You are on macOS 15.6. Time Machine expects an APFS formatted drive for its backups and the Time Capsule, being a long retired network device, won't let Disk Utility see the drive on its USB port. Even if you plugged that USB drive directly into your Mac Mini, and formatted it APFS, that newer formatting may baffle Time Capsule.
There are two risk factors here.
- The Time Capsule is no longer sold or supported by Apple and is based on outdated security and technology.
- Time Machine now expects an APFS formatted drive for backups and may no longer support your configuration of a USB-attached drive to the TC, whether presently or in the future.
I recommend that you do what I do. I have a 2TB Crucial X9 SSD directly connected (USB-C) to my M4 Mac Mini Pro (64GB/1TB). That drive is formatted as APFS and Time Machine backs up to it every hour that the Mac is running.
Secondly, I decommissioned my Apple AirPort Extreme Base Station and replaced it with a Synology RT6600ax router which provides contemporary security and wireless (802.11ax) protocols for better network performance. It also has a USB-C port for a backup network device, or storage. This is an expensive router with an amazing browser-based administration panel, but there are less expensive devices available. I made this decision understanding that eventually, Apple will likely decide to stop including the AirPort Utility with the operating system. That is neither speculation nor fact. It is only useful for managing discontinued Apple network hardware.