Document
Section 1: 10-Q (QUARTERLY REPORT)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2018
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 001-38671

https://cdn.kscope.io/6f3b28c66368ef59599c97a5f0d1ae82-capitalbancorplogoa02.jpg
CAPITAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
52-2083046
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
2275 Research Boulevard, Suite 600,
Rockville, Maryland 20850
 
20850
(Address of principal executive offices)
 
(Zip Code)
(301) 468-8848
Registrant’s telephone number, including area code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
x
 
 
 
Emerging growth company
x



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 13,543,134 shares of common stock, par value $0.01 per share, were issued and outstanding as of November 12, 2018.






 




Capital Bancorp, Inc. and Subsidiaries
Form 10-Q
INDEX

PART I - CONSOLIDATED FINANCIAL INFORMATION
Page
Item 1.
Consolidated Financial Statements
 
 
 
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
 
 
 
 
 
 
 
 



PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Capital Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
September 30, 2018 (unaudited)
 
December 31, 2017 (audited)
Assets
 
 
 
Cash and due from banks
$
10,982

 
$
8,189

Interest bearing deposits at other financial institutions
28,494

 
40,356

Federal funds sold
1,249

 
3,766

Total cash and cash equivalents
40,725

 
52,311

Investment securities available for sale
48,067

 
54,029

Restricted investments
3,126

 
2,369

Loans held for sale
21,373

 
26,344

Loans receivable, net of allowance for loan losses of $10,892 and $10,033, at September 30, 2018 and December 31, 2017, respectively
944,520

 
877,387

Premises and equipment, net
2,842

 
2,601

Accrued interest receivable
4,161

 
3,867

Deferred income taxes
3,710

 
3,381

Foreclosed real estate
246

 
93

Prepaid income taxes
529

 
1,532

Other assets
3,606

 
2,095

Total assets
$
1,072,905

 
$
1,026,009

 
 
 
 
Liabilities
 
 
 
Deposits
 
 
 
Noninterest bearing, including related party balances of $11,788 and $18,316 for the periods ended September 30, 2018 and December 31, 2017, respectively
$
234,094

 
$
196,635

Interest bearing, including related party balances of $123,696 and $159,656 for the periods ended September 30, 2018 and December 31, 2017, respectively
677,022

 
708,264

Total deposits
911,116

 
904,899

Securities sold under agreements to repurchase
11,239

 
11,260

Federal Home Loan Bank advances
17,000

 
2,000

Other borrowed funds
15,386

 
17,361

Accrued interest payable
1,672

 
1,084

Other liabilities
9,835

 
9,286

Total liabilities
966,248

 
945,890

 
 
 
 
Stockholders' equity
 
 
 
Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding at September 30, 2018 and December 31, 2017

 

Common stock, $.01 par value; 49,000,000 shares authorized; 13,191,024 and 11,537,196 issued and outstanding at September 30, 2018 and December 31, 2017, respectively(1)
132

 
115

Additional paid-in capital(1)
44,911

 
27,051

Retained earnings
62,482

 
53,200

Accumulated other comprehensive loss
(868
)
 
(247
)
Total stockholders' equity
106,657

 
80,119

Total liabilities and stockholders' equity
$
1,072,905

 
$
1,026,009

_______________
(1) 
Shares of common stock authorized, issued and outstanding and additional paid-in capital totals have been adjusted to reflect the four-for-one stock split completed effective August 15, 2018.

See Notes to Consolidated Financial Statements
2




Capital Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in thousands except per share data)
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
Loans, including fees
$
16,955

 
$
14,551

 
$
49,455

 
$
40,782

Investment securities available for sale
272

 
290

 
786

 
784

Federal funds sold and other
220

 
161

 
649

 
419

Total interest income
17,447

 
15,002

 
50,890

 
41,985

 
 
 
 
 
 
 
 
Interest expense

 

 
 
 
 
Deposits, including $1,142 and $597 paid to related parties for the nine months ended September 30, 2018 and 2017, respectively
2,616

 
1,708

 
6,876

 
4,632

Borrowed funds
339

 
336

 
1,015

 
1,003

Total interest expense
2,955

 
2,044

 
7,891

 
5,635

 
 
 
 
 
 
 
 
Net interest income
14,492

 
12,958

 
42,999

 
36,350

Provision for loan losses
495

 
700

 
1,640

 
1,870

Net interest income after provision for loan losses
13,997

 
12,258

 
41,359

 
34,480

 
 
 
 
 
 
 
 
Noninterest income
 
 
 
 
 
 
 
Service charges on deposits
123

 
97

 
365

 
335

Credit card fees
1,592

 
1,683

 
4,609

 
4,028

Mortgage banking revenue
2,451

 
3,106

 
7,379

 
7,578

Loss on sale of investment securities available for sale

 

 
(2
)
 

Other fees and charges
74

 
73

 
306

 
240

Total noninterest income
4,240

 
4,959

 
12,657

 
12,181

 
 
 
 
 
 
 
 
Noninterest expenses
 
 
 
 
 
 
 
Salaries and employee benefits
6,571

 
6,439

 
19,083

 
18,268

Occupancy and equipment
1,070

 
953

 
3,241

 
2,777

Professional fees
520

 
567

 
1,365

 
1,391

Data processing
3,976

 
1,539

 
11,821

 
5,493

Advertising
359

 
532

 
1,113

 
1,452

Loan processing
202

 
405

 
811

 
1,123

Other real estate expenses, net
7

 
64

 
38

 
82

Other operating
1,195

 
1,740

 
3,556

 
3,394

Total noninterest expenses
13,900

 
12,239

 
41,028

 
33,980

Income before income taxes
4,337

 
4,978

 
12,988

 
12,681

Income tax expense
1,190

 
1,942

 
3,706

 
4,928

Net income
$
3,147

 
$
3,036

 
$
9,282

 
$
7,753

 
 
 
 
 
 
 
 
Basic earnings per share(1)
$
0.27

 
$
0.27

 
$
0.80

 
$
0.69

Diluted earnings per share(1)
$
0.26

 
$
0.26

 
$
0.77

 
$
0.68

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic(1)
11,719,946

 
11,310,538

 
11,631,927

 
11,218,122

Diluted(1)
12,102,692

 
11,489,332

 
12,033,175

 
11,388,281

_______________
(1) 
Weighted average common shares outstanding used in the computation of basic and diluted net income per common share were adjusted to reflect the four-for-one stock split completed effective August 15, 2018.

See Notes to Consolidated Financial Statements
3


Capital Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Net income
$
3,147

 
$
3,036

 
$
9,282

 
$
7,753

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on investment securities available for sale
(157
)
 
(57
)
 
(860
)
 
226

Reclassification of realized loss on sale of investment securities available for sale

 

 
2

 

Unrealized gain on cash flow hedging derivative
(4
)
 
3

 
2

 
6

 
(161
)
 
(54
)
 
(856
)
 
232

Income tax (expense) benefit relating to the items above
44

 
21

 
235

 
(92
)
Other comprehensive income (loss)
(117
)
 
(33
)
 
(621
)
 
140

Comprehensive income
$
3,030

 
$
3,003

 
$
8,661

 
$
7,893




See Notes to Consolidated Financial Statements
4


Capital Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2018 and 2017 (unaudited)

 
Common Stock
 
Additional
Paid-in
Capital
(1)
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Stockholders'
Equity
(dollars in thousands)
Shares(1)
 
Amount(1)
 
 
 
 
Balance, December 31, 2016
11,144,696

 
$
111

 
$
24,617

 
$
46,050

 
$
(31
)
 
$
70,747

Net income

 

 

 
7,753

 

 
7,753

Unrealized gain on investment securities available for sale, net of income taxes

 

 

 

 
136

 
136

Unrealized gain on cash flow hedging derivative, net of income taxes

 

 

 

 
4

 
4

Stock options exercised, including tax benefit
201,976

 
2

 
1,044

 

 

 
1,046

Shares issued as compensation
67,976

 
1

 
507

 

 

 
508

Stock-based compensation

 

 
380

 

 

 
380

Shares repurchased and retired
(65,692
)
 
(1
)
 
(488
)
 

 

 
(489
)
Balance, September 30, 2017
11,348,956

 
$
113

 
$
26,060

 
$
53,803

 
$
109

 
$
80,085

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
11,537,196

 
$
115

 
$
27,051

 
$
53,200

 
$
(247
)
 
$
80,119

Net income

 

 

 
9,282

 

 
9,282

Unrealized loss on investment securities available for sale, net of income taxes

 

 

 

 
(622
)
 
(622
)
Unrealized gain on cash flow hedging derivative, net of income taxes

 

 

 

 
1

 
1

Stock options exercised, including tax benefit
103,184

 
1

 
639

 

 

 
640

Shares issued as compensation
40,144

 
1

 
322

 

 

 
323

Stock-based compensation

 

 
428

 

 

 
428

Shares sold
16,000

 

 
197

 

 

 
197

Shares repurchased and retired
(5,500
)
 

 
(44
)
 

 

 
(44
)
Initial Public Offering
1,500,000

 
15

 
16,318

 

 

 
16,333

Balance, September 30, 2018
13,191,024

 
$
132

 
$
44,911

 
$
62,482

 
$
(868
)
 
$
106,657

_______________
(1) 
Shares of common stock outstanding, common stock amount and additional paid-in capital totals have been adjusted to reflect the four-for-one stock split completed effective August 15, 2018.

See Notes to Consolidated Financial Statements
5


Capital Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2018 and 2017 (unaudited)

 
Nine Months Ended September 30,
(in thousands)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
9,282

 
$
7,753

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
1,640

 
1,870

Provision for losses on mortgage loans sold
83

 
110

Provision for off balance sheet credit risk
56

 

Net amortization (accretion) on investments
183

 
(97
)
Depreciation
795

 
698

Stock-based compensation expense
428

 
380

Director and employee compensation paid in Company stock
323

 
508

Deferred income tax expense
(94
)
 
(212
)
Loss on sale of securities available for sale
2

 

Losses on sales of foreclosed real estate
17

 
57

Sales of loans held for sale
271,057

 
327,540

Originations of loans held for sale
(266,299
)
 
(309,544
)
Changes in assets and liabilities:
 
 
 
Accrued interest receivable
(294
)
 
(425
)
Prepaid income taxes and taxes payable
1,003

 

Other assets
(1,298
)
 
1,250

Interest payable
588

 
432

Other liabilities
412

 
(2,146
)
Net cash provided by operating activities
17,884

 
28,174

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of securities available for sale

 
(12,521
)
Maturities, calls and principal paydowns of securities available for sale
4,573

 
4,577

Proceeds from sale of securities available for sale
345

 

Purchases of restricted investments
(756
)
 
(458
)
Increase in loans receivable
(69,200
)
 
(107,540
)
Net purchases of premises and equipment
(1,036
)
 
(911
)
Proceeds from sales of foreclosed real estate
257

 
201

Net cash used by investing activities
(65,817
)
 
(116,652
)

See Notes to Consolidated Financial Statements
6


Capital Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2018 and 2017 (unaudited)

 
Nine Months Ended September 30,
(in thousands)
2018
 
2017
Cash flows from financing activities
 
 
 
Net increase (decrease) in:
 
 
 
Noninterest bearing deposits
37,459

 
19,471

Interest bearing deposits
(31,242
)
 
66,105

Securities sold under agreements to repurchase
(21
)
 
(1,245
)
Federal Home Loan Bank advances, net
15,000

 
5,000

Other borrowed funds
(1,975
)
 
26

Repurchase of common stock
(44
)
 
(489
)
Proceeds from exercise of stock options
640

 
1,046

Proceeds from stock shares sold
16,530

 

Net cash provided by financing activities
36,347

 
89,914

 
 
 
 
Net increase in cash and cash equivalents
(11,586
)
 
1,436

 
 
 
 
Cash and cash equivalents, beginning of year
52,311

 
38,134

 
 
 
 
Cash and cash equivalents, end of year
$
40,725

 
$
39,570

 
 
 
 
Noncash investing and financing activities:
 
 
 
Loans transferred to foreclosed real estate
$
427

 
$
297

Change in unrealized gains on investments
$
(858
)
 
$
226

Change in fair value of loans held for sale
$
(213
)
 
$
460

Change in fair value of cash flow hedging derivative
$
2

 
$
6

 
 
 
 
Cash paid during the period for:
 
 
 
Taxes
$
1,955

 
$
6,062

Interest
$
7,303

 
$
5,203


See Notes to Consolidated Financial Statements
7


Capital Bancorp, Inc. and Subsidiaries
Form 10-Q
INDEX


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

 
Note 1 - Nature of Business and Basis of Presentation
Nature of operations:
Capital Bancorp, Inc., is a Maryland corporation and bank holding company (the “Company”) for Capital Bank, N.A. (the “Bank”). The Company's primary operations are conducted by the Bank, which operates branches in Rockville, Columbia and North Bethesda, Maryland, Reston, Virginia, and the District of Columbia. The Bank is principally engaged in the business of investing in commercial, real estate, and credit card loans and attracting deposits. The Bank also originates residential mortgages for sale in the secondary market. The Company formed Church Street Capital, LLC in 2014 to provide short-term secured real estate financing to Washington, D.C. area investors and developers that may not meet all Bank credit criteria.
On September 28, 2018, the Company completed its initial public offering (“IPO”) of 2,228,736 shares of its common stock at a price to the public of $12.50 per share, 1,500,000 shares of which were sold by the Company and 728,736 shares of which were sold by certain of the Company’s shareholders (the “selling shareholders”). The net proceeds to the Company from the IPO were $16.3 million after deducting the underwriting discount and offering expenses of $1.2 million. The Company did not receive any proceeds from the sales of shares by the selling shareholders. All of the shares were sold pursuant to the Company’s registration statement on Form S-1 filed with the SEC on September 17, 2018 (333-227172) and declared effective by the SEC on September 25, 2018.
Basis of presentation:
The accompanying consolidated financial statements include the activity of Capital Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries, Capital Bank, NA (the “Bank”) and Church Street Capital, LLC. All intercompany transactions have been eliminated in consolidation. The Company reports its activities as a single business segment. 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 the requirements for interim financial statements and, accordingly, they are condensed and omit disclosures, which would substantially duplicate those contained in the most recent annual report to stockholders. The financial statements as of, and for the interim periods presented, are unaudited and, in management’s opinion, include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year. For further information, refer to the financial statements and the notes elsewhere included in this filing.
On August 15, 2018, the Company completed a four-for-one stock split of the Company's authorized, issued, and outstanding common stock, par value $.01 per share (the “Stock Split”). At the effective time of the Stock Split, each share of the Company's issued and outstanding common stock was automatically increased to four shares issued and outstanding. No fractional shares were issued in connection with the Stock Split. All share and share-related information presented in these consolidated financial statements have been retroactively adjusted to reflect the increased number of shares resulting from the Stock Split.
Critical Accounting Policies:
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of

 
8
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below require us to make difficult, subjective or complex judgments about matters that are inherently uncertain. Changes in these estimates, which are likely to occur from period to period, or use of different estimates that we could have reasonably used in the current period, could have a material impact on our financial position, results of operations or liquidity.
Loans and the Allowance for Loan Losses
Loans are stated at the principal amount outstanding, adjusted for deferred origination fees, deferred origination costs, discounts on loans acquired, and the allowance for loan losses. Interest is accrued based on the loan principal balances and stated interest rates. Origination fees and costs are recognized as an adjustment to the related loan yield using approximate interest methods. The Company discontinues the accrual of interest when any portion of the principal and interest is 90 days past due and collateral is insufficient to discharge the debt in full. Generally, interest payments on nonaccrual loans are recorded as a reduction of the principal balance.
Loans are considered impaired when, based on current information, management believes the Company will not collect all principal and interest payments according to contractual terms. Generally, loans are reviewed for impairment when the risk grade for a loan is downgraded to a classified asset category. The loans are evaluated for appropriate classification, accrual, impairment, and troubled debt restructure status. If collection of principal is evaluated as doubtful, all payments are applied to principal.
The allowance for loan losses is estimated to adequately provide for probable future losses on existing loans. The allowance consists of specific and general components. For loans that are classified as impaired, an allowance is established when the collateral value, if the loan is collateral dependent, or the discounted cash flows of the impaired loan is lower than the carrying value of that loan. The general component covers pools of nonclassified loans and is based on historical loss experience adjusted for qualitative factors. There may be an unallocated component of the allowance, which reflects the margin of imprecision inherent in the underlying assumptions used in the method for estimating specific and general losses in the portfolio. Actual loan performance may differ from those estimates. A loss is recognized as a charge to the allowance when management believes that collection of the loan is unlikely. Collections of loans previously charged off are added to the allowance at the time of recovery.
Derivative Financial Instruments
The Company enters into commitments to fund residential mortgage loans (interest rate locks) with the intention of selling them in the secondary market. The Company also enters into forward sales agreements for certain funded loans and loan commitments. The Company records unfunded commitments intended for loans held for sale and forward sales agreements at fair value with changes in fair value recorded as a component of mortgage banking revenue. Loans originated and intended for sale in the secondary market are carried at fair value. For pipeline loans which are not pre-sold to an investor, the Company manages the interest rate risk on rate lock commitments by entering into forward sale contracts, whereby the Company obtains the right to deliver securities to investors in the future at a specified price. Such contracts are

 
9
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

accounted for as derivatives and are recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in mortgage banking revenue.
The Company accounts for derivative instruments and hedging activities according to guidelines established in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-10, Accounting for Derivative Instruments and Hedging Activities, as amended. The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in fair value of derivatives designated and accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive income, net of deferred taxes. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines Level 1 valuations as those based on quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 valuations include inputs based on quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 valuations are based on at least one significant assumption not observable in the market, or significant management judgment or estimation, some of which may be internally developed.
Financial assets that are recorded at fair value on a recurring basis include investment securities available for sale, loans held for sale, and derivative financial instruments. Financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments. See the Fair Value note to our consolidated financial statements.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized when it is deemed more likely than not that the benefits of such deferred income taxes will be realized.
In December of 2017, President Trump signed the the Tax Cuts and Jobs Act of 2017, the (”Tax Act”) into law. While a reduction in the federal corporate income tax rate from 35% to 21% took effect in 2018, the enactment of the law in 2017 required the Company to revalue its deferred tax assets and liabilities as of December 31, 2017. This revaluation lead to a reduction of the Company’s deferred tax asset of $1.4 million, which resulted in an increase in 2017 income tax expense of $1.4 million of this amount $40 thousand of expense was attributable to the Company's net deferred tax asset for unrealized losses on available for sale securities and cash flow hedge. In addition to adjusting the deferred tax asset for this item, the Company recorded an adjustment to accumulated other comprehensive income with a transfer to retained earnings.

 
10
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

Use of estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Earnings per share:
Earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding, adjusted for the dilutive effect of stock options and restricted stock using the treasury stock method. At September 30, 2018 and 2017, there were 266,600 and 248,200 stock options, respectively, that were not included in the calculation as their effect would have been anti-dilutive. The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per common share as adjusted for the Stock Split:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended September 30,
 
 
2018
 
2017
(dollars in thousands, except per share information)
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
3,147

 
11,719,946

 
$0.27
 
$
3,036

 
11,310,538

 
$0.27
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of dilutive securities
 

 
382,746

 
 
 

 
178,794

 
 
Dilutive EPS per common share
 
$
3,147

 
12,102,692

 
$0.26
 
$
3,036

 
11,489,332

 
$0.26
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30,
 
 
2018
 
2017
 
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
9,282

 
11,631,927

 
$
0.80

 
$
7,753

 
11,218,122

 
$
0.69

 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of dilutive securities
 

 
401,248

 
 
 

 
170,159

 
 
Dilutive EPS per common share
 
$
9,282

 
12,033,175

 
$
0.77

 
$
7,753

 
11,388,281

 
$
0.68

Comprehensive income:
The Company reports as comprehensive income all changes in stockholders' equity during the year from sources other than stockholders. Other comprehensive income refers to all components (income, expenses, gains, and losses) of comprehensive income that are excluded from net income.

 
11
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

The Company's only two components of other comprehensive income are unrealized gains and losses on investment securities available for sale, net of income taxes, and unrealized gains and losses on cash flow hedges, net of income taxes. Information concerning the Company's accumulated other comprehensive income (loss) as of September 30, 2018 and December 31, 2017 are as follows (in thousands):
 
 
September 30, 2018
 
December 31, 2017
Unrealized losses on securities available for sale
 
$
(1,206
)
 
$
(348
)
Deferred tax benefit
 
332

 
97

Other comprehensive loss, net of tax
 
(874
)
 
(251
)
 
 
 
 
 
Unrealized gains on cash flow hedges
 
8

 
6

Deferred tax expense
 
(2
)
 
(2
)
Other comprehensive income, net of tax
 
6

 
4

 
 
 
 
 
Total accumulated comprehensive loss
 
$
(868
)
 
$
(247
)
Subsequent events:
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
Recently issued accounting pronouncements:
In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance became effective for the Company on January 1, 2018.
The Company applied the guidance using a modified retrospective approach. The Company’s revenue is comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of our revenues were not affected. The Company performed an assessment of our revenue contracts related to revenue streams that are within the scope of the standard. Our accounting policies did not change materially since the principles of revenue recognition from the Accounting Standards Update (“ASU”) are largely consistent with existing practices and guidance applied by our businesses. The Company has not identified material changes to the timing or amount of revenue recognition. Based on the updated guidance, the Company does not anticipate changes in our disclosures associated with our revenues.
In January 2016, the FASB amended the Financial Instruments topic of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendment became effective January 1, 2018 and do not have a material effect on the financial statements. As discussed in the Fair Value note, the Company measured the fair value of its loan portfolio using an exit price notion as of September 30, 2018.

 
12
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
The Company expects to adopt the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow us to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. The Company has started an initial evaluation of our leasing contracts and activities. The Company has also started developing our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments. The Company does not expect a material change to the timing of expense recognition, but it is early in the implementation process and the impact will continue to be evaluated. The Company is evaluating our existing disclosures and may need to provide additional information as a result of adoption of the ASU.
In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments became effective for the Company on January 1, 2018 and did not have a material effect on its financial statements.
In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018.
The Company will apply the amendments to the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, the Company does not expect to elect that option. The Company is evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, the Company will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.
In January 2017, the FASB amended the Intangibles topic of the ASC to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for the Company beginning after December 15, 2019. The Company does not expect these amendments to have a material effect on its financial statements.
In January 2017, the FASB amended the Business Combinations topic of the ASC to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic was intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. This guidance was effective for the Company beginning after December 15, 2017, including interim periods within those periods. The Company does not expect these amendments to have a material effect on its financial statements.

 
13
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

In February 2017, the FASB amended the Other Income Topic of the ASC to clarify the scope of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments became effective for the Company on January 1, 2018 and did not have a material effect on its financial statements.
In March 2017, the FASB amended the Receivables topic of the ASC to eliminate the current diversity in practice with respect to the amortization period for certain purchased callable debt securities held at a premium. The amendments in this update shorten the amortization period for the premium to the earliest call date. This guidance is effective for the Company beginning after December 15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In May 2017, the FASB amended the requirements in the Compensation-Stock Compensation Topic of the ASC related to changes to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments were effective for the Company on January 1, 2018 and did not have a material effect on its financial statements.
In August 2017, the FASB amended the requirements of the Derivatives and Hedging Topic of the Accounting Standards Codification to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In September 2017, the FASB updated the Revenue from Contracts with Customers and the Leases Topics of the ASC. The amendments incorporate into the ASC recent SEC guidance about certain public business entities (“PBEs”) electing to use the non-PBE effective dates solely to adopt the FASB’s new standards on revenue and leases. The amendments were effective upon issuance and did not have a material effect on its financial statements.
In November 2017, the FASB updated the Income Statement and Revenue from Contracts with Customers Topics of the ASC. The amendments incorporate into the ASC recent SEC guidance related to revenue recognition. The amendments were effective upon issuance. The Company has adopted this guidance on revenue recognition the amendments did not have a material effect on its financial statements.
In February 2018, the FASB amended the Income Statement – Reporting Comprehensive Income Topic of the ASC. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The Company has opted to early adopt this pronouncement by retrospective application to each period in which the effect of the change in the tax rate under the Tax Act is recognized. The impact of the reclassification from other comprehensive income to retained earnings was included in the Statement of Changes in Stockholders’ Equity as of December 31, 2017.
In February 2018, the FASB amended the Financial Instruments Topic of the ASC. The amendments clarify certain aspects of the guidance issued in ASU 2016-01. The amendments have been effective for the third quarter of 2018 subsequent to adopting the amendments in ASU 2016-01. These amendments did not have a material effect on the Company’s financial statements.

 
14
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

In March 2018, the FASB updated the Debt Securities and the Regulated Operations Topics of the ASC. The amendments incorporate recent SEC guidance which was issued in order to make the relevant interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The amendments were effective upon issuance and did not have a material effect on the Company’s financial statements.
In March 2018, the FASB updated the Income Taxes Topic of the ASC. The amendments incorporate recent SEC guidance related to the income tax accounting implications of the Tax Cuts and Jobs Act. The amendments were effective upon issuance and did not have a material effect on its financial statements.
In May 2018, the FASB amended the Financial Services-Depository and Lending Topic of the Accounting Standards Codification to remove outdated guidance related to Circular 202. The amendments were effective upon issuance and did not have a material effect on the financial statements.
In June 2018, the FASB amended the Compensation-Stock Compensation Topic of the Accounting Standards Codification. The amendments expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company does not expect these amendments to have a material effect on its financial statements.
In August 2018, the FASB amended the Fair Value Measurement Topic 820 disclosure framework. These amendments include additions, removals and modifications to the fair value disclosure requirements in Topic 820, and are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted on removed or modified disclosures. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Reclassifications:
Certain reclassifications have been made to the amounts reported in prior periods to conform to the current period presentation. The reclassifications had no effect on net income or total stockholders' equity.

 
15
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 
Note 2 - Investment Securities



The amortized cost and estimated fair value of investment securities at September 30, 2018 and December 31, 2017 are summarized as follows (in thousands):
September 30, 2018
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Available for sale
 
 
 
 
 
 
 
 
U.S. government-sponsored enterprises
 
$
17,494

 
$

 
$
(180
)
 
$
17,314

Municipal
 
518

 

 
(25
)
 
493

Corporate
 
3,059

 
20

 
(54
)
 
3,025

Mortgage-backed securities
 
28,203

 
39

 
(1,007
)
 
27,235

 
 
$
49,274

 
$
59

 
$
(1,266
)
 
$
48,067

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
Available for sale
 
 
 
 
 
 
 
 
U.S. government-sponsored enterprises
 
$
17,489

 
$
1

 
$
(120
)
 
$
17,370

Municipal
 
518

 

 
(3
)
 
515

Corporate
 
3,060

 
67

 
(50
)
 
3,077

Mortgage-backed securities
 
33,310

 
179

 
(422
)
 
33,067

 
 
$
54,377

 
$
247

 
$
(595
)
 
$
54,029

Proceeds from sales of securities sold during the nine months ended September 30, 2018, were $345 thousand and resulted in aggregate realized losses of $2 thousand. No securities were sold during the nine months ended September 30, 2017.
Information related to unrealized losses in the investment portfolio as of September 30, 2018 and December 31, 2017 are as follows (in thousands):
 
 
Less than 12 months
 
12 months or longer
 
Total
September 30, 2018
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. government-sponsored enterprises
 
$
7,449

 
$
(46
)
 
$
9,865

 
$
(134
)
 
$
17,314

 
$
(180
)
Municipal
 

 

 
493

 
(25
)
 
493

 
(25
)
Corporate
 

 

 
1,005

 
(53
)
 
1,005

 
(53
)
Mortgage-backed securities
 
4,054

 
(77
)
 
20,550

 
(930
)
 
24,604

 
(1,007
)
 
 
$
11,503

 
$
(123
)
 
$
31,913

 
$
(1,142
)
 
$
43,416

 
$
(1,265
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored enterprises
 
$
8,967

 
$
(26
)
 
$
7,906

 
$
(94
)
 
$
16,873

 
$
(120
)
Municipal
 
515

 
(3
)
 

 

 
515

 
(3
)
Corporate
 

 

 
1,010

 
(50
)
 
1,010

 
(50
)
Mortgage-backed securities
 
11,204

 
(165
)
 
13,645

 
(257
)
 
24,849

 
(422
)
 
 
$
20,686

 
$
(194
)
 
$
22,561

 
$
(401
)
 
$
43,247

 
$
(595
)
At September 30, 2018, there were five U.S. government-sponsored enterprises securities, two corporate securities, thirteen mortgage-backed securities, and one municipal security that had been in a loss position for greater than twelve months. Management believes that all unrealized losses have resulted from temporary

 
16
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

 
Note 2 - Investment Securities (continued)

changes in the interest rates and current market conditions and not as a result of credit deterioration. Management has the ability and the intent to hold these investment securities until maturity or until they recover in value.
A summary of pledged securities at September 30, 2018 and December 31, 2017 are shown below (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Securities sold under agreements to repurchase
 
$
16,627

 
$
16,327

 
$
14,405

 
$
14,475

Federal Home Loan Bank advances
 
6,873

 
6,787

 
7,433

 
7,454

 
 
$
23,500

 
$
23,114

 
$
21,838

 
$
21,929

Contractual maturities of U.S. government-sponsored enterprises and corporate securities at September 30, 2018 and December 31, 2017 are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
September 30, 2018
 
December 31, 2017
Contractual Maturities (in thousands)
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Within one year
 
$
11,496

 
$
11,417

 
$

 
$

Over one to five years
 
5,999

 
5,897

 
17,489

 
17,370

Over five to ten years
 
2,000

 
2,020

 
2,518

 
2,582

Over ten years
 
1,576

 
1,498

 
1,060

 
1,010

Mortgage-backed securities(1)
 
28,203

 
27,235

 
33,310

 
33,067

 
 
$
49,274

 
$
48,067

 
$
54,377

 
$
54,029

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

 
17
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

 
Note 3 - Loans Receivable

Major classifications of loans as are as follows:
(in thousands)
 
September 30, 2018
 
December 31, 2017
Real estate
 
 
 
 
Residential
 
$
388,141

 
$
342,684

Commercial
 
276,726

 
259,853

Construction
 
144,012

 
144,932

Commercial
 
113,473

 
108,982

Credit card
 
33,821

 
31,507

Other consumer
 
1,270

 
1,053

 
 
957,443

 
889,011

Deferred origination fees, net
 
(2,031
)
 
(1,591
)
Allowance for loan losses
 
(10,892
)
 
(10,033
)
Loans receivable, net
 
$
944,520

 
$
877,387

The Company makes loans to customers located primarily in the Washington, D.C. metropolitan area. Although the loan portfolio is diversified, its performance will be influenced by the regional economy.
Approximately $31.6 million and $29.4 million of the credit card balances were secured by savings deposits held by the Company as of September 30, 2018 and December 31, 2017, respectively.
Loans acquired through acquisitions are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. In estimating the fair value of loans acquired, certain factors were considered, including the remaining lives of the acquired loans, payment history, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and the net present value of cash flows expected. Discounts on loans that were not considered impaired at acquisition were recorded as an accretable discount, which will be recognized in interest income over the terms of the related loans. For loans considered to be impaired, the difference between the contractually required payments and expected cash flows was recorded as a nonaccretable discount. Generally, the nonaccretable discount will be recognized after collection of the discounted fair value of the related loan. The remaining nonaccretable discounts on loans acquired were $354 thousand and $601 thousand, as of September 30, 2018 and December 31, 2017, respectively. Loans with nonaccretable discounts had a carrying value of $1.3 million and $1.5 million as of September 30, 2018 and December 31, 2017, respectively. The activity in the accretable discounts on loans acquired was as follows (in thousands):
 
 
For the Nine Months Ended September 30, 2018
 
For the Year Ended
December 31, 2017
Accretable discount at beginning of period
 
$
543

 
$
676

Accretion and payoff of loans
 
(76
)
 
(133
)
Reclassification from nonaccretable
 

 

Accretable discount at end of period
 
$
467

 
$
543



 
18
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

 
Note 3 - Loans Receivable (continued)

The following tables set for the the changes in the allowance for loan losses and an allocation of the allowance for loan losses by class for the three and nine months ended September 30, 2018 and September 30, 2017 (in thousands).
 
 
Beginning
Balance
 
Provision for
Loan Losses
 
Charge-Offs
 
 
 
Ending
Balance
Three Months Ended September 30, 2018
 
 
 
 
Recoveries
 
Real estate
 
 
 
 
 
 
 
 
 
 
Residential
 
$
3,207

 
$
290

 
$
(122
)
 
$
1

 
$
3,376

Commercial
 
2,948

 
(110
)
 

 
143

 
2,981

Construction
 
1,889

 
(68
)
 

 

 
1,821

Commercial
 
1,396

 
222

 

 
33

 
1,651

Credit card
 
997

 
161

 
(107
)
 
3

 
1,054

Other consumer
 
9

 

 

 

 
9

 
 
$
10,446

 
$
495

 
$
(229
)
 
$
180

 
$
10,892

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
 
 
 
 
 
 
Residential
 
$
3,137

 
$
357

 
$
(122
)
 
$
4

 
$
3,376

Commercial
 
2,860

 
(6
)
 
(22
)
 
149

 
2,981

Construction
 
1,646

 
175

 

 

 
1,821

Commercial
 
1,497

 
268

 
(147
)
 
33

 
1,651

Credit card
 
885

 
845

 
(715
)
 
39

 
1,054

Other consumer
 
8

 
1

 

 

 
9

 
 
$
10,033

 
$
1,640

 
$
(1,006
)
 
$
225

 
$
10,892



 
19
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

 
Note 3 - Loans Receivable (continued)

 
 
Beginning
Balance
 
Provision for
Loan Losses
 
Charge-Offs
 
 
 
Ending
Balance
Three Months Ended September 30, 2017
 
 
 
 
Recoveries
 
Real estate
 
 
 
 
 
 
 
 
 
 
Residential
 
$
2,627

 
$
616

 
$
(86
)
 
$

 
$
3,157

Commercial
 
2,872

 
314

 
(86
)
 
106

 
3,206

Construction
 
1,809

 
128

 

 

 
1,937

Commercial
 
1,559

 
(147
)
 

 

 
1,412

Credit card
 
593

 
(216
)
 
(492
)
 
85

 
(30
)
Other consumer
 
6

 
5

 

 

 
11

 
 
$
9,466

 
$
700

 
$
(664
)
 
$
191

 
$
9,693

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
 
 
 
 
 
 
Residential
 
$
2,664

 
$
580

 
$
(87
)
 
$

 
$
3,157

Commercial
 
2,682

 
583

 
(172
)
 
113

 
3,206

Construction
 
1,591

 
346

 

 

 
1,937

Commercial
 
1,174

 
255

 
(20
)
 
3

 
1,412

Credit card
 
477

 
104

 
(880
)
 
269

 
(30
)
Other consumer
 
9

 
2

 

 

 
11

 
 
$
8,597

 
$
1,870

 
$
(1,159
)
 
$
385

 
$
9,693

The following tables present, by class and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.
 
Allowance for Loan Losses
Ending Balance Evaluated
for Impairment:
 
Outstanding Loan
Balances Evaluated
for Impairment:
September 30, 2018
Individually
 
Collectively
 
Individually
 
Collectively
Real estate
 
 
 
 
 
 
 
Residential
$

 
$
3,376

 
$
1,321

 
$
386,820

Commercial

 
2,981

 
1,032

 
275,694

Construction

 
1,821

 
834

 
143,178

Commercial
198

 
1,453

 
762

 
112,711

Credit card

 
1,054

 

 
33,821

Other consumer

 
9

 

 
1,270

 
$
198

 
$
10,694

 
$
3,949

 
$
953,494

 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
Real estate
 
 
 
 
 
 
 
Residential
$

 
$
3,137

 
$
1,766

 
$
340,918

Commercial

 
2,860

 
4,293

 
255,560

Construction

 
1,646

 
627

 
144,305

Commercial
60

 
1,437

 
1,544

 
107,438

Credit card

 
885

 

 
31,507

Other consumer

 
8

 

 
1,053

 
$
60

 
$
9,973

 
$
8,230

 
$
880,781


 
20
 


Capital Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

 
Note 3 - Loans Receivable (continued)

Past due loans, segregated by age and class of loans, as of September 30, 2018 and December 31, 2017 presented were as follows (in thousands):
September 30, 2018
 
Loans
30-89 Days
Past Due
 
Loans
90 or More
Days
Past Due
 
Total Past
Due Loans
 
Current
Loans
 
Total
Loans
 
Accruing
Loans 90 or
More Days
Past Due
 
Nonaccrual
Loans
 
Interest Not
Accrued on
Nonaccrual
Loans
Real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
1,574

 
$
1,340

 
$
2,914

 
$
385,227

 
$
388,141

 
$
16

 
$
1,531

 
$
174

Commercial
 
322

 
1,073

 
1,395

 
275,331

 
276,726

 
41

 
1,032

 
36

Construction
 
1,069

 
834

 
1,903

 
142,109

 
144,012

 

 
834

 
17

Commercial
 
542

 
417

 
959

 
112,514

 
113,473

 
5

 
762

 
228

Credit card
 
3,946

 
4

 
3,950

 
29,871

 
33,821

 
3

 

 

Other consumer
 

 

 

 
1,270

 
1,270

 

 

 

 
 
$
7,453

 
$
3,668

 
$
11,121

 
$
946,322

 
$
957,443

 
$
65

 
$
4,159

 
$
455

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired loans included in total above
 
$
57

 
$
679

 
$
736

 
$
7,820

 
$
8,556

 
$
21

 
$
866

 
$
174