Capital Bancorp Inc (CBNK)

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

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The results for the three and six months ended June 30, 2026 are not necessarily indicative of the results expected for the year ending December 31, 2026.

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

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

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

General Economic, Macro and External Conditions

•the strength of the United States (“U.S.”) economy and general economic conditions (including the interest rate environment, government economic and monetary policies, the strength of global financial markets, inflation/deflation, and the overall strength of the consumer) that impact the financial services industry as a whole and/or our business;

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

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

•geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the ongoing wars in Iran and Ukraine, which could impact business and economic conditions in the U.S. and abroad;

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

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

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

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

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

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

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

•the financial soundness of other financial institutions;

General Business Operations

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

•the effect of acquisitions we have undertaken, such as our acquisition of Integrated Financial Holdings, Inc. (“IFH”), including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations, including with regard to the planned growth of Windsor Advantage™;

•strategic acquisitions we may undertake to achieve our goals;

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

•increased competition in the financial services industry, particularly from regional and national banks, financial holding companies, and other traditional and non-traditional financial service providers;

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

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

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

•deterioration of our asset quality;

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

•risks associated with our residential mortgage banking business;

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

•changes in Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) U.S. government guaranteed lending rules, regulations, loan and lease products and funding limits, as well as changes in SBA or USDA standard operating procedures, all of which could impact our ability to originate these types of loans and/or the servicing, processing and packaging by Windsor Advantage™ of such loans on behalf of others;

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

•operational risks associated with our business;

•the adequacy of our risk management framework;

•our dependence on our information technology and telecommunications systems, including third party vendors, and the potential for any data privacy incidents or other systems failures, interruptions, or security breaches and risks related to the development and use of artificial intelligence (“AI”);

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

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

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

•liquidity and funding risks associated with our business;

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

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

•fluctuations in the fair value of our investment securities;

•our engagement in derivative transactions;

•volatility and direction of market interest rates;

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

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

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

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

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

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

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

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

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

Critical Accounting Estimates

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

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

[Excerpt truncated for page length; source filing is linked above.]

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

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the related notes.

Non-GAAP Financial Measures

This report contains non-GAAP financial measures denoted throughout our MD&A by reference to “non-GAAP.” We believe these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and to make day-to-day operating decisions. In addition, we believe our non-GAAP results in any given reporting period reflect our on-going financial performance in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of non-GAAP results increases comparability of period-to-period results.

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

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

Financial Performance

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

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

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

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

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

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

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

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

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

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

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

The Bank’s Windsor Advantage™ division, including shared service and corporate allocations, contributed net income before taxes of $5.1 million for the year ended December 31, 2025 compared to $1.9 million for the year ended December 31, 2024. The increase was primarily driven by reporting results

from the IFH acquisition for a full year in 2025 compared to only three months in 2024. Gross government loan servicing revenue (Windsor™) totaled $19.6 million, as compared to $4.5 million for the year ended December 31, 2024. Gross government loan servicing revenue included Capital Bank related servicing fees of $4.1 million and $0.5 million in 2025 and 2024, respectively. When the gross government loan servicing revenue from 2024 is annualized to $18.1 million this represents an increase of $1.5 million, or 8.2%. from 2024. Windsor's™ total servicing portfolio was $3.1 billion at December 31, 2025, compared to $2.5 billion at December 31, 2024.

Critical Accounting Estimates

The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]