Capital Bancorp Inc

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 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.

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 of $31.0 million for the year ended December 31, 2024 decreased $4.9 million, or 13.7% when compared to the prior year. Net income of $40.1 million as adjusted excludes the impact of $3.3 million after-tax merger-related expenses, $3.2 million after-tax impact from the Initial IFH ACL Provision on non-PCD loans and a $2.6 million non-recurring equity and debt investment write-down that was nondeductible for tax purposes (non-GAAP) for the year ended December 31, 2024. There were no adjustments made to net income for the year ended December 31, 2023. Net interest income of $154.7 million increased $13.2 million from the prior year primarily due to increased average balances of $325.7 million in portfolio loans, partially offset by higher funding costs primarily resulting from the additional average deposit volume funding the loan growth. Interest income included $0.7 million and interest expense included $1.4 million from net purchase accounting amortization resulting from the IFH acquisition. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Current wording

Net income of $57.2 million for the year ended December 31, 2025 increased $26.2 million, or 84.6% when compared to the prior year, augmented in part by the acquisition of IFH and strong organic growth. Net income as adjusted for the year ended December 31, 2025 of $56.3 million excludes the impact of $3.5 million after-tax impact from issuing a call of brokered time deposits acquired from the IFH transaction (“Call of Brokered Time Deposits”) and $2.6 million after-tax merger-related expenses. Net income as adjusted for the year ended December 31, 2024 included $3.3 million of after-tax merger-related expenses, $3.2 from the Initial IFH ACL Provision on non-purchased credit deteriorated loans, and $2.6 million of non-recurring equity and debt investment write-down that was nondeductible for tax purposes (non-GAAP). Net interest income of $196.0 million increased $41.2 million from the prior year primarily driven by organic growth and the acquisition of IFH. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Previous wording

The net interest margin decreased 38 basis points to 6.22% for the year ended December 31, 2024 compared to 6.60% for the prior year. The elevated interest rate environment increased the yield on cash, investments, and commercial bank loan yields but was offset by a slightly lower loan yield from OpenSky credit card loans. The overall cost of interest-bearing liabilities decreased the net interest spread to 4.81% for the year ended December 31, 2024 compared to 5.25% for the prior year. Core net interest margin, excluding credit card loans (as adjusted, non-GAAP), was 4.00% for the year ended December 31, 2024, compared to 3.96% for the prior year. For the year ended December 31, 2024, average interest earning assets increased $342.4 million, or 16.0%, to $2.5 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 3 basis points. The yield on portfolio loans, as adjusted (non-GAAP, excluding credit card loans) was 7.03% for the year ended December 31, 2024, compared to 6.65% for the prior year. Compared to the same period in the prior year, average interest-bearing liabilities increased $288.5 million, or 22.7%, while the average cost of interest-bearing liabilities increased 47 basis points to 3.76% from 3.29%. For additional details, see “Non-GAAP Financial Measures and Reconciliations.”

Current wording

The net interest margin decreased 12 basis points to 6.10% for the year ended December 31, 2025 compared to 6.22% for the prior year. The decrease was primarily driven by the acquisition of commercial loans from IFH, which diluted the impact from OpenSky™. For the year ended December 31, 2025, average interest earning assets increased $727.9 million, or 29.3%, to $3.2 billion as compared to the same period in 2024, and the average yield on interest earning assets decreased 46 basis points as a result of the acquisition of commercial loans from IFH, diluting the impact from OpenSky TM. The Commercial Bank net interest margin was 4.38% for the year ended December 31, 2025, which included 15 basis points related to the Call of Brokered Time Deposits, compared to 3.93% for the prior year. For the year ended December 31, 2025, the Commercial Bank average interest earning assets increased $713.4 million, or 30.2%, to $3.1 billion as compared to the same period in 2024, driven by the acquired interest-earning assets from IFH and strong organic growth during 2025. The Commercial Bank yield on portfolio loans (non-GAAP, excluding credit card loans) was 6.99% for the year ended December 31, 2025, which included 4 basis points of purchase accounting accretion, compared to 7.03% for the prior year, which included 3 basis points of purchase accounting amortization. Excluding purchase accounting, the Commercial Bank loan yield decreased 11 basis points primarily due to changes in the rate environment. Compared to the same period in the prior year, average interest-bearing liabilities increased $548.7 million, or 35.2%, while the average cost of interest-bearing liabilities decreased 68 basis points to 3.1% from 3.8%. For additional details, see “Non-GAAP Financial Measures and Reconciliations.”

Previous wording

For the year ended December 31, 2024, the provision for credit losses was $17.7 million, an increase of $8.1 million from the recorded provision for credit losses of $9.6 million for the year ended December 31, 2023. The variance included the Initial IFH ACL provision on non-PCD loans of $4.2 million and $4.5 million from organic commercial portfolio loan growth, partially offset by a $0.6 million reduction from the OpenSky TM credit card portfolio. Net charge-offs for the year ended December 31, 2024 were $9.0 million, or 0.42% of average portfolio loans, compared to $8.5 million, or 0.47% of average portfolio loans, for the same period in 2023. The $9.0 million in net charge-offs during the year ended December 31, 2024 was comprised primarily of credit card portfolio net charge-offs, with $3.6 million related to secured and partially secured cards while $3.4 million was related to unsecured cards.

Current wording

For the year ended December 31, 2025, the provision for credit losses was $15.0 million, a decrease of $2.8 million from the prior year. The provision for credit losses for the year-ended December 31, 2024 included the initial IFH ACL provision of $4.2 million. Excluding this, the provision for credit losses increased $1.2 million which was primarily due to increased provision expense for OpenSky™ due to growth in the unsecured credit card portfolio. Net charge-offs for the year ended December 31, 2025 were $12.4 million, or 0.45% of average portfolio loans, compared to $9.0 million, or 0.42% of average portfolio loans, for the same period in 2024. The $12.4 million in net charge-offs during the year ended December 31, 2025 were comprised, in part, of OpenSky™ credit card portfolio net charge-offs, with $5.4 million related to unsecured cards and $1.6 million related to secured and partially secured cards. Further, $3.4 million of net charge-offs were related to commercial and industrial loans, $1.9 million were related to owner-occupied commercial real estate loans, and $0.3 million were related to construction loans.

Previous wording

For the year ended December 31, 2024, noninterest expense of $126.2 million increased $15.5 million, or 14.0%, from the same period in 2023, largely due to the IFH acquisition. The increase was primarily driven by a $7.3 million, or 14.9%, increase in salaries and employee benefits, a $3.9 million increase in merger-related expenses, a $2.6 million, or 45.3%, increase in occupancy and equipment primarily related to increased contract expense from the IFH acquisition, and a $2.0 million, or 7.8%, increase in data processing expense, partially offset by a $1.4 million, or 15.4%, decrease in professional fees due to a reduction in third party consulting fees.

Current wording

For the year ended December 31, 2025, noninterest expense of $155.1 million increased $28.9 million, or 22.9%, from the same period in 2024, largely due to the IFH acquisition. The increase was primarily driven by a $16.1 million, or 28.8%, increase in salaries and employee benefits, a $3.1 million increase in occupancy and equipment, a $3.1 million increase in professional fees, and a $2.1 million, or 7.6%, increase in data processing expense.

Previous wording

Total assets at December 31, 2024 were $3.2 billion, an increase of $980.7 million, or 44.1%, from the balance at December 31, 2023. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.6 billion at December 31, 2024, an increase of $726.9 million, or 38.2%, compared to $1.9 billion at December 31, 2023. Total liabilities at December 31, 2024 were $2.9 billion, an increase of $880.5 million, or 44.7%, from the balance at December 31, 2023. Total liability growth was primarily due to a $865.9 million increase in deposits partially offset by a decrease in other borrowed funds of $15.0 million when comparing December 31, 2024 to December 31, 2023. Stockholders’ equity increased to $355.1 million as of December 31, 2024, compared to $254.9 million at December 31, 2023.

Current wording

Total assets at December 31, 2025 were $3.6 billion, an increase of $399.3 million, or 12.5%, from the balance at December 31, 2024. Net portfolio loans, which exclude mortgage loans held for sale, totaled $3.0 billion at December 31, 2025, an increase of $329.3 million, or 12.5%, compared to $2.6 billion at December 31, 2024. Total liabilities at December 31, 2025 were $3.2 billion, an increase of $352.7 million, or 12.4%, from the balance at December 31, 2024. Total liability growth was primarily due to a $331.3 million increase in deposits and a $28.0 million increase in FHLB advances, partially offset by a decrease in other borrowed funds of $10.0 million when comparing December 31, 2025 to December 31, 2024. Stockholders’ equity increased to $401.8 million as of December 31, 2025, compared to $355.1 million at December 31, 2024, or 13.1%.

Previous wording

Deposits were $2.8 billion at December 31, 2024, an increase of $865.9 million, or 45.7%, from the balance at December 31, 2023. Average deposits of $2.2 billion for the year ended December 31, 2024 increased $304.4 million, or 16.3%, as compared to the prior year. Average noninterest-bearing deposit balances increased $20.3 million to $675.4 million, or 31.1% of total average deposits for the year ended December 31, 2024, as compared to $655.0 million, or 35.1% of total average deposits for the prior year.

Current wording

Deposits were $3.1 billion at December 31, 2025, an increase of $331.3 million or 12.0%, from the balance at December 31, 2024. Average deposits of $2.9 billion for the year ended December 31, 2025 increased $711.6 million, or 32.8%, as compared to the prior year. Average noninterest-bearing deposit balances increased $136.4 million to $811.8 million, and represented 28.2% of total average deposits for the year ended December 31, 2025, as compared to $675.4 million, which represented 31.1% of total average deposits for the prior year.

Previous wording

The Bank’s OpenSky™ Division, including shared service and corporate allocations contributed $17.3 million of income before taxes for the year ended December 31, 2024, a decrease of $1.8 million for the segment from the prior year. Average OpenSky™ loan balances, net of reserves and deferred fees of $115.6 million for the year ended December 31, 2024 increased $1.1 million, or 1.0%, as compared to the prior year. OpenSky™ loan balances, net of reserves, of $127.8 million at December 31, 2024 increased by $4.4 million, or 3.6%, compared to $123.3 million at December 31, 2023. Corresponding non-interest bearing deposit balances of $166.4 million at December 31, 2024 decreased $7.5 million, or 4.3%, compared to $173.9 million at December 31, 2023. Gross unsecured loan balances of $42.4 million at December 31, 2024 increased $11.6 million, or 37.7%, compared to $30.8 million at December 31, 2023. For the year ended December 31, 2024, noninterest income of $16.1 million decreased $1.2 million due primarily to a decline in credit card fees as compared to the prior year.

Current wording

The Bank’s OpenSky™ Division, including shared service and corporate allocations contributed $14.6 million of income before taxes for the year ended December 31, 2025, a decrease of $2.7 million for the segment from the prior year. The $2.7 million decrease was primarily attributable to $1.5 million of increased provision for credit losses, $0.8 million of decreased interest income, and $1.3 million of increased data processing expense related to investments in OpenSky™initiatives and other investments in technology, partially offset by $1.4 million of increased fee revenue from higher credit card fees. Average OpenSky™ loan balances, net of reserves and deferred fees of $125.8 million for the year ended December 31, 2025 increased $10.2 million, or 8.9%, as compared to the prior year. OpenSky™ loan balances, net of reserves, of $142.4 million at December 31, 2025 increased by $14.6 million, or 11.5%, compared to $127.8 million at December 31, 2024. Corresponding non-interest bearing deposit balances of $163.2 million at December 31, 2025 decreased $3.2 million, or 4.3%, compared to $166.4 million at December 31, 2024. Gross unsecured loan balances of $61.4 million at December 31, 2025 increased $18.9 million, or 44.7%, compared to $42.4 million at December 31, 2024. For the year ended December 31, 2025, noninterest income of $17.4 million increased $1.3 million due primarily to higher credit-card related fees.

Previous wording

The Bank’s Capital Bank Home Loans division including shared service and corporate allocations contributed a net loss before taxes of $2.5 million for the year ended December 31, 2024 as compared to a net loss before taxes of $3.0 million in the prior year. The Bank’s Capital Bank Home Loans division saw an increase in mortgage originations during the year ended December 31, 2024 when compared to the prior year. An elevated interest rate environment dampened home loan sales and home loan refinances. Gain on sale margins were down from 2.76% for the twelve months ended December 31, 2023 to 2.59% for the twelve months ended December 31, 2024.

Current wording

The Bank’s Capital Bank Home Loans division including shared service and corporate allocations contributed a net loss before taxes of $2.6 million for the year ended December 31, 2025 as compared to a net loss before taxes of $2.5 million in the prior year. The Bank’s Capital Bank Home Loans division saw an increase in mortgage originations during the year ended December 31, 2025 when compared to the prior year. The lower interest rate environment increased home loan sales and home loan refinances. Gain on sale margins were up from 2.59% for the year ended December 31, 2024 to 2.70% for the year ended December 31, 2025.

Previous wording

The Bank’s Windsor Advantage division, including shared service and corporate allocations, contributed net income before taxes of $1.9 million for the year ended December 31, 2024 following the acquisition of IFH on October 1, 2024. Gross government loan servicing revenue (Windsor) totaled $4.6 million, including $0.6 million of Capital Bank related servicing fees, during the fourth quarter 2024. Windsor's total servicing portfolio was $2.5 billion at December 31, 2024.

Current wording

The Bank’s Windsor Advantage™ division, including shared service and corporate allocations, contributed net income before taxes of $5.1 million for the year ended December 31, 2025 compared to $1.9 million for the year ended December 31, 2024. The increase was primarily driven by reporting results from the IFH acquisition for a full year in 2025 compared to only three months in 2024. Gross government loan servicing revenue (Windsor™) totaled $19.6 million, as compared to $4.5 million for the year ended December 31, 2024. Gross government loan servicing revenue included Capital Bank related servicing fees of $4.1 million and $0.5 million in 2025 and 2024, respectively. When the gross government loan servicing revenue from 2024 is annualized to $18.1 million this represents an increase of $1.5 million, or 8.2%. from 2024. Windsor's™ total servicing portfolio was $3.1 billion at December 31, 2025, compared to $2.5 billion at December 31, 2024.

Previous wording

We account for business combinations under ASC 805, Business Combinations using the acquisition method of accounting and record the identifiable assets acquired, liabilities assumed and consideration paid at fair value at the acquisition date. The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill. The fair values are preliminary estimates subject to adjustments during the measurement period, which does not exceed one year after acquisition. The application of business combination principles, including the determination of the fair value of net assets acquired, requires the use of significant estimates and assumptions under ASC 820, Fair Value Measurement. See Note 2 - Business Combination in the “Notes to the Consolidated Financial Statements” to the Consolidated Financial Statements. Determining estimated fair value requires a significant amount of judgment and estimates. If our assumptions change, or errors are determined in its calculations, the fair value could materially change resulting in an adjustment to our goodwill or identifiable net assets acquired, including identified intangible assets. As of December 31, 2024, the Company believes that the fair value of the assets acquired, liabilities assumed and consideration paid at fair value at the acquisition date was appropriately determined in accordance with GAAP.

Current wording

We account for business combinations under ASC 805, Business Combinations using the acquisition method of accounting and record the identifiable assets acquired, liabilities assumed and consideration paid at fair value at the acquisition date. The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill. The fair values are preliminary estimates subject to adjustments during the measurement period, which does not exceed one year after acquisition. As of December 31, 2025, the measurement period for the acquisition has closed and the acquisition accounting is finalized. The application of business combination principles, including the determination of the fair value of net assets acquired, requires the use of significant estimates and assumptions under ASC 820, Fair Value Measurement. See Note 2 - Business Combination in the “Notes to the Consolidated Financial Statements” to the Consolidated Financial Statements. Determining estimated fair value requires a significant amount of judgment and estimates. As of December 31, 2025, the Company believes that the fair value of the assets acquired, liabilities assumed and consideration paid at fair value at the acquisition date was appropriately determined in accordance with GAAP.

Previous wording

Net income for the year ended December 31, 2024 was $31.0 million compared to net income of $35.9 million for the same period in 2023, a 13.7% decrease. Net income was $40.1 million as adjusted to exclude the impact of $3.3 million after-tax merger-related expenses, $3.2 million after-tax impact from the Initial IFH ACL Provision on non-PCD loans and a $2.6 million non-recurring equity and debt investment write-down that was nondeductible for tax purposes (non-GAAP), for the year ended December 31, 2024. Net interest income increased $13.2 million, or 9.3%, to $154.7 million when comparing the year ended December 31, 2024 to the year ended December 31, 2023, primarily due to increased average balances of $325.7 million in portfolio loans, partially offset by higher funding costs primarily resulting from the additional average deposit volume funding loan growth. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Current wording

Net income for the year ended December 31, 2025 was $57.2 million compared to net income of $31.0 million for the same period in 2024, a 84.6% increase, augmented in part by the IFH acquisition. During the year, the Bank issued a call of brokered time deposits acquired from the IFH transaction (“Call of Brokered Time Deposits”), resulting in the accelerated accretion of $4.6 million, or $3.5 million after-tax income. The Bank also incurred $2.6 million of after-tax related merger expenses. Net income, as adjusted (non-GAAP) to exclude the after-tax impact of $3.5 million for the Call of Brokered Time Deposits and $2.6 million of after-tax related merger expenses, was $56.3 million for the year ended December 31, 2025. Net interest income increased $41.2 million, or 26.7%, to $196.0 million when comparing the year ended December 31, 2025 to the year ended December 31, 2024, primarily due to the average balances of portfolio loans increasing by $623.1 million, partially offset by higher funding costs primarily resulting from the additional average deposit volume funding loan growth. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Previous wording

Noninterest expense was $126.2 million for the year ended December 31, 2024, as compared to $110.8 million for the year ended December 31, 2023, an increase of $15.5 million, or 14.0% largely due to the IFH acquisition. The change includes increases in salaries and employee benefits expenses of $7.3 million, or 14.9%, merger-related expenses of $3.9 million, advertising expenses of $0.2 million, other operating expenses of $0.8 million and data processing expense of $2.0 million, partially offset by decreases in professional fees of $1.4 million and other operational losses of $0.9 million.

Current wording

Noninterest expense was $155.1 million for the year ended December 31, 2025, as compared to $126.2 million for the year ended December 31, 2024, an increase of $28.9 million, or 22.9% largely due to the IFH acquisition. The change includes increases in salaries and employee benefits expenses of $16.1 million, or 28.8%, occupancy and equipment of $3.1 million, professional fees of $3.1 million, other operating expenses of $2.3 million, data processing expense of $2.1 million, loan processing of $1.6 million and regulatory assessment expenses of $1.4 million, partially offset by decreases in merger-related expenses of $0.6 million, operational and other card fraud related losses of $0.2 million and advertising expenses of $0.1 million.

Previous wording

For the year ended December 31, 2024, average interest earning assets increased $342.4 million, or 16.0%, to $2.5 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 3 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $288.5 million, or 22.7%, while the average cost of interest-bearing liabilities increased 47 basis points to 3.76% from 3.29%.

Current wording

For the year ended December 31, 2025, average interest earning assets increased $727.9 million, or 29.3%, to $3.2 billion as compared to the same period in 2024, and the average yield on interest earning assets decreased 46 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $548.7 million, or 35.2%, while the average cost of interest-bearing liabilities decreased 68 basis points to 3.08% from 3.76%.

Previous wording

When comparing the years ended December 31, 2024 to 2023, the largest positive impact to total interest income was the growth in interest earning assets, strengthened in part by the IFH acquisition. Growth (change due to volume) in the loan portfolio, excluding credit cards, contributed $22.8 million to the increase in interest income, while elevated interest rates on portfolio loans contributed $6.5 million for the year ended December 31, 2024 compared to the prior year. On a standalone basis, interest income attributable to the credit card portfolio declined by $1.3 million year over year primarily due to a reduction in yield. The variance in interest expense year over year was primarily impacted by growth in interest-bearing liabilities, augmented in part by the IFH acquisition. Growth in interest bearing liabilities contributed $12.3 million to increased interest expense, including $9.5 million from growth in time deposits, partially offsetting the increase in total interest income.

Current wording

When comparing the years ended December 31, 2025 to 2024, the largest positive impact to total interest income was the growth in interest earning assets, strengthened in part by the IFH acquisition. Growth (change due to volume) in the loan portfolio, excluding credit cards, contributed $42.8 million and growth in credit card loans contributed $4.9 million to the increase in interest income. Growth in the loan and credit card portfolios were both partially offset by decreased interest rates for the year ended December 31, 2025 compared to the prior year. On a standalone basis, interest income attributable to the interest-bearing deposits contributed $3.6 million to the increase in interest income. The variance in interest expense year over year was primarily impacted by growth in interest-bearing liabilities, augmented in part by the IFH acquisition. Growth in interest bearing liabilities contributed $17.6 million to increased interest expense, including $9.3 million from growth in time deposits and $8.9 million from growth in money market accounts, partially offset by rate savings of $6.7 million for time deposits and $4.4 million for money market accounts.

Previous wording

The ACL as a percent of portfolio loans was 1.85% at December 31, 2024 as compared to 1.50% at December 31, 2023. While the legacy Capital Bank portfolio credit metrics are relatively consistent with prior year, the increase in the ACL provision year-over-year is attributable to the IFH acquisition, most notably a few PCD loans that required elevated ACL coverage and are not consistent with the current product offering and stronger underwriting at IFH at the time of the acquisition. 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 December 31, 2024 in “Financial Condition - Allowance for Credit Losses.”

Current wording

The ACL as a percent of portfolio loans was 1.85% at December 31, 2025 and 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 December 31, 2025 in “Financial Condition - Allowance for Credit Losses.”

Previous wording

A 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

A primary source of recurring noninterest income are credit card fees, such as interchange fees and statement fees, Windsor Advantage™ fee income in connection with its servicing, processing and packaging of SBA and USDA loans for its financial institution clients, 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.

Previous wording

The Bank’s Capital Bank Home Loans division experienced an increase of 48.7% in mortgage originations during the year ended December 31, 2024 when compared to the same period in the prior year. Origination volumes increased $98.0 million, to $299.1 million, for the year ended December 31, 2024, when compared to $201.1 million for the same period in the prior year. Gain on sale margins were down from 2.76% for the twelve months ended December 31, 2023 to 2.59% for the year ended December 31, 2024.

Current wording

The Bank’s Capital Bank Home Loans division experienced an increase of 11.7% in mortgage originations during the year ended December 31, 2025 when compared to the prior year. Origination volumes increased $35.0 million, to $334.1 million, for the year ended December 31, 2025, when compared to $299.1 million for the same period in the prior year. Gain on sale margins were up from 2.59% for the year ended December 31, 2024 to 2.70% for the year ended December 31, 2025.

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 generally accepted accounting principles for possible repurchases. The reserve was $2.3 million at December 31, 2024 and $1.0 million at December 31, 2023. The Bank repurchased one loan totaling $296 thousand during the year ended December 31, 2024. The Bank repurchased one loan totaling $597 thousand during the year ended December 31, 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 for possible repurchases. The reserve was $2.3 million at December 31, 2025 and $2.3 million at December 31, 2024. The Bank did not repurchase any loans during the year ended December 31, 2025. The Bank repurchased one loan totaling $296 thousand during the year ended December 31, 2024. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.

Previous wording

Income tax expense was $10.9 million for 2024 compared to $10.4 million for 2023. Our effective tax rates for those periods were 26.0% and 22.4%, respectively. The elevated tax rate in 2024 resulted from the non-deductibility of a non-recurring equity and debt investment write down, in a legacy IFH investment, along with certain merger-related expenses. In December of 2024 the Company became aware of certain financial conditions in a legacy IFH investment which indicated the need to evaluate the investment for impairment. Based upon the Company’s financial evaluation of a legacy IFH investment it was determined that the value of the Company’s investment in a legacy IFH investment was impaired and a write-down of the investment value was required. The Company does not hold any additional equity securities, therefore the Company does not expect any future deferred tax benefits associated with the impairment.

Current wording

Income tax expense was $17.8 million for 2025 compared to $10.9 million for 2024. Our effective tax rates for those periods were 23.7% and 26.0%, respectively. The elevated tax rate in 2024 resulted from the non-deductibility of a non-recurring equity and debt investment write down associated with a legacy IFH investment, along with certain merger-related expenses. In December of 2024, the Company became aware of certain financial conditions in a legacy IFH investment which indicated the need to evaluate the investment for impairment. Based upon the Company’s financial evaluation of that investment, it was determined that a write-down of the investment value was required. The Company does not hold any additional equity securities; therefore, the Company does not expect any future deferred tax benefits associated with such investment.

Previous wording

(1) See “Non-GAAP Financial Measures and Reconciliations” for a reconciliation of non-GAAP measures.

Current wording

(1)See “Non-GAAP Financial Measures and Reconciliations” for a reconciliation of non-GAAP measures.

Previous wording

The following tables summarize the contractual maturities, without consideration of call features or pre-refunding dates, and weighted-average yields of investment securities at December 31, 2024 and the amortized cost and carrying value of those securities as of the indicated dates. The weighted average yields were calculated by multiplying the amortized cost of each individual security by its yield, dividing that figure by the portfolio total, and then summing the value of these results to arrive at the weighted average yield. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.

Current wording

The following tables summarize the contractual maturities, without consideration of call features or pre-refunding dates and weighted-average yields, of investment securities at December 31, 2025 and the amortized cost and carrying value of those securities as of the indicated dates. The weighted average yields were calculated by multiplying the amortized cost of each individual security by its yield, dividing that figure by the portfolio total, and then summing the value of these results. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.

Previous wording

As described in “Note 3 - Investment Securities” in the “Notes to the Consolidated Financial Statements” at December 31, 2024, management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at December 31, 2024 before it is able to recover the amortized cost basis. Further, management reviewed the Company’s holdings as of December 31, 2024 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2024, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:

Current wording

As described in “Note 3 - Investment Securities” in the “Notes to the Consolidated Financial Statements” at December 31, 2025, management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at December 31, 2025 before it is able to recover the amortized cost basis. Further, management reviewed the Company’s holdings as of December 31, 2025 and concluded that there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2025, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:

Previous wording

Corporate Securities – There have been no payment defaults on any of the Company’s holdings of corporate debt securities. There are 5 securities all of which are subordinated debt of other financial institutions with face amounts ranging from $0.5 million to $2 million.

Current wording

Corporate Securities – There have been no payment defaults on any of the Company’s holdings of corporate debt securities. There are three securities all of which are subordinated debt of other financial institutions with face amounts ranging from $0.5 million to $2 million.

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 December 31, 2024, 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 December 31, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poor’s or Fitch, is as follows: AAA – 76% of the portfolio; AA+ – 24%.

Previous wording

Asset-backed Securities – There were 3 investment grade asset-backed securities, and there have been no payment defaults on these securities.

Current wording

Asset-backed Securities – There are three investment grade asset-backed securities, and there have been no payment defaults on these securities.

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 $3.1 million as of December 31, 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 $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 $3.8 million as of December 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$41.4 million as of December 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

Construction Loans. Construction loans are offered within the Company’s Washington, D.C. and Baltimore, Maryland metropolitan operating areas to builders, primarily for the construction of single-family homes and condominium and townhouse conversions or renovations and, to a lesser extent, to individuals. Construction loans typically have terms of 12 to 18 months. The Company frequently transitions the end purchaser to permanent financing or re-underwriting and sale into the secondary market through Capital Bank Home Loans. According to underwriting standards, the ratio of loan principal to collateral value, as established by an independent appraisal, cannot exceed 75% for investor-owned and 80% for owner-occupied properties, although exceptions are sometimes made. The Company performs a stress test of the construction loan portfolio at least once a year, and underlying real estate conditions are monitored as well as trends in sales outcomes versus underwriting valuations as part of ongoing risk management efforts. The borrowers’ progress in construction buildout is monitored against the original underwriting guidelines for construction milestones and completion timelines.

Current wording

Construction Loans. Construction loans are offered primarily within the Company’s Washington, D.C. and Baltimore, Maryland metropolitan operating areas to builders, primarily for the construction of single-family homes and condominium and townhouse conversions or renovations and, to a lesser extent, to individuals. Construction loans typically have terms of 12 to 18 months. The Company frequently transitions the end purchaser to permanent financing or re-underwriting and sale into the secondary market through Capital Bank Home Loans. According to underwriting standards, the ratio of loan principal to collateral value, as established by an independent appraisal, cannot exceed 75% for investor-owned and 80% for owner-occupied properties, although exceptions are sometimes made. The Company performs a stress test of the construction loan portfolio at least once a year, and underlying real estate conditions are monitored as well as trends in sales outcomes versus underwriting valuations as part of ongoing risk management efforts. The borrowers’ progress in construction buildout is monitored against the original underwriting guidelines for construction milestones and completion timelines.

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, 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.

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/or equipment. Personal guaranties from the borrower or other principal are generally obtained.

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 $87.2 million and $95.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of December 31, 2024 and December 31, 2023, respectively. Unsecured balances were $42.4 million and $30.8 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 $83.1 million and $87.2 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of December 31, 2025 and December 31, 2024, respectively. Unsecured balances were $61.4 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, or 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.

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 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. PCD loans are grouped with organically created loans in their applicable loan category. After initial recognition, the accounting for a PCD loan follows the credit loss model that applies to the loan category.

Previous wording

Loans are generally charged-off in part or in full when management determines the loan to be uncollectible. Factors for charge-off that may be considered include: repayments deemed to be extended out beyond reasonable time frames, customer bankruptcy and lack of assets, and/or collateral deficiencies. Consumer credit card balances are moved into the charge off queue after they become more than 90 days past due and are charged off not later than 120 days after they become past due. Otherwise, loans that are past due for 180 days or more are charged off unless the loan is well-secured and in the process of collection.

Current wording

Loans are generally charged-off in part or in full when management determines the loan to be uncollectible. Factors for charge-off that may be considered include: repayments deemed to be extended out beyond reasonable time frames, customer bankruptcy and lack of assets, and/or collateral deficiencies. Secured consumer credit card balances are eligible for charge-off after they become more than 90 days past due. Unsecured consumer credit card balances are eligible for charge-off after they become more than 150 days past due and are charged off not later than 180 days after they become past due. Otherwise, loans that are past due for 180 days or more are charged off unless the loan is well-secured and in the process of collection.

Previous wording

Management is intent on maintaining a strong credit review function and risk rating process. The Company has an experienced credit administration function, which provides independent analysis of credit requests and the management of problem credits. The credit department has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system, and continually endeavors to adapt and enhance the monitoring of the loan portfolio. The loan portfolio analysis process is intended to contribute to the identification of weaknesses before they become more severe.

Current wording

Management is intent on maintaining a strong credit review function and risk rating process. The Company has an experienced credit administration function, which provides independent analysis of credit requests and the management of problem credits. The credit department has developed and implemented analytical procedures for evaluating credit requests, administers the Company’s risk rating system, and endeavors to adapt and enhance the monitoring of the loan portfolio. The loan portfolio analysis process is intended to contribute to the identification of weaknesses before they become more severe.

Previous wording

At December 31, 2024, the recorded investment in individually assessed loans was $34.9 million, requiring a specific reserve of $9.3 million. At December 31, 2023, the recorded investment in individually assessed loans was $16.0 million, requiring a specific reserve of $0.4 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 December 31, 2025, the recorded investment in individually assessed loans was $52.8 million, requiring a specific reserve of $9.9 million, whereas at December 31, 2024 the recorded investment in individually assessed loans was $34.9 million, requiring a specific reserve of $9.3 million. The $52.8 million of individually assessed loans at December 31, 2025 included two loan relationships totaling $15.9 million, with a combined reserve of $7.2 million as of December 31, 2025. 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

As the loan portfolio and ACL review processes continue to evolve, there may be changes to elements of the allowance and this may influence the overall level of the allowance maintained. Historically, the Bank has enjoyed a high-quality loan portfolio with relatively low levels of net charge-offs and low delinquency rates. The maintenance of a high-quality portfolio will continue to be a priority.

Current wording

As the loan portfolio and ACL review processes continue to evolve, there may be changes to elements of the allowance and this may influence the overall level of the allowance maintained. Historically, the Bank has experienced a high-quality loan portfolio with relatively low levels of net charge-offs and delinquency rates. The maintenance of a high-quality portfolio will continue to be a priority.

Previous wording

(1) Loan category as a percentage of total portfolio loans.

Current wording

(1)Loan category as a percentage of total portfolio loans.

Previous wording

Total liabilities at December 31, 2024 increased $880.5 million from December 31, 2023, primarily due to the IFH acquisition.

Current wording

Total liabilities at December 31, 2025 increased $352.7 million, from December 31, 2024 due to growth in the deposit portfolio of $331.0 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 December 31, 2024 and December 31, 2023, our credit card customers accounted for $166.4 million and $173.9 million, or 20.5% and 28.2%, 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 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 December 31, 2025 and December 31, 2024, our credit card customers accounted for $163.2 million and $166.4 million, or 19.1% and 20.5%, respectively, of our total noninterest-bearing deposit balances.

Previous wording

The Company had $333.0 million in brokered deposits at December 31, 2024 compared to $142.4 million at December 31, 2023.

Current wording

The Company had $376.7 million in brokered deposits at December 31, 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 December 31, 2024, these concentrations represented 6% and 11% of deposits, respectively. As of December 31, 2023, these deposits represented 9% and 12% of deposits, respectively.

Current wording

Deposits securing our OpenSky™card lines of credit and deposits from title companies represent the largest concentrations in the deposit portfolio. As of December 31, 2025, these concentrations represented 5% and 10% of deposits, respectively. As of December 31, 2024, these deposits represented 6% and 11% of deposits, respectively.