31, 2023 compared to the prior year.
Growth (change due to volume) in the loan portfolio, excluding credit cards, contributed $22.8 million to the increase in interest income, while elevated interest rates on portfolio loans contributed $6.5 million for the year ended December 31, 2024 compared to the prior year.
The increase was primarily driven by a $5.9 million, or 13.7%, increase in salaries and employee benefits and a $0.8 million, or 16.6%, increase in occupancy and equipment, partially offset by a $3.7 million, or 12.7%, decrease in data processing expense and a $1.7 million, or 15.8%, decrease in professional fees due to a reduction in third party consulting fees.
The increase was primarily driven by a $7.3 million, or 14.9%, increase in salaries and employee benefits, a $3.9 million increase in merger-related expenses, a $2.6 million, or 45.3%, increase in occupancy and equipment primarily related to increased contract expense from the IFH acquisition, and a $2.0 million, or 7.8%, increase in data processing expense, partially offset by a $1.4 million, or 15.4%, decrease in professional fees due to a reduction in third party consulting fees.
December 31, (in thousands) 2023 2022 Unfunded lines of credit $ 336,472 $ 345,063 Letters of credit 4,641 5,105 Commitment to fund other investments 3,874 4,365 Total credit extension commitments $ 344,987 $ 354,533 Unfunded lines of credit represent unused credit facilities to our current borrowers. Lines of credit generally have variable interest rates.
December 31, (in thousands) 2024 2023 Unfunded lines of credit $ 403,029 $ 336,472 Letters of credit 3,122 4,641 Commitment to fund other investments 2,714 3,874 Total credit extension commitments $ 408,865 $ 344,987 Unfunded lines of credit represent unused credit facilities to our current borrowers. Lines of credit generally have variable interest rates.
Average OpenSky ™ loan balances, net of reserves and deferred fees of $114.5 million for the year ended December 31, 2023 decreased $12.0 million, or 9.5%, as compared to the prior year. OpenSky ™ loan balances, net of reserves, of $123.3 million at December 31, 2023 decreased by $5.1 million, or 4.0%, compared to $128.4 million at December 31, 2022.
Average OpenSky ™ loan balances, net of reserves and deferred fees of $115.6 million for the year ended December 31, 2024 increased $1.1 million, or 1.0%, as compared to the prior year. OpenSky ™ loan balances, net of reserves, of $127.8 million at December 31, 2024 increased by $4.4 million, or 3.6%, compared to $123.3 million at December 31, 2023.
For the year ended December 31, 2023, noninterest income of $25.0 million decreased $4.4 million, or 15.0%, from the same period in 2022.
For the year ended December 31, 2024, noninterest income of $31.4 million increased $6.4 million, or 25.8%, from the same period in 2023.
Noninterest Expense Generally, noninterest expense is comprised of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services, with the largest component being salaries and employee benefits.
The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment. Noninterest Expense Generally, noninterest expense is comprised of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services, with the largest component being salaries and employee benefits expenses.
December 31, 2023 2022 (in thousands) Amount Percent (1) Amount Percent (1) Real estate: Residential $ 5,518 19 % $ 5,481 21 % Commercial 10,316 36 8,098 31 Construction 2,271 8 3,782 14 Commercial and Industrial 4,406 16 2,935 11 Credit card 6,087 21 6,078 23 Other consumer 12 — 11 — Total allowance for credit losses $ 28,610 100 % $ 26,385 100 % _______________ (1) Loan category as a percentage of total portfolio loans which excludes SBA-PPP loans.
December 31, 2024 2023 (in thousands) Amount Percent (1) Amount Percent (1) Real estate: Residential $ 6,945 14 % $ 5,518 19 % Commercial 16,041 33 10,316 36 Construction 2,973 6 2,271 8 Commercial and Industrial 16,377 33 4,406 16 Credit card 6,301 14 6,087 21 Other consumer 15 — 12 — Total allowance for credit losses $ 48,652 100 % $ 28,610 100 % _______________ (1) Loan category as a percentage of total portfolio loans.
We seek to minimize our exposure to loss under letters of credit and credit commitments by subjecting them to the same credit approval and monitoring procedures as we do for on-balance sheet instruments.
We believe the credit risk associated with issuing letters of credit is substantially the same as the risk involved in extending loan facilities to our customers. 61 We seek to minimize our exposure to loss under letters of credit and credit commitments by subjecting them to the same credit approval and monitoring procedures as we do for on-balance sheet instruments.
As of December 31, 2023, no investment securities were pledged with the FHLB. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of December 31, 2023, we had $22.0 million in outstanding advances and $291.5 million in available borrowing capacity from the FHLB. 55 Other borrowed funds .
We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of December 31, 2024, we had $22.0 million in outstanding advances and $485.5 million in available borrowing capacity from the FHLB. 56 Other borrowed funds . The Company has also issued junior subordinated debentures and other subordinated notes.
See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at December 31, 2023 in “Financial Condition - Allowance for Credit Losses.” Noninterest Income Our primary sources of recurring noninterest income are credit card fees, such as interchange fees and statement fees, and mortgage banking revenue.
See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at December 31, 2024 in “Financial Condition - Allowance for Credit Losses.” Noninterest Income A primary source of recurring noninterest income are credit card fees, such as interchange fees and statement fees, mortgage banking revenue and Windsor Advantage fee income in connection with its servicing, processing and packaging of SBA and USDA loans for its financial institution clients.
As a result of the migration, average noninterest-bearing deposit balances decreased $127.0 million to $655.0 million, or 35.1% of total average deposits for the year ended December 31, 2023, as compared to $782.0 million, or 44.3% of total average deposits for the prior year.
Average noninterest-bearing deposit 40 balances increased $20.3 million to $675.4 million, or 31.1% of total average deposits for the year ended December 31, 2024, as compared to $655.0 million, or 35.1% of total average deposits for the prior year.
Net portfolio loans, which exclude mortgage loans held for sale and SBA-PPP loans, totaled $1.9 billion at December 31, 2023, an increase of $174.1 million, or 10.1%, compared 36 to $1.7 billion at December 31, 2022. Total liabilities at December 31, 2023 were $2.0 billion, an increase of $71.7 million, or 3.8%, from the balance at December 31, 2022.
Total assets at December 31, 2024 were $3.2 billion, an increase of $980.7 million, or 44.1%, from the balance at December 31, 2023. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.6 billion at December 31, 2024, an increase of $726.9 million, or 38.2%, compared to $1.9 billion at December 31, 2023.
The table below presents the average balances and weighted average rates of the major categories of the Company’s assets, liabilities and stockholders’ equity for the years ended December 31, 2023 and 2022.
Net interest spread is the difference between average interest rates earned on interest earning assets and average interest rates paid on interest-bearing liabilities. The table below presents the average balances and weighted average rates of the major categories of the Company’s assets, liabilities and stockholders’ equity for the years ended December 31, 2024 and 2023.
The $8.5 million in net charge-offs during the year ended December 31, 2023 was comprised primarily of credit card portfolio net charge-offs, with $5.5 million related to secured and partially secured cards while $1.4 million was related to unsecured cards. Although the majority of OpenSky ™ credit cards are secured, losses may occur.
The $9.0 million in net charge-offs during the year ended December 31, 2024 was comprised primarily of credit card portfolio net charge-offs, with $3.6 million related to secured and partially secured cards while $3.4 million was related to unsecured cards.
For additional details, see “Non-GAAP Financial Measures and Reconciliations.” For the year ended December 31, 2023, the provision for credit losses was $9.6 million, an increase of $3.0 million from the prior year, attributable primarily to the credit card portfolio.
For additional details, see “Non-GAAP Financial Measures and Reconciliations.” For the year ended December 31, 2024, the provision for credit losses was $17.7 million, an increase of $8.1 million from the prior year.
As of December 31, 2023, the Bank was in compliance with all applicable regulatory capital requirements to which it was subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings.
As of December 31, 2024, the Company and the Bank were in compliance with all applicable regulatory capital requirements to which it was subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations.
Because of its critical importance to the viability of the Bank, liquidity risk management is integrated into our risk management processes.
Management has established a risk management process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is integrated into our risk management processes.
Noninterest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, advertising expenses, loan processing expenses and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies and postage. 43 The following table presents, for the periods indicated, the major categories of noninterest expense: Years Ended December 31, (in thousands) 2023 2022 % Change Noninterest expense: Salaries and employee benefits $ 48,754 $ 42,898 13.7 % Occupancy and equipment 5,673 4,865 16.6 Professional fees 9,270 11,012 (15.8) Data processing 25,686 29,418 (12.7) Advertising 6,161 6,220 (0.9) Loan processing 1,633 1,702 (4.1) Foreclosed real estate expense, net 7 (183) (103.8) Operational losses 4,613 4,469 3.2 Outside service providers 1,932 3,338 (42.1) Other operating 7,038 5,375 30.9 Total noninterest expense $ 110,767 $ 109,114 1.5 % For the year ended December 31, 2023, noninterest expense of $110.8 million increased $1.7 million, or 1.5%, from the same period in 2022.
Noninterest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, advertising expenses, loan processing expenses and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies and postage. 47 The following table presents, for the periods indicated, the major categories of noninterest expense: Years Ended December 31, (in thousands) 2024 2023 % Change Noninterest expense: Salaries and employee benefits $ 56,037 $ 48,754 14.9 % Occupancy and equipment 8,244 5,673 45.3 Professional fees 7,846 9,270 (15.4) Data processing 27,689 25,686 7.8 Advertising 6,359 6,161 3.2 Loan processing 2,431 1,633 48.9 Foreclosed real estate expenses, net 2 7 (71.4) Merger-related expenses 3,930 — Operational losses 3,714 4,613 (19.5) Outside service providers 1,878 1,932 (2.8) Regulatory assessment expenses 1,937 1,649 17.5 Other operating 6,152 5,389 14.2 Total noninterest expense $ 126,219 $ 110,767 14.0 % For the year ended December 31, 2024, noninterest expense of $126.2 million increased $15.5 million, or 14.0%, from the same period in 2023, primarily from the IFH acquisition.
The Bank’s OpenSky ™ Division contributed $29.3 million of income before taxes for the year ended December 31, 2023, a decrease of $2.2 million for the segment from the prior year.
The Bank’s OpenSky ™ Division, including shared service and corporate allocations contributed $17.3 million of income before taxes for the year ended December 31, 2024, a decrease of $1.8 million for the segment from the prior year.
Critical Accounting Policies The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry.
Windsor's total servicing portfolio was $2.5 billion at December 31, 2024. Critical Accounting Estimates The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry.
(3) For the years ended December 31, 2023 and 2022, SBA-PPP loans and credit card loans accounted for 264 and 299 basis points of the reported net interest margin, respectively. 40 Rate/Volume Analysis of Net Interest Income The rate/volume table below presents the composition of the change in net interest income for the periods indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest-bearing liabilities, and the changes in net interest income due to changes in interest rates.
Rate/Volume Analysis of Net Interest Income The rate/volume table below presents the composition of the change in net interest income for the periods indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest-bearing liabilities, and the changes in net interest income due to changes in interest rates.

… 148 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−1 removed15 unchanged
Biggest changeThe following table summarizes the results of our EAR analysis in simulating the change in net interest income and fair value of equity over a 12-month horizon as of December 31, 2023: IMPACT ON NET INTEREST INCOME UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK Earnings at Risk -400 bps -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps +400 bps December 31, 2023 0.7 % (1.4) % (2.2) % (1.4) % 0.0 % 1.3 % 2.5 % 3.7 % 4.9 % Utilizing an economic value of equity (“EVE”) approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow model.
Biggest changeThe following table summarizes the results of our EAR analysis in simulating the change in net interest income and fair value of equity over a 12-month horizon as of December 31, 2024: IMPACT ON NET INTEREST INCOME UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK Earnings at Risk -400 bps -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps +400 bps December 31, 2024 (7.8) % (7.1) % (5.4) % (2.8) % 0.0 % 3.0 % 5.9 % 8.7 % 11.5 % Utilizing an economic value of equity (“EVE”) approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow model.
We also use economic value-based methodologies to estimate the degree to which the economic values of the Bank’s positions change under different interest rate scenarios. The economic-value approach focuses on a longer-term time horizon and endeavors to capture all future cash flows expected from existing assets and liabilities.
We also use economic value-based methodologies to measure the degree to which the economic values of the Bank’s positions change under different interest rate scenarios. The economic-value approach focuses on a longer-term time horizon and endeavors to capture all future cash flows expected from existing assets and liabilities.
Additionally, the ALCO reviews liquidity, capital planning, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest earning assets and interest-bearing liabilities and an interest rate shock simulation model.
Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest earning assets and interest-bearing liabilities and an interest rate shock simulation model.
The economic value model utilizes a static approach in that the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the balance sheet. 67
The economic value model utilizes a static approach in that the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the balance sheet. 68
The following table illustrates the results of our EVE analysis as of December 31, 2023.
The following table illustrates the results of our EVE analysis as of December 31, 2024.
ECONOMIC VALUE OF EQUITY ANALYSIS UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK Economic Value of Equity -400 bps -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps +400 bps December 31, 2023 (9.8) % (4.5) % (1.1) % (0.1) % 0.0 % (0.7) % (2.0) % (2.8) % (4.0) % 65 Interest Rate Sensitivity and Market Risk As a financial institution, our primary component of market risk is interest rate volatility.
ECONOMIC VALUE OF EQUITY ANALYSIS UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK Economic Value of Equity -400 bps -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps +400 bps December 31, 2024 (14.8) % (7.7) % (3.1) % (0.9) % 0.0 % (0.2) % (1.3) % (1.8) % (2.5) % 66 Interest Rate Sensitivity and Market Risk As a financial institution, our primary component of market risk is interest rate volatility.
Removed
For a bank with an asset-sensitive position, or positive gap, rising interest rates would generally be expected to have a positive effect on net interest income, and falling interest rates would generally be expected to have the opposite effect. 66 INTEREST SENSITIVITY GAP December 31, 2023 Within One Month After One Month Through Three Months After Three Through Twelve Months Within One Year Greater Than One Year or Non-Sensitive Total (in thousands) Assets Interest earning assets Loans (1) $ 351,769 $ 471,678 $ 319,530 $ 1,142,977 $ 767,792 $ 1,910,769 Securities 3,756 21,571 28,444 53,771 158,911 212,682 Interest-bearing deposits at other financial institutions 39,044 — — 39,044 — 39,044 Federal funds sold 407 — — 407 — 407 Total earning assets $ 394,976 $ 493,249 $ 347,974 $ 1,236,199 $ 926,703 $ 2,162,902 Liabilities Interest-bearing liabilities Interest-bearing deposits $ 13,138 $ 26,277 $ 116,536 $ 155,951 $ 711,697 $ 867,648 Time deposits 69,921 50,844 229,894 350,659 60,316 410,975 Total Interest-bearing deposits 83,059 77,121 346,430 506,610 772,013 1,278,623 FHLB Advances 15,000 — — 15,000 7,000 22,000 Other borrowed funds — — — — 27,062 27,062 Total Interest-bearing liabilities $ 98,059 $ 77,121 $ 346,430 $ 521,610 $ 806,075 $ 1,327,685 Period gap $ 296,917 $ 416,128 $ 1,544 $ 714,589 $ 120,628 $ 835,217 Cumulative gap $ 296,917 $ 713,045 $ 714,589 $ 714,589 $ 835,217 Ratio of cumulative gap to total earning assets 13.73 % 32.97 % 33.04 % 33.04 % 38.62 % _______________ (1) Includes loans held for sale and loans made under the SBA-PPP loan program.
Added
For a bank with an asset-sensitive position, or positive gap, rising interest rates would generally be expected to have a positive effect on net interest income, and falling interest rates would generally be expected to have the opposite effect. 67 INTEREST SENSITIVITY GAP December 31, 2024 Within One Month After One Month Through Three Months After Three Through Twelve Months Within One Year Greater Than One Year or Non-Sensitive Total (in thousands) Assets Interest earning assets Loans (1) $ 497,272 $ 624,734 $ 486,389 $ 1,608,395 $ 1,043,038 $ 2,651,433 Securities 11,183 28,283 49,212 88,678 139,431 228,109 Interest-bearing deposits at other financial institutions 179,841 — — 179,841 — 179,841 Federal funds sold 58 — — 58 — 58 Total earning assets $ 688,354 $ 653,017 $ 535,601 $ 1,876,972 $ 1,182,469 $ 3,059,441 Liabilities Interest-bearing liabilities Interest-bearing deposits $ 16,144 $ 32,288 $ 145,296 $ 193,728 $ 875,349 $ 1,069,077 Time deposits 94,797 85,458 546,751 727,006 154,928 881,934 Total Interest-bearing deposits 110,941 117,746 692,047 920,734 1,030,277 1,951,011 FHLB Advances — — 22,000 22,000 — 22,000 Other borrowed funds — — 10,000 10,000 2,062 12,062 Total Interest-bearing liabilities $ 110,941 $ 117,746 $ 724,047 $ 952,734 $ 1,032,339 $ 1,985,073 Period gap $ 577,413 $ 535,271 $ (188,446) $ 924,238 $ 150,130 $ 1,074,368 Cumulative gap $ 577,413 $ 1,112,684 $ 924,238 $ 924,238 $ 1,074,368 Ratio of cumulative gap to total earning assets 18.87 % 36.37 % 30.21 % 30.21 % 35.12 % _______________ (1) Includes loans held for sale.

Other CBNK 10-K year-over-year comparisons