Capital Bancorp Inc.
11/06/2026 | Press release | Distributed by Public on 11/06/2026 15:04
Quarterly Report for Quarter Ending September 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 nine months ended September 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 possibility that the company's pending merger with Peoples Bancorp, Inc. ("Peoples") does not close when expected or at all because required regulatory or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, and the possibility that such approvals may impose conditions that could adversely affect the combined company or the anticipated benefits of the merger;
•the possibility that the anticipated benefits and cost savings from the merger with Peoples may not be fully realized or may take longer to realize than expected;
•disruptions to the Company's business as a result of the announcement and pendency of the merger with Peoples;
•the possibility that the merger with Peoples may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
•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 cyberattacks, data privacy incidents or other security breaches, systems failures, or interruptions, any of which could result in financial losses, reputational harm, litigation or regulatory action;
•risks related to the development and use of artificial intelligence ("AI") by us, our vendors, and other third parties, including evolving legal and regulatory requirements;
•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 maintain effective internal control over financial reporting depends in part on the continued successful implementation and operation of enhanced controls in loan operations.
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 (the "2025 Form 10-K") 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 2025 Form 10-K .
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.
Pending Merger with Peoples
On September 29, 2026, the Company and Peoples, the parent company of Peoples Bank, entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides that, upon the terms and subject to conditions set therein, Capital will merge with and into Peoples (the "Merger"), with Peoples continuing as the surviving corporation in the Merger. Immediately following the Merger, or at such later time as Peoples may determine, Peoples will cause Capital Bank to merge with and into Peoples Bank (the "Bank Merger"), with Peoples Bank continuing as the surviving bank in the
Bank Merger. The Merger Agreement has been unanimously approved by the boards of directors of Peoples and Capital.
At the effective time of the Merger (the "Effective Time"), each outstanding share of the Company's common stock, other than shares excluded under the Merger Agreement, will be converted into the right to receive 1.11 shares of Peoples' common stock, with cash paid in lieu of fractional shares. The Merger is expected to close in the first half of 2027, subject to satisfaction of customary closing conditions, including regulatory approvals and the approvals of stockholders of Peoples and the Company.
Chicago Branch Sale
On September 29, 2026, Capital Bank entered into a purchase and assumption agreement (the "P&A Agreement") with respect to the Bank's branch office located at North Riverside, Illinois. Pursuant to the P&A Agreement, another financial institution will purchase the branch office as well as certain loans and other assets attributed to the branch office and will also assume certain deposit and other liabilities attributed to the branch office (the "Chicago Branch Sale"). Consummation of the Chicago Branch Sale is subject to customary closing conditions, including the receipt of all required regulatory approvals and is expected to close during the first quarter of 2027.
Capital
As of September 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 September 30, | |||||||||||||||||
| 2026 | 2025 | % Change | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Interest income | $ | 72,292 | $ | 64,891 | 11.4 | % | |||||||||||
| Interest expense | 19,214 | 12,871 | 49.3 | ||||||||||||||
| Net interest income | 53,078 | 52,020 | 2.0 | ||||||||||||||
| Provision for credit losses | 4,903 | 4,650 | 5.4 | ||||||||||||||
| Provision for (release of) credit losses on unfunded commitments | (54) | 217 | (124.9) | ||||||||||||||
| Net interest income after provision for credit losses | 48,229 | 47,153 | 2.3 | ||||||||||||||
| Noninterest income | 15,039 | 11,068 | 35.9 | ||||||||||||||
| Noninterest expenses | 45,722 | 38,354 | 19.2 | ||||||||||||||
| Net income before income taxes | 17,546 | 19,867 | (11.7) | ||||||||||||||
| Income tax expense | 4,424 | 4,802 | (7.9) | ||||||||||||||
| Net income | $ | 13,122 | $ | 15,065 | (12.9) | ||||||||||||
Net income for the three months ended September 30, 2026 was $13.1 million, compared to net income of $15.1 million for the same period in 2025, a 12.9% decrease. Net income, as adjusted (non-GAAP) to exclude the impact of $1.6 million of after-tax merger-related expenses was $14.7 million for the three months ended September 30, 2026. Net income, as adjusted (non-GAAP) to exclude the impact of $0.6 million of after-tax merger-related expenses relating to the IFH acquisition and $3.5 million for the Call of Brokered Time Deposits acquired from the IFH transaction ("Call of Brokered Time Deposits") was $12.2 million for the three months ended September 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 $1.1 million, or 2.0%, to $53.1 million when comparing the three months ended September 30, 2026 to the three months ended September 30, 2025, primarily driven by increased interest income of $6.5 million from the Commercial Bank due to organic loan growth, and $0.9 million from OpenSky™ due to growth from the unsecured loan product, offset by $6.3 million of increased interest expense. The $6.3 million increased interest expense was driven by $1.0 million from higher deposit balances and a shift in deposit mix, $5.2 million of decreased benefit from purchase accounting accretion ("PAA"), and $0.1 million of higher borrowing costs.
The provision for credit losses for the three months ended September 30, 2026 was $4.9 million, an increase of $0.3 million from the same period in 2025. Net charge-offs for the three months ended September 30, 2026 were $3.8 million, or 0.49% on an annualized basis of average portfolio loans, compared to $2.5 million, or 0.35% on an annualized basis of average portfolio loans for the same period in 2025.
For the three months ended September 30, 2026, noninterest income of $15.0 million increased $4.0 million, or 35.9%, from the same period in 2025, driven by a $1.5 million increase in government lending revenue mostly from USDA gain on sale, $1.2 million from SBIC income, $0.8 million increase from government loan servicing and packaging revenue (WindsorTM) driven by growth in servicing income from organic growth in the servicing portfolio, and $0.3 million of fees earned from USDA deals which were not executed.
Noninterest expense was $45.7 million for the three months ended September 30, 2026, an increase of $7.4 million from the same period in 2025. The change was primarily driven by increases in salaries and employee benefits expenses of $3.4 million driven by planned expansion and investment in headcount across the organization, increases of $2.8 million in professional fees associated with
investments in shared services areas and OpenSkyTM, occupancy and equipment expenses of $1.3 million, merger-related expenses of $0.9 million, and regulatory assessment expenses of $0.2 million, offset by decreases in loan processing expenses of $0.6 million, other operating expenses of $0.5 million, and advertising expenses of $0.1 million.
| Nine Months Ended September 30, | |||||||||||||||||
| 2026 | 2025 | % Change | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Interest income | $ | 210,221 | $ | 192,237 | 9.4 | % | |||||||||||
| Interest expense | 56,816 | 46,524 | 22.1 | ||||||||||||||
| Net interest income | 153,405 | 145,713 | 5.3 | ||||||||||||||
| Provision for credit losses | 11,502 | 10,977 | 4.8 | ||||||||||||||
| Provision for credit losses on unfunded commitments | 216 | 217 | (0.5) | ||||||||||||||
| Net interest income after provision for credit losses | 141,687 | 134,519 | 5.3 | ||||||||||||||
| Noninterest income | 42,773 | 36,723 | 16.5 | ||||||||||||||
| Noninterest expenses | 132,589 | 115,979 | 14.3 | ||||||||||||||
| Net income before income taxes | 51,871 | 55,263 | (6.1) | ||||||||||||||
| Income tax expense | 12,481 | 13,130 | (4.9) | ||||||||||||||
| Net income | $ | 39,390 | $ | 42,133 | (6.5) | ||||||||||||
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 nine months ended September 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 September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
|
Average Outstanding Balance |
Interest Income/ Expense |
Average
Yield/ Rate(1) |
Average Outstanding Balance |
Interest Income/ Expense |
Average
Yield/ Rate(1) |
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| ($ in thousands) | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 242,761 | $ | 2,218 | 3.62 | % | $ | 194,858 | $ | 2,139 | 4.36 | % | |||||||||||||||||||||||
|
Federal funds sold
|
22 | - | - | 59 | 1 | 5.79 | |||||||||||||||||||||||||||||
| Investment securities available-for-sale | 227,537 | 1,826 | 3.18 | 241,086 | 1,805 | 2.97 | |||||||||||||||||||||||||||||
|
Restricted investments
|
7,441 | 112 | 5.97 | 7,052 | 108 | 6.06 | |||||||||||||||||||||||||||||
|
Loans held for sale(2)(3)
|
11,630 | 194 | 6.62 | 13,783 | 228 | 6.57 | |||||||||||||||||||||||||||||
|
Portfolio loans receivable(3)(4)
|
3,135,648 | 67,942 | 8.60 | 2,789,815 | 60,610 | 8.62 | |||||||||||||||||||||||||||||
|
Total interest earning assets
|
3,625,039 | 72,292 | 7.91 | 3,246,653 | 64,891 | 7.93 | |||||||||||||||||||||||||||||
|
Noninterest earning assets(2)
|
140,002 | 131,643 | |||||||||||||||||||||||||||||||||
|
Total assets
|
$ | 3,765,041 | $ | 3,378,296 | |||||||||||||||||||||||||||||||
|
Liabilities and Stockholders' Equity
|
|||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand accounts | $ | 332,684 | $ | 768 | 0.92 | % | $ | 282,873 | $ | 388 | 0.54 | % | |||||||||||||||||||||||
|
Savings
|
22,479 | 115 | 2.03 | 12,887 | 15 | 0.47 | |||||||||||||||||||||||||||||
|
Money market accounts
|
1,375,162 | 11,389 | 3.29 | 985,106 | 8,650 | 3.48 | |||||||||||||||||||||||||||||
|
Time deposits
|
703,072 | 6,687 | 3.77 | 815,302 | 3,679 | 1.79 | |||||||||||||||||||||||||||||
|
Borrowed funds
|
25,051 | 255 | 4.04 | 34,062 | 139 | 1.62 | |||||||||||||||||||||||||||||
|
Total interest-bearing liabilities(2)
|
2,458,448 | 19,214 | 3.10 | 2,130,230 | 12,871 | 2.40 | |||||||||||||||||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Noninterest-bearing liabilities | 46,904 | 43,245 | |||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits(2)
|
831,739 | 820,899 | |||||||||||||||||||||||||||||||||
|
Stockholders' equity
|
427,950 | 383,922 | |||||||||||||||||||||||||||||||||
|
Total liabilities and stockholders' equity
|
$ | 3,765,041 | $ | 3,378,296 | |||||||||||||||||||||||||||||||
| Net interest spread | 4.81 | % | 5.53 | % | |||||||||||||||||||||||||||||||
| Net interest income | $ | 53,078 | $ | 52,020 | |||||||||||||||||||||||||||||||
|
Net interest margin(5)
|
5.81 | % | 6.36 | % | |||||||||||||||||||||||||||||||
_______________
(1)Annualized.
(2) Balances include held for sale transactions in connection with the Chicago Branch Sale.
(3) Average balances include nonaccrual loans. As of September 30, 2026, nonaccrual loans of $0.3 million were included in Loans held for sale and $56.4 million were in Portfolio loans receivable.
(4) For the three months ended September 30, 2026 and 2025, collectively, Core Loan Yield was 6.83% and 6.74%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
(5) For the three months ended September 30, 2026 and 2025, collectively, Core Net Interest Margin was 4.18% and 4.66%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
The net interest margin decreased 55 basis points to 5.81% for the three months ended September 30, 2026 from the same period in 2025. Core net interest margin (non-GAAP) decreased 48 bps to 4.18% for the three months ended September 30, 2026, compared to 4.66% for the same period in 2025. There was $4.6 million of PAA from the Call of Brokered Time Deposits during 3Q 2025, or 56 bps of NIM and 59 bps of Core NIM. Excluding the impact from the Call of Brokered Time Deposits, NIM increased 1 bp and Core NIM increased 11 bps year-over-year. For more information on the computation of non-GAAP financial measures, see "Non-GAAP Financial Measures and Reconciliations."
For the three months ended September 30, 2026, average interest earning assets increased $378.4 million, or 11.7%, to $3.6 billion as compared to the same period in 2025, but the average yield on interest earning assets decreased to 7.91%, a 2 basis point decrease from 7.93% for the comparable 2025 period. The 2 basis point decrease was primarily due to changes in the rate environment. Compared to the same period in the prior year, average interest-bearing liabilities increased $328.2 million, or 15.4%, and the average cost of interest-bearing liabilities increased to 3.10%, a 70 basis point increase from 2.40%. The increase was primarily due to 86 bps from the Call of Brokered Time Deposits during the three months ended September 30, 2025. Excluding the Call of Brokered Time Deposits, the average cost of interest-bearing liabilities would have decreased 16 bps year-over-year, primarily driven by a shift in the product mix of the portfolio as well as changes in the rate environment.
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
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Average Outstanding Balance |
Interest Income/ Expense |
Average
Yield/
Rate(1)
|
Average Outstanding Balance |
Interest Income/ Expense |
Average
Yield/
Rate(1)
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| ($ in thousands) | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 261,412 | $ | 7,063 | 3.61 | % | $ | 193,337 | $ | 6,342 | 4.39 | % | |||||||||||||||||||||||
| Federal funds sold | 47 | 1 | 2.84 | 59 | 2 | 4.24 | |||||||||||||||||||||||||||||
| Investment securities available-for-sale | 233,592 | 5,099 | 2.92 | 235,690 | 5,248 | 2.98 | |||||||||||||||||||||||||||||
| Restricted investments | 8,191 | 373 | 6.09 | 6,622 | 306 | 6.17 | |||||||||||||||||||||||||||||
|
Loans held for sale(2)(3)
|
13,971 | 623 | 5.96 | 11,046 | 629 | 7.62 | |||||||||||||||||||||||||||||
|
Portfolio loans receivable(3)(4)
|
3,067,904 | 197,062 | 8.59 | 2,719,834 | 179,710 | 8.83 | |||||||||||||||||||||||||||||
| Total interest earning assets | 3,585,117 | 210,221 | 7.84 | 3,166,588 | 192,237 | 8.12 | |||||||||||||||||||||||||||||
|
Noninterest earning assets(2)
|
141,434 | 131,582 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,726,551 | $ | 3,298,170 | |||||||||||||||||||||||||||||||
| Liabilities and Stockholders' Equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand accounts | $ | 314,587 | $ | 1,998 | 0.85 | % | $ | 269,184 | $ | 1,147 | 0.57 | % | |||||||||||||||||||||||
| Savings | 18,022 | 214 | 1.59 | 13,044 | 49 | 0.51 | |||||||||||||||||||||||||||||
| Money market accounts | 1,293,968 | 31,666 | 3.27 | 927,044 | 24,071 | 3.47 | |||||||||||||||||||||||||||||
| Time deposits | 755,275 | 21,673 | 3.84 | 830,451 | 20,699 | 3.33 | |||||||||||||||||||||||||||||
| Borrowed funds | 42,959 | 1,265 | 3.94 | 34,062 | 558 | 2.19 | |||||||||||||||||||||||||||||
|
Total interest-bearing liabilities(2)
|
2,424,811 | 56,816 | 3.13 | 2,073,785 | 46,524 | 3.00 | |||||||||||||||||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Noninterest-bearing liabilities | 54,081 | 48,374 | |||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits(2)
|
831,811 | 802,991 | |||||||||||||||||||||||||||||||||
| Stockholders' equity | 415,848 | 373,020 | |||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 3,726,551 | $ | 3,298,170 | |||||||||||||||||||||||||||||||
| Net interest spread | 4.71 | % | 5.12 | % | |||||||||||||||||||||||||||||||
| Net interest income | $ | 153,405 | $ | 145,713 | |||||||||||||||||||||||||||||||
|
Net interest margin(5)
|
5.72 | % | 6.15 | % | |||||||||||||||||||||||||||||||
_______________
(1)Annualized.
(2) Balances include held for sale transactions in connection with the Chicago Branch Sale.
(3) Average balances include nonaccrual loans. As of September 30, 2026, nonaccrual loans of $0.3 million were included in Loans held for sale and $56.4 million were in Portfolio loans receivable.
(4) For the nine months ended September 30, 2026 and 2025, collectively, Core Loan Yield was 6.84% and 7.01%, respectively. See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
(5) For the nine months ended September 30, 2026 and 2025, collectively, Core Net Interest Margin was 4.12% and 4.48%, 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 September 30, 2026 |
Nine Months Ended September 30, 2026 |
||||||||||||||||||||||||||||||||||
|
Compared to
|
Compared to
|
||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2025 | ||||||||||||||||||||||||||||||||||
|
Change Due To
|
Interest Variance
|
Change Due To
|
Interest Variance
|
||||||||||||||||||||||||||||||||
| (in thousands) |
Volume
|
Rate
|
Volume
|
Rate
|
|||||||||||||||||||||||||||||||
|
Interest Income:
|
|||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits
|
$ | 442 | $ | (363) | $ | 79 | $ | 1,849 | $ | (1,128) | $ | 721 | |||||||||||||||||||||||
|
Federal funds sold
|
- | (1) | (1) | - | (1) | (1) | |||||||||||||||||||||||||||||
| Investment securities available-for-sale | (109) | 130 | 21 | (46) | (103) | (149) | |||||||||||||||||||||||||||||
|
Restricted investments
|
6 | (2) | 4 | 71 | (4) | 67 | |||||||||||||||||||||||||||||
|
Loans held for sale
|
(36) | 2 | (34) | 130 | (136) | (6) | |||||||||||||||||||||||||||||
| Portfolio loans receivable excluding credit card loans | 5,709 | 604 | 6,313 | 17,122 | (3,214) | 13,908 | |||||||||||||||||||||||||||||
| Credit card loans | 1,683 | (664) | 1,019 | 5,148 | (1,704) | 3,444 | |||||||||||||||||||||||||||||
|
Total interest income
|
7,695 | (294) | 7,401 | 24,274 | (6,290) | 17,984 | |||||||||||||||||||||||||||||
|
Interest Expense:
|
|||||||||||||||||||||||||||||||||||
|
Interest-bearing demand accounts
|
116 | 264 | 380 | 289 | 562 | 851 | |||||||||||||||||||||||||||||
|
Savings
|
49 | 51 | 100 | 59 | 106 | 165 | |||||||||||||||||||||||||||||
|
Money market accounts
|
3,211 | (472) | 2,739 | 8,982 | (1,387) | 7,595 | |||||||||||||||||||||||||||||
|
Time deposits
|
(1,061) | 4,069 | 3,008 | (2,177) | 3,151 | 974 | |||||||||||||||||||||||||||||
|
Borrowed funds
|
(92) | 208 | 116 | 261 | 446 | 707 | |||||||||||||||||||||||||||||
|
Total interest expense
|
2,223 | 4,120 | 6,343 | 7,414 | 2,878 | 10,292 | |||||||||||||||||||||||||||||
|
Net interest income
|
$ | 5,472 | $ | (4,414) | $ | 1,058 | $ | 16,860 | $ | (9,168) | $ | 7,692 | |||||||||||||||||||||||
When comparing the three months ended September 30, 2026 to the three months ended September 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 $6.3 million of the $7.4 million increase in interest income, with growth (due to change in volume) accounting for $5.7 million and increased yield as a result of a shift in product mix accounted for an additional $0.6 million of increased interest income. Growth in both secured and unsecured product drove an additional $1.7 million increase in volume for credit card loans. The $6.3 million increase in interest expense year over year was primarily driven by $5.2 million of decreased benefit from net PAA, $1.0 million from higher balances and a shift in deposit mix, and $0.1 million of higher borrowing costs.
When comparing the nine months ended September 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 $13.9 million of the $18.0 million increase in interest income, with growth (due to change in volume) accounting for a $17.1 million increase in interest income, slightly offset by a $3.2 million decrease as a result of the rate environment. Growth in both secured and unsecured product drove an additional $5.1 million increase in volume for credit card loans,
slightly offset by a $1.7 million decrease as a result of the rate environment. The $10.3 million increase in interest expense year over year was primarily driven by $6.9 million lower benefit from PAA, $2.7 million shift in deposit mix, and $0.7 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 2025 Form 10-K.
For the three months ended September 30, 2026, the provision for credit losses was $4.9 million, an increase of $0.3 million from the same period in 2025. The increased provision for credit losses was primarily driven by $0.8 million of increases for OpenSky™ loans, slightly offset by $0.5 million of decreases for the Commercial Bank portfolio. The provision from OpenSky™ increased $0.8 million, primarily driven by higher volumes in the unsecured portfolio - as unsecured card balances increased $18.0 million from $39.6 million at September 30, 2025 to $57.6 million. Additionally, net charge-offs for the unsecured portfolio increased $1.0 million compared to the three months ended September 30, 2025.
The ACL as a percent of portfolio loans was 1.78% at September 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 September 30, 2026 in "Financial Condition - Allowance for Credit Losses."
Noninterest Income
Our primary sources of recurring noninterest income are credit card fees, such as interchange fees and statement fees, government guaranteed lending revenue (gain on sale), mortgage banking revenue and Windsor Advantage™ fee revenue in connection with its servicing, processing and packaging of SBA and USDA loans for its financial institution clients. Noninterest income does not include (i) loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method or (ii) annual, renewal and late fees related to our credit card portfolio, which are generally 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | % Change | 2026 | 2025 | % Change | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | $ | 418 | $ | 425 | (1.6) | % | $ | 1,230 | $ | 945 | 30.2 | % | |||||||||||||||||||||||
| Credit card fees | 4,520 | 4,509 | 0.2 | 13,607 | 12,529 | 8.6 | |||||||||||||||||||||||||||||
| Mortgage banking revenue | 1,849 | 1,927 | (4.0) | 5,365 | 5,512 | (2.7) | |||||||||||||||||||||||||||||
| Government lending revenue | 1,474 | 14 | 10,428.6 | 3,604 | 4,222 | (14.6) | |||||||||||||||||||||||||||||
| Government loan servicing revenue | 5,073 | 4,265 | 18.9 | 14,721 | 11,477 | 28.3 | |||||||||||||||||||||||||||||
| Loan servicing rights | 523 | 368 | 42.1 | 1,312 | 250 | 424.8 | |||||||||||||||||||||||||||||
| Other income (loss) | 1,182 | (440) | (368.6) | 2,934 | 1,788 | 64.1 | |||||||||||||||||||||||||||||
| Total noninterest income | $ | 15,039 | $ | 11,068 | 35.9 | % | $ | 42,773 | $ | 36,723 | 16.5 | % | |||||||||||||||||||||||
For the three months ended September 30, 2026, noninterest income of $15.0 million increased $4.0 million, or 35.9%, from the same period in 2025. The increase was primarily driven by $1.5 million of increased government lending revenue mostly from USDA gain on sale, $1.2 million of increased SBIC income reported within other income, $0.8 million of increased government loan servicing and packaging revenue (Windsor Advantage™) driven by growth in servicing income from organic growth in the servicing portfolio, and $0.3 million of increased other income from fees earned from USDA deals which were not executed.
Credit card fees of $4.5 million for the three months ended September 30, 2026 remained consistent as compared to the three months ended September 30, 2025, primarily as a result of growth in the unsecured product offsetting decreases as a result of rate environment.
Originations of loans held for sale within the Bank's CBHL division decreased $5.3 million to $75.3 million in the third quarter of 2026 when compared to $80.7 million in the third quarter of 2025. The gain on sale margin increased to 2.93% for the three months ended September 30, 2026 from 2.56% for the three months ended September 30, 2025.
Mortgage banking revenue of $1.8 million decreased $0.1 million from the three months ended September 30, 2025, primarily driven by the decreased gain on sale of $0.3 million, slightly offset by a $0.2 million increase in the fair value for loans in process (mortgage origination commitments).
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 September 30, 2026 and $2.3 million at December 31, 2025, respectively. The Bank did not repurchase any loans during the nine months ended September 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 $1.5 million for the three months ended September 30, 2026 increased $1.5 million as compared to the three months ended September 30, 2025, primarily as a result of increased activity from USDA gain on sale.
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | % Change | 2026 | 2025 | % Change | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||||||||||||||
|
Salaries and employee benefits
|
$ | 21,116 | $ | 17,728 | 19.1 | % | $ | 61,500 | $ | 54,255 | 13.4 | % | |||||||||||||||||||||||
|
Occupancy and equipment
|
4,144 | 2,849 | 45.5 | 11,648 | 8,754 | 33.1 | |||||||||||||||||||||||||||||
| Professional fees | 4,919 | 2,131 | 130.8 | 14,009 | 6,665 | 110.2 | |||||||||||||||||||||||||||||
|
Data processing
|
7,708 | 7,654 | 0.7 | 23,026 | 22,286 | 3.3 | |||||||||||||||||||||||||||||
|
Advertising
|
1,566 | 1,714 | (8.6) | 4,848 | 4,864 | (0.3) | |||||||||||||||||||||||||||||
|
Loan processing
|
543 | 1,114 | (51.3) | 3,401 | 2,836 | 19.9 | |||||||||||||||||||||||||||||
| Merger-related expenses | 1,577 | 697 | 126.3 | 1,577 | 3,361 | (53.1) | |||||||||||||||||||||||||||||
| Operational and other card fraud related losses | 930 | 923 | 0.8 | 2,310 | 2,759 | (16.3) | |||||||||||||||||||||||||||||
| Regulatory assessment expenses | 930 | 740 | 25.7 | 2,796 | 2,513 | 11.3 | |||||||||||||||||||||||||||||
| Other operating | 2,289 | 2,804 | (18.4) | 7,474 | 7,686 | (2.8) | |||||||||||||||||||||||||||||
| Total noninterest expense | $ | 45,722 | $ | 38,354 | 19.2 | % | $ | 132,589 | $ | 115,979 | 14.3 | % | |||||||||||||||||||||||
Noninterest expense was $45.7 million for the three months ended September 30, 2026, as compared to $38.4 million for the three months ended September 30, 2025, an increase of $7.4 million. The change included $3.4 million of increases in salaries and employee benefits expenses due to planned expansion and investment in headcount across the organization, increases of $2.8 million in professional fees associated with strategic investments in shared service areas and card partnerships for OpenSky™, $1.3 million in occupancy and equipment due to an increase in software contracts and the acceleration of depreciation of capitalized assets related to OpenSky™ technology, $0.9 million in merger-related expenses, and $0.2 million in regulatory assessment expenses. The increased spending was slightly offset by decreases of $0.6 million in loan processing costs from loan expenses associated with our government guaranteed lending portfolio, $0.5 million in other operating expenses, and $0.1 million in advertising expenses.
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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Income before income taxes | $ | 17,546 | $ | 19,867 | $ | 51,871 | $ | 55,263 | ||||||||||||||||||
| Income tax expense | 4,424 | 4,802 | 12,481 | 13,130 | ||||||||||||||||||||||
| Effective income tax rate | 25.2 | % | 24.2 | % | 24.1 | % | 23.8 | % | ||||||||||||||||||
Income tax expense was $4.4 million and $12.5 million for the three and nine months ended September 30, 2026, respectively, compared to $4.8 million and $13.1 million for the same periods, respectively, in 2025. Our effective tax rate increased from 24.2% for the three months ended September 30, 2025 to 25.2% for the three months ended September 30, 2026 primarily as a result of nondeductible merger-related costs. Our effective tax rate was 24.1% for the nine months ended September 30, 2026 compared to 23.8% for the same period in 2025 primarily as a result of nondeductible merger-related costs and an updated estimate related to the deferred tax liability associated with fixed assets acquired in the IFH acquisition. 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 2025 Form 10-K.
Financial Condition
The following table summarizes the Company's financial condition at the dates indicated.
| (in thousands, except per share data) | September 30, 2026 | December 31, 2025 | $ Change | % Change | |||||||||||||||||||
| Total assets | $ | 3,802,553 | $ | 3,606,207 | $ | 196,346 | 5.4 | % | |||||||||||||||
| Investment securities available-for-sale | 214,486 | 230,083 | (15,597) | (6.8) | |||||||||||||||||||
| Loans held for sale | 74,251 | 25,828 | 48,423 | 187.5 | |||||||||||||||||||
| Portfolio loans receivable, net of deferred fees and costs | 3,114,264 | 2,959,457 | 154,807 | 5.2 | |||||||||||||||||||
| Allowance for credit losses | 55,493 | 54,660 | 833 | 1.5 | |||||||||||||||||||
| Goodwill | 25,969 | 25,969 | - | - | |||||||||||||||||||
| Intangible assets | 13,989 | 14,771 | (782) | (5.3) | |||||||||||||||||||
| Deposits | 3,319,135 | 3,093,200 | 225,935 | 7.3 | |||||||||||||||||||
| FHLB borrowings | - | 50,000 | (50,000) | (100.0) | |||||||||||||||||||
| Other borrowed funds | 2,062 | 2,062 | - | - | |||||||||||||||||||
| Total stockholders' equity | 431,450 | 401,757 | 29,693 | 7.4 | |||||||||||||||||||
|
Tangible common equity (1)
|
391,492 | 361,017 | 30,475 | 8.4 | |||||||||||||||||||
| Equity to total assets at end of period | 11.35 | % | 11.14 | % | 1.9 | ||||||||||||||||||
| Weighted average number of basic shares outstanding, YTD | 16,309 | 16,582 | (1.6) | ||||||||||||||||||||
| Weighted average number of diluted shares outstanding, YTD | 16,437 | 16,768 | (2.0) | ||||||||||||||||||||
| Common shares outstanding | 16,329 | 16,373 | (0.3) | ||||||||||||||||||||
| Book value per share | $ | 26.42 | $ | 24.54 | 7.7 | ||||||||||||||||||
|
Tangible book value per share (1)
|
23.98 | 22.05 | 8.8 | ||||||||||||||||||||
| Dividends per share, YTD | 0.38 | 0.44 | |||||||||||||||||||||
_____________
(1) See "Non-GAAP Financial Measures and Reconciliations" for a reconciliation of non-GAAP measures.
Total assets at September 30, 2026 increased $196.3 million from the balance at December 31, 2025. Portfolio loans, net of deferred fees and costs, which exclude loans held for sale, totaled $3.1 billion as of September 30, 2026, an increase of $154.8 million, or 5.2%, from $3.0 billion at December 31, 2025. The loans held for sale balance consists of $60.2 million related to the Chicago Branch Sale and $14.1 million of mortgage loans held for sale. Mortgage loans held for sale decreased $11.7 million, or 45.3%, when comparing the period end balances at September 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 September 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 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 | $ | 24,872 | 4.08 | % | $ | 113,033 | 2.24 | % | $ | - | - | % | $ | - | - | % | $ | 137,905 | $ | 131,312 | 2.57 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipal | 583 | 4.77 | - | - | 13,182 | 6.75 | 1,505 | 1.98 | 15,270 | 12,683 | 6.20 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | - | - | 1,500 | 6.96 | - | - | - | - | 1,500 | 1,443 | 6.96 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | - | - | - | - | 329 | 4.47 | 4,217 | 5.47 | 4,546 | 4,615 | 5.40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | - | - | 36,413 | 3.91 | 5,856 | 3.21 | 25,104 | 5.18 | 67,373 | 64,433 | 4.32 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 25,455 | 4.10 | % | $ | 150,946 | 2.69 | % | $ | 19,367 | 5.64 | % | $ | 30,826 | 5.06 | % | $ | 226,594 | $ | 214,486 | 3.42 | % | ||||||||||||||||||||||||||||||||||||||||||||||
As described in Note 4 - ''Investment Securities'' in the "Notes to Unaudited Consolidated Financial Statements," at September 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 September 30, 2026, before it is able to recover the amortized cost basis. Further, management reviewed the Company's holdings as of September 30, 2026 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at
September 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 September 30, 2026, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody's, Standard & Poor's or Fitch, is as follows: AAA - 78% of the portfolio; AA+ - 22%.
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 September 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 $4.4 million as of September 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 $55.6 million as of September 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 $93.7 million and $97.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of September 30, 2026 and December 31, 2025, respectively. Unsecured balances were $57.6 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 September 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 | $ | 139,615 | $ | 317,885 | $ | 65,018 | $ | 261,702 | 784,220 | ||||||||||||||||||||
| Commercial | 257,599 | 476,607 | 256,917 | 33,631 | 1,024,754 | ||||||||||||||||||||||||
| Construction | 285,548 | 85,309 | 9,633 | 198 | 380,688 | ||||||||||||||||||||||||
| Commercial and Industrial | 276,293 | 180,876 | 156,711 | 160,417 | 774,297 | ||||||||||||||||||||||||
| Credit card | 149,184 | - | - | - | 149,184 | ||||||||||||||||||||||||
| Other consumer | 2,276 | 2,927 | 336 | - | 5,539 | ||||||||||||||||||||||||
| Total portfolio loans, gross | $ | 1,110,515 | $ | 1,063,604 | $ | 488,615 | $ | 455,948 | $ | 3,118,682 | |||||||||||||||||||
| Loans above maturing after one year categorized by rate characteristic: | Predetermined Interest Rates | Floating or Variable Rates | Total | ||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Residential | $ | 417,913 | $ | 226,692 | $ | 644,605 | |||||||||||||||||||||||
| Commercial | 381,343 | 385,812 | 767,155 | ||||||||||||||||||||||||||
| Construction | 41,194 | 53,946 | 95,140 | ||||||||||||||||||||||||||
| Commercial and Industrial | 159,461 | 338,543 | 498,004 | ||||||||||||||||||||||||||
| Other consumer | 3,263 | - | 3,263 | ||||||||||||||||||||||||||
| Total portfolio loans, gross | $ | 1,003,174 | $ | 1,004,993 | $ | 2,008,167 | |||||||||||||||||||||||
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 September 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 | $ | 218,120 | $ | 1,966 | 55.1 | % | Not Applicable | 7.0 | % | ||||||||||||||||||||
| Retail | $ | 164,170 | $ | 1,658 | 48.7 | % | 30.2 | % | 5.3 | % | |||||||||||||||||||
| Mixed use | 161,182 | 2,093 | 53.6 | 29.5 | % | 5.1 | |||||||||||||||||||||||
| Hotel | 75,706 | 5,047 | 48.0 | 13.9 | % | 2.4 | |||||||||||||||||||||||
| Industrial | 53,112 | 1,007 | 44.0 | 9.7 | % | 1.7 | |||||||||||||||||||||||
| Office | 42,757 | 1,584 | 35.4 | 7.8 | % | 1.4 | |||||||||||||||||||||||
|
Other(2)
|
48,685 | 1,503 | 48.9 | 8.9 | % | 1.6 | |||||||||||||||||||||||
| Total non-owner-occupied commercial real estate loans | $ | 545,612 | $ | 1,819 | 48.2 | % | 100.00 | % | 17.5 | % | |||||||||||||||||||
| Total portfolio loans, gross | $ | 3,118,682 | |||||||||||||||||||||||||||
Scheduled maturities of fixed rate non-owner-occupied commercial real estate loans, including multi-family
|
As of September 30, 2026
|
|||||||||||||||||||||||||||||||||||
| (in thousands) | 2026 | 2027 | 2028 | 2029 | 2030 and Onwards | Total | |||||||||||||||||||||||||||||
| Loan type: | |||||||||||||||||||||||||||||||||||
| Multi-family | $ | 18,028 | $ | 16,575 | $ | 51,678 | $ | 32,829 | $ | 99,011 | $ | 218,121 | |||||||||||||||||||||||
| Retail | $ | 8,719 | $ | 18,394 | $ | 1,648 | $ | 19,072 | $ | 54,315 | $ | 102,148 | |||||||||||||||||||||||
| Mixed use | 12,802 | 12,449 | 4,572 | 6,372 | 33,661 | 69,856 | |||||||||||||||||||||||||||||
| Hotel | - | - | - | 1,426 | 28,051 | 29,477 | |||||||||||||||||||||||||||||
| Industrial | 3,553 | 7,682 | 1,576 | 4,509 | 18,157 | 35,477 | |||||||||||||||||||||||||||||
| Office | - | 2,648 | 142 | 8,199 | 3,898 | 14,887 | |||||||||||||||||||||||||||||
| Other | 8,229 | 6,551 | - | 1,062 | 9,573 | 25,415 | |||||||||||||||||||||||||||||
| Total fixed rate non-owner-occupied commercial real estate loans | $ | 33,303 | $ | 47,724 | $ | 7,938 | $ | 40,640 | $ | 147,655 | $ | 277,260 | |||||||||||||||||||||||
Owner-occupied commercial real estate loans
|
As of September 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 | $ | 107,915 | $ | 1,210 | 46.1 | % | 25.7 | 3.5 | % | ||||||||||||||||||||
| Retail | 64,196 | 1,020 | 58.0 | 15.4 | 2.0 | % | |||||||||||||||||||||||
| Office | 56,036 | 714 | 56.0 | 13.4 | 1.8 | % | |||||||||||||||||||||||
| Mixed use | 21,500 | 983 | 54.2 | 5.1 | 0.7 | % | |||||||||||||||||||||||
|
Other(3)
|
169,539 | 1,052 | 46.4 | 40.4 | 5.4 | % | |||||||||||||||||||||||
| Total owner-occupied commercial real estate loans | $ | 419,186 | $ | 1,134 | 51.9 | % | 100.0 | % | 13.4 | % | |||||||||||||||||||
| Total portfolio loans, gross | $ | 3,118,682 | |||||||||||||||||||||||||||
Scheduled maturities of fixed rate owner-occupied commercial real estate loans
|
As of September 30, 2026
|
|||||||||||||||||||||||||||||||||||
| (in thousands) | 2026 | 2027 | 2028 | 2029 | 2030 and Onwards | Total | |||||||||||||||||||||||||||||
| Loan type: | |||||||||||||||||||||||||||||||||||
| Industrial | $ | 8,873 | $ | 4,961 | $ | 6,170 | $ | 3,393 | $ | 30,076 | $ | 53,473 | |||||||||||||||||||||||
| Retail | 552 | 4,721 | 5,850 | 6,711 | 14,691 | 32,525 | |||||||||||||||||||||||||||||
| Office | 363 | 2,037 | 2,352 | 7,404 | 24,646 | 36,802 | |||||||||||||||||||||||||||||
| Mixed use | - | 856 | 662 | 4,484 | 8,262 | 14,264 | |||||||||||||||||||||||||||||
| Other | 1,002 | 5,970 | 1,802 | 4,952 | 48,570 | 62,296 | |||||||||||||||||||||||||||||
| Total fixed rate owner-occupied commercial real estate loans | $ | 10,790 | $ | 18,545 | $ | 16,836 | $ | 26,944 | $ | 126,245 | $ | 199,360 | |||||||||||||||||||||||
_______________
(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 $13.4 million, multi-family loans of $9.0 million, skilled nursing loans of $8.4 million, a land loan of $7.2 million, and other loans of $10.7 million.
(3)Other owner-occupied commercial real estate loans include special purpose loans of $92.4 million, skilled nursing loans of $32.6 million, $24.8 million of religious facility loans and other loans of $19.7 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 September 30, 2026, the recorded investment in individually assessed collateral dependent loans was $20.7 million, requiring a specific reserve of $6.0 million. At December 31, 2025, the recorded investment in individually assessed collateral dependent loans was $13.8 million, requiring a specific reserve of $5.6 million.
At September 30, 2026, nonperforming loans were $56.7 million, an increase of $2.2 million from December 31, 2025. Nonperforming loans as a percentage of total portfolio loans decreased 2 basis points from 1.84% at December 31, 2025 to 1.82% at September 30, 2026. Nonperforming assets as a percentage of total assets decreased 3 basis points from 1.62% at December 31, 2025 to 1.59% at September 30, 2026.
Past Due Loans
The past due loans balance increased $8.2 million, from $93.5 million or 3.2% of gross loans as of December 31, 2025 to $101.7 million or 3.3% of gross loans as of September 30, 2026. The increase was primarily driven by $9.3 million of increases in construction loans. 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 90+ days past due and the underlying properties on the loans proceeded to foreclosure. The foreclosure sales have occurred and the Bank was the successful bidder through its credit bids; the sale remains subject to court ratification. Management expects recovery to be realized through disposition of the collateral and a specific reserve of $0.8 million continues to be recorded for one of the loans. Management believes the credit remains appropriately monitored and the exposure is appropriately 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(1) to total portfolio loans
|
Allowance for credit losses to nonaccrual loans | ||||||||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | September 30, 2026 | December 31, 2025 | September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
| Residential | 0.93 | % | 0.97 | % | 0.61 | % | 1.01 | % | 152 | % | 96 | % | ||||||||||||||||||||||||||
| Commercial | 1.35 | 1.50 | 1.22 | 1.57 | 111 | 95 | ||||||||||||||||||||||||||||||||
| Construction | 1.43 | 1.18 | 3.69 | 1.31 | 39 | 90 | ||||||||||||||||||||||||||||||||
| Commercial and Industrial | 2.53 | 2.84 | 3.23 | 3.77 | 78 | 75 | ||||||||||||||||||||||||||||||||
| Credit card | 6.23 | 5.78 | - | - | - | - | ||||||||||||||||||||||||||||||||
| Other consumer | 0.42 | 0.26 | - | - | - | - | ||||||||||||||||||||||||||||||||
| Total | 1.78 | % | 1.85 | % | 1.81 | % | 1.84 | % |
%
|
%
|
||||||||||||||||||||||||||||
(1) Ratios as of September 30, 2026 exclude $0.3 million balance for one held for sale loan that was classified as nonaccrual.
At September 30, 2026, the ACL coverage ratio was 1.78%, down 7 bps from December 31, 2025 and down 10 bps compared to September 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 September 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 | $ | 172 | $ | 812,613 | 0.08 | % | $ | (7) | $ | 727,666 | - | % | ||||||||||||||||||||||||||
| Commercial | - | 1,039,669 | - | % | - | 980,748 | - | |||||||||||||||||||||||||||||||
| Construction | - | 367,952 | - | % | - | 340,028 | - | |||||||||||||||||||||||||||||||
| Commercial and Industrial | 471 | 770,132 | 0.24 | % | 336 | 611,529 | 0.22 | |||||||||||||||||||||||||||||||
| Credit card | 3,198 | 143,858 | 8.82 | % | 2,147 | 129,100 | 6.60 | |||||||||||||||||||||||||||||||
| Other consumer | - | 1,424 | - | % | - | 744 | - | |||||||||||||||||||||||||||||||
| Total | $ | 3,841 | $ | 3,135,648 | 0.49 | % | $ | 2,476 | $ | 2,789,815 | 0.35 | % | ||||||||||||||||||||||||||
_____________
(1) Annualized.
| Nine Months Ended September 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 | $ | 178 | $ | 793,998 | 0.03 | % | $ | (7) | $ | 709,247 | - | % | ||||||||||||||||||||||||||
| Commercial | - | 1,021,241 | - | % | 1,695 | 951,939 | 0.24 | |||||||||||||||||||||||||||||||
| Construction | 383 | 367,872 | 0.14 | % | 264 | 334,728 | 0.11 | |||||||||||||||||||||||||||||||
| Commercial and Industrial | 894 | 742,071 | 0.16 | % | 1,548 | 599,085 | 0.35 | |||||||||||||||||||||||||||||||
| Credit card | 9,214 | 138,244 | 8.91 | % | 6,508 | 123,117 | 7.07 | |||||||||||||||||||||||||||||||
| Other consumer | - | 4,478 | - | % | - | 1,718 | - | |||||||||||||||||||||||||||||||
| Total | $ | 10,669 | $ | 3,067,904 | 0.46 | % | $ | 10,008 | $ | 2,719,834 | 0.49 | % | ||||||||||||||||||||||||||
_____________
(1) Annualized.
Total charge-offs for the three and nine months ended September 30, 2026 were primarily comprised of credit card charge-offs. Net charge-offs increased $1.4 million and $0.7 million for the three and nine months ended September 30, 2026 compared to the same period in the prior year. Continued growth in the partially secured and unsecured card portfolio resulted in $1.1 million and $2.7 million of increased charge-offs for the three and nine months ended September 30, 2026, respectively, compared to the same periods in the prior year. There were no charge-offs to the commercial real estate loan portfolio for the nine months ended September 30, 2026, a decrease of $1.7 million from the same period in 2025. Net charge-offs on an annualized basis of average portfolio loans for the three and nine months ended September 30, 2026 were 0.49% and 0.46%, respectively, compared to 0.35% and 0.49% 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.
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Amount |
Percent (1)
|
Amount |
Percent (1)
|
||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Residential | $ | 7,259 | 13 | % | $ | 7,444 | 14 | % | |||||||||||||||
| Commercial | 13,879 | 25 | 14,917 | 27 | |||||||||||||||||||
| Construction | 5,431 | 10 | 4,250 | 8 | |||||||||||||||||||
| Commercial and Industrial | 19,608 | 35 | 19,818 | 36 | |||||||||||||||||||
| Credit card | 9,293 | 17 | 8,226 | 15 | |||||||||||||||||||
| Other consumer | 23 | - | 5 | - | |||||||||||||||||||
| Total allowance for credit losses | $ | 55,493 | 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 September 30, 2026 increased $166.7 million from December 31, 2025, primarily due to growth in the deposit portfolio of $225.9 million. The Company applied a portion of this deposit growth to retire $50.0 million in FHLB advances, reducing its reliance on wholesale funding.
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 September 30, 2026 and December 31, 2025, our credit card customers accounted for $162.4 million and $163.2 million, or 19.2% and 19.1%, respectively, of our total noninterest-bearing deposit balances.
Major deposit categories are as follows:
| Deposits | ||||||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | ||||||||||||
| Interest-bearing demand accounts | $ | 323,139 | $ | 257,233 | ||||||||||
| Savings | 30,538 | 11,679 | ||||||||||||
| Money markets | 1,379,580 | 1,105,183 | ||||||||||||
| Customer time deposits | 410,479 | 489,687 | ||||||||||||
| Brokered time deposits | 330,863 | 376,677 | ||||||||||||
| Total Interest-bearing deposits | 2,474,599 | 2,240,459 | ||||||||||||
| Noninterest-bearing demand accounts | 844,536 | 852,741 | ||||||||||||
| Total deposits | $ | 3,319,135 | $ | 3,093,200 | ||||||||||
The Company had $330.9 million in brokered deposits at September 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 September 30, 2026, these product concentrations represented 5% and 10% 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 Nine Months Ended September 30, 2026 |
For the Year Ended December 31, 2025 |
||||||||||||||||||||||
|
(in thousands)
|
Average Balance |
Average
Rate(1)
|
Average Balance |
Average Rate |
|||||||||||||||||||
| Interest-bearing demand accounts | $ | 314,587 | 0.85 | % | $ | 269,224 | 0.56 | % | |||||||||||||||
| Savings | 18,022 | 1.59 | 12,789 | 0.47 | |||||||||||||||||||
| Money market accounts | 1,293,968 | 3.27 | 960,882 | 3.45 | |||||||||||||||||||
| Time deposits | 755,275 | 3.84 | 825,847 | 3.51 | |||||||||||||||||||
| Total interest-bearing deposits | 2,381,852 | 3.12 | 2,068,742 | 3.08 | |||||||||||||||||||
| Noninterest-bearing demand accounts | 831,811 | 811,798 | |||||||||||||||||||||
| Total deposits | $ | 3,213,663 | 2.31 | % | $ | 2,880,540 | 2.21 | % | |||||||||||||||
_____________
(1) Annualized.
Deposit costs increased 10 basis points to 2.31% during the nine months ended September 30, 2026, as compared to 2.21% at December 31, 2025, driven by a shift in product mix, primarily growth from customer money market deposits with offsetting activity across other deposit products.
Noninterest-bearing deposits represented 25.4% of total deposits at September 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 September 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 September 30, 2026, excluding $65.4 million of certificates of deposits held for assumption for pending Chicago Branch Sale transaction.
|
Three Months or Less |
Over Three Through Six Months |
Over Six Through Twelve Months |
Over Twelve Months |
Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| $250,000 or more | $ | 15,622 | $ | 48,818 | $ | 45,983 | $ | 3,915 | $ | 114,338 | |||||||||||||||||||
| Less than $250,000 | 190,184 | 207,839 | 147,891 | 15,727 | 561,641 | ||||||||||||||||||||||||
| Total | $ | 205,806 | $ | 256,657 | $ | 193,874 | $ | 19,642 | $ | 675,979 | |||||||||||||||||||
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 decreased $50.0 million from $52.1 million at December 31, 2025 to $2.1 million at September 30, 2026 as the Company retired $50.0 million in FHLB advances.
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 September 30, 2026, approximately $505.0 million of loans were pledged as collateral to the FHLB. In addition, investment securities with a fair value of $106.8 million were pledged and, after applying required collateral haircuts, provided collateral value of $100.6 million. Together, these pledged assets supported total borrowing capacity of $605.5 million. The Company utilizes FHLB advances to support liquidity management and overall balance-sheet positioning, including funding certain fixed-rate loans. As of September 30, 2026, the Company had no outstanding FHLB advances and $605.5 million of available borrowing capacity.
Other Borrowed Funds. The Company has also issued junior subordinated debentures. At September 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 September 30, 2026, the rate for the Floating Rate Debentures was 6.03%.
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 $130.5 million as of September 30, 2026.
Other Borrowings. The Company also has available lines of credit of $100.5 million with other correspondent banks at September 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 September 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 nine months ended September 30, 2026, brokered time deposits decreased $45.8 million from December 31, 2025, as management continued to reduce reliance on higher-cost funding. Total deposits increased $225.9 million, or 7%, from December 31, 2025 to $3.3 billion at September 30, 2026, driven by growth in 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 September 30, 2026, we had $605.5 million of available borrowing capacity from the FHLB and $130.5 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 $100.5 million of available unsecured lines of credit with other correspondent banks. Unpledged investment securities available as collateral for potential additional borrowings totaled $6.1 million at September 30, 2026. Cash and cash equivalents were $262.0 million at September 30, 2026.
Capital Resources
Stockholders' equity increased $29.7 million for the period ended September 30, 2026 compared to December 31, 2025 largely due to net income of $39.4 million for the nine months ended September 30, 2026. The Company did not repurchase any shares during the three months ended September 30, 2026, as part of the Company's stock repurchase program. Shares repurchased and retired for the nine months ended September 30, 2026, as part of the Company's stock repurchase program, totaled 123,970 shares at an average price of $28.90, for a total cost of $3.6 million 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 stock repurchase plan is currently suspended due to the announced Merger.
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 $9.2 million at September 30, 2026 and $5.8 million at December 31, 2025. The $3.5 million decrease was primarily driven by declines in the fair values of available-for-sale debt securities as market interest rates increased. These declines resulted in net unrealized losses, net of deferred income tax, of approximately $1.8 million for mortgage-backed securities, $1.1 million increase for U.S. Treasuries, and $0.7 million for municipal securities, partially offset by decreases in net unrealized losses on other securities. 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 4 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 September 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 11.35% at September 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 2025 Form 10-K.
As of September 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 |
|||||||||||||||||||||||||||||||||||
| September 30, 2026 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||
| The Company | ||||||||||||||||||||||||||||||||||||||
| Tier 1 leverage ratio (to average assets) | $ | 405,187 | 10.84 | % | $ | 149,467 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) | 405,187 | 13.32 | 182,498 | 6.00 | N/A | N/A | ||||||||||||||||||||||||||||||||
|
Common equity tier 1 capital ratio (to risk-weighted assets)
|
403,125 | 13.25 | 136,874 | 4.50 | N/A | N/A | ||||||||||||||||||||||||||||||||
| Total capital ratio (to risk-weighted assets) | 443,443 | 14.58 | 243,331 | 8.00 | N/A | N/A | ||||||||||||||||||||||||||||||||
| The Bank | ||||||||||||||||||||||||||||||||||||||
| Tier 1 leverage ratio (to average assets) | $ | 338,088 | 9.15 | % | $ | 147,843 | 4.00 | % | $ | 184,803 | 5.00 | % | ||||||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) | 338,088 | 11.26 | 180,166 | 6.00 | 240,221 | 8.00 | ||||||||||||||||||||||||||||||||
|
Common equity tier 1 capital ratio (to risk-weighted assets)
|
338,088 | 11.26 | 135,124 | 4.50 | 195,180 | 6.50 | ||||||||||||||||||||||||||||||||
| Total capital ratio (to risk-weighted assets) | 375,856 | 12.52 | 240,221 | 8.00 | 300,277 | 10.00 | ||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| The Company | ||||||||||||||||||||||||||||||||||||||
| Tier 1 leverage ratio (to average assets) | $ | 371,638 | 10.71 | % | $ | 138,757 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) | 371,638 | 13.05 | 170,835 | 6.00 | N/A | N/A | ||||||||||||||||||||||||||||||||
|
Common equity tier 1 capital ratio (to risk-weighted assets)
|
369,576 | 12.98 | 128,126 | 4.50 | N/A | N/A | ||||||||||||||||||||||||||||||||
| Total capital ratio (to risk-weighted assets) | 407,481 | 14.31 | 227,780 | 8.00 | N/A | N/A | ||||||||||||||||||||||||||||||||
| 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. During the three and nine months ended September 30, 2026 the Company retired $50.0 million in FHLB advances and commenced a new 45-month lease agreement in Annapolis, Maryland. The company also commenced a 64-month lease for loan production office use in Towson, Maryland on October 5, 2026, as disclosed in Note 8 - Leases.
The Company experienced no other 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.
On September 29, 2026, the Company entered into a definitive Merger Agreement in connection with the pending acquisition of the Company. Certain provisions of the Merger Agreement, including termination-related provisions, are contingent in nature and do not represent material contractual obligations of the Company as of September 30, 2026. Additional information regarding the merger agreement is included in Note 2 - Pending Merger Agreement.
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 September 30, 2026 | As of December 31, 2025 | ||||||||||
| (in thousands) | |||||||||||
| Unfunded lines of credit | $ | 457,722 | $ | 455,666 | |||||||
| Letters of credit | 1,797 | 1,633 | |||||||||
| Commitment to fund other investments | 2,714 | 2,714 | |||||||||
| Total off-balance sheet commitments | $ | 462,233 | $ | 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 | Nine Months Ended | |||||||||||||||||||||
| (in thousands, except per share data) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
| Net Income | $ | 13,122 | $ | 15,065 | $ | 39,390 | $ | 42,133 | |||||||||||||||
| Deduct: Income from the Call of Brokered Time Deposit, Net of Tax | - | (3,489) | - | (3,489) | |||||||||||||||||||
| Add: Merger-Related Expenses, Net of Tax | 1,577 | 575 | 1,577 | 2,609 | |||||||||||||||||||
| Core Net Income | $ | 14,699 | $ | 12,151 | $ | 40,967 | $ | 41,253 | |||||||||||||||
| Weighted Average Common Shares - Diluted | 16,482 | 16,844 | 16,437 | 16,850 | |||||||||||||||||||
| Earnings per Share - Diluted | $ | 0.80 | $ | 0.89 | $ | 2.40 | $ | 2.50 | |||||||||||||||
| Core Earnings per Share - Diluted | $ | 0.89 | $ | 0.72 | $ | 2.49 | $ | 2.45 | |||||||||||||||
| Average Assets | $ | 3,765,041 | $ | 3,378,296 | $ | 3,726,551 | $ | 3,298,170 | |||||||||||||||
|
Return on Average Assets(1)
|
1.38 | % | 1.77 | % | 1.41 | % | 1.71 | % | |||||||||||||||
|
Core Return on Average Assets(1)
|
1.55 | % | 1.43 | % | 1.47 | % | 1.67 | % | |||||||||||||||
| Average Equity | $ | 427,950 | $ | 383,922 | $ | 415,848 | $ | 373,020 | |||||||||||||||
|
Return on Average Equity(1)
|
12.16 | % | 15.57 | % | 12.66 | % | 15.10 | % | |||||||||||||||
|
Core Return on Average Equity(1)
|
13.63 | % | 12.56 | % | 13.17 | % | 14.79 | % | |||||||||||||||
| Net Interest Income | $ | 53,078 | $ | 52,020 | $ | 153,405 | $ | 145,713 | |||||||||||||||
| Noninterest Income | 15,039 | 11,068 | 42,773 | 36,723 | |||||||||||||||||||
| Total Revenue | $ | 68,117 | $ | 63,088 | $ | 196,178 | $ | 182,436 | |||||||||||||||
| Noninterest Expense | 45,722 | 38,354 | 132,589 | 115,979 | |||||||||||||||||||
|
Efficiency Ratio(2)
|
67.12 | % | 60.79 | % | 67.59 | % | 63.57 | % | |||||||||||||||
| Net Interest Income | $ | 53,078 | $ | 52,020 | $ | 153,405 | $ | 145,713 | |||||||||||||||
| Deduct: Income from the Call of Brokered Time Deposits | - | 4,618 | - | 4,618 | |||||||||||||||||||
| Core Net Interest Income (a) | $ | 53,078 | $ | 47,402 | $ | 153,405 | $ | 141,095 | |||||||||||||||
| Noninterest Income (b) | 15,039 | 11,068 | 42,773 | 36,723 | |||||||||||||||||||
| Core Revenue (a) + (b) | $ | 68,117 | $ | 58,470 | $ | 196,178 | $ | 177,818 | |||||||||||||||
| Noninterest Expense | $ | 45,722 | $ | 38,354 | $ | 132,589 | $ | 115,979 | |||||||||||||||
| Less: Merger-Related Expenses | 1,577 | 697 | 1,577 | 3,361 | |||||||||||||||||||
| Core Noninterest Expense | $ | 44,145 | $ | 37,657 | $ | 131,012 | $ | 112,618 | |||||||||||||||
|
Core Efficiency Ratio (2)
|
64.81 | % | 64.40 | % | 66.78 | % | 63.33 | % | |||||||||||||||
_____________
(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 | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
| Net Interest Income | $ | 53,078 | $ | 52,020 | $ | 153,405 | $ | 145,713 | |||||||||||||||
| Less: Credit Card Loan Income | 16,405 | 15,386 | 47,095 | 43,651 | |||||||||||||||||||
| Core Net Interest Income | 36,673 | 36,634 | 106,310 | 102,062 | |||||||||||||||||||
| Average Interest Earning Assets | 3,625,039 | 3,246,653 | 3,585,117 | 3,166,588 | |||||||||||||||||||
| Less: Average Credit Card Loans | 143,858 | 129,100 | 138,244 | 123,117 | |||||||||||||||||||
| Average Core Interest Earning Assets | $ | 3,481,181 | $ | 3,117,553 | $ | 3,446,873 | $ | 3,043,471 | |||||||||||||||
| Core Net Interest Margin | 4.18% | 4.66% | 4.12% | 4.48% | |||||||||||||||||||
| Core Loan Yield | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
| Portfolio Loans Receivable Interest Income | $ | 67,942 | $ | 60,610 | $ | 197,062 | $ | 179,710 | |||||||||||||||
| Less: Credit Card Loan Income | 16,405 | 15,386 | 47,095 | 43,651 | |||||||||||||||||||
| Core Portfolio Loans Receivable Interest Income | $ | 51,537 | $ | 45,224 | $ | 149,967 | $ | 136,059 | |||||||||||||||
| Average Portfolio Loans Receivable | 3,135,648 | 2,789,815 | 3,067,904 | 2,719,834 | |||||||||||||||||||
| Less: Average Credit Card Loans | 143,858 | 129,100 | 138,244 | 123,117 | |||||||||||||||||||
| Total Core Average Portfolio Loans Receivable | $ | 2,991,790 | $ | 2,660,715 | $ | 2,929,660 | $ | 2,596,717 | |||||||||||||||
| Core Portfolio Loans Receivable Yield | 6.83% | 6.74% | 6.84% | 7.01% | |||||||||||||||||||
| Pre-tax, Pre-Provision Net Revenue ("PPNR") | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
|
Net Income
|
$ | 13,122 | $ | 15,065 | $ | 39,390 | $ | 42,133 | |||||||||||||||
| Add: Income Tax Expense | 4,424 | 4,802 | 12,481 | 13,130 | |||||||||||||||||||
| Add: Provision for Credit Losses | 4,903 | 4,650 | 11,502 | 10,977 | |||||||||||||||||||
| Add: Provision for (Release of) Credit Losses on Unfunded Commitments | (54) | 217 | 216 | 217 | |||||||||||||||||||
| Pre-tax, Pre-Provision Net Revenue ("PPNR") | $ | 22,395 | $ | 24,734 | $ | 63,589 | $ | 66,457 | |||||||||||||||
| Core PPNR | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
|
Net Income
|
$ | 13,122 | $ | 15,065 | $ | 39,390 | $ | 42,133 | |||||||||||||||
| Add: Income Tax Expense | 4,424 | 4,802 | 12,481 | 13,130 | |||||||||||||||||||
| Add: Provision for Credit Losses | 4,903 | 4,650 | 11,502 | 10,977 | |||||||||||||||||||
| Add: Provision for (Release of) Credit Losses on Unfunded Commitments | (54) | 217 | 216 | 217 | |||||||||||||||||||
| Deduct: Income from the Call of Brokered Time Deposits | - | (4,618) | - | (4,618) | |||||||||||||||||||
| Add: Merger-Related Expenses | 1,577 | 697 | 1,577 | 3,361 | |||||||||||||||||||
| Core PPNR | $ | 23,972 | $ | 20,813 | $ | 65,166 | $ | 65,200 | |||||||||||||||
| Allowance for Credit Losses to Total Portfolio Loans | |||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Allowance for Credit Losses | $ | 55,493 | $ | 54,660 | |||||||
| Total Portfolio Loans | 3,114,264 | 2,959,457 | |||||||||
| Allowance for Credit Losses to Total Portfolio Loans | 1.78% | 1.85% | |||||||||
| Commercial Bank Allowance for Credit Losses to Commercial Bank Portfolio Loans | |||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Allowance for Credit Losses | $ | 55,493 | $ | 54,660 | |||||||
| Less: Credit Card Allowance for Credit Losses | 9,293 | 8,226 | |||||||||
| Commercial Bank Allowance for Credit Losses | $ | 46,200 | $ | 46,434 | |||||||
| Total Portfolio Loans | 3,114,264 | 2,959,457 | |||||||||
| Less: Credit Card Loans | 144,258 | 137,905 | |||||||||
| Commercial Bank Portfolio Loans | $ | 2,970,006 | $ | 2,821,552 | |||||||
| Commercial Bank Allowance for Credit Losses to Commercial Bank Portfolio Loans | 1.56% | 1.65% | |||||||||
| Nonperforming Assets to Total Assets | |||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Total Nonperforming Assets | $ | 60,518 | $ | 58,276 | |||||||
| Total Assets | 3,802,553 | 3,606,207 | |||||||||
| Nonperforming Assets to Total Assets | 1.59% | 1.62% | |||||||||
| Nonperforming Loans to Total Portfolio Loans | |||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Total Nonperforming Loans | $ | 56,662 | $ | 54,421 | |||||||
| Total Portfolio Loans | 3,114,264 | 2,959,457 | |||||||||
| Nonperforming Loans to Total Portfolio Loans | 1.82% | 1.84% | |||||||||
| Net Charge-Offs to Average Portfolio Loans | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
| Total Net Charge-Offs | $ | 3,841 | $ | 2,476 | $ | 10,669 | $ | 10,008 | |||||||||||||||
| Total Average Portfolio Loans | 3,135,648 | 2,789,815 | 3,067,904 | 2,719,834 | |||||||||||||||||||
| Net Charge-Offs to Average Portfolio Loans, Annualized | 0.49% | 0.35% | 0.46% | 0.49% | |||||||||||||||||||
| Tangible Book Value per Share | |||||||||||
| (in thousands, except share and per share data) | September 30, 2026 | December 31, 2025 | |||||||||
| Total Stockholders' Equity | $ | 431,450 | $ | 401,757 | |||||||
|
Less: Intangible Assets
|
39,958 | 40,740 | |||||||||
| Tangible Common Equity | $ | 391,492 | $ | 361,017 | |||||||
| Period End Shares Outstanding | 16,328,648 | 16,373,288 | |||||||||
| Tangible Book Value per Share | $ | 23.98 | $ | 22.05 | |||||||
| Return on Average Tangible Common Equity | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
|
Net Income
|
$ | 13,122 | $ | 15,065 | $ | 39,390 | $ | 42,133 | |||||||||||||||
| Add: Intangible Amortization, Net of Tax | 195 | 199 | 594 | 599 | |||||||||||||||||||
| Net Tangible Income | $ | 13,317 | $ | 15,264 | $ | 39,984 | $ | 42,732 | |||||||||||||||
| Average Equity | 427,950 | 383,922 | 415,848 | 373,020 | |||||||||||||||||||
| Less: Average Intangible Assets | 40,116 | 37,706 | 40,372 | 38,048 | |||||||||||||||||||
| Net Average Tangible Common Equity | $ | 387,834 | $ | 346,216 | $ | 375,476 | $ | 334,972 | |||||||||||||||
| Return on Average Equity | 12.16 | % | 15.57 | % | 12.66 | % | 15.10 | % | |||||||||||||||
| Return on Average Tangible Common Equity | 13.62 | % | 17.49 | % | 14.24 | % | 17.06 | % | |||||||||||||||
| Core Return on Average Tangible Common Equity | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (in thousands) | September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||
| Core Net Income | $ | 14,699 | $ | 12,151 | $ | 40,967 | $ | 41,253 | |||||||||||||||
| Add: Intangible Amortization, Net of Tax | 195 | 199 | 594 | 599 | |||||||||||||||||||
| Core Net Tangible Income | $ | 14,894 | $ | 12,350 | $ | 41,561 | $ | 41,852 | |||||||||||||||
| Core Return on Average Tangible Common Equity | 15.24 | % | 14.15 | % | 14.80 | % | 16.70 | % | |||||||||||||||
Capital Bancorp Inc. published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 21:04 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]