Capital Bancorp Inc
For the period ended Mar 31, 2026. Filed May 8, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed May 8, 2026
CBNK$42.39-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-09-30; filed 2025-11-10.
0001419536-25-000111
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2026-03-31; filed 2026-05-08.
0001419536-26-000100
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 232 previous paragraphs and 216 current paragraphs.
132 unchanged; 57 reworded; 25 added; 40 removed; 3 previous and 2 current paragraphs rearranged.
Tables are not compared: 36 previous and 34 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
•volatility in our stock price due to investor sentiment and perception of the banking industry;
Current report
•changes in the mix of loan sectors, or types, and the level of non-performing assets, charge-offs, and delinquencies;
Current report
•our ability to attract, develop, motivate and retain skilled employees;
Current report
•our ability to assess the effect of and incorporate the evolving uses of AI on our business;
Current report
•the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures; and
Current report
•our ability to remediate the material weakness in the Company’s internal control over financial reporting.
Current report
Our Commercial Banking division primarily operates within a corridor extending from Raleigh, North Carolina to Delaware, with significant activity in the Washington, D.C. and Baltimore metropolitan statistical areas. The Commercial Bank also maintains offices in Chicago, Illinois and Fort Lauderdale, Florida. In addition to providing relationship-driven banking services within its primary geographic markets, the Commercial Bank conducts certain lending and deposit activities on a nationwide basis through specialized verticals. These lending verticals include lender finance, government guaranteed lending and other forms of commercial and industrial (“C&I”) lending. The Commercial Bank also operates national deposit verticals servicing homeowners associations (“HOAs”), title companies, political action committees (“PACs”), not-for-profit organizations, and other commercial clients.
Current report
Net income for the three months ended March 31, 2026 was $12.0 million, compared to net income of $13.9 million for the same period in 2025, a 13.7% decrease. There were no non-GAAP adjustments to net income of $12.0 million for three months ended March 31, 2026, a $3.0 million decrease from net income, as adjusted (non-GAAP) of $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 report
Net interest income increased by $3.4 million, or 7.3%, to $49.4 million when comparing the three months ended March 31, 2026 to the three months ended March 31, 2025, primarily driven by increased interest income of $4.6 million from the Commercial Bank due to strong balance sheet growth offset by $0.9 million of lower purchase accounting accretion (“PAA”).
Current report
For the three months ended March 31, 2026, noninterest income of $13.4 million increased $0.8 million, or 6.6%, from the same period in 2025, primarily due to a $0.8 million increase from government loan servicing and packaging revenue. Credit card fees of $4.7 million for the three months ended March 31, 2026 increased $1.0 million compared to the same period in the prior year primarily due to growth in unsecured product. For the three months ended March 31, 2026, mortgage banking revenue of $1.6 million decreased $0.3 million primarily due to a $0.2 million decrease in gain on sale.
Current report
Noninterest expense was $43.7 million for the three months ended March 31, 2026, an increase of $5.6 million from the same period in 2025. The change was primarily driven by increases in professional fees of $2.9 million, salaries and employee benefits expenses of $2.3 million, data processing expense of
Current report
$0.7 million, occupancy and equipment expenses of $0.7 million, and loan processing expenses of $0.6 million, offset by decreases in merger-related expenses of $1.3 million and operating losses of $0.2 million.
Current report
(2)Portfolio loans receivable balance includes nonaccrual loans.
Current report
(3)For the three months ended March 31, 2026 and 2025, collectively, Core Loan Yield was 6.93% and 7.14%, respectively. See “Non-GAAP Financial Measures and Reconciliations” for a reconciliation of non-GAAP measures.
Current report
For the three months ended March 31, 2026, the provision for credit losses was $3.0 million, an increase of $0.8 million from the same period in 2025. The increased provision for credit losses was primarily driven by increases of $1.2 million for C&I loans, $0.8 million for residential real estate loans, and $0.8 million for OpenSky™, offset slightly by $1.8 million of decreases for commercial real estate loans. The C&I and residential real estate loan portfolios grew 22.9% and 14.7%, respectively, from March 31, 2025, resulting in an increase to the reserve. The provision from OpenSky™ increased $0.8 million, primarily driven by higher volumes in the unsecured portfolio - as unsecured card balances increased $19.9 million from $26.7 million, or 22% of the credit card portfolio at March 31, 2025 to $46.6 million, or 34% of the credit card portfolio at March 31, 2026. Additionally, net charge-offs for OpenSky™ increased $0.8 million compared to the three months ended March 31, 2025. The $1.8 million decrease to the provision for commercial real estate was largely attributable to the run-off of PCD loans in the loan portfolio, resulting in a lower reserve requirement than in 2025. Net charge-offs for the three months ended March 31, 2026 were $3.0 million, or 0.40% on an annualized basis of average portfolio loans, compared to $2.4 million, or 0.38% on an annualized basis of average portfolio loans for the same period in 2025. Of the $3.0 million in net charge-offs during the quarter, there was a net recovery of $0.1 million from Commercial Bank loans, driven by commercial and industrial loans, and OpenSky™ net charge-offs totaled $3.1 million including $2.3 million related to unsecured credit cards and $0.8 million related to secured and partially secured credit cards.
Current report
For the three months ended March 31, 2026, noninterest income of $13.4 million increased $0.8 million, or 6.6%, from the same period in 2025. The increase was primarily driven by $1.0 million of increased credit card fees and $0.8 million of increased government loan servicing and packaging revenue (Windsor Advantage™), offset by a $0.6 million decrease in other income.
Current report
Mortgage banking revenue of $1.6 million decreased $0.3 million from the three months ended March 31, 2025, primarily driven by the decreased gain on sale of $0.2 million.
Current report
Government lending revenue of $0.9 million for the three months ended March 31, 2026 decreased $0.2 million as compared to the three months ended March 31, 2025, primarily as a result of significant budget cuts within the USDA and changes to investment tax credits for commercial solar loans that began to take effect in 2025 and resulted in decreased volumes for government guaranteed loans. However, the reduced volume was slightly offset by increased SBA loan sales generated by a new team.
Current report
Noninterest expense was $43.7 million for the three months ended March 31, 2026, as compared to $38.1 million for the three months ended March 31, 2025, an increase of $5.6 million. The change included increases of $2.9 million in professional fees associated with strategic investments in shared service areas and card partnerships for OpenSky™, $2.3 million of increases in salaries and employee benefits expenses due to headcount growth, $0.7 million in data processing costs related to investments in data infrastructure for OpenSky™ and core processing for the Commercial Bank, $0.7 million in occupancy and equipment due to an increase in software contracts and the acceleration of depreciation of capitalized assets related to OpenSky™ technology, $0.6 million in loan processing costs from loan expenses associated with our government guaranteed lending portfolio, and $0.2 million in other operating expenses. The increased spending was slightly offset by decreases of $1.3 million in merger-related expenses, $0.3 million in advertising, and $0.2 million in operational and other card fraud related losses.
Current report
The following table presents, for the periods indicated, our effective income tax rate:
Current report
Income tax expense was $3.9 million and $4.4 million for the three months ended March 31, 2026 and 2025, respectively. Our effective tax rate increased from 23.9% for the three months ended March 31,
Current report
2025 to 24.3% for the three months ended March 31, 2026 due to an increase in nondeductible stock-based compensation expense and nondeductible compensation expense. Additional information regarding the Company’s income taxes are discussed in detail in Note 13 “Income Taxes” in the “Notes to the Consolidated Financial Statements” contained in Part II. Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Current report
The past due loans balance increased $15.0 million, from $93.5 million or 3.2% of gross loans as of December 31, 2025 to $108.5 million or 3.6% of gross loans as of March 31, 2026. The increase was primarily driven by $9.7 million of increases in construction loans and $3.0 million in commercial real estate loans. During management’s quarterly review it was noted that the $9.7 million increase for construction real estate loans was driven by 3 loans from a single relationship that are 30-59 days past due. One commercial real estate loan accounted for $1.5 million of the $3.0 million increase in both total and 90+ days past due loans and is attributable to a well-known borrower with the property pending sale. Further, although the past due balance for C&I loans decreased $0.8 million, there was a $3.4 million increase in loans 90+ days past due. The increase in loans past due 90 days or more was driven by a single commercial loan relationship with a balance of approximately $3.8 million, of which 80% is guaranteed by the USDA. Management believes the credit remains appropriately monitored and reflected within the allowance for credit losses.
Current report
At March 31, 2026, the ACL coverage ratio was 1.81%, down 4 bps from December 31, 2025 and flat compared to March 31, 2025.
Current report
FHLB Advances. The Federal Home Loan Bank (“FHLB”) provides the Company with secured borrowing capacity collateralized by eligible loans and investment securities pledged under a blanket lien arrangement. As of March 31, 2026, approximately $513.5 million of loans and $119.3 million of investment securities were pledged as collateral to the FHLB, supporting total borrowing capacity of $632.8 million. The Company utilizes FHLB advances to support liquidity management and overall balance-sheet positioning, including funding certain fixed-rate loans. As of March 31, 2026, the Company had $50.0 million in outstanding FHLB advances and $582.8 million of available borrowing capacity.
Removed paragraphs (40)
Previous report
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 as well as engaging in government-guaranteed lending on a national basis. Additionally, the Commercial Bank engages in deposit verticals on a nationwide scale providing services to HOAs, mortgage companies and other customers.
Previous report
Net income for the three months ended September 30, 2025 was $15.1 million, compared to net income of $8.7 million for the same period in 2024, a 73.7% increase. During the quarter, 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 $0.6 million after-tax merger-related 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$0.6 million of after-tax merger-related expenses, was $12.2 million for the three months ended September 30, 2025, compared to adjusted net income (non-GAAP) of $9.2 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 report
Net interest income increased by $13.7 million, or 35.6%, to $52.0 million when comparing the three months ended September 30, 2025 to the three months ended September 30, 2024, primarily driven by organic growth and the acquisition of IFH. During the quarter, the Bank identified USDA and SBA servicing income related to legacy IFH loans that was incorrectly recorded as interest income in the first and second quarter of 2025, while also being properly recorded as Fee Revenue for the Bank’s retained portion of the loans during those periods. As a result, the Bank recorded a one-time reversal of the $1.3 million of interest income (“Interest Income Adjustment”). Excluding this adjustment, net interest income increased $15.0 million compared to the three months ended September 30, 2024.
Previous report
For the three months ended September 30, 2025, noninterest income of $11.1 million increased $4.4 million, or 66.8%, from the same period in 2024, primarily due to the contributions made by the businesses IFH brought to the merged entity. Credit card fees of $4.5 million for the three months ended September 30, 2025 increased $0.5 million compared to the same period in the prior year while mortgage banking revenue of $1.9 million remained consistent.
Previous report
Noninterest expense was $38.4 million for the three months ended September 30, 2025, as compared to $29.7 million for the three months ended September 30, 2024. The change included increases in salaries and employee benefits expenses of $4.4 million, occupancy and equipment expenses of $1.1 million, other operating expense of $1.0 million, data processing expense of $0.7 million, loan processing expenses of $0.5 million, advertising expenses of $0.5 million, regulatory assessment expenses of $0.3 million, merger-related expenses of $0.2 million and professional fees of $0.2 million offset by a decrease in operational losses of $0.1 million.
Previous report
Net income for the nine months ended September 30, 2025 was $42.1 million, compared to net income of $23.4 million for the same period in 2024, a 79.8% increase. Net income, as adjusted to exclude the impact of merger-related expenses and the Call of Brokered Time Deposits (non-GAAP), was $41.3 million for the nine months ended September 30, 2025, compared to net income, as adjusted to exclude the impact of merger-related expenses (non-GAAP) of $24.6 million for the same period in 2024, a 67.7% increase.
Previous report
Net interest income increased $35.3 million, or 32.0%, to $145.7 million when comparing the nine months ended September 30, 2025 to the nine months ended September 30, 2024, primarily driven by organic growth and the acquisition of IFH.
Previous report
The provision for credit losses for the nine months ended September 30, 2025 was $11.0 million, an increase of $1.1 million from the same period in 2024. Net charge-offs for the nine months ended September 30, 2025 were $10.0 million, or 0.49% on an annualized basis of average portfolio loans, compared to $6.6 million, or 0.44% on an annualized basis of average loans for the same period in 2024.
Previous report
For the nine months ended September 30, 2025, noninterest income was $36.7 million, an increase of $17.2 million, or 88.4%, 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 $5.5 million increased $0.2 million while credit card fees of $12.5 million declined $0.3 million from lower interchange and other fee income recognized compared to the prior year.
Previous report
Noninterest expense was $116.0 million for the nine months ended September 30, 2025, as compared to $88.7 million for the nine months ended September 30, 2024, an increase of $27.3 million, or 30.7%. The change included increases in salaries and employee benefits expenses of $14.7 million, or 37.3%, occupancy and equipment expenses of $3.5 million, other operating expenses of $2.2 million, merger-related expenses of $2.0 million, data processing expense of $1.8 million, loan processing expenses of $1.4 million, regulatory assessment expenses of $1.1 million and professional fees of $1.0 million offset by a decrease in advertising expenses of $0.5 million.
Previous report
(2)Includes nonaccrual loans.
Previous report
(3)For the three months ended September 30, 2025 and 2024, collectively, Commercial Bank Loan Yield was 6.74% and 7.15%, respectively.
Previous report
The net interest margin decreased 5 basis points to 6.36% for the three months ended September 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 4.64% for the three months ended September 30, 2025, compared to 4.01% 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 report
(2)Includes nonaccrual loans.
Previous report
(3)For the nine months ended September 30, 2025 and 2024, collectively, Commercial Bank Loan Yield was 7.01% and 7.05%, respectively.
Previous report
(4)For the nine months ended September 30, 2025 and 2024, collectively, Commercial Bank Net Interest Margin was 4.45% and 4.13%, respectively.
Previous report
For the nine months ended September 30, 2025, average interest earning assets increased $852.1 million, or 36.8%, to $3.2 billion as compared to the same period in 2024, but the average yield on interest earning assets decreased 63 basis points, primarily due to the acquisition of commercial loans diluting the positive impact from OpenSky TMas well as a shift in the rate environment. Compared to the same period in the prior year, average interest-bearing liabilities increased $658.2 million, or 46.5%, while the average cost of interest-bearing liabilities decreased 89 basis points to 3.00% from 3.89% primarily due to the Call of Brokered Time Deposits, purchase accounting accretion, and a shift in the rate environment.
Previous report
For the three months ended September 30, 2025, the provision for credit losses was $4.7 million, an increase of $0.9 million from the same period in 2024, primarily driven by $0.5 million higher provision from OpenSky™ due to higher volumes in the secured and unsecured portfolio. Net charge-offs for the three months ended September 30, 2025 were $2.5 million, or 0.35% on an annualized basis of average portfolio loans, compared to $2.7 million, or 0.51% on an annualized basis of average portfolio loans for the same period in 2024. Of the $2.5 million in net charge-offs during the quarter, Commercial Bank net charge-offs totaled $0.3 million, $0.3 million related to commercial and industrial loans, and OpenSky™ net charge-offs totaled $2.1 million including $1.3 million related to unsecured credit cards and $0.8 million related to secured and partially secured credit cards.
Previous report
For the nine months ended September 30, 2025, the provision for credit losses was $11.0 million, an increase of $1.1 million from the same period in 2024, attributable primarily to portfolio loan growth and specific reserves increased to $10.0 million for collateral dependent loans at September 30, 2025 from $1.0 million at September 30, 2024, mainly due to the acquisition of IFH. Net charge-offs for the nine months ended September 30, 2025 were $10.0 million, or 0.49% on an annualized basis of average portfolio loans, compared to $6.6 million, or 0.44% on an annualized basis of average portfolio loans, for the same period in 2024. The $10.0 million in net charge-offs during the nine months ended September 30, 2025 was comprised primarily of credit card portfolio net charge-offs, with $2.5 million related to secured and partially secured credit cards while $4.0 million was related to unsecured credit cards. Further, $1.7 million of net charge-offs were related to owner-occupied commercial real estate loans, $0.3 million were related to construction loans and $1.5 million were related to commercial and industrial loans. One PCD loan was attributable to $1.5 million of the $1.7 million of net charge-offs for owner-occupied commercial real estate loans. A specific reserve of $2.8 million was originally recorded for the loan, which was then sold to a third party allowing for $1.3 million of the reserve to be released and the remaining $1.5 million to be charged off. The $1.5 million net charge-offs for commercial and industrial loans were primarily attributable to the unguaranteed portions of SBA loans.
Previous report
For the three months ended September 30, 2025, noninterest income of $11.1 million increased $4.4 million, or 66.8%, from the same period in 2024 primarily due to contributions from the IFH acquisition. Government loan servicing revenue (Windsor Advantage™) totaled $4.3 million net of intercompany charges and there was no government lending revenue (gain on sale).
Previous report
For the nine months ended September 30, 2025, noninterest income of $36.7 million increased $17.2 million, or 88.4%, from the same period in 2024 primarily due to contributions from the IFH acquisition. Government loan servicing revenue (Windsor Advantage™) totaled $11.5 million net of intercompany charges and government lending revenue (gain on sale) totaled $4.2 million.
Previous report
Origination volumes increased $17.7 million to $226.8 million in the nine months ended September 30, 2025 compared to the prior year. The gain on sale margin increased to 2.75% for the nine months ended September 30, 2025 from 2.65% for the nine months ended September 30, 2024.
Previous report
Mortgage banking revenue of $1.9 million remained consistent as compared to the three months ended September 30, 2025. Mortgage banking revenue of $5.5 million for the nine months ended September 30, 2025 increased $0.2 million as home loan sales remained stable compared to the prior year.
Previous report
Noninterest expense was $38.4 million for the three months ended September 30, 2025, as compared to $29.7 million for the three months ended September 30, 2024, an increase of $8.6 million, primarily driven by the acquisition of IFH. The change included increases in salaries and employee benefits expenses of $4.4 million, occupancy and equipment expenses of $1.1 million, other operating expenses of $1.0 million, data processing expense of $0.7 million, loan processing expenses of $0.5 million, advertising expenses of $0.5 million, regulatory assessment expenses of $0.3 million, merger-related expenses of $0.2 million and professional fees of $0.2 million offset by a decrease in operational losses of $0.1 million.
Previous report
Noninterest expense was $116.0 million for the nine months ended September 30, 2025, as compared to $88.7 million for the nine months ended September 30, 2024, an increase of $27.3 million, or 30.7%. The change included increases in salaries and employee benefits expenses which increased by $14.7 million, or 37.3%, occupancy and equipment expenses of $3.5 million, other operating expenses of $2.2 million, merger-related expenses of $2.0 million, data processing expense of $1.8 million, loan processing expense of $1.4 million, regulatory assessment expenses of $1.1 million and professional fees of $1.0 million offset by a decrease in advertising expenses of $0.5 million.
Previous report
Income tax expense was $4.8 million and $13.1 million for the three and nine months ended September 30, 2025, respectively, compared to $2.8 million and $7.6 million for the same periods, respectively, in 2024. Our effective tax rate decreased from 24.6% for the three months ended September 30, 2024 to 24.2% for the three months ended September 30, 2025, and from 24.5% for the nine months ended September 30, 2024 to 23.8% for the nine months ended September 30, 2025 due to a reduction in non-deductible merger and equity compensation costs, along with an increase in investments that are eligible for Low Income Housing Tax Credits.
Previous report
At September 30, 2025, the nonperforming assets were $52.2 million, an increase of $22.0 million from December 31, 2024. Credit metrics were impacted by the two loan relationships previously mentioned, both of which were acquired as part of the IFH transactions. These two loan relationships accounted for a combined $15.9 million increase to the nonperforming assets and the remaining $6.1 million increase in nonperforming assets is consistent with the $182.5 million increase in total assets.
Previous report
•One relationship across three loans accounted for an $8.8 million increase to nonperforming assets. One loan of $5.0 million was previously identified as a PCD loan, which had a specific ACL reserve of $3.8 million established from Day-1 purchase accounting of the IFH acquisition. The other two are USDA loans with an unguaranteed balance of $3.8 million secured by underlying assets, which have no ACL reserve recorded.
Previous report
•The other relationship accounted for a $7.1 million increase to nonperforming assets. As previously mentioned, the loan was reassigned to a PCD loan as a measurement period adjustment to the Day-1 purchase accounting from the IFH acquisition. The measurement period adjustment for this loan resulted in recording a specific ACL reserve of $3.4 million during the quarter, or a 12 bps impact to the ACL Coverage Ratio.
Previous report
The past due loans balance increased $46.9 million, from $66.8 million or 2.5% of gross loans as of December 31, 2024 to $113.7 million or 4.0% of gross loans as of September 30, 2025. Management assessed the change in volume and severity of past due loans and identified that $40.1 million of the $46.9 million increase was isolated to the following:
Previous report
•As described above, there were two loan relationships acquired from IFH, which amounted to $15.9 million and were identified as nonperforming assets as of September 30, 2025;
Previous report
•Five loans that amounted to a total of $15.3 million as of September 30, 2025 were paid and processed immediately after period-end, becoming current as of October 2025;
Previous report
•Loans for solar projects totaling $5.3 million that were paid in early October 2025 becoming current; and
Previous report
•Two loans where the $3.6 million past due balance reflects the full outstanding balance, of which 75% is guaranteed by the SBA.
Previous report
The remaining $6.8 million increase in the past due loans balance corresponds with the $192.3 million increase in the total loan portfolio from December 31, 2024. When the $40.1 million of loans described above are excluded from the balances as of September 30, 2025, the adjusted past due loan balance of $73.6 million represents 2.6% of adjusted gross loans, which is consistent with the 2.5% ratio at December 31, 2024.
Previous report
It was identified during the three and nine months ended September 30, 2025 that one of the loans acquired from IFH should have been assigned as a PCD loan based on facts and circumstances that existed as of the acquisition date. The loan was reclassified as a PCD loan and a specific ACL reserve of $3.4 million was established as a measurement period adjustment to the Day-1 purchase accounting.
Previous report
At September 30, 2025, the ACL coverage ratio was 1.88%, up 3 bps from December 31, 2024. It was identified during the three and nine months ended September 30, 2025 that one of the loans acquired from IFH should have been assigned as a PCD loan based on facts and circumstances that existed as of the acquisition date. The loan was reclassified as a PCD loan and a specific ACL reserve of $3.4 million was established as a measurement period adjustment to the Day-1 purchase accounting.
Previous report
FHLB Advances. The FHLB allows us to borrow up to 25% of our assets on a blanket floating lien status collateralized by certain securities and loans. As of September 30, 2025, approximately $708.5 million in real estate loans and $123.3 million of investment securities were pledged as collateral to the FHLB and our total borrowing capacity from the FHLB was $664.3 million. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of September 30, 2025, we had $22.0 million in outstanding advances and $642.3 million in available borrowing capacity from the FHLB.
Previous report
On November 30, 2020, the Company issued $10.0 million in subordinated notes due in 2030 (the “Notes”). The Notes have a ten year term and have a fixed rate of 5.00% for the first five years; thereafter, the rate resets quarterly to a benchmark rate, which is expected to be the three-month SOFR, plus 490 basis points. On October 28, 2025, the Company provided notice to the holders that the Company will redeem all outstanding Notes on November 30, 2025.
Previous report
Bank’s Bank Term Funding Program (“BTFP”). As of March 31, 2024, participation in the BTFP had concluded and the Company had no outstanding balances under the BTFP at September 30, 2024.
Reworded paragraphs (57)
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 and nine months ended September 30, 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, 2025. The results for the three months ended March 31, 2026 are not necessarily indicative of the results expected for the year ending December 31, 2026.
Previous 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;
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, inflation/deflation, and the overall strength of the consumer) that impact the financial services industry as a whole and/or our business;
Previous wording
•geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the ongoing wars in Ukraine and the Middle East, which could impact business and economic conditions in the U.S. and abroad;
Current wording
•geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the ongoing wars in Israel, Iran and Ukraine, which could impact business and economic conditions in the U.S. and abroad;
Previous wording
•the effects of federal government shutdowns, debt ceiling standoff, or other fiscal policy uncertaintly;
Current wording
•the effects of federal government shutdowns, debt ceiling standoff, or other fiscal policy uncertainty;
Previous wording
•changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters;
Current wording
•changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters;
Previous wording
•the effect of acquisitions we have undertaken, such as our recent acquisition of Integrated Financial Holdings, Inc. (“IFH”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations, including the planned growth of Windsor Advantage™;
Current wording
•the effect of acquisitions we have undertaken, such as our acquisition of Integrated Financial Holdings, Inc. (“IFH”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations, including with regard to the planned growth of Windsor Advantage™;
Previous wording
•increased competition in the financial services industry, particularly from regional and national institutions;
Current wording
•increased competition in the financial services industry, particularly from regional and national banks, financial holding companies, and other traditional and non-traditional financial service providers;
Previous wording
•changes in Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) U.S. government guaranteed lending rules, regulations, loan and lease products and funding limits, including specifically the SBA Section 7(a) program, as well as changes in SBA or USDA standard operating procedures, all of which could impact our ability to originate these types of loans within Capital Bank, N.A. or the servicing, processing and packaging by Windsor Advantage™ of such loans on behalf of others;
Current wording
•changes in Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) U.S. government guaranteed lending rules, regulations, loan and lease products and funding limits, as well as changes in SBA or USDA standard operating procedures, all of which could impact our ability to originate these types of loans within Capital Bank, N.A. or the servicing, processing and packaging by Windsor Advantage™ of such loans on behalf of others;
Previous wording
•changes in the value of collateral securing our loans;
Current wording
•changes in the value of the collateral securing our loans;
Previous wording
•our dependence on our information technology and telecommunications systems, including third party vendors, and the potential for any data privacy incidents or other systems failures, interruptions, or security breaches and risks related to the development and use of artificial intelligence;
Current wording
•our dependence on our information technology and telecommunications systems, including third party vendors, and the potential for any data privacy incidents or other systems failures, interruptions, or security breaches and risks related to the development and use of artificial intelligence (“AI”);
Previous wording
•changes to local rent control laws, which may impact the credit quality of multifamily housing loans; and
Current wording
•changes to local rent control laws, which may impact the credit quality of multifamily housing loans;
Previous wording
We are Capital Bancorp, Inc., a bank holding company and a Maryland corporation incorporated in 1998, operating primarily through our wholly-owned subsidiary, Capital Bank, N.A., a commercial-focused community bank based in the Washington, D.C. and Baltimore metropolitan areas. The Bank is headquartered in Rockville, Maryland, received its charter in 1999 and began operations the same year. We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C., Baltimore, other Maryland metropolitan areas, Florida, Illinois and North Carolina through seven commercial bank branches, one mortgage banking office, three loan production offices, three government loan servicing offices, and one credit card operations office.
Current wording
We are Capital Bancorp, Inc., a bank holding company and a Maryland corporation incorporated in 1998, operating primarily through our wholly-owned subsidiary, Capital Bank, N.A., a commercial-focused community bank based in the Washington, D.C. and Baltimore metropolitan areas. The Bank is headquartered in Rockville, Maryland, received its charter in 1999 and began operations the same year. We serve businesses, not-for-profit associations, entrepreneurs and others throughout the Washington, D.C., Baltimore, other Maryland markets, Delaware, Florida, Illinois and North Carolina through seven commercial bank branches, one mortgage banking office, three loan production offices, three government loan servicing offices, and one credit card operations office.
Previous wording
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.
Current wording
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
The provision for credit losses for the three months ended September 30, 2025 was $4.7 million, an increase of $0.9 million from the same period in 2024. Net charge-offs for the three months ended September 30, 2025 were $2.5 million, or 0.35% on an annualized basis of average portfolio loans, compared to $2.7 million, or 0.51% on an annualized basis of average portfolio loans for the same period in 2024. Commercial Bank net charge-offs totaled $0.3 million and $0.3 million related to commercial and industrial loans and OpenSky™ net charge-offs totaled $2.1 million including $1.3 million related to unsecured credit cards and $0.8 million related to secured and partially secured credit cards.
Current wording
The provision for credit losses for the three months ended March 31, 2026 was $3.0 million, an increase of $0.8 million from the same period in 2025. Net charge-offs for the three months ended March 31, 2026 were $3.0 million, or 0.40% on an annualized basis of average portfolio loans, compared to $2.4 million, or 0.38% on an annualized basis of average portfolio loans for the same period in 2025. Net charge-offs during the quarter included $3.1 million from OpenSky™ loans slightly offset by a net recovery of $0.1 million from Commercial Bank loans. OpenSky™ net charge-offs totaled $3.1 million including $2.3 million related to unsecured credit cards and $0.8 million related to secured and partially secured credit cards.
Previous wording
The table below presents the average balances and weighted average rates of the major categories of the Company’s assets, liabilities and stockholders’ equity for the three and nine months ended September 30, 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 months ended March 31, 2026 and 2025. 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
(4)For the three months ended September 30, 2025 and 2024, collectively, Commercial Bank Net Interest Margin was 4.64% and 4.01%, respectively.
Current wording
(4)For the three months ended March 31, 2026 and 2025, collectively, Core Net Interest Margin was 4.15% and 4.36%, respectively. See “Non-GAAP Financial Measures and Reconciliations” for a reconciliation of non-GAAP measures.
Previous wording
The net interest margin decreased 22 basis points to 6.15% for the nine months ended September 30, 2025 from the same period in 2024. Commercial Bank net interest margin (non-GAAP) increased to 4.45% for the nine months ended September 30, 2025, compared to 4.13% 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 34 basis points to 5.71% for the three months ended March 31, 2026 from the same period in 2025. Core net interest margin (non-GAAP) decreased to 4.15% for the three months ended March 31, 2026, compared to 4.36% for the same period in 2025. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”
Previous wording
For the three months ended September 30, 2025, average interest earning assets increased $865.7 million, or 36.4%, to $3.2 billion as compared to the same period in 2024, but the average yield on interest earning assets decreased to 7.93%, a 86 basis point decrease from 8.79% primarily due to the acquisition of commercial loans diluting the positive impact from OpenSky TMas well as a shift in the rate environment. Compared to the same period in the prior year, average interest-bearing liabilities increased
Current wording
For the three months ended March 31, 2026, average interest earning assets increased $421.2 million, or 13.6%, to $3.5 billion as compared to the same period in 2025, but the average yield on interest earning assets decreased to 7.86%, a 38 basis point decrease from 8.24% for the comparable 2025 period primarily due to changes in the rate environment, particularly impacting OpenSky™ products. Compared to the same period in the prior year, average interest-bearing liabilities increased
Previous wording
$676.0 million, or 46.5%, and the average cost of interest-bearing liabilities decreased to 2.40%, a 150 basis point decrease from 3.90%, primarily due to the Call of Brokered Time Deposits, purchase accounting accretion, and a shift in the rate environment.
Current wording
$341.9 million, or 16.9%, and the average cost of interest-bearing liabilities decreased to 3.19%, a 17 basis point decrease from 3.36%, primarily as a result of a shift in the product mix of the portfolio as well as changes in the rate environment.
Previous wording
When comparing the three months ended September 30, 2025 to the three months ended September 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 $12.5 million to the increase in interest income. The $1.4 million decrease in interest expense year over year was primarily driven by a $5.3 million benefit from net purchase accounting accretion, which included the $4.6 million benefit from the Call of Brokered Time Deposits, partly offset by organic growth in interest-bearing liabilities, and the IFH acquisition. Growth in interest bearing liabilities contributed $4.1 million to increased interest expense, while decreased rates contributed a reduction of $5.5 million of interest expense.
Current wording
When comparing the three months ended March 31, 2026 to the three months ended March 31, 2025, the largest positive impact to total interest income was the growth in interest earning assets, from organic growth. Growth (change due to volume) in the loan portfolio, excluding credit card loans, contributed $6.1 million to the increase in interest income. The $1.9 million increase in interest expense year over year was primarily driven by a $0.9 million lower benefit from net PAA, $0.7 million from a shift in deposit mix and $0.3 million of higher borrowing costs.
Previous wording
The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. For a description of the factors taken into account by our management in determining the ACL, see Note 1 “Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Current wording
The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. For a description of the factors taken into account by our management in determining the ACL, see Note 1 “Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial
Previous wording
The ACL as a percent of portfolio loans was 1.88% at September 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 September 30, 2025 in “Financial Condition - Allowance for Credit Losses.”
Current wording
The ACL as a percent of portfolio loans was 1.81% at March 31, 2026, as compared to 1.85% at December 31, 2025. 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, 2026 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, 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.
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, 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
Credit card fees of $4.5 million for the three months ended September 30, 2025 increased $0.5 million as compared to the three months ended September 30, 2024, primarily driven by other credit-card related fees associated with the unsecured product. For the nine months ended September 30, 2025, credit card fees of $12.5 million increased $0.3 million, primarily driven by other credit-card related fees associated with the unsecured product.
Current wording
Credit card fees of $4.7 million for the three months ended March 31, 2026 increased $1.0 million as compared to the three months ended March 31, 2025, primarily as a result of credit-card related fees associated with the unsecured product.
Previous wording
Originations of loans held for sale within the Bank’s CBHL division increased $6.0 million to $80.7 million in the third quarter of 2025 when compared to $74.7 million in the third quarter of 2024. The gain on sale margin increased to 2.56% for the three months ended September 30, 2025 from 2.44% for the three months ended September 30, 2024.
Current wording
Originations of loans held for sale within the Bank’s CBHL division increased $7.1 million to $72.9 million in the first quarter of 2026 when compared to $65.8 million in the first quarter of 2025. The gain on sale margin decreased to 2.85% for the three months ended March 31, 2026 from 3.07% for the three months ended March 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 GAAP for possible repurchases. The reserve was $2.3 million at September 30, 2025 and December 31, 2024. The Bank did not repurchase any loans during the nine months ended September 30, 2025. The Bank repurchased one loan totaling $0.3 million during the nine months ended September 30, 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 $2.4 million at March 31, 2026 and $2.3 million at December 31, 2025, respectively. The Bank did not repurchase any loans during the three months ended March 31, 2026 or 2025. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.
Previous wording
Total assets at September 30, 2025 increased $182.5 million from the balance at December 31, 2024. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.8 billion as of September 30, 2025, an increase of $191.8 million, or 7.3%, from $2.6 billion at December 31, 2024. Mortgage loans held for sale decreased $1.6 million, or 7.5%, when comparing the period end balances at September 30, 2025 to December 31, 2024.
Current wording
Total assets at March 31, 2026 increased $202.3 million from the balance at December 31, 2025. Net portfolio loans, which exclude mortgage loans held for sale, totaled $3.0 billion as of March 31, 2026, an increase of $67.0 million, or 2.3%, from $3.0 billion at December 31, 2025. Mortgage loans held for sale decreased $12.1 million, or 46.8%, when comparing the period end balances at March 31, 2026 to December 31, 2025.
Previous wording
Corporate Securities – There have been no payment defaults on any of the Company’s holdings of corporate debt securities. There are five 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
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 September 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 $31.9 million as of September 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.
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 $4.2 million as of March 31, 2026 and $3.8 million as of December 31, 2025, 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 $43.8 million as of March 31, 2026 and $41.4 million as of December 31, 2025, 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 its CBHL division. 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 sometimes transitions the end purchaser to permanent financing or re-underwriting and sale into the secondary market through its CBHL division. 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
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 $84.7 million and $87.2 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of September 30, 2025 and December 31, 2024, respectively. Unsecured balances were $53.6 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 $90.0 million and $97.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of March 31, 2026 and December 31, 2025, respectively. Unsecured balances were $46.6 million and $47.1 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. It was identified during the three and nine months ended September 30, 2025 that one of the loans acquired from IFH should have been assigned as a PCD loan based on facts and circumstances that existed as of the acquisition date. The loan was reclassified as a PCD loan and a specific ACL reserve of $3.4 million was established as a measurement period adjustment to the Day-1 purchase accounting.
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.
Previous wording
(2)Other non-owner-occupied commercial real estate loans include a land loan of 13.7 million, skilled nursing loans of $9.7 million, special purpose loans of $8.7 million, and other loans of $8.2 million.
Current wording
(2)Other non-owner-occupied commercial real estate loans include a land loan of $13.6 million, special purpose loans of $8.6 million, skilled nursing loans of $8.4 million, and other loans of $8.2 million.
Previous wording
(3)Other owner-occupied commercial real estate loans include special purpose loans of $90.2 million, skilled nursing loans of $61.8 million, and other loans of $50.6 million.
Current wording
(3)Other owner-occupied commercial real estate loans include special purpose loans of $97.8 million, skilled nursing loans of $30.5 million, $25.3 million of religious facility loans and other loans of $26.3 million.
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 the charge-off queue 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 no 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
From a credit risk standpoint, we grade watchlist and problem loans into one of five credit quality indicators: pass/watch, special mention, substandard, doubtful or loss. The classifications of loans reflect a judgment about the risks of default and loss associated with each loan. Credit ratings are reviewed regularly and then adjusted regularly to reflect the degree of risk and loss that our management believes to be appropriate for each credit. Our lending policy requires the routine monitoring of past due reports, daily overdraft reports, monthly maturing loans, monthly risk rating reports and internal loan review reports. The lending and credit management of the Bank meet periodically to review loans rated pass/watch. The focus of each meeting is to identify and promptly determine any necessary required action within this loan population, which consists of loans that, although considered satisfactory and performing to terms, may exhibit special risk features that warrant management’s attention.
Current wording
From a credit risk standpoint, we grade watchlist and problem loans into one of five credit quality indicators: pass/watch, special mention, substandard, doubtful or loss. The classifications of loans reflect a judgment about the risks of default and loss associated with each loan. Credit ratings are reviewed regularly and then adjusted to reflect the degree of risk and loss that our management believes to be appropriate for each credit. Our lending policy requires the routine monitoring of past due reports, daily overdraft reports, monthly maturing loans, monthly risk rating reports and internal loan review reports. The lending and credit management of the Bank meet periodically to review loans rated pass/watch. The focus of each meeting is to identify any necessary required action within this loan population, which consists of loans that, although considered satisfactory and performing to terms, may exhibit special risk features that warrant management’s attention.
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 monitors 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 September 30, 2025, the recorded investment in individually assessed loans was $44.1 million, requiring a specific reserve of $10.0 million. The $44.1 million of individually assessed loans at September 30, 2025 included two loan relationships totaling $15.9 million, with a combined reserve of $7.2 million as of September 30, 2025. 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 March 31, 2026, the recorded investment in individually assessed loans was $52.0 million, requiring a specific reserve of $10.0 million. At December 31, 2025, the recorded investment in individually assessed loans was $52.8 million, requiring a specific reserve of $9.9 million. At March 31, 2026, nonperforming assets were $55.4 million, an increase of $1.0 million from December 31, 2025.
Previous wording
We continue to monitor the unique economic environment in the DMV area with regard to the impact on our customers and credit risk. Management believes that the current ACL coverage ratio captures currently forecasted economic conditions and management’s assessment of the economic forecast through qualitative factors.
Current wording
We continue to monitor the unique economic environment in the DC-Maryland-Virginia area with regard to the impact on our customers and credit risk. Management believes that the current ACL coverage ratio captures currently forecasted economic conditions and management’s assessment of the economic forecast through qualitative factors.
Previous wording
Total charge-offs for the nine months ended September 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:
Current wording
Total charge-offs for the three months ended March 31, 2026 and 2025 were primarily comprised of credit card charge-offs resulting from the aging of the portfolio and continued growth in the partially secured and unsecured card portfolio. The following tables present a summary of the net charge-offs (recovery) of loans as a percentage of average loans for the periods indicated:
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The Company currently operates four divisions and reporting segments: Commercial Banking,
Current report — wording carried from elsewhere
Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
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Previous report — wording carried elsewhere
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Previous report — wording carried elsewhere
When comparing the nine months ended September 30, 2025 to the same period in 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 $37.5 million to the increase in interest income. The $5.3 million increase 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 $15.4 million to increased interest expense, while decreased rates contributed a reduction of $10.0 million of interest expense.
Previous report — wording carried elsewhere
Other Borrowed Funds. The Company has also issued junior subordinated debentures and other subordinated notes. At September 30, 2025, these other borrowings amounted to $12.1 million, consisting of Floating Rate Junior Subordinated Deferrable Interest Debentures and subordinated notes.