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,” 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™”.

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™”.

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, 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.

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 and six months ended June 30, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025.

Previous wording

•economic conditions (including the interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation/deflation) that impact the financial services industry as a whole and/or our business;

Current wording

•the strength of the United States (“U.S.”) economy and general economic conditions (including the interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation/deflation) that impact the financial services industry as a whole and/or our business;

Previous wording

•natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, and other matters beyond our control;

Current wording

•climate change, and other catastrophic events or disasters, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, and other matters beyond our control;

Previous 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.

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. Windsor Advantage™, a wholly-owned subsidiary of the Company, was acquired in connection with the IFH acquisition.

Previous 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.

Current wording

The Company currently operates four divisions and reporting segments: Commercial Banking, OpenSky™, Windsor Advantage™, and Capital Bank Home Loans (“CBHL”), 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

Our Commercial Banking division operates primarily in the Washington, D.C. and Baltimore metropolitan areas and focuses on providing personalized service to commercial clients throughout our area of operations, supplemented by lending outside of our primary market, and nationwide deposit verticals. Additionally, the commercial bank engages in government-guaranteed lending on a national basis. Capital Bank Home Loans and OpenSky™ both leverage Capital Bank’s national banking charter to operate national consumer business lines. Capital Bank Home Loans acts as our residential mortgage origination platform and OpenSky™ provides nationwide, digitally-originated and served, secured, partially-secured, and unsecured credit cards to under-banked populations and those looking to rebuild their credit scores. Windsor Advantage™ generates fee income for the Company through its servicing, processing and packaging of SBA and USDA loans for its financial institution clients.

Current wording

OpenSky™ and CBHL both leverage Capital Bank’s national banking charter to operate national consumer business lines. OpenSky™ provides nationwide, digitally-originated and served, secured, partially-secured, and unsecured credit cards to under-banked populations and those looking to rebuild their credit scores. CBHL acts as our residential mortgage origination platform. Windsor Advantage™ generates fee revenue for the Company through its servicing, processing and packaging of SBA and USDA loans for its financial institution clients.

Previous 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.”

Current wording

Net income for the three months ended June 30, 2025 was $13.1 million, compared to net income of $8.2 million for the same period in 2024, a 60.1% increase. Net income, as adjusted to exclude the impact of merger-related expenses (non-GAAP, excluding merger-related expenses), was $14.2 million for the three months ended June 30, 2025, compared to net income of $8.3 million 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

Net interest income increased by $11.0 million, or 31.5%, to $46.0 million when comparing the three months ended March 31, 2025 to the three months ended March 31, 2024, primarily driven by organic growth and the acquisition of IFH.

Current wording

Net interest income increased by $10.6 million, or 28.6%, to $47.6 million when comparing the three months ended June 30, 2025 to the three months ended June 30, 2024, primarily driven by organic growth and the acquisition of IFH.

Previous 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 .

Current wording

Noninterest expense was $39.6 million for the three months ended June 30, 2025, as compared to $29.5 million for the three months ended June 30, 2024. The change included increases in salaries and employee benefits expenses of $5.2 million, merger-related expenses of $1.3 million, occupancy and equipment expenses of $1.1 million, professional fees of $0.7 million, data processing expense of $0.7 million, other operating expense of $0.7 million, loan processing expenses of $0.5 million, regulatory assessment expenses of $0.5 million and operational losses of $0.2 million. Offset by a decrease in advertising expenses of $0.7 million.

Previous 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.

Current wording

The provision for credit losses for the six months ended June 30, 2025 was $6.3 million, an increase of $0.2 million from the same period in 2024. Net charge-offs for the six months ended June 30, 2025 were $7.5 million, or 0.57% on an annualized basis of average portfolio loans, compared to $3.9 million, or 0.40% on an annualized basis of average loans for the same period in 2024.

Previous 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.

Current wording

For the six months ended June 30, 2025, noninterest income was $25.7 million, an increase of $12.8 million, or 99.5%, 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 $3.6 million increased $0.1 million while credit card fees of $8.0 million declined $0.2 million from lower interchange and other fee income recognized compared to the prior year.

Previous 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.

Current wording

Net interest income is our largest component of revenue and the largest 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 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.

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 and six months ended June 30, 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 March 31, 2025 and 2024, collectively, portfolio loans yield excluding credit card loans was 7.14% and 6.96%, respectively.

Current wording

(3)For the three months ended June 30, 2025 and 2024, collectively, Commercial Bank Loan Yield was 7.14% and 7.04%, respectively.

Previous 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.”

Current wording

The net interest margin decreased 42 basis points to 6.04% for the three months ended June 30, 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 4.36% for the three months ended June 30, 2025, compared to 3.90% 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 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%.

Current wording

For the three months ended June 30, 2025, average interest earning assets increased $856.4 million, or 37.1%, to $3.2 billion as compared to the same period in 2024, and the average yield on interest earning assets decreased to 8.19%, a 63 basis point decrease from 8.82%. Compared to the same period in the prior year, average interest-bearing liabilities increased $658.0 million, or 46.6%, and the average cost of interest-bearing liabilities decreased to 3.28%, a 58 basis point decrease from 3.86%.

Previous wording

When comparing the three months ended March 31, 2025 to the three months ended March 31, 2024, the largest positive impact to total interest income was the growth in interest earning assets, from organic growth and the IFH acquisition. Growth (change due to volume) in the loan portfolio, excluding credit card loans, contributed $12.1 million to the increase in interest income. The variance in interest expense year over year was primarily impacted by organic growth in interest-bearing liabilities, and the IFH acquisition. Growth in interest bearing liabilities contributed $5.6 million to increased interest expense, while decreased rates contributed a reduction of $2.2 million of interest expense.

Current wording

When comparing the three months ended June 30, 2025 to the three months ended June 30, 2024, the largest positive impact to total interest income was the growth in interest earning assets, from organic growth and the IFH acquisition. Growth (change due to volume) in the loan portfolio, excluding credit card loans, contributed $13.1 million to the increase in interest income. The variance in interest expense year over year was primarily impacted by organic growth in interest-bearing liabilities, and the IFH acquisition. Growth in interest bearing liabilities contributed $5.8 million to increased interest expense, while decreased rates contributed a reduction of $2.4 million of interest expense.

Previous 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.”

Current wording

The ACL as a percent of portfolio loans was 1.73% at June 30, 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 June 30, 2025 in “Financial Condition - Allowance for Credit Losses.”

Previous 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.

Current wording

Our primary source of recurring noninterest income are credit card fees, such as interchange fees and statement fees, government guaranteed lending revenue (gain on sale), mortgage banking revenue and Windsor Advantage™ fee revenue 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

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 contributions from the IFH acquisition. Government loan servicing revenue (Windsor Advantage™) totaled $3.6 million net of intercompany charges, government lending revenue (gain on sale) totaled $1.1 million, and revenue from loan servicing rights totaled $0.5 million.

Current wording

For the three months ended June 30, 2025, noninterest income of $13.1 million increased $6.2 million, or 90.2%, from the same period in 2024 primarily due to contributions from the IFH acquisition. Government loan servicing revenue (Windsor Advantage™) totaled $3.6 million net of intercompany charges and government lending revenue (gain on sale) totaled $3.1 million.

Previous 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.

Current wording

Credit card fees of $4.3 million for the three months ended June 30, 2025 remained consistent as compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, credit card fees of $8.0 million declined $0.2 million as a result of lower interchange and other fee income recognized 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 $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.

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 June 30, 2025 and December 31, 2024, respectively. The Bank did not repurchase any loans during the six months ended June 30, 2025. The Bank repurchased one loan totaling $0.3 million during the six months ended June 30, 2024. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.

Previous 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 .

Current wording

Noninterest expense was $39.6 million for the three months ended June 30, 2025, as compared to $29.5 million for the three months ended June 30, 2024, an increase of $10.1 million. The change included increases in salaries and employee benefits expenses of $5.2 million, merger-related expenses of $1.3 million, occupancy and equipment expenses of $1.1 million, professional fees of $0.7 million, data processing expense of $0.7 million, other operating expenses of $0.7 million, loan processing expenses of $0.5 million, regulatory assessment expenses of $0.5 million and operational losses of $0.2 million. Offset by a decrease in advertising expenses of $0.7 million.

Previous 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.

Current wording

Total assets at June 30, 2025 increased $181.8 million from the balance at December 31, 2024. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.7 billion as of June 30, 2025, an increase of $109.6 million, or 4.2%, from $2.6 billion at December 31, 2024. Mortgage loans held for sale decreased $0.3 million, or 1.6%, when comparing the period end balances at June 30, 2025 to December 31, 2024.

Previous wording

Municipal Securities – All of the Company’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at March 31, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA – 82% of the portfolio; AA+ – 8%; AA – 10%.

Current wording

Municipal Securities – All of the Company’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at June 30, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA – 76% of the portfolio; AA+ – 24%.

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 $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.

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 $2.9 million as of June 30, 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 $32.5 million as of June 30, 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

Credit Cards. Through the OpenSky™ credit card division, the Company offers secured, partially secured, and unsecured credit cards on a nationwide basis to under-banked populations and those looking to rebuild their credit scores through a fully digital and mobile platform. The secured lines of credit are secured by a noninterest-bearing demand account at the Bank in an amount equal to the full credit limit of the credit card. For the partially secured lines of credit, the Bank offers certain customers an unsecured line in excess of their secured line of credit by using a proprietary scoring model, which considers credit score and repayment history (typically a minimum of six months of on-time payments, but ultimately determined on a case-by-case basis). Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $81.3 million and $87.2 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of March 31, 2025 and December 31, 2024, respectively. Unsecured balances were $39.0 million and $42.4 million, respectively, at the same dates.

Current wording

Credit Cards. Through the OpenSky™ credit card division, the Company offers secured, partially secured, and unsecured credit cards on a nationwide basis to under-banked populations and those looking to rebuild their credit scores through a fully digital and mobile platform. The secured lines of credit are secured by a noninterest-bearing demand account at the Bank in an amount equal to the full credit limit of the credit card. For the partially secured lines of credit, the Bank offers certain customers an unsecured line in excess of their secured line of credit by using a proprietary scoring model, which considers credit score and repayment history (typically a minimum of six months of on-time payments, but ultimately determined on a case-by-case basis). Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $86.4 million and $87.2 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of June 30, 2025 and December 31, 2024, respectively. Unsecured balances were $46.4 million and $42.4 million, respectively, at the same dates.

Previous wording

Purchased Credit Deterioration. Acquired loans, including those acquired in a business combination, are evaluated to determine if they have experienced more-than-insignificant deterioration in credit quality since origination. When the condition exists, these loans are referred to as purchased credit deteriorated (“PCD”). An allowance is recognized for a PCD loan by adding it to the purchase price or fair value in a business combination. There is no provision for credit losses recognized upon acquisition of a PCD loan since the initial allowance is established through purchase accounting. After initial recognition, the accounting for a PCD loan follows the credit loss model that applies to the loan category. Purchased financial loans that do not have a more-than-significant deterioration in credit quality since origination are accounted for in a manner consistent with originated loans. An allowance for credit losses is recorded with a corresponding charge to provision for credit losses. Subsequent to the acquisition date, the methods utilized to estimate the required ACL for these loans is similar to the method used for organically originated loans. There were no loans purchased with credit deterioration during the three months ended March 31, 2025 or the three months ended March 31, 2024.

Current wording

Purchased Credit Deterioration. Acquired loans, including those acquired in a business combination, are evaluated to determine if they have experienced more-than-insignificant deterioration in credit quality since origination. When the condition exists, these loans are referred to as purchased credit deteriorated (“PCD”). An allowance is recognized for a PCD loan by adding it to the purchase price or fair value in a business combination. There is no provision for credit losses recognized upon acquisition of a PCD loan since the initial allowance is established through purchase accounting. After initial recognition, the accounting for a PCD loan follows the credit loss model that applies to the loan category. Purchased financial loans that do not have a more-than-significant deterioration in credit quality since origination are accounted for in a manner consistent with originated loans. An allowance for credit losses is recorded with a corresponding charge to provision for credit losses. Subsequent to the acquisition date, the methods utilized to estimate the required ACL for these loans is similar to the method used for organically originated loans. There were no loans purchased with credit deterioration during the three and six months ended June 30, 2025 or the three and six months ended June 30, 2024.

Previous wording

(2)Other non-owner-occupied commercial real estate loans include a land loan of $12.4 million, skilled nursing loans of $9.9 million, special purpose loans of $9.7 million, and other loans of $8.0 million.

Current wording

(2)Other non-owner-occupied commercial real estate loans include a land loan of $12.5 million, skilled nursing loans of $9.7 million, special purpose loans of $9.3 million, and other loans of $8.2 million.

Previous wording

(3)Other owner-occupied commercial real estate loans include special purpose loans of $89.7 million, skilled nursing loans of $58.9 million, and other loans of $53.9 million.

Current wording

(3)Other owner-occupied commercial real estate loans include special purpose loans of $86.7 million, skilled nursing loans of $59.6 million, and other loans of $51.9 million.

Previous wording

At March 31, 2025, the recorded investment in individually assessed loans was $46.6 million, requiring a specific reserve of $10.1 million. At December 31, 2024, the recorded investment in individually assessed loans was $34.9 million, requiring a specific reserve of $9.3 million. The $34.9 million of individually assessed loans at December 31, 2024 included a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2024.

Current wording

At June 30, 2025, the recorded investment in individually assessed loans was $39.8 million, requiring a specific reserve of $6.5 million. At December 31, 2024, the recorded investment in individually assessed loans was $34.9 million, requiring a specific reserve of $9.3 million. The $34.9 million of individually assessed loans at December 31, 2024 included a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2024.

Previous wording

Total charge-offs for the three months ended March 31, 2025 and for the same period in 2024 were primarily comprised of credit card charge-offs resulting both from the aging of the portfolio and the shift from an almost exclusively secured card portfolio to a portfolio that also includes partially secured and unsecured exposures. The following tables present a summary of the net charge-offs (recovery) of loans as a percentage of average loans for the periods indicated:

Current wording

Total charge-offs for the six months ended June 30, 2025 and for the same period in 2024 were primarily comprised of credit card charge-offs resulting both from the aging of the portfolio and the shift from an almost exclusively secured card portfolio to a portfolio that also includes partially secured and unsecured exposures. The following tables present a summary of the net charge-offs (recovery) of loans as a percentage of average loans for the periods indicated:

Previous wording

Total liabilities at March 31, 2025 increased $128.5 million from December 31, 2024, primarily due to growth in the deposit portfolio of $129.4 million.

Current wording

Total liabilities at June 30, 2025 increased $156.9 million from December 31, 2024, due to growth in the deposit portfolio of $178.8 million.

Previous wording

Deposits are a major source of funding for the Company. We offer a variety of deposit products including interest-bearing demand, savings, money market and time accounts, all of which we actively market at competitive pricing. We generate deposits from our customers on a relationship basis and through the efforts of our commercial and business banking officers. Our credit card customers are a significant source of low cost deposits. As of March 31, 2025 and December 31, 2024, our credit card customers accounted for $168.8 million and $166.4 million, or 20.8% and 20.5%, respectively, of our total noninterest-bearing deposit balances.

Current wording

Deposits are a major source of funding for the Company. We offer a variety of deposit products including noninterest-bearing demand, interest-bearing demand, savings, money market and time accounts, all of which we actively market at competitive pricing. We generate deposits from our customers on a relationship basis and through the efforts of our commercial relationship managers. Our credit card customers are a significant source of low cost deposits. As of June 30, 2025 and December 31, 2024, our credit card customers accounted for $168.9 million and $166.4 million, or 20.2% and 20.5%, respectively, of our total noninterest-bearing deposit balances.

Previous wording

The Company had $307.8 million in brokered deposits at March 31, 2025 compared to $333.0 million at December 31, 2024.

Current wording

The Company had $270.1 million in brokered deposits at June 30, 2025 compared to $333.0 million at December 31, 2024.

Previous wording

Deposits securing our OpenSky™card lines of credit and deposits from title companies represent the largest concentrations in the deposit portfolio. As of March 31, 2025, these concentrations represented 6% and 13% of deposits, respectively. As of December 31, 2024, these deposits represented 6% and 11% of deposits, respectively.

Current wording

Deposits securing our OpenSky™card lines of credit and deposits from title companies represent the largest product concentrations in the deposit portfolio. As of June 30, 2025, these product concentrations represented 6% and 14% of deposits, respectively. As of December 31, 2024, these deposits represented 6% and 11% of deposits, respectively.

Previous wording

Deposit costs decreased 17 basis points during the three months ended March 31, 2025 primarily driven by a lower interest rate environment.

Current wording

Deposit costs decreased 20 basis points during the six months ended June 30, 2025, as compared to the year ended December 31, 2024, primarily driven by a lower interest rate environment.

Previous wording

Noninterest-bearing deposits represented 28.1% of total deposits at March 31, 2025 compared to 29.4% at December 31, 2024. Insured and protected deposits were approximately $2.0 billion as of March 31, 2025, representing 70.4% of the Company’s deposit portfolio. The insured and protected amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Current wording

Noninterest-bearing deposits represented 28.5% of total deposits at June 30, 2025 compared to 29.4% at December 31, 2024. Insured and protected (including deposits that are indirectly protected under the product terms) deposits were approximately $2.1 billion as of June 30, 2025, representing 69.9% of the Company’s deposit portfolio. The insured and protected amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Previous wording

The following table presents the maturities of our certificates of deposit as of March 31, 2025.

Current wording

The following table presents the maturities of our certificates of deposit, including brokered and customer deposits as of June 30, 2025.