Capital Bancorp Inc (CBNK)

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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.

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q and oral statements made from time-to-time by our representatives contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on such statements because they are subject to numerous risks and uncertainties relating to our operations and the business environment in which we operate, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy, expectations, beliefs, projections, anticipated events or trends, growth prospects, financial performance, and similar expressions concerning matters that are not historical facts. These statements often include words such as “may,” “believe,” “expect,” “anticipate,” “potential,” “opportunity,” “intend,” “endeavor,” “plan,” “estimate,” “could,” “project,” “seek,” “should,” “will,” or “would,” or the negative of these words and phrases or similar words and phrases.

These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to:

General Economic, Macro and External Conditions

•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;

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

•interest rate risk associated with our business, including sensitivity of our interest earning assets and interest-bearing liabilities to changes in interest rates, and the impact to our earnings from changes in interest rates;

•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;

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

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

•changes in U.S. trade policies, including the implementation of tariffs and other protectionist trade policies;

•the effects of federal government shutdowns, debt ceiling standoff, or other fiscal policy uncertainty;

•volatility in our stock price due to investor sentiment and perception of the banking industry;

•the impact of governmental efforts to restructure or adjust the U.S. financial regulatory system;

•changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters;

•the financial soundness of other financial institutions;

General Business Operations

•our ability to prudently manage our growth and execute our strategy;

•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™;

•strategic acquisitions we may undertake to achieve our goals;

•our dependence on our management team and board of directors and changes in management and board composition;

•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;

•our plans to grow our commercial real estate and commercial business loan portfolios which may carry material risks of non-payment or other unfavorable consequences;

•changes in the mix of loan sectors, or types, and the level of non-performing assets, charge-offs, and delinquencies;

•adequacy of reserves, including our allowance for credit losses (“ACL”);

•deterioration of our asset quality;

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

•risks associated with our residential mortgage banking business;

•risks associated with our OpenSky™ credit card division, including compliance with applicable consumer finance and fraud prevention regulations;

•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;

•changes in the value of the collateral securing our loans;

•operational risks associated with our business;

•the adequacy of our risk management framework;

•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”);

•our ability to develop and use technologies to provide products and services that will satisfy customer demands;

•potential exposure to fraud, negligence, computer theft and cyber crime;

•the sufficiency of our capital, including sources of capital and the extent to which we may be required to raise additional capital to meet our goals;

•liquidity and funding risks associated with our business;

•our ability to maintain important customer deposit relationships and our reputation;

•our ability to attract, develop, motivate and retain skilled employees;

•fluctuations in the fair value of our investment securities;

•our engagement in derivative transactions;

•volatility and direction of market interest rates;

•our dependence upon outside third parties for the processing and handling of our records and data;

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

•our involvement from time to time in legal proceedings, examinations and remedial actions by regulators;

•our ability to assess the effect of and incorporate the evolving uses of AI on our business;

•the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures; and

•our ability to remediate the material weakness in the Company’s internal control over financial reporting.

As you read and consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions and can change as a result of many possible events or factors, not all of which are known to us or in our control. Although we believe that these forward-looking statements are based on reasonable assumptions, beliefs and expectations, if a change occurs or our beliefs, assumptions or expectations were incorrect, our

business, financial condition, liquidity and/or results of operations may vary materially from those expressed in our forward-looking statements. You should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include those described under the heading “Risk Factors” under Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2025 and those referenced herein and in other reports on file with the Securities and Exchange Commission (“SEC”).

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

Critical Accounting Estimates

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as deemed necessary. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.

The Company’s critical accounting policies and reporting estimates are fundamental to understanding the Company’s consolidated financial position

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

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 consolidated financial statements and the related notes.

Non-GAAP Financial Measures

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.

Other companies may use similarly titled non-GAAP financial measures that may be calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.

For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Financial Performance

The following summary should be read in conjunction with the MD&A section in its entirety.

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.”

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 OpenSkyTM. 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.”

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.

For the year ended December 31, 2025, noninterest income of $49.2 million increased $17.8 million, or 56.6%, from the same period in 2024. This increase was primarily driven by reporting results from the IFH acquisition for a full year in 2025 compared to only three months in 2024. Activity from IFH included increased government loan servicing revenue (Windsor™) of $11.5 million, increased government lending

revenue of $1.9 million, offset by decreased loan servicing rights of $0.5 million. The noninterest income also increased $2.6 million as a result of 2024 including non-recurring equity and debt write-down related to an IFH investment.

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.

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%.

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.

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.

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.

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.

Critical Accounting Estimates

The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as deemed necessary. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.

The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in “Note 1 - Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Part II, Item 8 "Financial Statements and Supplementary Data.”

The critical accounting and reporting estimates include the Company’s accounting for the ACL. The Company provides additional information on its ACL in “Note 1 - Nature of Business and Basis of Presentation” in the “Notes to the Consolidated Financial Statements” contained in Part II, Item 8 "Financial Statements and Supplementary Data.”

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.

Recent Accounting Pronouncements

For a discussion of Recent Accounting Pronouncements, see “Part II, Item 8. Financial Statements and Supplementary Data - Notes to Financial Statements - Note 1. Summary of Significant Accounting Policies.”

Results of Operations for the Years Ended December 31, 2025 and 2024

Net Income

The following table sets forth the principal components of net income for the periods indicated.

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.”

The provision for credit losses for the year ended December 31, 2025 was $15.0 million, a decrease of $2.8 million, or 15.5%, from the provision for credit losses for the year ended December 31, 2024. The decrease was driven by $4.2 million of lower provisions in the commercial loan portfolio, primarily driven by 2024 including the initial IFH ACL provision of $4.2 million, partially offset by $1.5 million of additional OpenSky™ provisions during the year. 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 loans for the same period in 2024. Net charge-offs were comprised, in part, of net charge-offs related to OpenSky™ credit card portfolio loans, specifically $5.4 million of net charge-offs were related to unsecured cards and $1.6 million were related to secured and partially secured cards. During the year, there were $2.0 million of recoveries resulting from the sale of charged-off OpenSky™ credit card receivables. Further, $3.4 million of net charge-offs were related to commercial and industrial loans and $1.9 million were related to owner-occupied commercial real estate loans. The $3.4 million of net charge-offs for commercial and industrial loans were primarily attributable to unguaranteed portions of SBA loans. One purchased credit deteriorated (“PCD”) loan represented $1.5 million of the $1.9 million 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.

For the year ended December 31, 2025, noninterest income was $49.2 million, an increase of $17.8 million, or 56.6%, from $31.4 million in the prior year period, primarily driven by contributions from

the IFH acquisition. Activity from IFH included increased government loan servicing revenue (Windsor™) of $11.5 million, increased government lending revenue of $1.9 million, offset by decreased loan servicing rights of $0.5 million. Noninterest income was also higher due to 2024 including the non-recurring equity and debt write-down of $2.6 million related to an IFH investment. Credit card fees of $17.4 million increased $1.4 million, primarily from other credit-card related fees associated with the unsecured product, while mortgage banking revenue of $7.5 million increased $0.3 million as home loan sales remained stable compared to the prior year.

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.

Net Interest Income and Net Margin Analysis

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

We analyze our ability to maximize income generated from interest earning assets and control the interest expenses associated with our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest margin is a ratio calculated as net interest income divided by average interest earning assets for the same period. Net interest spread is the difference between average interest rates earned on interest earning assets and average interest rates paid on interest-bearing liabilities.

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 years ended December 31, 2025 and 2024. Weighted average yields are derived by dividing income by the average balance of the related assets, and weighted average rates are derived by dividing 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.

AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS

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(1)Includes nonaccrual loans.

(2)For the years ended December 31, 2025 and 2024, collectively, Commercial Bank Loan Yield was 6.99% and 7.03%, respectively.

(3)For the years ended December 31, 2025 and 2024, collectively, Commercial Bank Net Interest Margin was 4.38% and 3.93%, respectively.

The net interest margin decreased 12 basis points to 6.10% for the year ended December 31, 2025 from the same period in 2024, primarily driven by the commercial loans acquired from IFH, for a full year in 2025 compared to only one quarter in 2024, and strong organic growth in the Commercial Bank loan portfolio which further diluted the impact from OpenSky™. Commercial Bank net interest margin increased to 4.38% for the year ended December 31, 2025, which included 15 basis points from the Call of Brokered Time Deposits, compared to 3.93% for the same period in 2024. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

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%.

Rate/Volume Analysis of Net Interest Income

The rate/volume table below presents the composition of the change in net interest income for the periods indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest-bearing liabilities, and the changes in net interest income due to changes in interest rates.

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.

Provision for Credit Losses

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 “Financial Condition— Allowance for Credit Losses.”

For the year ended December 31, 2025, the provision for credit losses was $15.0 million, a decrease of $2.8 million from the recorded provision for credit losses of $17.7 million for the year ended December 31, 2024. The decrease was driven by $4.2 million of lower provisions in the commercial loan portfolio, primarily driven by the initial IFH ACL provision of $4.2 million recognized in 2024, partially offset by $1.5 million of additional OpenSky™ provisions during the year. 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 loans for the same period in 2024. The $12.4 million in net charge-offs during the year ended December 31, 2025 was comprised primarily of credit card portfolio net charge-offs, with $1.6 million related to secured and partially secured cards while $5.4 million was related to unsecured cards. During the year, there was $2.0 million of recoveries resulting from the sale of charged off OpenSky™ credit card receivables included within net charge-offs. The sale of charged off OpenSky™ credit card receivables reduced the reserve required for OpenSky™, resulting in a $1.3 million reduction to the provision. Further, $3.4 million of net charge-offs were related to commercial and industrial loans and $1.9 million were related to owner-occupied commercial real estate loans. The $3.4 million of net charge-offs for commercial and industrial loans were primarily attributable to unguaranteed portions of SBA loans. One PCD loan represented $1.5 million of the $1.9 million 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 resulting in the release of $1.3 million from the reserve, with the remaining $1.5 million to be charged off.

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.”

Noninterest Income

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.

The following table presents, for the periods indicated, the major categories of noninterest income:

For the year ended December 31, 2025, noninterest income of $49.2 million increased $17.8 million, or 56.6%, from the same period in 2024. This increase was primarily due to the contributions from the IFH acquisition for a full year in 2025 compared to only three months in 2024. Noninterest income for the year-ended December 31, 2024 included a $2.6 million non-recurring equity and debt write-down related to an IFH investment. Excluding this, non-interest income increased $15.2 million, which was driven by an increase in government loan servicing revenue (Windsor™) of $11.5 million, an increase in government lending revenue of $1.9 million, an increase in credit card fees of $1.4 million, and an increase in mortgage banking revenue of $0.3 million.

Mortgage banking revenue of $7.5 million for the year ended December 31, 2025, increased $0.3 million as home loan sales remained stable compared to the prior year. For the year ended December 31, 2025, credit card fees of $17.4 million increased $1.4 million primarily as a result of credit-card related fees associated with the unsecured product.

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.

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.

Noninterest Expense

Generally, noninterest expense is comprised of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services, with the largest component being salaries and employee benefits expenses. Noninterest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, advertising expenses, loan processing expenses and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies and postage.

The following table presents, for the periods indicated, the major categories of noninterest expense:

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, primarily from the IFH acquisition. The increase was primarily driven by a $16.1 million, or 28.8%, increase in salaries and employee benefits due largely to the acquisition of IFH and headcount growth. Professional fees increased $3.1 million, or 39.7%, most of which is comprised of professional fees associated with investments in shared service areas. Occupancy and equipment expense increased $3.1 million, or 38.2%, other operating expenses increased $2.3 million, or 28.0%, data processing expense increased $2.1 million, or 7.6%, and loan processing fees increased $1.6 million or 64.0%. Regulatory assessment expenses increased $1.4 million, primarily in consequence of the acquisition of IFH. Merger-related expenses of $3.4 million decreased $0.6 million, or 14.5%, from the same period due to the acquisition accounting being finalized on September 30, 2025.

Income Tax Expense

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

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.

Financial Condition

The following table summarizes the Company’s financial condition at the dates indicated.

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

Total assets at December 31, 2025 increased $399.3 million from the balance at December 31, 2024. Net portfolio loans, which exclude mortgage loans held for sale, totaled $3.0 billion as of December 31, 2025, an increase of $329.3 million, or 12.52%, from $2.6 billion at December 31, 2024. Deposits totaled $3.1 billion at December 31, 2025, an increase of $331.3 million from $2.8 billion at December 31, 2024.

Investment Securities

To manage liquidity and supplement interest income earned on our loan portfolio, the Company invests in U.S. Treasuries, high-quality mortgage-backed securities (“MBS”), government agency bonds, asset-backed securities and high-quality municipal and corporate bonds. The asset-backed securities are comprised of student loan collateral issued by the Federal Family Education Loan Program, which includes a minimum of a 97% government repayment guarantee, as well as additional support in excess of the government guaranteed portion.

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.

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:

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.

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%.

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

As such, it is deemed the above listed securities are not in an unrealized loss position due to credit-related issues and no further analysis is warranted as of December 31, 2025.

Portfolio Loans Receivable

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

Residential Real Estate Loans. One-to-four family mortgage loans are primarily secured by owner-occupied primary and secondary residences and, to a lesser extent, investor-owned residences. Residential loans are originated through the commercial sales teams and Capital Bank Home Loans division. Residential loans also include home equity lines of credit. Owner-occupied residential real estate loans usually have fixed rates for five or seven years and adjust on an annual basis after the initial term based on a typical maturity of 30 years. Investor residential real estate loans are generally based on 25-year terms with a balloon payment due after five years. Generally, the required minimum debt service coverage ratio is 115%.

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.

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.

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.

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.

Other Consumer Loans. To a limited extent and typically as an accommodation to existing customers, personal consumer loans, such as term loans, car loans and boat loans are offered.

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.

Purchased financial loans that do not have a more-than-insignificant 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 twelve months ended December 31, 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.

The repayment of loans is a source of additional liquidity for the Company. The following table details contractual maturities of our portfolio loans, along with an analysis of loans maturing after one year categorized by rate characteristics. Loans with adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments.

The following tables present non owner-occupied and owner-occupied commercial real estate loans and multi-family loans and the weighted average loan-to-value (“LTV”) and fixed rate maturities by year and loan type:

Non-owner-occupied commercial real estate loans, including multi-family

Scheduled maturities of fixed rate non-owner-occupied commercial real estate loans, including multi-family

Owner-occupied commercial real estate loans

Scheduled maturities of fixed rate owner-occupied commercial real estate loans

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(1)     Weighted average LTV is calculated by reference to the most recent available appraisal of the property securing each loan.

(2)     Other non-owner-occupied commercial real estate loans include land loans of $13.7 million, special purpose loans of $8.7 million, skilled nursing home loans of $8.5 million, and other loans of $10.9 million.

(3)     Other owner-occupied commercial real estate loans include special purpose loans of $94.6 million, skilled nursing home loans of $30.2 million, religious facility loans of $25.1 million, and other loans of $19.6 million.

Nonperforming Assets

Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When the interest accrual is discontinued, all unpaid accrued interest is reversed from income. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured.

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.

The Company believes its approach to lending and the management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. The Company has established underwriting guidelines to be followed by our bankers, and routinely monitors our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit.

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.

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.

A special mention loan has potential weaknesses deserving of management’s attention. If uncorrected, such weaknesses may, at a future date, impair the repayment prospects for the asset or our credit position.

Loans that are deemed special mention, substandard, doubtful or loss are listed in the Bank’s Problem Loan Status Report. The Problem Loan Status Report provides a detailed summary of the borrower and guarantor status, loan accrual status, collateral evaluation and includes a description of the planned collection and administration program designed to mitigate the Bank’s risk of loss and remove

the loan from problem status. The Special Asset Committee reviews the Problem Loan Status Report on a quarterly basis for borrowers with an overall loan exposure in excess of $250,000.

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.

At December 31, 2025, nonperforming assets were $58.3 million, an increase of $28.0 million from December 31, 2024. Nonperforming assets consisted of nonperforming loans of $54.4 million and other real-estate owned of $3.9 million. The nonperforming loans of $54.4 million represented a $24.2 million increase 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 nonperforming assets.

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.

The other relationship accounted for a $7.1 million increase to nonperforming assets. As previously mentioned, the loan was recharacterized as 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 year, or a 12 basis points impact to the ACL Coverage Ratio.

Past Due Loans

The past due loans balance increased $26.7 million, from $66.8 million or 2.5% of gross loans as of December 31, 2024 to $93.5 million or 3.2% of gross loans as of December 31, 2025. 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 December 31, 2025. When the $15.9 million of loan relationships acquired from IFH are excluded from the balances as of December 31, 2025, the adjusted past due loan balance of $77.6 million represents 2.6% of adjusted gross loans, which is generally consistent with the 2.5% ratio at December 31, 2024.

Allowance for Credit Losses

We maintain an ACL that represents management’s estimate of expected credit losses and risks inherent in our loan portfolio. The balance of the ACL is based on internally assigned risk classifications of loans, historical loss rates, changes in the nature of our loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loss rates.

A major consideration in the determination of the allowance for credit loss on the credit card portfolio is based on historical loss experience in that portfolio. The Company calculates the credit card ACL collectively, applying segmentation based on collateral positions: secured, partially secured and unsecured.

The following table presents key ratios for the ACL and nonaccrual loans for the periods indicated:

At December 31, 2025, the ACL coverage ratio was 1.85% and remained flat when compared to December 31, 2024. It was identified during the year ended December 31, 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.

Total charge-offs for the year ended December 31, 2025 and December 31, 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 table presents a summary of the net charge-offs (recovery) of loans as a percentage of average loans for the periods indicated:

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.

Although we believe we have established our ACL in accordance with GAAP and that the ACL is currently adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio.

The following table shows the allocation of the ACL among loan categories as of the dates indicated. The total allowance is available to absorb losses from any loan category.

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

Total Liabilities

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.

Deposits

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.

Major categories of interest-bearing deposits are as follows:

The Company had $376.7 million in brokered deposits at December 31, 2025 compared to $333.0 million at December 31, 2024.

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.

The following table presents the average balances and average rates paid on deposits for the periods indicated:

Deposit costs decreased 38 basis points during the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily driven by a 15 basis points reduction related to the Call of Brokered Time Deposits, as well as growth in customer money market deposits and a shift in product mix, and the Bank’s ability to reduce deposit pricing in response to a declining interest rate environment.

Noninterest-bearing deposits represented 27.6% of total deposits at December 31, 2025 compared to 29.4% at December 31, 2024. Uninsured deposits were approximately $1.3 billion as of December 31, 2025, representing 40.9% of the Company's deposit portfolio, compared to $979.3 million, or 35.5%, at December 31, 2024. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

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

Borrowings

We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below. Total borrowings increased during the year ended December 31, 2025 to $52.1 million from $34.1 million at December 31, 2024.

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 December 31, 2025, approximately $874.1 million in real estate loans and $124.3 million of investment securities were pledged as collateral to the FHLB and our total borrowing capacity from the FHLB was $656.3 million. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of December 31, 2025, we had $50.0 million in outstanding advances and $606.3 million in available borrowing capacity from the FHLB.

Other borrowed funds. The Company has also issued junior subordinated debentures. At December 31, 2025, these other borrowings amounted to $2.1 million, consisting of Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Floating Rate Debentures”). The Floating Rate Debentures were issued in June of 2006, mature on June 15, 2036, and may be redeemed prior to that date under certain circumstances. The principal amount of the Floating Rate Debentures has not changed since issuance, and they accrue interest at a floating rate equal to the three-month CME Term SOFR plus a spread adjustment of 0.26161% (or 26.161 basis points) plus 187 basis points, payable quarterly. As of December 31, 2025, the rate for the Floating Rate Debentures was 5.85%.

Federal Reserve Bank of Richmond. The Federal Reserve Bank of Richmond provides access to liquidity under the Federal Reserve’s discount window through borrower-in-custody (“BIC”) and national book-entry (“NBE”) arrangements, which allow us to borrow on a collateralized basis using different types of collateral. The Company’s total borrowing capacity under the Federal Reserve’s discount window was $125.3 million as of December 31, 2025.

Other Borrowings. The Company also has available lines of credit of $76.0 million with other correspondent banks at December 31, 2025, as well as access to certificate of deposit funding through financial intermediaries. There were no outstanding balances on the lines of credit from correspondent banks at December 31, 2025.

Liquidity

Liquidity is defined as the Bank’s capacity to meet its cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Bank’s ability to meet both expected and unexpected cash flows and collateral needs efficiently and without adversely affecting either daily operations or the financial condition of the Bank. Liquidity risk is the risk that we will be unable to meet our obligations as they become due because of an inability to liquidate assets or obtain adequate funding. The Bank’s obligations, and the funding sources used to meet them, depend significantly on our business mix, balance sheet structure and the cash flow profiles of our on- and off-balance sheet obligations. In managing our cash flows, management endeavors to anticipate situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints on the ability to convert assets into cash or in accessing sources of funds (i.e., market liquidity) and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operational, legal and reputational risks also could affect the Bank’s liquidity risk profile and are considered in the assessment of liquidity and asset/liability management.

Management has established a risk management process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is integrated into our risk management processes. Critical elements of our liquidity risk management include: corporate governance consisting of oversight by the board of directors and active involvement by management; strategies, policies, procedures and limits used to manage and mitigate liquidity risk; liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are believed to be commensurate with the complexity and business activities of the Bank; active management of intraday liquidity and collateral; a diverse mix of existing and potential future funding sources; holding liquid marketable securities that can be used to meet liquidity needs in situations of stress; contingency funding plans that address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes believed to be sufficient to assure the adequacy of the institution’s liquidity risk management process.

We expect funds to be available from a number of basic banking activity sources, including the core deposit base, the repayment and maturity of loans and investment security cash flows. Other potential funding sources include brokered certificates of deposit, deposit listing services, CDARS, borrowings from the FHLB and other lines of credit.

As of December 31, 2025, we had $606.3 million of available borrowing capacity from the FHLB, $31.1 million of available borrowing capacity from the Federal Reserve Bank of Richmond BIC arrangement secured by pledged commercial loans and available lines of credit of $76.0 million with other correspondent banks. The Company’s borrowing capacity under the Federal Reserve’s discount window program through the NBE arrangement was $94.2 million as of December 31, 2025. Unpledged investment securities available as collateral for potential additional borrowings totaled $9.3 million at December 31, 2025. Cash and cash equivalents were $255.6 million at December 31, 2025.

Capital Resources

Stockholders’ equity increased $46.6 million for the year ended December 31, 2025 compared to December 31, 2024 largely due to net income of $57.2 million for the year ended December 31, 2025. Shares repurchased and retired for the year ended December 31, 2025, as part of the Company's stock repurchase program, totaled 419,643 shares at an average price of $27.79, for a total cost of $11.7 million including commissions.

The Company’s total stockholders’ equity is affected by fluctuations in the fair values of investment securities available-for-sale. The difference between amortized cost and fair value of investment securities, net of deferred income tax, is included in accumulated other comprehensive loss within stockholders’ equity. Accumulated other comprehensive loss is excluded from the Bank’s and Company’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $5.8 million at December 31, 2025 and $11.5 million at December 31, 2024. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on investment securities available-for-sale result from credit losses, unrealized losses are recorded as a charge against earnings. The investment securities section of the MD&A and Notes 1 and 3 to the consolidated financial statements provide additional information concerning management’s evaluation of investment securities available-for-sale at December 31, 2025.

The Company uses several indicators of capital strength. The most commonly used measure is common equity to total assets (computed as equity divided by total assets), which was 11.14% at December 31, 2025 and 11.07% at December 31, 2024.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can precipitate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of common equity Tier 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 1,250%. The Bank is also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

The ability of the Company to continue to grow is dependent on its earnings and those of the Bank, and the ability to obtain additional funds for contribution to the Bank’s capital, through additional borrowings, through the sale of additional common stock or preferred stock, or through the issuance of additional qualifying capital instruments, such as subordinated debt. The capital levels required to be maintained by the Company and Bank may be impacted as a result of the Bank’s concentrations in

commercial real estate loans. See “Risks Related to Our Operations and the Regulation of Our Industry” in Part I, Item 1A. - Risk Factors.

As of December 31, 2025, the Company and the Bank were in compliance with all applicable regulatory capital requirements to which it was subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we intend to monitor and control our growth relative to our earnings in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents the regulatory capital ratios for the Company and the Bank as of the dates indicated.

Contractual Obligations

We have contractual obligations to make future payments on debt and lease agreements. Our liquidity monitoring and management consider both present and future demands for and sources of liquidity. The following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of December 31, 2025.

Off-Balance Sheet Items

In the normal course of business, we enter into various transactions that, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and issue letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets. Our exposure to credit loss is represented by the contractual amounts of these commitments. The same credit policies and procedures are generally used in making these commitments as for on-balance sheet instruments. We are not aware of any accounting loss to be incurred by funding these commitments; however, we maintain a reserve for unfunded commitments and certain off-balance sheet credit risks, which is recorded in other liabilities on the consolidated balance sheet.

Our commitments associated with outstanding letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect actual future cash funding requirements.

Unfunded lines of credit represent unused credit facilities to our current borrowers. Lines of credit generally have variable interest rates. Letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer from the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. Our policies generally require that letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. We believe the credit risk associated with issuing letters of credit is substantially the same as the risk involved in extending loan facilities to our customers.

We seek to minimize our exposure to loss under letters of credit and credit commitments by subjecting them to the same credit approval and monitoring procedures as we do for on-balance sheet instruments. The effect on our revenue, expenses, cash flows and liquidity of the unused portions of these letters of credit commitments cannot be precisely predicted because we do not control the extent to which the lines of credit may be used.

Commitments to extend credit are agreements to lend funds to a customer, as long as there is no violation of any condition established in the contract. Commitments generally have variable interest rates, fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us upon extension of credit, is based on management’s credit evaluation of the customer.

The commitment to fund other investments reflects an obligation to make an investment in a Small Business Investment Company.

Impact of Inflation

The consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

Unlike many industrial companies, substantially all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, most other operating expenses are sensitive to changes in levels of inflation.

Non-GAAP Financial Measures and Reconciliations

The Company has presented the following non-GAAP financial measures because it believes that these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our non-GAAP results in any given reporting period reflect our on-going financial performance in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of non-GAAP results increases comparability of period-to-period results.

Other companies may use similarly titled non-GAAP financial measures that may be calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.

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(1)The efficiency ratio is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income).