Capital Bancorp Inc.

08/07/2026 | Press release | Distributed by Public on 08/07/2026 13:22

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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 and six months ended June 30, 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 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 and/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 and consolidated results of operations. Accordingly, the Company's significant accounting policies are discussed in detail in Note 1 "Nature of Business and Basis of Presentation" in the "Notes to the Consolidated Financial Statements" contained in Part II. Item 8 "Financial Statements and Supplementary Data" of the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Overview
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.
On October 1, 2024, the Company completed its acquisition of IFH. IFH merged with and into the Company, with the Company continuing as the surviving corporation in the acquisition. Immediately following the acquisition, West Town Bank & Trust, merged with and into Capital Bank, with Capital Bank as the surviving bank. Windsor Advantage™, a wholly-owned subsidiary of the Company, was acquired in connection with the IFH acquisition.
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.
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.
OpenSky™ and CBHL both leverage Capital Bank's national banking charter to operate national consumer business lines. OpenSky™ provides nationwide, digitally-originated and served, secured, partially-secured, and unsecured credit cards to under-banked populations and those looking to rebuild their credit scores. CBHL acts as our residential mortgage origination platform. Windsor Advantage™ generates fee revenue for the Company through its servicing, processing and packaging of SBA and USDA loans for its financial institution clients.
In addition to its subsidiaries discussed above, Capital Bancorp, Inc. owns all of the stock of Capital Bancorp (MD) Statutory Trust I (the "Trust"). The Trust is a special purpose, non-consolidated entity organized for the sole purpose of issuing trust preferred securities.
Capital
As of June 30, 2026, 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.
Results of Operations
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."
Net Income
The following table sets forth the principal components of net income for the periods indicated.
Three Months Ended June 30,
2026 2025 % Change
(in thousands)
Interest income $ 69,959 $ 64,586 8.3 %
Interest expense 19,030 16,940 12.3
Net interest income 50,929 47,646 6.9
Provision for credit losses 3,585 4,081 (12.2)
Provision for credit losses on unfunded commitments 65 - 100.0
Net interest income after provision for credit losses 47,279 43,565 8.5
Noninterest income 14,361 13,106 9.6
Noninterest expenses 43,186 39,572 9.1
Net income before income taxes 18,454 17,099 7.9
Income tax expense 4,204 3,963 6.1
Net income $ 14,250 $ 13,136 8.5
Net income for the three months ended June 30, 2026 was $14.3 million, compared to net income of $13.1 million for the same period in 2025, an 8.5% increase. There were no non-GAAP adjustments to net income of $14.3 million for three months ended June 30, 2026, a $44 thousand increase from net income, as adjusted (non-GAAP) of $14.2 million for the three months ended June 30, 2025. For more information on the computation of non-GAAP financial measures, see "Non-GAAP Financial Measures and Reconciliations."
Net interest income increased by $3.3 million, or 6.9%, to $50.9 million when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025, primarily driven by increased interest income of $3.8 million from the Commercial Bank due to organic loan growth, and $1.5 million from OpenSky™ due to growth from the unsecured loan product offset by $2.1 million of increased interest expense. The $2.1 million increased interest expense was driven by $1.0 million from higher balances and a shift in deposit mix, $0.8 million of lower PAA, and $0.3 million of higher borrowing costs.
The provision for credit losses for the three months ended June 30, 2026 was $3.6 million, a decrease of $0.5 million from the same period in 2025. Net charge-offs for the three months ended June 30, 2026 were $3.8 million, or 0.50% on an annualized basis of average portfolio loans, compared to $5.1 million, or 0.75% on an annualized basis of average portfolio loans for the same period in 2025.
For the three months ended June 30, 2026, noninterest income of $14.4 million increased $1.3 million, or 9.6%, from the same period in 2025, driven by a $1.7 million increase from government loan servicing and packaging revenue and $0.9 million from loan servicing rights, and a $0.2 million increase in mortgage banking revenue, offset by a $1.9 million decrease in government lending revenue.
Noninterest expense was $43.2 million for the three months ended June 30, 2026, an increase of $3.6 million from the same period in 2025. The change was primarily driven by increases in professional fees of $1.7 million, salaries and employee benefits expenses of $1.6 million, occupancy and equipment expenses of $0.9 million, loan processing expenses of $0.5 million, and advertising expenses of $0.4 million, offset by decreases in merger-related expenses of $1.4 million and operating losses of $0.2 million.
Six Months Ended June 30,
2026 2025 % Change
(in thousands)
Interest income $ 137,929 $ 127,346 8.3 %
Interest expense 37,602 33,653 11.7
Net interest income 100,327 93,693 7.1
Provision for credit losses 6,599 6,327 4.3
Provision for credit losses on unfunded commitments 270 - 100.0
Net interest income after provision for credit losses 93,458 87,366 7.0
Noninterest income 27,734 25,655 8.1
Noninterest expenses 86,867 77,625 11.9
Net income before income taxes 34,325 35,396 (3.0)
Income tax expense 8,057 8,328 (3.3)
Net income $ 26,268 $ 27,068 (3.0)
Net Interest Income and Net Margin Analysis
Net interest income is our largest component of revenue and the largest driver of net income. Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets.
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 annualized 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 three and six months ended June 30, 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.
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Three Months Ended June 30,
2026 2025
Average
Outstanding
Balance 		Interest Income/
Expense
Average
Yield/
Rate(1)
Average
Outstanding
Balance 		Interest Income/
Expense
Average
Yield/
Rate(1)
($ in thousands)
Assets
Interest earning assets:
Interest-bearing deposits $ 295,167 $ 2,646 3.60 % $ 182,192 $ 2,065 4.55 %
Federal funds sold
60 - - 59 - -
Investment securities available-for-sale 240,102 1,814 3.03 230,317 1,582 2.76
Restricted investments
8,701 137 6.32 7,038 129 7.35
Loans held for sale
17,381 252 5.82 9,950 163 6.57
Portfolio loans receivable(2)(3)
3,058,476 65,110 8.54 2,733,865 60,647 8.90
Total interest earning assets
3,619,887 69,959 7.75 3,163,421 64,586 8.19
Noninterest earning assets 141,624 129,112
Total assets
$ 3,761,511 $ 3,292,533
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts $ 346,671 $ 816 0.94 % $ 281,878 $ 391 0.56 %
Savings
17,790 70 1.58 13,043 16 0.49
Money market accounts
1,315,061 10,797 3.29 924,784 8,022 3.48
Time deposits
722,144 6,839 3.80 816,809 8,293 4.07
Borrowed funds
52,062 508 3.91 34,062 218 2.57
Total interest-bearing liabilities 2,453,728 19,030 3.11 2,070,576 16,940 3.28
Noninterest-bearing liabilities:
Noninterest-bearing liabilities 51,427 45,523
Noninterest-bearing deposits 842,312 804,639
Stockholders' equity
414,044 371,795
Total liabilities and stockholders' equity
$ 3,761,511 $ 3,292,533
Net interest spread 4.64 % 4.91 %
Net interest income $ 50,929 $ 47,646
Net interest margin(4)
5.64 % 6.04 %
_______________
(1)Annualized.
(2)Portfolio loans receivable balance includes nonaccrual loans.
(3)For the three months ended June 30, 2026 and 2025, collectively, Core Loan Yield was 6.77% and 7.14%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
(4)For the three months ended June 30, 2026 and 2025, collectively, Core Net Interest Margin was 4.04% and 4.42%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
The net interest margin decreased 40 basis points to 5.64% for the three months ended June 30, 2026 from the same period in 2025. Core net interest margin (non-GAAP) decreased to 4.04% for the three months ended June 30, 2026, compared to 4.42% for the same period in 2025. For more information on the computation of non-GAAP financial measures, see "Non-GAAP Financial Measures and Reconciliations."
For the three months ended June 30, 2026, average interest earning assets increased $456.5 million, or 14.4%, to $3.6 billion as compared to the same period in 2025, but the average yield on interest earning assets decreased to 7.75%, a 44 basis point decrease from 8.19% for the comparable 2025 period. The 44 basis point decrease was 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 $383.2 million, or 18.5%, and the average cost of interest-bearing liabilities decreased to 3.11%, a 17 basis point decrease from 3.28%, primarily as a result of a shift in the product mix of the portfolio as well as changes in the rate environment.
Six Months Ended June 30,
2026 2025
Average
Outstanding
Balance 		Interest Income/
Expense
Average
Yield/
Rate(1)
Average
Outstanding
Balance 		Interest Income/
Expense
Average
Yield/
Rate(1)
($ in thousands)
Assets
Interest earning assets:
Interest-bearing deposits $ 270,892 $ 4,846 3.61 % $ 192,565 $ 4,203 4.40 %
Federal funds sold 60 1 3.36 59 1 3.42
Investment securities available-for-sale 236,653 3,273 2.79 232,947 3,443 2.98
Restricted investments 8,572 261 6.14 6,403 198 6.24
Loans held for sale 15,161 429 5.71 9,654 401 8.38
Portfolio loans receivable(2)(3)
3,033,470 129,119 8.58 2,684,263 119,100 8.95
Total interest earning assets 3,564,808 137,929 7.80 3,125,891 127,346 8.22
Noninterest earning assets 142,157 131,552
Total assets $ 3,706,965 $ 3,257,443
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts $ 305,388 $ 1,230 0.81 % $ 262,226 $ 759 0.58 %
Savings 15,757 100 1.28 13,123 34 0.52
Money market accounts 1,252,698 20,276 3.26 897,532 15,421 3.46
Time deposits 781,809 14,986 3.87 838,151 17,020 4.09
Borrowed funds 52,062 1,010 3.91 34,062 419 2.48
Total interest-bearing liabilities 2,407,714 37,602 3.15 2,045,094 33,653 3.32
Noninterest-bearing liabilities:
Noninterest-bearing liabilities 57,707 50,982
Noninterest-bearing deposits 831,847 793,888
Stockholders' equity 409,697 367,479
Total liabilities and stockholders' equity $ 3,706,965 $ 3,257,443
Net interest spread 4.65 % 4.90 %
Net interest income $ 100,327 $ 93,693
Net interest margin(4)
5.68 % 6.04 %
_______________
(1)Annualized.
(2)Portfolio loans receivable balance includes nonaccrual loans.
(3)For the six months ended June 30, 2026 and 2025, collectively, Core Loan Yield was 6.85% and 7.14%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
(4)For the six months ended June 30, 2026 and 2025, collectively, Core Net Interest Margin was 4.09% and 4.39%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
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.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
Three Months Ended
June 30, 2026 		Six Months Ended
June 30, 2026
Compared to
Compared to
June 30, 2025 June 30, 2025
Change Due To
Interest Variance
Change Due To
Interest Variance
(in thousands)
Volume
Rate
Volume
Rate
Interest Income:
Interest-bearing deposits
$ 1,013 $ (432) $ 581 $ 1,397 $ (754) $ 643
Investment securities available-for-sale 74 158 232 51 (221) (170)
Restricted investments
26 (18) 8 66 (3) 63
Loans held for sale
108 (19) 89 156 (128) 28
Portfolio loans receivable excluding credit card loans 5,181 (2,410) 2,771 11,281 (3,688) 7,593
Credit card loans 1,804 (112) 1,692 3,474 (1,048) 2,426
Total interest income
8,206 (2,833) 5,373 16,425 (5,842) 10,583
Interest Expense:
Interest-bearing demand accounts
152 273 425 173 298 471
Savings
19 35 54 17 49 66
Money market accounts
3,213 (438) 2,775 5,745 (890) 4,855
Time deposits
(904) (550) (1,454) (1,101) (933) (2,034)
Borrowed funds
176 114 290 349 242 591
Total interest expense
2,656 (566) 2,090 5,183 (1,234) 3,949
Net interest income
$ 5,550 $ (2,267) $ 3,283 $ 11,242 $ (4,608) $ 6,634
When comparing the three months ended June 30, 2026 to the three months ended June 30, 2025, the largest positive impact to total interest income was the growth in interest earning assets due to organic growth. The loan portfolio, excluding credit card loans contributed $2.8 million of the $5.4 million increase in interest income, with growth (due to change in volume) accounting for a $5.2 million increase in interest income, offset by a $2.4 million decrease as a result of the rate environment. Growth in both secured and unsecured product drove an additional $1.8 million increase in volume for credit card loans. The $2.1 million increase in interest expense year over year was primarily driven by a $0.8 million lower benefit from net PAA, $1.0 million from a shift in deposit mix and $0.3 million of higher borrowing costs.
When comparing the six months ended June 30, 2026 to the same period in 2025, the largest positive impact to total interest income was the growth in interest earning assets due to organic growth. The loan portfolio, excluding credit card loans contributed $7.6 million of the $10.6 million increase in interest income, with growth (due to change in volume) accounting for an $11.3 million increase in interest income, slightly offset by a $3.7 million decrease as a result of the rate environment. Growth in both secured and unsecured product drove an additional $3.5 million increase in volume for credit card loans. The $3.9 million increase in interest expense year over year was primarily driven by $1.6 million from a shift in deposit mix, $1.7 million lower benefit from PAA and $0.6 million of higher borrowing costs.
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 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, 2025.
For the three months ended June 30, 2026, the provision for credit losses was $3.6 million, a decrease of $0.5 million from the same period in 2025. The decreased provision for credit losses was primarily driven by decreases of $3.2 million for C&I loans, offset by increases of $1.4 million for commercial real estate loans and $1.1 million of increases for OpenSky™ loans. The $3.2 million decrease in provision for C&I loans was driven by decreases of $3.4 million in the specific reserve for two individually analyzed loans during the three months ended June 30, 2026. For commercial real estate loans in the three months ended June 30, 2025 there was a loan sale that resulted in the removal of a $2.9 million specific reserve from the allowance, thereby decreasing the amount of provision required, offset by $1.7 million in additional charge-offs, increasing the amount of provision required. This resulted in a negative provision of $1.3 million for commercial real estate loans during the three months ended June 30, 2025. There were no charge-offs or significant fluctuations in the required reserve for commercial real estate loans during the three months ended June 30, 2026. Therefore, the provision required for the quarter was approximately $0.1 million, a $1.4 million increase from the same period in 2025. The provision from OpenSky™ increased $1.1 million, primarily driven by higher volumes in the unsecured portfolio - as unsecured card balances increased $18.5 million from $32.7 million at June 30, 2025 to $51.2 million. Additionally, net charge-offs for OpenSky™ increased $0.9 million compared to the three months ended June 30, 2025.
The ACL as a percent of portfolio loans was 1.76% at June 30, 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 June 30, 2026 in "Financial Condition - Allowance for Credit Losses."
Noninterest Income
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 deferred and recognized over the corresponding twelve-month cardholder service period as an adjustment to yield using the interest method.
The following table presents, for the periods indicated, the major categories of noninterest income:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 % Change 2026 2025 % Change
(in thousands)
Noninterest income:
Service charges on deposit accounts $ 409 $ 262 56.1 % $ 812 $ 520 56.2 %
Credit card fees 4,395 4,298 2.3 9,087 8,020 13.3
Mortgage banking revenue 1,960 1,754 11.7 3,516 3,585 (1.9)
Government lending revenue 1,207 3,112 (61.2) 2,130 4,208 (49.4)
Government loan servicing and packaging revenue 5,303 3,644 45.5 9,648 7,212 33.8
Loan servicing rights 292 (590) 149.5 789 (118) (768.6)
Other income 795 626 27.0 1,752 2,228 (21.4)
Total noninterest income $ 14,361 $ 13,106 9.6 % $ 27,734 $ 25,655 8.1 %
For the three months ended June 30, 2026, noninterest income of $14.4 million increased $1.3 million, or 9.6%, from the same period in 2025. The increase was primarily driven by $1.7 million of increased government loan servicing and packaging revenue (Windsor Advantage™), $0.9 million of increased loan servicing rights, and $0.2 million of increased mortgage banking revenue, offset by a $1.9 million decrease in government lending revenue.
Credit card fees of $4.4 million for the three months ended June 30, 2026 increased $0.1 million as compared to the three months ended June 30, 2025, primarily as a result of growth in the unsecured product.
Originations of loans held for sale within the Bank's CBHL division increased $26.6 million to $106.9 million in the second quarter of 2026 when compared to $80.3 million in the second quarter of 2025. The gain on sale margin increased to 2.71% for the three months ended June 30, 2026 from 2.68% for the three months ended June 30, 2025.
Mortgage banking revenue of $2.0 million increased $0.2 million from the three months ended June 30, 2025, primarily driven by the increased gain on sale of $0.8 million, offset by a $0.4 million increase in commissions.
Mortgage loans and USDA/SBA 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 $1.5 million at June 30, 2026 and $2.3 million at December 31, 2025, respectively. The Bank did not repurchase any loans during the six months ended June 30, 2026 or 2025. The Bank does not originate "sub-prime" mortgage loans and has no exposure to this market segment.
Government lending revenue of $1.2 million for the three months ended June 30, 2026 decreased $1.9 million as compared to the three months ended June 30, 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 continued increases in SBA loan sales.
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:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 % Change 2026 2025 % Change
(in thousands)
Noninterest expense:
Salaries and employee benefits
$ 20,067 $ 18,460 8.7 % $ 40,384 $ 36,527 10.6 %
Occupancy and equipment
3,942 2,995 31.6 7,504 5,905 27.1
Professional fees 4,125 2,422 70.3 9,090 4,534 100.5
Data processing
7,551 7,520 0.4 15,318 14,632 4.7
Advertising
1,816 1,371 32.5 3,282 3,150 4.2
Loan processing
1,475 979 50.7 2,858 1,722 66.0
Merger-related expenses - 1,398 (100.0) - 2,664 (100.0)
Operational and other card fraud related losses 690 933 (26.0) 1,380 1,836 (24.8)
Regulatory assessment expenses 925 884 4.6 1,866 1,773 5.2
Other operating 2,595 2,610 (0.6) 5,185 4,882 6.2
Total noninterest expense $ 43,186 $ 39,572 9.1 % $ 86,867 $ 77,625 11.9 %
Noninterest expense was $43.2 million for the three months ended June 30, 2026, as compared to $39.6 million for the three months ended June 30, 2025, an increase of $3.6 million. The change included increases of $1.7 million in professional fees associated with strategic investments in shared service areas and card partnerships for OpenSky™, $1.6 million of increases in salaries and employee benefits expenses due to headcount growth, $0.9 million in occupancy and equipment due to an increase in software contracts and the acceleration of depreciation of capitalized assets related to OpenSky™ technology, $0.5 million in loan processing costs from loan expenses associated with our government guaranteed lending portfolio, and $0.4 million in advertising expenses. The increased spending was offset by decreases of $1.4 million in merger-related expenses and $0.2 million in operational and other card fraud related losses.
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.
The following table presents, for the periods indicated, our effective income tax rate:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2026 2025 2026 2025
Income before income taxes $ 18,454 $ 17,099 $ 34,325 $ 35,396
Income tax expense 4,204 3,963 8,057 8,328
Effective income tax rate 22.8 % 23.2 % 23.5 % 23.5 %
Income tax expense was $4.2 million and $8.1 million for the three and six months ended June 30, 2026, respectively, compared to $4.0 million and $8.3 million for the same periods, respectively, in 2025. Our effective tax rate decreased from 23.2% for the three months ended June 30, 2025 to 22.8% for the
three months ended June 30, 2026 following an updated estimate related to the deferred tax liability associated with fixed assets acquired in the IFH acquisition. Our effective tax rate was unchanged at 23.5% for the six months ended June 30, 2026 compared to the same period in 2025. 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.
Financial Condition
The following table summarizes the Company's financial condition at the dates indicated.
(in thousands, except per share data) June 30, 2026 December 31, 2025 $ Change % Change
Total assets $ 3,889,938 $ 3,606,207 $ 283,731 7.9 %
Investment securities available-for-sale 219,947 230,083 (10,136) (4.4)
Mortgage loans held for sale 22,370 25,828 (3,458) (13.4)
Portfolio loans receivable, net of deferred fees and costs 3,085,950 2,959,457 126,493 4.3
Allowance for credit losses 54,431 54,660 (229) (0.4)
Goodwill 25,969 25,969 - -
Intangible assets 14,250 14,771 (521) (3.5)
Deposits 3,371,103 3,093,200 277,903 9.0
FHLB borrowings 50,000 50,000 - -
Other borrowed funds 2,062 2,062 - -
Total stockholders' equity 422,205 401,757 20,448 5.1
Tangible common equity (1)
381,986 361,017 20,969 5.8
Equity to total assets at end of period 10.85 % 11.14 % (2.6)
Weighted average number of basic shares outstanding, YTD 16,316 16,582 (1.6)
Weighted average number of diluted shares outstanding, YTD 16,404 16,768 (2.2)
Common shares outstanding 16,289 16,373 (0.5)
Book value per share $ 25.92 $ 24.54 5.6
Tangible book value per share (1)
23.45 22.05 6.3
Dividends per share, YTD 0.24 0.44
_____________
(1) See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
Total assets at June 30, 2026 increased $283.7 million from the balance at December 31, 2025. Net portfolio loans, which exclude mortgage loans held for sale, totaled $3.1 billion as of June 30, 2026, an increase of $126.5 million, or 4.3%, from $3.0 billion at December 31, 2025. Mortgage loans held for sale decreased $3.5 million, or 13.4%, when comparing the period end balances at June 30, 2026 and December 31, 2025.
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 June 30, 2026 and the amortized cost and carrying value of those securities as of the indicated dates. The weighted average yields were calculated by multiplying the amortized cost of each individual security by its yield, dividing that figure by the portfolio total, and then summing the value of these results to arrive at the weighted average yield. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
INVESTMENT MATURITIES
One Year or Less More Than One Year Through Five Years More Than Five Years Through Ten Years More Than Ten Years Total
June 30, 2026 Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield
(in thousands)
Securities Available-for-Sale:
U.S. Treasuries $ 4,952 4.59 % $ 132,916 2.51 % $ - - % $ - - % $ 137,868 $ 132,578 2.58 %
Municipal 920 4.78 - - 12,185 6.70 2,506 2.09 15,611 13,815 5.85
Corporate - - 1,500 10.17 - - - - 1,500 1,456 10.17
Asset-backed securities - - - - 365 4.41 4,316 5.48 4,681 4,746 5.40
Mortgage-backed securities - - 36,448 3.91 5,991 3.17 26,099 3.85 68,538 67,352 3.82
Total $ 5,872 4.62 % $ 170,864 2.88 % $ 18,541 5.51 % $ 32,921 3.93 % $ 228,198 $ 219,947 3.28 %
As described in Note 2 - ''Investment Securities'' in the "Notes to Unaudited Consolidated Financial Statements," at June 30, 2026, 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 June 30, 2026 before it is able to recover the amortized cost basis. Further, management reviewed the Company's holdings as of June 30, 2026 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at June 30, 2026, 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 two securities each of which is subordinated debt of other financial institutions with face amounts ranging from $0.5 million to $1 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 June 30, 2026, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody's, Standard & Poors or Fitch, is as follows: AAA - 76% of the portfolio; AA+ - 24%.
Asset-backed Securities - There were 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 June 30, 2026.
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 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 industrial loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our credit card portfolio supplements our traditional lending products with enhanced yields. Our traditional commercial real estate and commercial and industrial lending are principally directed to our market area consisting of the Washington, D.C. and Baltimore, Maryland metropolitan areas.
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 CBHL 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 $4.9 million as of June 30, 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 $50.0 million as of June 30, 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.
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, as part of its ongoing risk management efforts, 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. 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 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 extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $96.0 million and $97.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of June 30, 2026 and December 31, 2025, respectively. Unsecured balances were $51.2 million and $47.1 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 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.
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 characteristic. 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.
As of June 30, 2026
One Year
or Less 		One to
Five Years 		Over
Five Years to Fifteen Years 		After Fifteen Years
(in thousands) Amount Amount Amount Amount Total
Real estate:
Residential $ 166,465 $ 319,299 $ 64,395 $ 247,586 797,745
Commercial 255,418 473,552 275,598 36,296 1,040,864
Construction 298,008 62,049 10,455 198 370,710
Commercial and Industrial 260,628 178,575 138,169 154,203 731,575
Credit card 145,266 - - - 145,266
Other consumer 563 2,874 335 - 3,772
Total portfolio loans, gross $ 1,126,348 $ 1,036,349 $ 488,952 $ 438,283 $ 3,089,932
Loans above maturing after one year categorized by rate characteristic: Predetermined Interest Rates Floating or Variable Rates Total
Real estate:
Residential $ 410,412 $ 220,868 $ 631,280
Commercial 409,428 376,018 785,446
Construction 30,812 41,890 72,702
Commercial and Industrial 162,572 308,375 470,947
Other consumer 3,209 - 3,209
Total portfolio loans, gross $ 1,016,433 $ 947,151 $ 1,963,584
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
As of June 30, 2026
(in thousands) Amount Average Loan Size
Weighted Average LTV(1)
% of Non-Owner-Occupied Commercial Real Estate Loans % of Total Portfolio Loans, Gross
Loan type:
Multi-family $ 222,967 $ 1,664 53.6 % Not Applicable 7.2 %
Retail $ 176,525 $ 1,666 49.9 % 31.4 % 5.7 %
Mixed use 180,303 2,121 48.5 32.2 % 5.9
Hotel 77,072 5,138 48.4 13.7 % 2.5
Industrial 53,580 1,016 44.4 9.5 % 1.7
Office 27,162 1,046 47.0 4.8 % 0.9
Other(2)
47,163 1,690 55.5 8.4 % 1.5
Total non-owner-occupied commercial real estate loans $ 561,805 $ 1,796 48.5 % 100.00 % 18.2 %
Total portfolio loans, gross $ 3,089,932
Scheduled maturities of fixed rate non-owner-occupied commercial real estate loans, including multi-family
As of June 30, 2026
(in thousands) 2026 2027 2028 2029 2030 and Onwards Total
Loan type:
Multi-family $ 30,748 $ 18,734 $ 46,338 $ 35,210 $ 91,908 $ 222,938
Retail $ 10,539 $ 28,748 $ 1,660 $ 19,171 $ 44,816 $ 104,934
Mixed use 27,252 9,445 4,588 6,398 29,840 77,523
Hotel - - - 1,431 30,313 31,744
Industrial 3,587 7,721 1,625 4,532 18,303 35,768
Office 370 2,675 146 9,317 3,851 16,359
Other 10,425 6,593 - 1,066 4,441 22,525
Total fixed rate non-owner-occupied commercial real estate loans $ 52,173 $ 55,182 $ 8,019 $ 41,915 $ 131,564 $ 288,853
Owner-occupied commercial real estate loans
As of June 30, 2026
(in thousands) Amount Average Loan Size
Weighted Average LTV(1)
% of Owner-Occupied Commercial Real Estate Loans % of Total Portfolio Loans, Gross
Loan type:
Industrial $ 108,564 $ 1,165 47.7 % 25.6 3.5 %
Retail 65,094 868 58.9 15.4 2.1 %
Office 53,048 668 73.4 12.5 1.7 %
Mixed use 24,587 571 30.8 5.8 0.8 %
Other(3)
172,816 1,014 54.4 40.7 5.6 %
Total owner-occupied commercial real estate loans $ 424,109 $ 1,027 54.2 % 100.0 % 13.7 %
Total portfolio loans, gross $ 3,089,932
Scheduled maturities of fixed rate owner-occupied commercial real estate loans
As of June 30, 2026
(in thousands) 2026 2027 2028 2029 2030 and Onwards Total
Loan type:
Industrial $ 8,944 $ 5,002 $ 6,431 $ 5,052 $ 31,910 $ 57,339
Retail 552 4,806 6,439 8,196 14,727 34,720
Office 364 2,063 2,371 7,726 26,301 38,825
Mixed use 4,882 859 666 4,520 7,882 18,809
Other 5,919 6,017 1,907 6,314 46,932 67,089
Total fixed rate owner-occupied commercial real estate loans $ 20,661 $ 18,747 $ 17,814 $ 31,808 $ 127,752 $ 216,782
_______________
(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 special purpose loans of $14.7 million, multi-family loans of $8.5 million, skilled nursing loans of $8.4 million, a land loan of $7.3 million, and other loans of $8.2 million.
(3)Other owner-occupied commercial real estate loans include special purpose loans of $96.6 million, skilled nursing loans of $30.8 million, $25.1 million of religious facility loans and other loans of $20.4 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 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.
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 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.
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.
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 and collateral evaluation and it 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 June 30, 2026, the recorded investment in individually assessed loans was $56.7 million, requiring a specific reserve of $8.3 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 June 30, 2026, nonperforming loans were $57.0 million, an increase of $2.6 million from December 31, 2025. The $2.6 million increase was in line with the growth in loans, as nonperforming assets as a percentage of total assets decreased from 1.62% at December 31, 2025 to 1.56% at June 30, 2026.
Past Due Loans
The past due loans balance increased $26.9 million, from $93.5 million or 3.2% of gross loans as of December 31, 2025 to $120.4 million or 3.9% of gross loans as of June 30, 2026. The increase was primarily driven by $16.7 million of increases in C&I loans and $12.6 million of increases in construction loans. Within C&I loans, one relationship across two loans contributed $21.2 million of the past due loans. The two loans were modified in July 2026, and payments received under the modification brought the loans to current status as of the date of this report. Excluding this customer, the past due C&I loans balance as of June 30, 2026, decreased $4.5 million. It was noted in the previous quarter that a single relationship for 3 construction real estate loans accounted for $9.7 million of the increase in 30-59 days past due loans, for which construction has stalled. The loans are now 90+ days past due and foreclosure sales are expected on the underlying properties. A specific reserve of $0.8 million has been recorded on one of the loans. Management believes the credit remains appropriately monitored and reflected within the allowance for credit losses.
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.
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.
A major consideration in the determination of the ACL 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:
Allowance for credit losses to period end portfolio loans Nonaccrual loans to total portfolio loans Allowance for credit losses to nonaccrual loans
(in thousands) June 30, 2026 December 31, 2025 June 30, 2026 December 31, 2025 June 30, 2026 December 31, 2025
Real estate:
Residential 0.97 % 0.97 % 0.88 % 1.01 % 110 % 96 %
Commercial 1.38 1.50 1.06 1.57 130 95
Construction 1.33 1.18 3.79 1.31 35 90
Commercial and Industrial 2.53 2.84 3.40 3.77 74 75
Credit card 6.13 5.78 - - - -
Other consumer 0.24 0.26 - - - -
Total 1.76 % 1.85 % 1.85 % 1.84 %
%
%
At June 30, 2026, the ACL coverage ratio was 1.76%, down 9 bps from December 31, 2025 and up 3 bps compared to June 30, 2025.
The following tables present a summary of the net charge-offs of loans as a percentage of average loans for the periods indicated:
Three Months Ended June 30,
2026 2025
(in thousands) Net Charge-Offs Average Loans
Percent of average portfolio loans(1)
Net Charge-Offs Average Loans
Percent of average portfolio loans(1)
Real estate:
Residential $ 6 $ 793,263 - % $ - $ 711,116 - %
Commercial - 1,021,762 - 1,695 953,517 0.71
Construction 356 369,756 0.39 264 341,691 0.31
Commercial and Industrial 556 736,643 0.30 1,065 605,007 0.71
Credit card 2,916 137,052 8.53 2,064 121,414 6.82
Other consumer - - - - 1,120 -
Total $ 3,834 $ 3,058,476 0.50 % $ 5,088 $ 2,733,865 0.75 %
_____________
(1) Annualized.
Six Months Ended June 30,
2026 2025
(in thousands) Net Charge-Offs Average Loans
Percent of average portfolio loans(1)
Net Charge-Offs Average Loans
Percent of average portfolio loans(1)
Real estate:
Residential $ 6 $ 784,536 - % $ - $ 699,884 - %
Commercial - 1,011,875 - 1,695 937,295 0.36
Construction 383 367,832 0.21 264 332,034 0.16
Commercial and Industrial 423 733,836 0.12 1,212 592,758 0.41
Credit card 6,016 135,391 8.96 4,361 120,076 7.32
Other consumer - - - - 2,216 -
Total $ 6,828 $ 3,033,470 0.45 % $ 7,532 $ 2,684,263 0.57 %
_____________
(1) Annualized.
Total charge-offs for the six months ended June 30, 2026 were primarily comprised of credit card charge-offs resulting from continued growth in the partially secured and unsecured card portfolio. There were no charge-offs to the commercial real estate loan portfolio for the three and six months ended June 30, 2026, a decrease of $1.7 million from the same periods in 2025. Net charge-offs on an annualized basis of average portfolio loans for the three and six months ended June 30, 2026 were 0.50% and 0.45%, respectively, compared to 0.75% and 0.57% for the same periods in 2025.
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 maintained a loan portfolio with relatively low levels of net charge-offs and low delinquency rates. The maintenance of a high-quality portfolio will continue to be a priority.
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, 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.
June 30, 2026 December 31, 2025
Amount
Percent (1)
Amount
Percent (1)
(in thousands)
Real estate:
Residential $ 7,727 14 % $ 7,444 14 %
Commercial 14,387 26 14,917 27
Construction 4,930 9 4,250 8
Commercial and Industrial 18,474 34 19,818 36
Credit card 8,904 17 8,226 15
Other consumer 9 - 5 -
Total allowance for credit losses $ 54,431 100 % $ 54,660 100 %
_______________
(1)Allowance for reserve amount for each loan category shown as a percentage of allowance for credit losses for total portfolio loans.
Total Liabilities
Total liabilities at June 30, 2026 increased $263.3 million from December 31, 2025, due to growth in the deposit portfolio of $277.9 million.
Deposits
Deposits are a major source of funding for the Company. We offer a variety of deposit products including noninterest-bearing demand, interest-bearing demand, savings, money market and time accounts, all of which we actively market at competitive pricing. We generate deposits from our customers on a relationship basis and through the efforts of our commercial relationship managers. Our credit card customers are a significant source of low cost deposits. As of June 30, 2026 and December 31, 2025, our credit card customers accounted for $166.2 million and $163.2 million, or 18.5% and 19.1%, respectively, of our total noninterest-bearing deposit balances.
Major deposit categories are as follows:
Deposits
(in thousands) June 30, 2026 December 31, 2025
Interest-bearing demand accounts $ 391,544 $ 257,233
Savings 23,077 11,679
Money markets 1,390,778 1,105,183
Customer time deposits 437,358 489,687
Brokered time deposits 230,983 376,677
Total Interest-bearing deposits 2,473,740 2,240,459
Noninterest-bearing demand accounts 897,363 852,741
Total deposits
$ 3,371,103 $ 3,093,200
The Company had $231.0 million in brokered deposits at June 30, 2026 compared to $376.7 million at December 31, 2025.
Deposits securing our OpenSky™ card lines of credit and deposits from title companies represent the largest product concentrations in the deposit portfolio. As of June 30, 2026, these product concentrations represented 5% and 13% of deposits, respectively. As of December 31, 2025, these deposits represented 5% and 10% of deposits, respectively.
The following table presents the average balances and average rates paid on deposits for the periods indicated:
For the Six Months Ended June 30, 2026 For the Year Ended
December 31, 2025
(in thousands)
Average
Balance
Average
Rate(1)
Average
Balance 		Average
Rate
Interest-bearing demand accounts $ 305,388 0.81 % $ 269,224 0.56 %
Savings 15,757 1.28 12,789 0.47
Money market accounts 1,252,698 3.26 960,882 3.45
Time deposits 781,809 3.87 825,847 3.51
Total interest-bearing deposits 2,355,652 3.13 2,068,742 3.08
Noninterest-bearing demand accounts 831,847 811,798
Total deposits $ 3,187,499 2.31 % $ 2,880,540 2.21 %
_____________
(1) Annualized.
Deposit costs increased 10 basis points during the six months ended June 30, 2026, as compared to the year ended December 31, 2025, driven by changes in the rate environment and shift in product mix, primarily growth from customer money market deposits with offsetting activity across other deposit products.
Noninterest-bearing deposits represented 26.6% of total deposits at June 30, 2026 compared to 27.57% at December 31, 2025. Insured and protected deposits (including deposits that are indirectly protected under the product terms) were approximately $2.2 billion as of June 30, 2026, representing 66.6% of the Company's deposit portfolio. The insured and protected amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.
The following table presents the maturities of our certificates of deposit, including brokered and customer deposits as of June 30, 2026.
Three
Months or
Less 		Over
Three
Through
Six
Months 		Over Six
Through
Twelve
Months 		Over
Twelve
Months 		Total
(in thousands)
$250,000 or more $ 47,260 $ 19,701 $ 71,250 $ 3,915 $ 142,126
Less than $250,000 221,027 74,833 187,035 43,320 526,215
Total $ 268,287 $ 94,534 $ 258,285 $ 47,235 $ 668,341
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 of $52.1 million at June 30, 2026 remained the same compared to December 31, 2025.
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 June 30, 2026, approximately $517.6 million of loans were pledged as collateral to the FHLB. In addition, investment securities with a fair value of $110.9 million were pledged and, after applying required collateral haircuts, provided collateral value of $104.4 million. Together, these pledged assets supported total borrowing capacity of $622.0 million. The Company utilizes FHLB advances to support liquidity management and overall balance-sheet positioning, including funding certain fixed-rate loans. As of June 30, 2026, the Company had $50.0 million in outstanding FHLB advances and $572.0 million of available borrowing capacity.
Other Borrowed Funds. The Company has also issued junior subordinated debentures. At June 30, 2026, 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 June 30, 2026, the rate for the Floating Rate Debentures was 5.80%.
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 borrowing capacity under the Federal Reserve's discount window was $127.4 million as of June 30, 2026.
Other Borrowings. The Company also has available lines of credit of $96.0 million with other correspondent banks at June 30, 2026, 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 June 30, 2026.
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.
During the six months ended June 30, 2026, brokered time deposits decreased $145.7 million from December 31, 2025, reflecting management's decision to reduce reliance on higher-cost funding. This reduction did not signal a constraint on the Company's liquidity position; rather, it was more than offset by organic deposit growth across customer deposits. Total deposits increased $277.9 million, or 9%, from December 31, 2025 to $3.4 billion at June 30, 2026, driven by growth in noninterest-bearing demand, money market, savings and interest-bearing demand accounts. The shift in deposit mix from brokered time deposits towards lower-cost, relationship-based core deposits reflects continued execution of the Company's funding strategy and is expected to reduce overall deposit costs over time. Management believes the Company maintains ample liquidity through its diversified funding base, core deposit growth, and significant available borrowing capacity.
As of June 30, 2026, we had $572.0 million of available borrowing capacity from the FHLB and $127.4 million of available borrowing capacity from the Federal Reserve Bank of Richmond through its discount window arrangement, secured by pledged commercial loans and securities. The Company also maintained $96.0 million of available unsecured lines of credit with other correspondent banks. Unpledged investment securities available as collateral for potential additional borrowings totaled $6.2 million at June 30, 2026. Cash and cash equivalents were $418.3 million at June 30, 2026.
Capital Resources
Stockholders' equity increased $20.4 million for the period ended June 30, 2026 compared to December 31, 2025 largely due to net income of $26.3 million for the six months ended June 30, 2026. Shares repurchased and retired for the three months ended June 30, 2026, as part of the Company's stock repurchase program, totaled 1,213 shares at an average price of $30.03, for a total cost of $36 thousand including commissions. There is $12.4 million remaining to be repurchased under the stock repurchase plan authorized and approved in March 2026. The stock repurchase program will expire on December 31, 2026, but may be limited or terminated at any time without prior notice.
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 $6.3 million at June 30, 2026 and $5.8 million at December 31, 2025. 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 2 to the "Notes to the Unaudited Consolidated Financial Statements" provide additional information concerning management's evaluation of investment securities available-for-sale for credit losses at June 30, 2026.
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 10.85% at June 30, 2026 and 11.14% at December 31, 2025.
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 in the Annual Report on Form 10-K for the year ended December 31, 2025.
As of June 30, 2026, 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.
(in thousands) Actual Minimum Capital
Adequacy 		To Be Well
Capitalized
June 30, 2026 Amount Ratio Amount Ratio Amount Ratio
The Company
Tier 1 leverage ratio (to average assets) $ 392,416 10.51 % $ 149,282 4.00 % $ 186,602 5.00 %
Tier 1 capital (to risk-weighted assets) 392,416 13.23 177,961 6.00 237,281 8.00
Common equity tier 1 capital ratio (to risk-weighted assets)
390,354 13.16 133,471 4.50 192,791 6.50
Total capital ratio (to risk-weighted assets) 429,725 14.49 237,281 8.00 296,602 10.00
The Bank
Tier 1 leverage ratio (to average assets) $ 331,308 8.97 % $ 147,688 4.00 % $ 184,610 5.00 %
Tier 1 capital (to risk-weighted assets) 331,308 11.34 175,304 6.00 233,739 8.00
Common equity tier 1 capital ratio (to risk-weighted assets)
331,308 11.34 131,478 4.50 189,913 6.50
Total capital ratio (to risk-weighted assets) 368,063 12.60 233,739 8.00 292,173 10.00
December 31, 2025
The Company
Tier 1 leverage ratio (to average assets) $ 371,638 10.71 % $ 138,757 4.00 % $ 173,446 5.00 %
Tier 1 capital (to risk-weighted assets) 371,638 13.05 170,835 6.00 227,780 8.00
Common equity tier 1 capital ratio (to risk-weighted assets)
369,576 12.98 128,126 4.50 185,071 6.50
Total capital ratio (to risk-weighted assets) 407,481 14.31 227,780 8.00 284,725 10.00
The Bank
Tier 1 leverage ratio (to average assets) $ 316,082 9.24 % $ 136,858 4.00 % $ 171,073 5.00 %
Tier 1 capital (to risk-weighted assets) 316,082 11.34 167,207 6.00 222,942 8.00
Common equity tier 1 capital ratio (to risk-weighted assets)
316,082 11.34 125,405 4.50 181,141 6.50
Total capital ratio (to risk-weighted assets) 351,170 12.60 222,942 8.00 278,678 10.00
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 Company experienced no material changes in contractual obligations related to long-term borrowings, operating leases, and other commitments from December 31, 2025. Management believes that cash flows from operations and available liquidity sources will be sufficient to meet these obligations as they come due.
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.
As of June 30, 2026 As of December 31, 2025
(in thousands)
Unfunded lines of credit $ 487,161 $ 455,666
Letters of credit 1,633 1,633
Commitment to fund other investments 2,714 2,714
Total credit extension commitments $ 491,508 $ 460,013
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 Quarterly Report on Form 10-Q 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 and 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.
Core Earnings Metrics Three Months Ended Six Months Ended
(in thousands, except per share data) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net Income $ 14,250 $ 13,136 $ 26,268 $ 27,068
Add: Merger-Related Expenses, Net of Tax - 1,070 - 2,034
Core Net Income $ 14,250 $ 14,206 $ 26,268 $ 29,102
Weighted Average Common Shares - Diluted 16,373 16,802 16,404 16,872
Earnings per Share - Diluted $ 0.87 $ 0.78 $ 1.60 $ 1.60
Core Earnings per Share - Diluted $ 0.87 $ 0.85 $ 1.60 $ 1.72
Average Assets $ 3,761,511 $ 3,292,533 $ 3,706,965 $ 3,257,443
Return on Average Assets(1)
1.52 % 1.60 % 1.43 % 1.68 %
Core Return on Average Assets(1)
1.52 % 1.73 % 1.43 % 1.80 %
Average Equity $ 414,044 $ 371,795 $ 409,697 $ 367,479
Return on Average Equity(1)
13.80 % 14.17 % 12.93 % 14.85 %
Core Return on Average Equity(1)
13.80 % 15.33 % 12.93 % 15.97 %
Net Interest Income $ 50,929 $ 47,646 $ 100,327 $ 93,693
Noninterest Income 14,361 13,106 27,734 25,655
Total Revenue $ 65,290 $ 60,752 $ 128,061 $ 119,348
Noninterest Expense $ 43,186 $ 39,572 $ 86,867 $ 77,625
Efficiency Ratio(2)
66.14 % 65.14 % 67.83 % 65.04 %
Net Interest Income (a) $ 50,929 $ 47,646 $ 100,327 $ 93,693
Noninterest Income (b) 14,361 13,106 27,734 25,655
Core Revenue (a) + (b) $ 65,290 $ 60,752 $ 128,061 $ 119,348
Noninterest Expense $ 43,186 $ 39,572 $ 86,867 $ 77,625
Less: Merger-Related Expenses - 1,398 - 2,664
Core Noninterest Expense $ 43,186 $ 38,174 $ 86,867 $ 74,961
Core Efficiency Ratio (2)
66.14 % 62.84 % 67.83 % 62.81 %
_____________
(1) Annualized.
(2) The efficiency ratio is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income).
Core Net Interest Margin Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net Interest Income $ 50,929 $ 47,646 $ 100,327 $ 93,693
Less: Credit Card Loan Income 15,808 14,116 30,690 28,264
Core Net Interest Income 35,121 33,530 69,637 65,429
Average Interest Earning Assets 3,619,887 3,163,421 3,564,808 3,125,891
Less: Average Credit Card Loans 137,052 121,414 135,391 120,076
Average Core Interest Earning Assets $ 3,482,835 $ 3,042,007 $ 3,429,417 $ 3,005,815
Core Net Interest Margin 4.04% 4.42% 4.09% 4.39%
Core Loan Yield Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Portfolio Loans Receivable Interest Income $ 65,110 $ 60,647 $ 129,119 $ 119,100
Less: Credit Card Loan Income 15,808 14,116 30,690 28,264
Core Portfolio Loans Receivable Interest Income $ 49,302 $ 46,531 $ 98,429 $ 90,836
Average Portfolio Loans Receivable 3,058,476 2,733,865 3,033,470 2,684,263
Less: Average Credit Card Loans 137,052 121,414 135,391 120,076
Total Core Average Portfolio Loans Receivable $ 2,921,424 $ 2,612,451 $ 2,898,079 $ 2,564,187
Core Portfolio Loans Receivable Yield 6.77% 7.14% 6.85% 7.14%
Pre-tax, Pre-Provision Net Revenue ("PPNR") Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net Income
$ 14,250 $ 13,136 $ 26,268 $ 27,068
Add: Income Tax Expense 4,204 3,963 8,057 8,328
Add: Provision for Credit Losses 3,585 4,081 6,599 6,327
Add: Provision for Credit Losses on Unfunded Commitments 65 - 270 -
Pre-tax, Pre-Provision Net Revenue ("PPNR") $ 22,104 $ 21,180 $ 41,194 $ 41,723
Core PPNR Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net Income
$ 14,250 $ 13,136 $ 26,268 $ 27,068
Add: Income Tax Expense 4,204 3,963 8,057 8,328
Add: Provision for Credit Losses 3,585 4,081 6,599 6,327
Add: Provision for Credit Losses on Unfunded Commitments 65 - 270 -
Add: Merger-Related Expenses - 1,398 - 2,664
Core PPNR $ 22,104 $ 22,578 $ 41,194 $ 44,387
Allowance for Credit Losses to Total Portfolio Loans
(in thousands) June 30, 2026 December 31, 2025
Allowance for Credit Losses $ 54,431 $ 54,660
Total Portfolio Loans 3,085,950 2,959,457
Allowance for Credit Losses to Total Portfolio Loans 1.76% 1.85%
Commercial Bank Allowance for Credit Losses to Commercial Bank Portfolio Loans
(in thousands) June 30, 2026 December 31, 2025
Allowance for Credit Losses $ 54,431 $ 54,660
Less: Credit Card Allowance for Credit Losses 8,904 8,232
Commercial Bank Allowance for Credit Losses $ 45,527 $ 46,428
Total Portfolio Loans 3,085,950 2,959,457
Less: Credit Card Loans 141,446 137,905
Commercial Bank Portfolio Loans $ 2,944,504 $ 2,821,552
Commercial Bank Allowance for Credit Losses to Total Portfolio Loans 1.55% 1.65%
Nonperforming Assets to Total Assets
(in thousands) June 30, 2026 December 31, 2025
Total Nonperforming Assets $ 60,843 $ 58,276
Total Assets 3,889,938 3,606,207
Nonperforming Assets to Total Assets 1.56% 1.62%
Nonperforming Loans to Total Portfolio Loans
(in thousands) June 30, 2026 December 31, 2025
Total Nonperforming Loans $ 56,987 $ 54,421
Total Portfolio Loans 3,085,950 2,959,457
Nonperforming Loans to Total Portfolio Loans 1.85% 1.84%
Net Charge-Offs to Average Portfolio Loans Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Total Net Charge-Offs $ 3,834 $ 5,088 $ 6,828 $ 7,532
Total Average Portfolio Loans 3,058,476 2,733,865 3,033,470 2,684,263
Net Charge-Offs to Average Portfolio Loans, Annualized 0.50% 0.75% 0.45% 0.57%
Tangible Book Value per Share
(in thousands, except share and per share data) June 30, 2026 December 31, 2025
Total Stockholders' Equity $ 422,205 $ 401,757
Less: Intangible Assets
40,219 40,740
Tangible Common Equity $ 381,986 $ 361,017
Period End Shares Outstanding 16,289,288 16,373,288
Tangible Book Value per Share $ 23.45 $ 22.05
Return on Average Tangible Common Equity Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net Income
$ 14,250 $ 13,136 $ 26,268 $ 27,068
Add: Intangible Amortization, Net of Tax 201 200 399 399
Net Tangible Income $ 14,451 $ 13,336 $ 26,667 $ 27,467
Average Equity 414,044 371,795 409,697 367,479
Less: Average Intangible Assets 40,377 39,534 40,502 38,232
Net Average Tangible Common Equity $ 373,667 $ 332,261 $ 369,195 $ 329,247
Return on Average Equity 13.80 % 14.17 % 12.93 % 14.85 %
Return on Average Tangible Common Equity 15.51 % 16.10 % 14.57 % 16.82 %
Core Return on Average Tangible Common Equity Three Months Ended Six Months Ended
(in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Core Net Income $ 14,250 $ 14,206 $ 26,268 $ 29,102
Add: Intangible Amortization, Net of Tax 201 200 399 399
Core Net Tangible Income $ 14,451 $ 14,406 $ 26,667 $ 29,501
Core Return on Average Tangible Common Equity 15.51 % 17.39 % 14.57 % 18.07 %
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