Capital Bancorp Inc

Previous wording

In this Quarterly Report on Form 10-Q, unless we state otherwise or the context otherwise requires, references to “we,” “our,” “us,” “the Company” and “Capital” refer to Capital Bancorp, Inc. and its wholly owned subsidiaries, Capital Bank, N.A., which we sometimes refer to as “Capital Bank,” “the Bank” or “our Bank,” and Church Street Capital, LLC. “Church Street Capital” or “CSC” refer to our wholly-owned subsidiary, Church Street Capital, LLC.

Current wording

In this Quarterly Report on Form 10-Q, unless we state otherwise or the context otherwise requires, references to “we,” “our,” “us,” “the Company” and “Capital” refer to Capital Bancorp, Inc. and its wholly owned subsidiaries, Capital Bank, N.A., which we sometimes refer to as “Capital Bank,” “the Bank” or “our Bank,” Church Street Capital, LLC, which we refer to as “Church Street Capital” or “CSC” and Windsor Advantage, LLC™, which we refer to as “Windsor Advantage, LLC™”.

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The results for the three months ended March 31, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025.

Previous wording

•adverse developments in the banking industry such as, for example, by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;

Current wording

•adverse developments in the banking industry such as, for example, high-profile bank failures, and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to those developments;

Previous wording

•the concentration of our business in the Washington, D.C. and Baltimore, Maryland metropolitan areas and the effect of changes in economic, political and environmental conditions on these markets;

Current wording

•the concentration of our business in certain geographies and the effect of changes in economic, political and environmental conditions in those markets, including proposed reductions in the federal workforce and a decline in federal government spending;

Previous wording

•the impact of recent or future changes in the Federal Deposit Insurance Corporation (“FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments;

Current wording

•the impact of changes in the Federal Deposit Insurance Corporation (“FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments;

Previous wording

•the effect of acquisitions we may make, such as our recent acquisition of Integrated Financial Holdings, Inc. (“IFHI”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;

Current wording

•the effect of acquisitions we have undertaken, such as our recent acquisition of Integrated Financial Holdings, Inc. (“IFH”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations, including the planned growth of Windsor Advantage™;

Previous wording

•results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses or to write-down assets;

Current wording

•results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our ACL or to write-down assets;

Previous wording

•our dependence on our information technology and telecommunications systems and the potential for any systems failures or interruptions;

Current wording

•our dependence on our information technology and telecommunications systems, including third party vendors, and the potential for any data privacy incidents or other systems failures, interruptions, or security breaches and risks related to the development and use of artificial intelligence;

Previous wording

•changes to state rent control laws, which may impact the credit quality of multifamily housing loans;

Current wording

•changes to local rent control laws, which may impact the credit quality of multifamily housing loans; and

Previous wording

You should keep in mind that any forward-looking statement made by us speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, and disclaim any obligation to, update or revise any industry information or forward-looking statements after the date on which they are made.

Current wording

You should keep in mind that any forward-looking statement made by us speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, and disclaim any obligation to, update or revise any industry information or forward-looking statements after the date on which they are made. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this report or elsewhere might not reflect actual results and may prove unreliable.

Previous wording

The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. 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 Item 8 "Financial Statements and Supplementary Data" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The Company’s critical accounting policies and reporting estimates are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. 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" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

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. We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C. and Baltimore, Maryland metropolitan areas and Fort Lauderdale, Florida through five commercial bank branches, one mortgage office, and two loan production offices.

Current wording

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. We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C., Baltimore, other Maryland metropolitan areas, Florida, Illinois and North Carolina through seven commercial bank branches, one mortgage banking office, three loan production offices, three government loan servicing offices, and one credit card operations office.

Previous wording

On October 1, 2024, the Company completed its previously announced merger (the “Merger”) with IFHI pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 27, 2024. At the effective time of the Merger (the “Effective Time”), IFHI merged with and into the Company, with the Company continuing as the surviving corporation in the Merger. Immediately following the Merger, West Town Bank & Trust, merged with and into Capital Bank, with Capital Bank as the surviving bank.

Current wording

On October 1, 2024, the Company completed its acquisition of IFH. IFH merged with and into the Company, with the Company continuing as the surviving corporation in the acquisition. Immediately following the acquisition, West Town Bank & Trust, merged with and into Capital Bank, with Capital Bank as the surviving bank.

Previous wording

The Company currently operates three divisions: Commercial Banking, Capital Bank Home Loans, and OpenSky™. The Company reports its activities in four business segments: commercial banking; mortgage lending; credit cards; and corporate activities. 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.

Current wording

The Company currently operates four divisions and reporting segments: Commercial Banking, OpenSky™, Windsor Advantage™, and Capital Bank Home Loans, 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.

Previous wording

As of September 30, 2024, 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. 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.

Current wording

As of March 31, 2025, 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. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. 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.

Previous wording

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. 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.

Current wording

This report 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. 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.

Previous wording

Net income for the three months ended September 30, 2024 was $8.7 million, compared to net income of $9.8 million for the same period in 2023, an 11.4% decrease. Net income, as adjusted to exclude the impact of merger-related expenses (non-GAAP, excluding merger-related expenses), was $9.2 million for the three months ended September 30, 2024. Net interest income increased by $1.5 million, or 4.2%, to $38.4 million when comparing the three months ended September 30, 2024 to the three months ended September 30, 2023, primarily due to increased average balances of $205.8 million in portfolio loans partially offset by increases in the cost of funding. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Current wording

Net income for the three months ended March 31, 2025 was $13.9 million, compared to net income of $6.6 million for the same period in 2024, a 112.3% increase. Net income, as adjusted to exclude the impact of merger-related expenses (non-GAAP, excluding merger-related expenses), was $14.9 million for the three months ended March 31, 2025. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Previous wording

The provision for credit losses for the three months ended September 30, 2024 was $3.7 million, an increase of $1.5 million from the same period in 2023. Net charge-offs for the three months ended September 30, 2024 were $2.7 million, or 0.51% on an annualized basis of average portfolio loans, compared to $1.8 million, or 0.38% on an annualized basis of average loans for the same period in 2023. Of the $2.7 million in net charge-offs during the quarter, $1.0 million related to secured and partially secured credit cards and $0.7 million related to unsecured credit cards. Further, $0.6 million of net charge-offs were related to commercial real estate loans and $0.4 million were related to commercial and industrial loans.

Current wording

The provision for credit losses for the three months ended March 31, 2025 was $2.2 million, a decrease of $0.5 million from the same period in 2024. Net charge-offs for the three months ended March 31, 2025 were $2.4 million, or 0.38% on an annualized basis of average portfolio loans, compared to $2.0 million, or 0.41% on an annualized basis of average loans for the same period in 2024. Of the $2.4 million in net charge-offs during the quarter, $0.9 million related to secured and partially secured credit cards and $1.4 million related to unsecured credit cards. Further, $0.1 million of net charge-offs were related to commercial and industrial loans.

Previous wording

For the nine months ended September 30, 2024, noninterest income was $19.5 million, an increase of $0.5 million, or 2.4%, from $19.0 million in the prior year period. Mortgage banking revenue of $5.3 million increased $1.6 million due to an increase in home loan sales while credit card fees of $12.3 million declined $1.0 million from lower interchange and other fee income recognized compared to the prior year.

Current wording

For the three months ended March 31, 2025, noninterest income of $12.5 million increased $6.6 million, or 110.1%, from the same period in 2024, primarily due to the contributions made by the businesses IFH brought to the merged entity. Mortgage banking revenue of $1.8 million increased $0.4 million primarily due to an increase in home loan sales while credit card fees of $3.7 million decreased $0.2 million from lower interchange and other fee income recognized compared to the same period in the prior year.

Previous wording

Noninterest expense was $29.7 million for the three months ended September 30, 2024, as compared to $28.0 million for the three months ended September 30, 2023. The change includes increases in salaries and employee benefits expenses of $0.9 million, data processing expense of $0.5 million, merger-related expenses of $0.5 million, occupancy and equipment expenses of $0.4 million, loan processing expenses of $0.2 million and operational losses of $0.1 million. Offsetting decreases include professional fees of $0.4 million, advertising expenses of $0.3 million and other operating expense of $0.2 million.

Current wording

Noninterest expense was $38.1 million for the three months ended March 31, 2025, as compared to $29.5 million for the three months ended March 31, 2024. The change included increases in salaries and employee benefits expenses of $5.2 million, occupancy and equipment expenses of $1.3 million, merger-related expenses of $0.6 million, other operating expense of $0.5 million, regulatory assessment expenses of $0.4 million, loan processing expenses of $0.4 million, data processing expense of $0.4 million and professional fees of $0.2 million. Offsetting decreases included advertising expenses of $0.3 million and operational losses of $28.0 thousand .

Previous wording

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. Interest earning assets are composed primarily of loans, loans held for sale, investment securities, and interest-bearing deposits with banks. The cost of funds represents interest expense on deposits and borrowings, which consist of federal funds purchased, advances from the Federal Home Loan Bank (“FHLB”) and subordinated notes. Noninterest-bearing deposits and capital also provide sources of funding.

Current wording

Net interest income is our largest component of revenue and the driver of net income. Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets.

Previous wording

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 three and nine months ended September 30, 2024 and 2023. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived by utilizing average daily balances for the time period shown. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yield/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

Current wording

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 three months ended March 31, 2025 and 2024. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived by utilizing average daily balances for the time periods shown. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yield/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

Previous wording

(3)For the three months ended September 30, 2024 and 2023, collectively, portfolio loans yield excluding credit card loans was 7.15% and 6.76%, respectively.

Current wording

(3)For the three months ended March 31, 2025 and 2024, collectively, portfolio loans yield excluding credit card loans was 7.14% and 6.96%, respectively.

Previous wording

(4)For the three months ended September 30, 2024 and 2023, collectively, credit card loans accounted for 233 and 266 basis points of the reported net interest margin, respectively.

Current wording

(4)For the three months ended March 31, 2025 and 2024, collectively, credit card loans accounted for 169 and 239 basis points of the reported net interest margin, respectively.

Previous wording

The net interest margin decreased 29 basis points to 6.37% for the nine months ended September 30, 2024 from the same period in 2023. Net interest margin, excluding credit card loans, was 3.98% for the nine months ended September 30, 2024 and 2023. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Current wording

The net interest margin decreased 19 basis points to 6.05% for the three months ended March 31, 2025 from the same period in 2024 due to the acquisition of commercial loans from IFH, diluting the impact from OpenSky TM. Commercial Bank net interest margin (non-GAAP) increased to 4.32% for the three months ended March 31, 2025, compared to 3.77% for the same period in 2024. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Previous wording

For the three months ended September 30, 2024, average interest earning assets increased $204.5 million, or 9.4%, to $2.4 billion as compared to the same period in 2023, and the average yield on interest earning assets increased to 8.79%, a 9 basis point increase from 8.70%. Compared to the same period in the prior year, average interest-bearing liabilities increased $167.8 million, or 13.0%, and the average cost of interest-bearing liabilities increased to 3.90%, a 53 basis point increase from 3.37%.

Current wording

For the three months ended March 31, 2025, average interest earning assets increased $833.3 million, or 37.0%, to $3.1 billion as compared to the same period in 2024, and the average yield on interest earning assets decreased to 8.24%, a 39 basis point decrease from 8.63%. Compared to the same period in the prior year, average interest-bearing liabilities increased $639.9 million, or 46.4%, and the average cost of interest-bearing liabilities decreased to 3.36%, a 54 basis point decrease from 3.90%.

Previous wording

The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. The amount for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses, forecasted cash flows, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank. For a description of the factors taken into account by our management in determining the ACL, see Note 1 “Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. For a description of the factors taken into account by our management in determining the ACL, see Note 1 “Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

For the three months ended September 30, 2024, the provision for credit losses was $3.7 million, an increase of $1.5 million from the same period in 2023, attributable primarily to portfolio loan growth. Net charge-offs for the three months ended September 30, 2024 were $2.7 million, or 0.51% on an annualized basis of average portfolio loans, compared to $1.8 million, or 0.38% on an annualized basis of average portfolio loans for the same period in 2023. Of the $2.7 million in net charge-offs during the quarter, $1.0 million related to secured and partially secured credit cards and $0.7 million related to unsecured credit cards. Further, $0.6 million of net charge-offs were related to commercial real estate loans and $0.4 million were related to commercial and industrial loans.

Current wording

For the three months ended March 31, 2025, the provision for credit losses was $2.2 million, a decrease of $0.5 million from the same period in 2024, primarily from a lower commercial loan portfolio provision of $0.7 million, offset by a slightly higher provision for OpenSky of $0.2 million. Net charge-offs for the three months ended March 31, 2025 were $2.4 million, or 0.38% on an annualized basis of average portfolio loans, compared to $2.0 million, or 0.41% on an annualized basis of average portfolio loans for the same period in 2024. Of the $2.4 million in net charge-offs during the quarter, $0.9 million related to secured and partially secured credit cards and $1.4 million related to unsecured credit cards. Further, $0.1 million of net charge-offs were related to commercial and industrial loans.

Previous wording

The ACL as a percent of portfolio loans was 1.51% at September 30, 2024 as compared to 1.50% at December 31, 2023. The maintenance of a high-quality loan portfolio, with an adequate allowance for expected credit losses, will continue to be a primary objective for the Company. See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at September 30, 2024 in “Financial Condition - Allowance for Credit Losses.”

Current wording

The ACL as a percent of portfolio loans was 1.81% at March 31, 2025 as compared to 1.85% at December 31, 2024. The maintenance of a high-quality loan portfolio, with an adequate allowance for expected credit losses, will continue to be a primary objective for the Company. See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at March 31, 2025 in “Financial Condition - Allowance for Credit Losses.”

Previous wording

Our primary sources of recurring noninterest income are credit card fees, such as interchange fees and statement fees, and mortgage banking revenue. Noninterest income does not include (i) loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method or (ii) annual, renewal and late fees related to our credit card portfolio, which are generally recognized over the twelve month life of the related loan as an adjustment to yield using the interest method.

Current wording

Our 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. Noninterest income does not include (i) loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method or (ii) annual, renewal and late fees related to our credit card portfolio, which are generally recognized over the twelve month life of the related loan as an adjustment to yield using the interest method.

Previous wording

Mortgage banking revenue of $1.9 million increased $0.6 million for the three months ended September 30, 2024 due to an increase in salable originations as compared to the prior year. Mortgage banking revenue of $5.3 million for the nine months ended September 30, 2024 increased $1.6 million due to an increase in home loan sales as compared to the prior year. For the three months ended September 30, 2024, credit card fees of $4.1 million declined by $0.3 million as compared to the three months ended September 30, 2023, primarily related to lower interchange and other fee income. For the nine months ended September 30, 2024, credit card fees of $12.3 million declined $1.0 million as a result of lower interchange and other fee income recognized compared to the prior year.

Current wording

For the three months ended March 31, 2025, credit card fees of $3.7 million declined by $0.2 million as compared to the three months ended March 31, 2024, primarily related to lower interchange and other fee income.

Previous wording

The Bank’s CBHL division experienced an increase of 49.3% in mortgage originations during the three months ended September 30, 2024 when compared to the same period in the prior year. Origination volumes increased $24.7 million, to $74.7 million, in the third quarter of 2024, when compared to $50.0 million in the third quarter of 2023. Gain on sale margins decreased from 2.57% for the three months ended September 30, 2023, to 2.44% for the three months ended September 30, 2024. Gain on sale margins decreased from 2.71% for the nine months ended September 30, 2023, to 2.65% for the nine months ended September 30, 2024.

Current wording

The Bank’s Capital Bank Home Loans (“CBHL”) division experienced an increase of 26.4% in mortgage originations during the three months ended March 31, 2025 when compared to the same period in the prior year. Origination volumes increased $13.7 million, to $65.8 million, in the first quarter of 2025, when compared to $52.1 million in the first quarter of 2024. The gain on sale margin of 3.07% was the same for the three months ended March 31, 2025 and the three months ended March 31, 2024. Mortgage banking revenue of $1.8 million increased $0.4 million for the three months ended March 31, 2025 due to an increase in salable originations as compared to the prior year.

Previous wording

Mortgage loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a specified period following loan funding and sale. The Bank has established a reserve under GAAP for possible repurchases. The reserve was $0.9 million and $1.0 million at September 30, 2024 and December 31, 2023, respectively. The Bank repurchased one loan totaling $0.3 million during the nine months ended September 30, 2024. The Bank did not repurchase any loans during the nine months ended September 30, 2023. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.

Current wording

Mortgage loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a specified period following loan funding and sale. The Bank has established a reserve under GAAP for possible repurchases. The reserve was $2.3 million and $2.3 million at March 31, 2025 and December 31, 2024, respectively. The Bank did not repurchase any loans during the three months ended March 31, 2025 or 2024. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.

Previous wording

Noninterest expense was $29.7 million for the three months ended September 30, 2024, as compared to $28.0 million for the three months ended September 30, 2023, an increase of $1.7 million. The change includes increases in salaries and employee benefits expenses of $0.9 million, data processing expense of $0.5 million, merger-related expenses of $0.5 million, occupancy and equipment expenses of $0.4 million, loan processing expenses of $0.2 million and operational losses of $0.1 million. Offsetting decreases include professional fees of $0.4 million, advertising expenses of $0.3 million and other operating expenses of $0.2 million.

Current wording

Noninterest expense was $38.1 million for the three months ended March 31, 2025, as compared to $29.5 million for the three months ended March 31, 2024, an increase of $8.6 million. The change includes increases in salaries and employee benefits expenses of $5.2 million, occupancy and equipment expenses of $1.3 million, merger-related expenses of $0.6 million, other operating expenses of $0.5 million, regulatory assessment expenses of $0.4 million, loan processing expenses of $0.4 million, data processing expense of $0.4 million and professional fees of $0.2 million. Offsetting decreases include advertising expenses of $0.3 million and operational losses of $28.0 thousand .

Previous wording

The amount of income tax expense we incur is influenced by our pre-tax income and our nondeductible expenses. Deferred tax assets and liabilities are reflected at enacted tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Current wording

The amount of income tax expense we incur is influenced by our pre-tax income, our tax exempt revenue and our nondeductible expenses. Deferred tax assets and liabilities are reflected at enacted tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Previous wording

Total assets at September 30, 2024 increased $334.6 million from the balance at December 31, 2023. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.1 billion as of September 30, 2024, an increase of $204.2 million, or 10.7%, from $1.9 billion at December 31, 2023. Mortgage loans held for sale increased $12.1 million, or 161.4%, when comparing the period end balances at September 30, 2024 to December 31, 2023.

Current wording

Total assets at March 31, 2025 increased $142.9 million from the balance at December 31, 2024. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.7 billion as of March 31, 2025, an increase of $48.2 million, or 1.8%, from $2.6 billion at December 31, 2024. Mortgage loans held for sale increased $13.4 million, or 62.9%, when comparing the period end balances at March 31, 2025 to December 31, 2024.

Previous wording

To supplement interest income earned on our loan portfolio, the Company invests in U.S. Treasuries, high-quality mortgage-backed securities, 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.

Current wording

To manage liquidity and supplement interest income earned on our loan portfolio, the Company invests in U.S. 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.

Previous wording

Our primary source of income is derived from interest earned on loans. Our portfolio loans consist of loans secured by real estate as well as commercial business loans, credit card loans secured by corresponding deposits at the Bank and, to a limited extent, other consumer loans. Our loan customers primarily consist of small- to medium-sized businesses, professionals, real estate investors, small residential builders and individuals. Our owner-occupied commercial real estate loans, residential construction loans and commercial business and investment loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our credit card portfolio supplements our traditional lending products with enhanced yields. 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.

Current wording

Our primary source of income is derived from interest earned on loans. Our portfolio loans consist of loans secured by real estate as well as commercial business loans, credit card loans secured by corresponding deposits at the Bank and, to a limited extent, other consumer loans. Our loan customers primarily consist of small- to medium-sized businesses, professionals, real estate investors, small residential builders and individuals. Our owner-occupied commercial real estate loans, residential construction loans and commercial business and investment loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our credit card portfolio supplements our traditional lending products with enhanced yields. Our traditional commercial real estate and commercial and industrial lending are principally directed to our market area consisting of the Washington, D.C. and Baltimore, Maryland metropolitan areas.

Previous wording

Commercial Real Estate Loans. Commercial real estate loans are originated on owner-occupied and non-owner-occupied properties. These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $2.7 million as of September 30, 2024 and $14.1 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 $29.5 million as of September 30, 2024 and $11.1 million as of December 31, 2023, are also included in the commercial real estate loan category. 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. The primary sources of repayment are the operating incomes of the borrowers and the collection of the finance receivables securing the loans. Commercial loans that are secured by owner-occupied commercial real estate and primarily collateralized by operating cash flows are included in the commercial real estate loan category. As of September 30, 2024, there were approximately $351.5 million of owner-occupied commercial real estate loans, representing approximately 16.6% of the loan portfolio as compared to $307.9 million, or 16.1% of the loan portfolio at December 31, 2023. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. The interest rates on commercial real estate loans generally have initial fixed rate terms that adjust typically at five years. Origination fees are routinely charged for services. Personal guarantees from the principal owners of the business are generally required, supported by a review of the principal owners’ personal financial statements and global debt service obligations. The properties securing the portfolio are diverse in type. This diversity may help reduce the exposure to adverse economic events that affect any single industry.

Current wording

Commercial Real Estate Loans. Commercial real estate loans are originated on owner-occupied and non-owner-occupied properties. These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $3.5 million as of March 31, 2025 and $3.1 million as of December 31, 2024, 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 $23.2 million as of March 31, 2025 and $28.6 million as of December 31, 2024, are also included in the commercial real estate loan category. 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. The primary sources of repayment are the operating incomes of the borrowers and the collection of the finance receivables securing the loans. Commercial loans that are secured by owner-occupied commercial real estate and primarily collateralized by operating cash flows are included in the commercial real estate loan category. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. The interest rates on commercial real estate loans generally have initial fixed rate terms that adjust typically at five years. Origination fees are routinely charged for services. Personal guarantees from the principal owners of the business are generally required, supported by a review of the principal owners’ personal financial statements and global debt service obligations. The properties securing the portfolio are diverse in type. This diversity may help reduce the exposure to adverse economic events that affect any single industry.

Previous wording

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. These loans are primarily made based on the identified cash flows of the borrower and secondarily, on the underlying collateral provided by the borrower. Most commercial business loans are secured by a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory and equipment. Personal guaranties from the borrower or other principal are generally obtained.

Current wording

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. These loans are primarily made based on the identified cash flows of the borrower and secondarily, on the underlying collateral provided by the borrower. Most commercial business loans are secured by a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory and equipment. Personal guaranties from the borrower or other principal are generally obtained.