Capital Bancorp IncCBNK

Capital Bancorp Inc Income Taxes Disclosure

10-KFiled Mar 16, 20264 min read
Income Taxes
Income tax expense was as follows:
Income Tax Expense
For the Years Ended December 31,
(in thousands)20252024
Current tax expense
Federal14,077 10,472 
State2,600 2,202 
Total current tax expense16,677 12,674 
Deferred tax expense
Federal1,033 (1,583)
State64 (231)
Total deferred tax expense1,097 (1,814)
Total income tax expense$17,774 $10,860 
Cash income taxes paid, net of refunds received, was as follows:
For the Years Ended December 31,
(in thousands)20252024
Income taxes paid, net of refunds received
Federal$15,350 $7,000 
Maryland1,030 1,300 
Other states*
2,373 798 
Total$18,753 $9,098 
_______________
*    Jurisdictions below the 5% of total income taxes paid (net of total refunds) threshold for the period presented.
Note 13 - Income Taxes (continued)
The components of the net deferred tax asset at December 31, 2025 and 2024 were:
(in thousands)20252024
Deferred tax assets:
Allowance for credit losses$13,563 $11,928 
Reserve for recourse on mortgage loans sold577 553 
Stock-based compensation807 793 
Long-term incentive program721 497 
Write-down of equity investments1,054 1,054 
Unrealized loss on investment securities available-for-sale1,905 3,789 
Lease liability, net of right of use asset136 149 
Purchase accounting adjustments - loans and deposits1,505 4,137 
Other reserves731 904 
Deferred tax asset before valuation allowance20,999 23,804 
Valuation allowance1,054 1,054 
Deferred tax asset19,945 22,750 
Deferred tax liabilities:
Accumulated depreciation213 249 
Intangible assets2,281 2,405 
Mortgage and other servicing rights448 1,347 
Purchase accounting adjustments - fixed assets1,730 1,717 
Other281 362 
Deferred tax liability4,953 6,080 
Net deferred tax asset$14,992 $16,670 
Based on the Company’s history of prior earnings and its expectations of the future, it is anticipated that operating income and the reversal pattern of its temporary differences will, more likely than not, be sufficient to realize a net deferred tax asset of $15.0 million at December 31, 2025 from continuing operations. The Company reduces the carrying amounts of deferred tax assets by a valuation allowance, if, based on the available evidence, it is more likely than not that such assets will not be realized. At December 31, 2024 valuation allowance of $1.1 million was established for a deferred tax asset arising from the write-down of a legacy IFH equity investment, as realizability of the related capital loss carryforward is uncertain. The Company does not have a history of generating capital gains necessary to utilize capital loss carryforwards, and there is currently no available source of capital gains sufficient to support recognition of the deferred tax asset. The valuation allowance was unchanged and remains at $1.1 million at December 31, 2025.
The Company’s net deferred tax asset of $15.0 million at December 31, 2025 decreased $1.7 million, compared to $16.7 million at December 31, 2024. The variance in net deferred tax asset year over year included the $2.6 million decrease in net purchase accounting adjustments and a $1.9 million decrease in the unrealized loss on investment securities available for sale, partially offset by an increase related to the allowance for credit losses of $1.6 million and a $0.9 million decrease in the deferred tax liability for mortgage and other servicing rights.
Note 13 - Income Taxes (continued)
The differences between the federal income tax rate and the effective tax rate for the Company are reconciled as follows:
Year ending December 31, 2025
Year ending December 31, 2024
Amount%Amount%
Statutory federal income tax rate$15,738 21.00 %$8,785 21.00 %
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit1
2,6513.54 1,5183.63 
Tax credits, net of amortization(308)(0.41)(284)(0.26)
Valuation allowance on deferred tax asset2
—— 5501.32 
Nontaxable or nondeductible items:
Bank-owned life insurance(322)(0.43)(308)(0.74)
Tax-exempt interest and dividend income(25)(0.03)(5)(0.01)
Nondeductible stock-based compensation, net of excess tax benefits930.12 2360.56 
Nondeductible compensation expense1320.18 —— 
Nondeductible merger expenses—— 2670.64 
Other adjustments:
Other, net(185)(0.25)101(0.18)
Effective Tax Rate$17,774 23.72 %$10,860 25.96 %
_______________
(1)    The state income taxes, net of federal income tax benefit represents the state and local incomes taxes in jurisdictions where we conduct our primary business operations. State taxes in Maryland comprised the majority of the tax effect in this category.
(2)    The valuation allowance relates to the write-down of a legacy IFH equity investment.

The Company’s effective tax rate of 23.72% for 2025 decreased by 2.24%, or $6.9 million, from 25.96% for 2024. The change in effective tax rate was due, in part, to 2024 including the write-down of a legacy IFH equity investment which resulted in a deferred tax asset with an offsetting valuation allowance and certain nondeductible merger related expenses. The Company does not have material uncertain tax positions and did not recognize any adjustments for unrecognized tax benefits. The Company remains subject to examination of income tax returns for the years ending after December 31, 2021.
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Historical Timeline

Fiscal YearFiled
2025Mar 16, 2026Showing above
2024Mar 17, 2025
2023Mar 15, 2024
2022Mar 15, 2023
2021Mar 15, 2022
2020Mar 15, 2021
2019Mar 16, 2020
2018Apr 1, 2019

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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