# Capital Bancorp Inc (CBNK) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Capital Bancorp Inc's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1419536/000141953625000047/cbnk-20241231.htm
Accession: 0001419536-25-000047
Filing date: 2025-03-17
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CBNK/
All MD&A years: /company/CBNK/mda/
Previous year: /company/CBNK/mda/fy2023/ (FY 2023)
Next year: /company/CBNK/mda/fy2025/ (FY 2025)

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 document 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 $31.0 million for the year ended December 31, 2024 decreased $4.9 million, or 13.7% when compared to the prior year. Net income of $40.1 million as adjusted excludes the impact of $3.3 million after-tax merger-related expenses, $3.2 million after-tax impact from the Initial IFH ACL Provision on non-PCD loans and a $2.6 million non-recurring equity and debt investment write-down that was nondeductible for tax purposes (non-GAAP) for the year ended December 31, 2024. There were no adjustments made to net income for the year ended December 31, 2023. Net interest income of $154.7 million increased $13.2 million from the prior year primarily due to increased average balances of $325.7 million in portfolio loans, partially offset by higher funding costs primarily resulting from the additional average deposit volume funding the loan growth. Interest income included $0.7 million and interest expense included $1.4 million from net purchase accounting amortization resulting from the IFH acquisition. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

The net interest margin decreased 38 basis points to 6.22% for the year ended December 31, 2024 compared to 6.60% for the prior year. The elevated interest rate environment increased the yield on cash, investments, and commercial bank loan yields but was offset by a slightly lower loan yield from OpenSky credit card loans. The overall cost of interest-bearing liabilities decreased the net interest spread to 4.81% for the year ended December 31, 2024 compared to 5.25% for the prior year. Core net interest margin, excluding credit card loans (as adjusted, non-GAAP), was 4.00% for the year ended December 31, 2024, compared to 3.96% for the prior year. For the year ended December 31, 2024, average interest earning

[[GREPCENT_TABLE]]
[["","39"]]
[[/GREPCENT_TABLE]]

assets increased $342.4 million, or 16.0%, to $2.5 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 3 basis points. The yield on portfolio loans, as adjusted (non-GAAP, excluding credit card loans) was 7.03% for the year ended December 31, 2024, compared to 6.65% for the prior year. Compared to the same period in the prior year, average interest-bearing liabilities increased $288.5 million, or 22.7%, while the average cost of interest-bearing liabilities increased 47 basis points to 3.76% from 3.29%. For additional details, see “Non-GAAP Financial Measures and Reconciliations.”

For the year ended December 31, 2024, the provision for credit losses was $17.7 million, an increase of $8.1 million from the prior year. The variance included the Initial IFH non-PCD ACL Provision of $4.2 million and $4.5 million from organic commercial portfolio loan growth, partially offset by a $0.6 million reduction from the OpenSkyTM credit card portfolio. Net charge-offs for the year ended December 31, 2024 were $9.0 million, or 0.42% of average portfolio loans, compared to $8.5 million, or 0.47% of average portfolio loans, for the same period in 2023. The $9.0 million in net charge-offs during the year ended December 31, 2024 was comprised primarily of credit card portfolio net charge-offs, with $3.6 million related to secured and partially secured cards while $3.4 million was related to unsecured cards.

For the year ended December 31, 2024, noninterest income of $31.4 million increased $6.4 million, or 25.8%, from the same period in 2023. This increase was primarily driven by contributions from the IFH acquisition, including government loan servicing revenue (Windsor) of $4.0 million, government lending revenue (gain on sale) of $2.3 million and revenue from loan servicing rights of $1.0 million, offset by a non-recurring equity and debt write-down of $2.6 million related to an IFH investment. Other income increased $0.9 million primarily related to a previous investment in an SBIC, while credit card fees declined $1.3 million.

For the year ended December 31, 2024, noninterest expense of $126.2 million increased $15.5 million, or 14.0%, from the same period in 2023, largely due to the IFH acquisition. The increase was primarily driven by a $7.3 million, or 14.9%, increase in salaries and employee benefits, a $3.9 million increase in merger-related expenses, a $2.6 million, or 45.3%, increase in occupancy and equipment primarily related to increased contract expense from the IFH acquisition, and a $2.0 million, or 7.8%, increase in data processing expense, partially offset by a $1.4 million, or 15.4%, decrease in professional fees due to a reduction in third party consulting fees.

On October 1, 2024, in connection with the IFH acquisition, the Company acquired total assets of $559.4 million, net of purchase accounting adjustments, including gross loans of $373.5 million, loans held for sale of $41.7 million and goodwill and intangible assets of $37.2 million while liabilities assumed totaled $475.9 million including total deposits of $459.0 million. For the year ended December 31, 2024, the acquisition of IFH resulted in an increase in average assets of $134.3 million, an increase in average interest earning assets of $121.8 million, an increase in average gross loans of $105.0 million, and an increase in average total deposits of $117.4 million.

Total assets at December 31, 2024 were $3.2 billion, an increase of $980.7 million, or 44.1%, from the balance at December 31, 2023. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.6 billion at December 31, 2024, an increase of $726.9 million, or 38.2%, compared to $1.9 billion at December 31, 2023. Total liabilities at December 31, 2024 were $2.9 billion, an increase of $880.5 million, or 44.7%, from the balance at December 31, 2023. Total liability growth was primarily due to a $865.9 million increase in deposits partially offset by a decrease in other borrowed funds of $15.0 million when comparing December 31, 2024 to December 31, 2023. Stockholders’ equity increased to $355.1 million as of December 31, 2024, compared to $254.9 million at December 31, 2023.

Deposits were $2.8 billion at December 31, 2024, an increase of $865.9 million, or 45.7%, from the balance at December 31, 2023. Average deposits of $2.2 billion for the year ended December 31, 2024 increased $304.4 million, or 16.3%, as compared to the prior year. Average noninterest-bearing deposit

[[GREPCENT_TABLE]]
[["","40"]]
[[/GREPCENT_TABLE]]

balances increased $20.3 million to $675.4 million, or 31.1% of total average deposits for the year ended December 31, 2024, as compared to $655.0 million, or 35.1% of total average deposits for the prior year.

The Bank’s OpenSky™ Division, including shared service and corporate allocations contributed $17.3 million of income before taxes for the year ended December 31, 2024, a decrease of $1.8 million for the segment from the prior year. Average OpenSky™ loan balances, net of reserves and deferred fees of $115.6 million for the year ended December 31, 2024 increased $1.1 million, or 1.0%, as compared to the prior year. OpenSky™ loan balances, net of reserves, of $127.8 million at December 31, 2024 increased by $4.4 million, or 3.6%, compared to $123.3 million at December 31, 2023. Corresponding non-interest bearing deposit balances of $166.4 million at December 31, 2024 decreased $7.5 million, or 4.3%, compared to $173.9 million at December 31, 2023. Gross unsecured loan balances of $42.4 million at December 31, 2024 increased $11.6 million, or 37.7%, compared to $30.8 million at December 31, 2023. For the year ended December 31, 2024, noninterest income of $16.1 million decreased $1.2 million due primarily to a decline in credit card fees as compared to the prior year.

The Bank’s Capital Bank Home Loans division including shared service and corporate allocations contributed a net loss before taxes of $2.5 million for the year ended December 31, 2024 as compared to a net loss before taxes of $3.0 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, 2024 when compared to the prior year. An elevated interest rate environment dampened home loan sales and home loan refinances. Gain on sale margins were down from 2.76% for the twelve months ended December 31, 2023 to 2.59% for the twelve months ended December 31, 2024.

The Bank’s Windsor Advantage division, including shared service and corporate allocations, contributed net income before taxes of $1.9 million for the year ended December 31, 2024 following the acquisition of IFH on October 1, 2024. Gross government loan servicing revenue (Windsor) totaled $4.6 million, including $0.6 million of Capital Bank related servicing fees, during the fourth quarter 2024. Windsor's total servicing portfolio was $2.5 billion at December 31, 2024.

Critical Accounting Estimates

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

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

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

We account for business combinations under ASC 805, Business Combinations using the acquisition method of accounting and record the identifiable assets acquired, liabilities assumed and consideration

[[GREPCENT_TABLE]]
[["","41"]]
[[/GREPCENT_TABLE]]

paid at fair value at the acquisition date. The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill. The fair values are preliminary estimates subject to adjustments during the measurement period, which does not exceed one year after acquisition. The application of business combination principles, including the determination of the fair value of net assets acquired, requires the use of significant estimates and assumptions under ASC 820, Fair Value Measurement. See Note 2 - Business Combination in the “Notes to the Consolidated Financial Statements” to the Consolidated Financial Statements. Determining estimated fair value requires a significant amount of judgment and estimates. If our assumptions change, or errors are determined in its calculations, the fair value could materially change resulting in an adjustment to our goodwill or identifiable net assets acquired, including identified intangible assets. As of December 31, 2024, the Company believes that the fair value of the assets acquired, liabilities assumed and consideration paid at fair value at the acquisition date was appropriately determined in accordance with GAAP.

Recent Accounting Pronouncements

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

Results of Operations for the Years Ended December 31, 2024 and 2023

Net Income

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2024","","2023","","% Change"],["Interest income","$","213,301","","","$","183,206","","","16.4","%"],["Interest expense","58,555","","","41,680","","","40.5","%"],["Net interest income","154,746","","","141,526","","","9.3","%"],["Provision for credit losses","17,720","","","9,610","","","84.4","%"],["Provision for (release of) credit losses on unfunded commitments","385","","","(101)","","","(481.2)","%"],["Net interest income after provision for credit losses","136,641","","","132,017","","","3.5","%"],["Noninterest income","31,410","","","24,975","","","25.8","%"],["Noninterest expense","126,219","","","110,767","","","14.0","%"],["Net income before income taxes","41,832","","","46,225","","","-9.5","%"],["Income tax expense","10,860","","","10,354","","","4.9","%"],["Net income","$","30,972","","","$","35,871","","","-13.7","%"]]
[[/GREPCENT_TABLE]]

Net income for the year ended December 31, 2024 was $31.0 million compared to net income of $35.9 million for the same period in 2023, a 13.7% decrease. Net income was $40.1 million as adjusted to exclude the impact of $3.3 million after-tax merger-related expenses, $3.2 million after-tax impact from the Initial IFH ACL Provision on non-PCD loans and a $2.6 million non-recurring equity and debt investment write-down that was nondeductible for tax purposes (non-GAAP), for the year ended December 31, 2024. Net interest income increased $13.2 million, or 9.3%, to $154.7 million when comparing the year ended December 31, 2024 to the year ended December 31, 2023, primarily due to increased average balances of $325.7 million in portfolio loans, partially offset by higher funding costs primarily resulting from the additional average deposit volume funding loan growth. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

The provision for credit losses for the year ended December 31, 2024 was $17.7 million, an increase of $8.1 million, or 84.4%, from the provision for credit losses for the year ended December 31, 2023. The

[[GREPCENT_TABLE]]
[["","42"]]
[[/GREPCENT_TABLE]]

variance included the initial IFH ACL provision of $4.2 million on non-PCD loans and $4.5 million from organic commercial portfolio loan growth, partially offset by $0.6 million from OpenSky credit card portfolio. Net charge-offs for the year ended December 31, 2024 were $9.0 million, or 0.42% of average portfolio loans, compared to $8.5 million, or 0.47% of average loans for the same period in 2023. Net charge-offs were comprised, in part, of OpenSky credit card portfolio loans of $3.6 million related to secured and partially secured while $3.4 million was related to unsecured cards.

For the year ended December 31, 2024, noninterest income was $31.4 million, an increase of $6.4 million, or 25.8%, from $25.0 million in the prior year period primarily driven by contributions from the IFH acquisition. Government loan servicing revenue (Windsor) totaled $4.0 million, government lending revenue totaled $2.3 million and loan servicing rights totaled $1.0 million, offset by a non-recurring equity and debt write-down of $2.6 million related to an IFH investment. Mortgage banking revenue of $7.1 million increased $2.3 million, primarily due to an increase in home loan sales while credit card fees of $16.0 million declined $1.3 million from lower interchange and other fee income recognized compared to the prior year.

Noninterest expense was $126.2 million for the year ended December 31, 2024, as compared to $110.8 million for the year ended December 31, 2023, an increase of $15.5 million, or 14.0% largely due to the IFH acquisition. The change includes increases in salaries and employee benefits expenses of $7.3 million, or 14.9%, merger-related expenses of $3.9 million, advertising expenses of $0.2 million, other operating expenses of $0.8 million and data processing expense of $2.0 million, partially offset by decreases in professional fees of $1.4 million and other operational losses of $0.9 million.

Net Interest Income and Net Margin Analysis

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

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

The table below presents the average balances and weighted average rates of the major categories of the Company’s assets, liabilities and stockholders’ equity for the years ended December 31, 2024 and 2023. Weighted average yields are derived by dividing income by the average balance of the related assets, and weighted average rates are derived by dividing expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived by utilizing average daily balances for the time periods shown. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yield/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

[[GREPCENT_TABLE]]
[["","43"]]
[[/GREPCENT_TABLE]]

AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2024","","2023"],["($ in thousands)","Average Outstanding Balance","","Interest Income/ Expense","","Average Yield/ Rate","","Average Outstanding Balance","","Interest Income/ Expense","","Average Yield/ Rate"],["Assets"],["Interest earning assets:"],["Interest-bearing deposits","$","98,319","","","$","4,569","","","4.65","%","","$","70,407","","","$","3,211","","","4.56","%"],["Federal funds sold","57","","","3","","","5.26","","","1,597","","","74","","","4.63"],["Investment securities available-for-sale","228,909","","","5,441","","","2.38","","","245,466","","","4,815","","","1.96"],["Restricted investments","5,563","","","373","","","6.71","","","5,016","","","346","","","6.90"],["Loans held for sale","12,121","","","569","","","4.69","","","5,755","","","382","","","6.64"],["Portfolio loans receivable(1)(2)","2,142,638","","","202,346","","","9.44","","","1,816,968","","","174,378","","","9.60"],["Total interest earning assets","2,487,607","","","213,301","","","8.57","","","2,145,209","","","183,206","","","8.54"],["Noninterest earning assets","66,442","","","","","","","43,090"],["Total assets","$","2,554,049","","","","","","","$","2,188,299"],["Liabilities and Stockholders\u2019 Equity"],["Interest-bearing liabilities:"],["Interest-bearing demand accounts","$","221,437","","","$","1,003","","","0.45","%","","$","201,194","","","$","298","","","0.15","%"],["Savings","6,732","","","27","","","0.40","","","5,768","","","8","","","0.14"],["Money market accounts","704,002","","","28,741","","","4.08","","","642,013","","","23,510","","","3.66"],["Time deposits","561,369","","","26,399","","","4.70","","","360,464","","","15,809","","","4.39"],["Borrowed funds","63,686","","","2,385","","","3.74","","","59,302","","","2,055","","","3.47"],["Total interest-bearing liabilities","1,557,226","","","58,555","","","3.76","","","1,268,741","","","41,680","","","3.29"],["Noninterest-bearing liabilities:"],["Noninterest-bearing liabilities","34,043","","","","","","","24,026"],["Noninterest-bearing deposits","675,360","","","","","","","655,013"],["Stockholders\u2019 equity","287,420","","","","","","","240,519"],["Total liabilities and stockholders\u2019 equity","$","2,554,049","","","","","","","$","2,188,299"],["Net interest spread","","","","","4.81","%","","","","","","5.25","%"],["Net interest income","","","$","154,746","","","","","","","$","141,526"],["Net interest margin (3)","","","","","6.22","%","","","","","","6.60","%"]]
[[/GREPCENT_TABLE]]

_______________

(1)Includes nonaccrual loans.

(2)For the years ended December 31, 2024 and 2023, portfolio loans yield excluding credit card loans was 7.03% and 6.65%, respectively.

(3)For the years ended December 31, 2024 and 2023, credit card loans accounted for 222 and 264 basis points of the reported net interest margin, respectively.

The net interest margin decreased 38 basis points to 6.22% for the year ended December 31, 2024 from the same period in 2023. Net interest margin, excluding credit card loans, was 4.00% and 3.96%, respectively, for years ended December 31, 2024 and 2023. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

[[GREPCENT_TABLE]]
[["","44"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, average interest earning assets increased $342.4 million, or 16.0%, to $2.5 billion as compared to the same period in 2023, and the average yield on interest earning assets increased 3 basis points. Compared to the same period in the prior year, average interest-bearing liabilities increased $288.5 million, or 22.7%, while the average cost of interest-bearing liabilities increased 47 basis points to 3.76% from 3.29%.

Rate/Volume Analysis of Net Interest Income

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2024","","Year Ended December 31, 2023"],["","Compared to","","Compared to"],["","December 31, 2023","","December 31, 2022"],["","Change Due To","","Interest Variance","","Change Due To","","Interest Variance"],["(In thousands)","Volume","","Rate","","","Volume","","Rate"],["Interest Income:"],["Interest-bearing deposits","$","1,295","","","$","63","","","$","1,358","","","$","(3,937)","","","$","5,141","","","$","1,204"],["Federal funds sold","(81)","","","10","","","(71)","","","(63)","","","93","","","30"],["Investment securities available-for-sale","(394)","","","1,020","","","626","","","(67)","","","970","","","903"],["Restricted investments","37","","","(10)","","","27","","","(32)","","","103","","","71"],["Loans held for sale","299","","","(112)","","","187","","","(261)","","","208","","","(53)"],["Portfolio loans receivable excluding credit card loans","22,773","","","6,470","","","29,243","","","14,597","","","18,060","","","32,657"],["Credit card loans","585","","","(1,860)","","","(1,275)","","","(6,413)","","","4,161","","","(2,252)"],["Total interest income","24,514","","","5,581","","","30,095","","","3,824","","","28,736","","","32,560"],["Interest Expense:"],["Interest-bearing demand accounts","91","","","614","","","705","","","(79)","","","203","","","124"],["Savings","4","","","15","","","19","","","(4)","","","7","","","3"],["Money market accounts","2,529","","","2,702","","","5,231","","","3,244","","","15,737","","","18,981"],["Time deposits","9,473","","","1,117","","","10,590","","","8,527","","","4,379","","","12,906"],["Borrowed funds","170","","","160","","","330","","","(637)","","","264","","","(373)"],["Total interest expense","12,267","","","4,608","","","16,875","","","11,051","","","20,590","","","31,641"],["Net interest income","$","12,247","","","$","973","","","$","13,220","","","$","(7,227)","","","$","8,146","","","$","919"]]
[[/GREPCENT_TABLE]]

When comparing the years ended December 31, 2024 to 2023, the largest positive impact to total interest income was the growth in interest earning assets, strengthened in part by the IFH acquisition. Growth (change due to volume) in the loan portfolio, excluding credit cards, contributed $22.8 million to the increase in interest income, while elevated interest rates on portfolio loans contributed $6.5 million for the year ended December 31, 2024 compared to the prior year. On a standalone basis, interest income attributable to the credit card portfolio declined by $1.3 million year over year primarily due to a reduction in yield. The variance in interest expense year over year was primarily impacted by growth in interest-bearing liabilities, augmented in part by the IFH acquisition. Growth in interest bearing liabilities contributed $12.3 million to increased interest expense, including $9.5 million from growth in time deposits, partially offsetting the increase in total interest income.

Provision for Credit Losses

[[GREPCENT_TABLE]]
[["","45"]]
[[/GREPCENT_TABLE]]

The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL. For a description of the factors taken into account by our management in determining the ACL, see “Financial Condition— Allowance for Credit Losses.”

For the year ended December 31, 2024, the provision for credit losses was $17.7 million, an increase of $8.1 million from the recorded provision for credit losses of $9.6 million for the year ended December 31, 2023. The variance included the Initial IFH ACL provision on non-PCD loans of $4.2 million and $4.5 million from organic commercial portfolio loan growth, partially offset by a $0.6 million reduction from the OpenSkyTM credit card portfolio. Net charge-offs for the year ended December 31, 2024 were $9.0 million, or 0.42% of average portfolio loans, compared to $8.5 million, or 0.47% of average portfolio loans, for the same period in 2023. The $9.0 million in net charge-offs during the year ended December 31, 2024 was comprised primarily of credit card portfolio net charge-offs, with $3.6 million related to secured and partially secured cards while $3.4 million was related to unsecured cards.

The ACL as a percent of portfolio loans was 1.85% at December 31, 2024 as compared to 1.50% at December 31, 2023. While the legacy Capital Bank portfolio credit metrics are relatively consistent with prior year, the increase in the ACL provision year-over-year is attributable to the IFH acquisition, most notably a few PCD loans that required elevated ACL coverage and are not consistent with the current product offering and stronger underwriting at IFH at the time of the acquisition. The maintenance of a high-quality loan portfolio, with an adequate allowance for expected credit losses, will continue to be a primary objective for the Company. See additional discussion regarding the Company’s ACL and reserve for unfunded commitments credit exposures at December 31, 2024 in “Financial Condition - Allowance for Credit Losses.”

Noninterest Income

A primary source of recurring noninterest income are credit card fees, such as interchange fees and statement fees, mortgage banking revenue and Windsor Advantage fee income in connection with its servicing, processing and packaging of SBA and USDA loans for its financial institution clients. Noninterest income does not include (i) loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method or (ii) annual, renewal and late fees related to our credit card portfolio, which are generally recognized over the twelve month life of the related loan as an adjustment to yield using the interest method.

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2024","","2023","","% Change"],["Noninterest income:"],["Service charges on deposit accounts","$","883","","","$","964","","","(8.4)","%"],["Credit card fees","15,999","","","17,273","","","(7.4)"],["Mortgage banking revenue","7,146","","","4,896","","","46.0"],["Government lending revenue","2,301","","","\u2014"],["Government loan servicing and packaging revenue","3,993","","","\u2014"],["Loan servicing rights (government guaranteed)","1,013","","","\u2014"],["Non-recurring equity and debt investment write-down","(2,620)","","","\u2014"],["Other income","2,695","","","1,842","","","46.3"],["Total noninterest income","$","31,410","","","$","24,975","","","25.8","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","46"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, noninterest income of $31.4 million increased $6.4 million, or 25.8%, from the same period in 2023 primarily due to contributions from the IFH acquisition. Government loan servicing revenue (Windsor Advantage) totaled $4.0 million, government lending revenue totaled $2.3 million and revenue from loan servicing rights totaled $1.0 million, offset by a non-recurring equity and debt write-down of $2.6 million related to a legacy IFH investment. In December of 2024 the Company became aware of certain financial conditions at a legacy IFH investment which indicated the need to evaluate the investment for impairment. Based upon the Company’s financial evaluation of a legacy IFH investment it was determined that the value of the Company’s investment in a legacy IFH investment was impaired and a write-down of the investment value was required. The Company does not hold any additional equity securities nor does the Company plan to enter into equity security arrangements in the future, therefore the Company does not expect any future deferred tax benefits associated with the impairment.

Mortgage banking revenue of $7.1 million, for the year ended December 31, 2024, increased $2.3 million due to an increase in home loan sales as compared to the prior year. For the year ended December 31, 2024, credit card fees of $16.0 million declined $1.3 million as a result of lower interchange and other fee income recognized compared to the prior year.

The Bank’s Capital Bank Home Loans division experienced an increase of 48.7% in mortgage originations during the year ended December 31, 2024 when compared to the same period in the prior year. Origination volumes increased $98.0 million, to $299.1 million, for the year ended December 31, 2024, when compared to $201.1 million for the same period in the prior year. Gain on sale margins were down from 2.76% for the twelve months ended December 31, 2023 to 2.59% for the year ended December 31, 2024.

Mortgage loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a specified period following loan funding and sale. The Bank has established a reserve under generally accepted accounting principles for possible repurchases. The reserve was $2.3 million at December 31, 2024 and $1.0 million at December 31, 2023. The Bank repurchased one loan totaling $296 thousand during the year ended December 31, 2024. The Bank repurchased one loan totaling $597 thousand during the year ended December 31, 2023. The Bank does not originate “sub-prime” mortgage loans and has no exposure to this market segment.

Noninterest Expense

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

[[GREPCENT_TABLE]]
[["","47"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2024","","2023","","% Change"],["Noninterest expense:"],["Salaries and employee benefits","$","56,037","","","$","48,754","","","14.9","%"],["Occupancy and equipment","8,244","","","5,673","","","45.3"],["Professional fees","7,846","","","9,270","","","(15.4)"],["Data processing","27,689","","","25,686","","","7.8"],["Advertising","6,359","","","6,161","","","3.2"],["Loan processing","2,431","","","1,633","","","48.9"],["Foreclosed real estate expenses, net","2","","","7","","","(71.4)"],["Merger-related expenses","3,930","","","\u2014"],["Operational losses","3,714","","","4,613","","","(19.5)"],["Outside service providers","1,878","","","1,932","","","(2.8)"],["Regulatory assessment expenses","1,937","","","1,649","","","17.5"],["Other operating","6,152","","","5,389","","","14.2"],["Total noninterest expense","$","126,219","","","$","110,767","","","14.0","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, noninterest expense of $126.2 million increased $15.5 million, or 14.0%, from the same period in 2023, primarily from the IFH acquisition. The increase was primarily driven by a $7.3 million, or 14.9%, increase in salaries and employee benefits due largely to the acquisition of IFH. Merger-related expenses were $3.9 million. Occupancy and equipment expense increased $2.6 million, or 45.3%, primarily related to increased contract expense from the IFH acquisition of $0.5 million and software depreciation of $0.4 million. Other operating expenses increased $0.8 million including an increase in insurance related expenses and other miscellaneous expenses. Data processing expense increased $2.0 million, or 7.8%, outside service providers expense decreased $0.1 million, or 2.8% and professional fees decreased $1.4 million, or 15.4%, due to a reduction in third party consulting fees.

Income Tax Expense

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

Income tax expense was $10.9 million for 2024 compared to $10.4 million for 2023. Our effective tax rates for those periods were 26.0% and 22.4%, respectively. The elevated tax rate in 2024 resulted from the non-deductibility of a non-recurring equity and debt investment write down, in a legacy IFH investment, along with certain merger-related expenses. In December of 2024 the Company became aware of certain financial conditions in a legacy IFH investment which indicated the need to evaluate the investment for impairment. Based upon the Company’s financial evaluation of a legacy IFH investment it was determined that the value of the Company’s investment in a legacy IFH investment was impaired and a write-down of the investment value was required. The Company does not hold any additional equity securities, therefore the Company does not expect any future deferred tax benefits associated with the impairment.

[[GREPCENT_TABLE]]
[["","48"]]
[[/GREPCENT_TABLE]]

Financial Condition

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

[[GREPCENT_TABLE]]
[["","December 31,","","Change expressed in:"],["(in thousands, except per share data)","2024","","2023","","Dollars","","Percent"],["Total assets","$","3,206,911","","","$","2,226,176","","","$","980,735","","","44.1","%"],["Investment securities available-for-sale","223,630","","","208,329","","","15,301","","","7.3"],["Mortgage loans held for sale","21,270","","","7,481","","","13,789","","","184.3"],["Portfolio loans receivable, net of deferred fees and costs","2,630,163","","","1,903,288","","","726,875","","","38.2"],["Allowance for credit losses","48,652","","","28,610","","","20,042","","","70.1"],["Deposits","2,761,939","","","1,895,996","","","865,943","","","45.7"],["FHLB borrowings","22,000","","","22,000","","","\u2014","","","\u2014"],["Other borrowed funds","12,062","","","27,062","","","(15,000)","","","(55.4)"],["Total stockholders\u2019 equity","355,139","","","254,860","","","100,279","","","39.3"],["Tangible common equity(1)","312,685","","","254,860","","","57,825","","","22.7"],["Equity to total assets at end of period","11.07","%","","11.45","%","","","","(3.3)"],["Weighted average number of basic shares outstanding","14,584","","","14,003","","","","","4.1"],["Weighted average number of diluted shares outstanding","14,640","","","14,081","","","","","4.0"],["Common shares outstanding","16,663","","","13,923","","","","","19.7"],["Book value per share","$","21.31","","","$","18.31","","","","","16.4"],["Tangible book value per share(1)","$","18.77","","","$","18.31","","","","","2.5"],["Dividends per share","$","0.36","","","$","0.28","","","","","28.6"]]
[[/GREPCENT_TABLE]]

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

Total assets at December 31, 2024 increased $980.7 million from the balance at December 31, 2023. On October 1, 2024, in connection with the IFH acquisition, the Company acquired total assets of $559.4 million, net of purchase accounting adjustments, including gross loans of $373.5 million, loans held for sale of $41.7 million and goodwill and intangible assets of $37.2 million while liabilities assumed totaled $475.9 million including total deposits of $459.0 million. Net portfolio loans, which exclude mortgage loans held for sale, totaled $2.6 billion as of December 31, 2024, an increase of $726.9 million, or 38.2%, from $1.9 billion at December 31, 2023.

Investment Securities

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

The following tables summarize the contractual maturities, without consideration of call features or pre-refunding dates, and weighted-average yields of investment securities at December 31, 2024 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

[[GREPCENT_TABLE]]
[["","49"]]
[[/GREPCENT_TABLE]]

average yield. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.

[[GREPCENT_TABLE]]
[["","","One Year or Less","","More Than One Year Through Five Years","","More Than Five Years Through Ten Years","","More Than Ten Years","","Total"],["At December 31, 2024","","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","","$","20,003","","","1.60","%","","$","96,147","","","1.56","%","","$","20,681","","","1.47","%","","$","\u2014","","","\u2014","%","","$","136,831","","","$","126,835","","","1.55","%"],["Municipal","","\u2014","","","\u2014","","","905","","","4.85","","","4,104","","","4.47","","","6,689","","","1.91","","","11,698","","","9,283","","","3.04"],["Corporate","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","5,000","","","4.31","","","\u2014","","","\u2014","","","5,000","","","4,711","","","4.31"],["Asset-backed securities","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","5,501","","","6.35","","","5,501","","","5,526","","","6.35"],["Mortgage-backed securities","","5,908","","","4.96","","","38,835","","","4.14","","","1,890","","","4.49","","","33,306","","","4.15","","","79,939","","","77,275","","","4.21"],["Total","","$","25,911","","","2.37","%","","$","135,887","","","2.32","%","","$","31,675","","","2.49","%","","$","45,496","","","4.09","%","","$","238,969","","","$","223,630","","","2.71","%"]]
[[/GREPCENT_TABLE]]

As described in “Note 3 - Investment Securities” in the “Notes to the Consolidated Financial Statements” at December 31, 2024, management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at December 31, 2024 before it is able to recover the amortized cost basis. Further, management reviewed the Company’s holdings as of December 31, 2024 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2024, 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 5 securities all of which are subordinated debt of other financial institutions with face amounts ranging from $0.5 million to $2 million.

Municipal Securities – All of the Company’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at December 31, 2024, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA – 82% of the portfolio; AA+ – 8%; AA – 10%.

Asset-backed Securities – There were 3 investment grade asset-backed securities, and there have been no payment defaults on these securities.

As such, it is deemed the above listed securities are not in an unrealized loss position due to credit-related issues and no further analysis is warranted as of December 31, 2024.

Portfolio Loans Receivable

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

[[GREPCENT_TABLE]]
[["","50"]]
[[/GREPCENT_TABLE]]

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

Commercial Real Estate Loans. Commercial real estate loans are originated on owner-occupied and non-owner-occupied properties. These loans may be adversely affected by conditions in the real estate markets or in the general economy. Business equity lines of credit totaling $3.1 million as of December 31, 2024 and $14.1 million as of December 31, 2023, 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 $28.6 million as of December 31, 2024 are also included in the commercial real estate loan category. Lender finance loans are loans to companies used to purchase finance receivables or extend finance receivables to the underlying obligors and are secured primarily by the finance receivables held by our borrowers. The primary sources of repayment are the operating incomes of the borrowers and the collection of the finance receivables securing the loans. Commercial loans that are secured by owner-occupied commercial real estate and primarily collateralized by operating cash flows are included in the commercial real estate loan category. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. The interest rates on commercial real estate loans generally have initial fixed rate terms that adjust typically at five years. Origination fees are routinely charged for services. Personal guarantees from the principal owners of the business are generally required, supported by a review of the principal owners’ personal financial statements and global debt service obligations. The properties securing the portfolio are diverse in type. This diversity may help reduce the exposure to adverse economic events that affect any single industry.

Construction Loans. Construction loans are offered within the Company’s Washington, D.C. and Baltimore, Maryland metropolitan operating areas to builders, primarily for the construction of single-family homes and condominium and townhouse conversions or renovations and, to a lesser extent, to individuals. Construction loans typically have terms of 12 to 18 months. The Company frequently transitions the end purchaser to permanent financing or re-underwriting and sale into the secondary market through Capital Bank Home Loans. According to underwriting standards, the ratio of loan principal to collateral value, as established by an independent appraisal, cannot exceed 75% for investor-owned and 80% for owner-occupied properties, although exceptions are sometimes made. The Company performs a stress test of the construction loan portfolio at least once a year, and underlying real estate conditions are monitored as well as trends in sales outcomes versus underwriting valuations as part of ongoing risk management efforts. The borrowers’ progress in construction buildout is monitored against the original underwriting guidelines for construction milestones and completion timelines.

Commercial and Industrial. In addition to other loan products, general commercial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, letters of credit, government guaranteed loans and solar energy related loans and other loan products, are offered, primarily in target markets, and underwritten based on each borrower’s ability to service debt from income. These loans are primarily made based on the identified cash flows of the borrower and secondarily, on the underlying collateral provided by the borrower. Most commercial business loans are secured by a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory and 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

[[GREPCENT_TABLE]]
[["","51"]]
[[/GREPCENT_TABLE]]

looking to rebuild their credit scores through a fully digital and mobile platform. The secured lines of credit are secured by a noninterest-bearing demand account at the Bank in an amount equal to the full credit limit of the credit card. For the partially secured lines of credit, the Bank offers certain customers an unsecured line in excess of their secured line of credit by using a proprietary scoring model, which considers credit score and repayment history (typically a minimum of six months of on-time payments, but ultimately determined on a case-by-case basis). Partially secured and unsecured credit cards are only extended to existing secured card customers who have demonstrated sound credit behaviors. Approximately $87.2 million and $95.3 million in secured and partially secured credit card balances were protected by savings deposits held by the Company as of December 31, 2024 and December 31, 2023, respectively. Unsecured balances were $42.4 million and $30.8 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, or 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.

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. Consumer credit card balances are moved into the charge off queue after they become more than 90 days past due and are charged off not later than 120 days after they become past due. Otherwise, loans that are past due for 180 days or more are charged off unless the loan is well-secured and in the process of collection.

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

[[GREPCENT_TABLE]]
[["","52"]]
[[/GREPCENT_TABLE]]

a judgment about the risks of default and loss associated with each loan. Credit ratings are reviewed regularly and then adjusted regularly to reflect the degree of risk and loss that our management believes to be appropriate for each credit. Our lending policy requires the routine monitoring of past due reports, daily overdraft reports, monthly maturing loans, monthly risk rating reports and internal loan review reports. The lending and credit management of the Bank meet periodically to review loans rated pass/watch. The focus of each meeting is to identify and promptly determine any necessary required action within this loan population, which consists of loans that, although considered satisfactory and performing to terms, may exhibit special risk features that warrant management’s attention.

Management is intent on maintaining a strong credit review function and risk rating process. The Company has an experienced credit administration function, which provides independent analysis of credit requests and the management of problem credits. The credit department has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system, and continually endeavors to adapt and enhance the monitoring of the loan portfolio. The loan portfolio analysis process is intended to contribute to the identification of weaknesses before they become more severe.

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

Loans that are deemed special mention, substandard, doubtful or loss are listed in the Bank’s Problem Loan Status Report. The Problem Loan Status Report provides a detailed summary of the borrower and guarantor status, loan accrual status, collateral evaluation and includes a description of the planned collection and administration program designed to mitigate the Bank’s risk of loss and remove the loan from problem status. The Special Asset Committee reviews the Problem Loan Status Report on a quarterly basis for borrowers with an overall loan exposure in excess of $250,000.

At December 31, 2024, the recorded investment in individually assessed loans was $34.9 million, requiring a specific reserve of $9.3 million. At December 31, 2023, the recorded investment in individually assessed loans was $16.0 million, requiring a specific reserve of $0.4 million. The $34.9 million of individually assessed loans at December 31, 2024 included a single multi-unit residential real estate loan secured by four properties with a balance of $7.6 million at December 31, 2024.

Allowance for Credit Losses

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

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

[[GREPCENT_TABLE]]
[["","53"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2024","","2023","","2024","","2023","","2024","","2023"],["(in thousands)","","Allowance for credit losses to period end portfolio loans","","Nonaccrual loans to total portfolio loans","","Allowance for credit losses to nonaccrual loans"],["Real estate:"],["Residential","","1.01","%","","0.96","%","","1.26","%","","1.99","%","","80","%","","48","%"],["Commercial","","1.70","","","1.51","","","1.52","","","0.09","","","112","","","1,773"],["Construction","","0.93","","","0.78","","","1.34","","","1.13","","","69","","","69"],["Commercial and Industrial","","2.95","","","1.84","","","0.54","","","0.32","","","552","","","569"],["Credit card","","4.93","","","4.94","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Other consumer","","0.72","","","1.26","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total","","1.85","%","","1.50","%","","1.15","%","","0.84","%","","161","%","","178","%"]]
[[/GREPCENT_TABLE]]

Total charge-offs for the year ended December 31, 2024 and December 31, 2023 were primarily comprised of credit card charge-offs resulting both from the aging of the portfolio and the shift from an almost exclusively secured card portfolio to a portfolio that also includes partially secured and unsecured exposures. The following table presents a summary of the net charge-offs (recovery) of loans as a percentage of average loans for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2024","","2023"],["(in thousands)","","Net Charge-offs","","Average Loans","","Percent of average portfolio loans","","Net Charge-offs","","Average Loans","","Percent of average portfolio loans"],["Real estate:"],["Residential","","$","907","","","$","616,739","","","0.15","%","","$","670","","","$","544,552","","","0.12","%"],["Commercial","","559","","","756,662","","","0.07","","","841","","","665,535","","","0.13"],["Construction","","\u2014","","","299,282","","","\u2014","","","\u2014","","","266,274","","","\u2014"],["Commercial and Industrial","","513","","","352,606","","","0.15","","","77","","","224,229","","","0.03"],["Credit card","","7,024","","","115,581","","","6.08","","","6,885","","","114,450","","","6.02"],["Other consumer","","\u2014","","","1,768","","","\u2014","","","\u2014","","","1,928","","","\u2014"],["Total","","$","9,003","","","$","2,142,638","","","0.42","%","","$","8,473","","","$","1,816,968","","","0.47","%"]]
[[/GREPCENT_TABLE]]

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 enjoyed a high-quality 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 at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio.

[[GREPCENT_TABLE]]
[["","54"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","December 31,"],["","2024","","2023"],["(in thousands)","Amount","","Percent(1)","","Amount","","Percent(1)"],["Real estate:"],["Residential","$","6,945","","","14","%","","$","5,518","","","19","%"],["Commercial","16,041","","","33","","","10,316","","","36"],["Construction","2,973","","","6","","","2,271","","","8"],["Commercial and Industrial","16,377","","","33","","","4,406","","","16"],["Credit card","6,301","","","14","","","6,087","","","21"],["Other consumer","15","","","\u2014","","","12","","","\u2014"],["Total allowance for credit losses","$","48,652","","","100","%","","$","28,610","","","100","%"]]
[[/GREPCENT_TABLE]]

_______________

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

Total Liabilities

Total liabilities at December 31, 2024 increased $880.5 million from December 31, 2023, primarily due to the IFH acquisition.

Deposits

Deposits are a major source of funding for the Company. We offer a variety of deposit products including interest-bearing demand, savings, money market and time accounts, all of which we actively market at competitive pricing. We generate deposits from our customers on a relationship basis and through the efforts of our commercial and business banking officers. Our credit card customers are a significant source of low cost deposits. As of December 31, 2024 and December 31, 2023, our credit card customers accounted for $166.4 million and $173.9 million, or 20.5% and 28.2%, respectively, of our total noninterest-bearing deposit balances.

Major categories of interest-bearing deposits are as follows:

[[GREPCENT_TABLE]]
[["Interest-Bearing Deposits"],["","","At December 31,"],["(in thousands)","","2024","","2023"],["Interest-bearing demand accounts","","$","238,881","","","$","199,308"],["Savings","","13,488","","","5,211"],["Money market accounts","","816,708","","","663,129"],["Customer time deposits","","548,901","","","268,619"],["Brokered time deposits","","333,033","","","142,356"],["Total Interest-bearing deposits","","$","1,951,011","","","$","1,278,623"]]
[[/GREPCENT_TABLE]]

The Company had $333.0 million in brokered deposits at December 31, 2024 compared to $142.4 million at December 31, 2023.

Deposits securing our OpenSky™ card lines of credit and deposits from title companies represent the largest concentrations in the deposit portfolio. As of December 31, 2024, these concentrations represented 6% and 11% of deposits, respectively. As of December 31, 2023, these deposits represented 9% and 12% of deposits, respectively.

[[GREPCENT_TABLE]]
[["","55"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","For the years Ended December 31,"],["","2024","","2023"],["(in thousands)","Average Balance","","Average Rate","","Average Balance","","Average Rate"],["Interest-bearing demand accounts","$","221,437","","","0.45","%","","$","201,194","","","0.15","%"],["Savings","6,732","","","0.40","","","5,768","","","0.14"],["Money market accounts","704,002","","","4.08","","","642,013","","","3.66"],["Time deposits","561,369","","","4.70","","","360,464","","","4.39"],["Total Interest-bearing deposits","1,493,540","","","3.76","%","","1,209,439","","","3.28","%"],["Noninterest-bearing demand accounts","675,360","","","","","655,013"],["Total deposits","$","2,168,900","","","2.59","%","","$","1,864,452","","","2.13","%"]]
[[/GREPCENT_TABLE]]

Deposit costs increased 46 basis points during the year ended December 31, 2024 due, in large part, to a series of interest rate increases implemented by the Federal Reserve beginning in early 2022 and continuing into 2023 and the corresponding mix shift from low and no interest bearing deposits to higher rate money market accounts and time deposits. However, average noninterest-bearing deposit balances increased $20.3 million when compared to December 31, 2023, as growth in the number of customer accounts and corresponding balances outpaced the decision by some depositors to move balances from noninterest-bearing deposit accounts to interest-bearing deposit accounts.

Noninterest-bearing deposits represented 29.4% of total deposits at December 31, 2024 compared to 32.6% at December 31, 2023. Uninsured deposits were approximately $703.2 million as of December 31, 2024, representing 25.5% of the Company's deposit portfolio, compared to $789.4 million, or 41.6%, at December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

The following table presents the maturities of our certificates of deposit as of December 31, 2024.

[[GREPCENT_TABLE]]
[["(in thousands)","Three Months or Less","","Over Three Through Six Months","","Over Six Through Twelve Months","","Over Twelve Months","","Total"],["$250,000 or more","$","36,888","","","$","55,085","","","$","150,059","","","$","8,808","","","$","250,840"],["Less than $250,000","142,933","","","218,241","","","123,786","","","146,134","","","631,094"],["Total","$","179,821","","","$","273,326","","","$","273,845","","","$","154,942","","","$","881,934"]]
[[/GREPCENT_TABLE]]

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 during the year ended December 31, 2024 to $34.1 million from $49.1 million at December 31, 2023.

FHLB Advances. The FHLB allows us to borrow up to 25% of our assets on a blanket floating lien status collateralized by certain securities and loans. As of December 31, 2024, approximately $625.0 million in real estate loans were pledged as collateral to the FHLB and our total borrowing capacity from the FHLB was $507.5 million. As of December 31, 2024, no investment securities were pledged with the FHLB. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of December 31, 2024, we had $22.0 million in outstanding advances and $485.5 million in available borrowing capacity from the FHLB.

[[GREPCENT_TABLE]]
[["","56"]]
[[/GREPCENT_TABLE]]

Other borrowed funds. The Company has also issued junior subordinated debentures and other subordinated notes. At December 31, 2024, these other borrowings amounted to $12.1 million, consisting of Floating Rate Junior Subordinated Deferrable Interest Debentures and subordinated notes.

At December 31, 2024, our Floating Rate Junior Subordinated Deferrable Interest Debentures amounted to $2.1 million. The Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Floating Rate Debentures”) were issued in June of 2006, mature on June 15, 2036, and may be redeemed prior to that date under certain circumstances. The principal amount of the Floating Rate Debentures has not changed since issuance, and they accrue interest at a floating rate equal to the three-month CME Term SOFR plus a spread adjustment of 0.26161% (or 26.161 basis points) plus 187 basis points, payable quarterly. As of December 31, 2024, the rate for the Floating Rate Debentures was 6.49%.

On November 30, 2020, the Company issued $10.0 million in subordinated notes due in 2030 (the “Notes”). The Notes have a ten year term and have a fixed rate of 5.00% for the first five years; thereafter, the rate resets quarterly to a benchmark rate, which is expected to be the three-month SOFR, plus 490 basis points. The Notes may be redeemed in part or in whole, upon the occurrence of certain events.

Federal Reserve Bank of Richmond. The Federal Reserve Bank of Richmond has an available borrower in custody arrangement which allows us to borrow on a collateralized basis. The Company’s borrowing capacity under the Federal Reserve’s discount window program was $110.2 million as of December 31, 2024. Certain commercial loans are pledged under this arrangement. During the first quarter of 2023, we established a line of credit under the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”). As of March 31, 2024, participation in the BTFP had concluded and the Company had no outstanding balances under the BTFP at December 31, 2024.

Other Borrowings. The Company also has available lines of credit of $76.0 million with other correspondent banks at December 31, 2024, as well as access to certificate of deposit funding through financial intermediaries. There were no outstanding balances on the lines of credit from correspondent banks at December 31, 2024.

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

[[GREPCENT_TABLE]]
[["","57"]]
[[/GREPCENT_TABLE]]

complexity and business activities of the Bank; active management of intraday liquidity and collateral; a diverse mix of existing and potential future funding sources; holding liquid marketable securities that can be used to meet liquidity needs in situations of stress; contingency funding plans that address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes believed to be sufficient to assure the adequacy of the institution’s liquidity risk management process.

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

As of December 31, 2024, we had $485.5 million of available borrowing capacity from the FHLB, $20.6 million of available borrowing capacity from the Federal Reserve Bank of Richmond Borrower in Custody program and available lines of credit of $76.0 million with other correspondent banks. Further, unpledged investment securities available as collateral for potential additional borrowings totaled $131.4 million at December 31, 2024. Cash and cash equivalents were $205.3 million at December 31, 2024.

Capital Resources

Stockholders’ equity increased $100.3 million for the year ended December 31, 2024 compared to December 31, 2023 largely due to the common stock issued in connection with the IFH acquisition of $70.9 million and net income of $31.0 million for the year ended December 31, 2024. In connection with the acquisition of IFH, the Company temporarily suspended repurchases under its stock repurchase program during the first quarter of 2024. Shares repurchased and retired for the year ended December 31, 2024, as part of the Company's stock repurchase program, totaled 67,869 shares at an average price of $20.62, for a total cost of $1.4 million including commissions.

The Company’s total stockholders’ equity is affected by fluctuations in the fair values of investment securities available-for-sale. The difference between amortized cost and fair value of investment securities, net of deferred income tax, is included in accumulated other comprehensive loss within stockholders’ equity. Accumulated other comprehensive loss is excluded from the Bank’s and Company’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $11.5 million at December 31, 2024 and $13.1 million at December 31, 2023. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on investment securities available-for-sale result from credit losses, unrealized losses are recorded as a charge against earnings. The investment securities section of the MD&A and Notes 1 and 3 to the consolidated financial statements provide additional information concerning management’s evaluation of investment securities available-for-sale for credit losses at December 31, 2024.

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 11.07% at December 31, 2024 and 11.45% at December 31, 2023.

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

[[GREPCENT_TABLE]]
[["","58"]]
[[/GREPCENT_TABLE]]

accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators.

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

The ability of the Company to continue to grow is dependent on its earnings and those of the Bank, and the ability to obtain additional funds for contribution to the Bank’s capital, through additional borrowings, through the sale of additional common stock or preferred stock, or through the issuance of additional qualifying capital instruments, such as subordinated debt. The capital levels required to be maintained by the Company and Bank may be impacted as a result of the Bank’s concentrations in commercial real estate loans. See “Risks Related to Our Operations and the Regulation of Our Industry” in Part I, Item 1A - Risk Factors.

As of December 31, 2024, 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.

[[GREPCENT_TABLE]]
[["","59"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(in thousands)","","Actual","","Minimum Capital Adequacy","","To Be Well Capitalized"],["December 31, 2024","","Amount","","Ratio","","Amount","","Ratio","","Amount","","Ratio"],["The Company"],["Tier 1 leverage ratio (to average assets)","","$","346,840","","","11.07","%","","$","125,348","","","4.00","%","","$","156,685","","","5.00","%"],["Tier 1 capital (to risk-weighted assets)","","346,840","","","13.83","","","150,512","","","6.00","","","200,683","","","8.00"],["Common equity tier 1 capital ratio (to risk-weighted assets)","","344,778","","","13.74","","","112,884","","","4.50","","","163,055","","","6.50"],["Total capital ratio (to risk-weighted assets)","","388,425","","","15.48","","","200,683","","","8.00","","","250,853","","","10.00"],["The Bank"],["Tier 1 leverage ratio (to average assets)","","$","283,828","","","9.17","%","","$","123,818","","","4.00","%","","$","154,772","","","5.00","%"],["Tier 1 capital (to risk-weighted assets)","","281,563","","","11.54","","","146,451","","","6.00","","","195,268","","","8.00"],["Common equity tier 1 capital ratio (to risk-weighted assets)","","281,563","","","11.54","","","109,838","","","4.50","","","158,655","","","6.50"],["Total capital ratio (to risk-weighted assets)","","312,304","","","12.79","","","195,268","","","8.00","","","244,085","","","10.00"],["December 31, 2023"],["The Company"],["Tier 1 leverage ratio (to average assets)","","$","270,019","","","12.14","%","","$","89,004","","","4.00","%","","N/A","","N/A"],["Tier 1 capital (to risk-weighted assets)","","270,019","","","15.55","","","104,175","","","6.00","","","N/A","","N/A"],["Common equity tier 1 capital ratio (to risk-weighted assets)","","267,957","","","15.43","","","78,132","","","4.50","","","N/A","","N/A"],["Total capital ratio (to risk-weighted assets)","","301,817","","","17.38","","","138,900","","","8.00","","","N/A","","N/A"],["The Bank"],["Tier 1 leverage ratio (to average assets)","","$","228,794","","","10.51","%","","$","87,068","","","4.00","%","","$","108,835","","","5.00","%"],["Tier 1 capital (to risk-weighted assets)","","228,794","","","13.56","","","101,251","","","6.00","","","135,001","","","8.00"],["Common equity tier 1 capital ratio (to risk-weighted assets)","","228,794","","","13.56","","","75,938","","","4.50","","","109,688","","","6.50"],["Total capital ratio (to risk-weighted assets)","","249,984","","","14.81","","","135,001","","","8.00","","","168,751","","","10.00"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","60"]]
[[/GREPCENT_TABLE]]

Contractual Obligations

We have contractual obligations to make future payments on debt and lease agreements. Our liquidity monitoring and management consider both present and future demands for and sources of liquidity. The following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of December 31, 2024.

[[GREPCENT_TABLE]]
[["(in thousands)","Due in One Year or Less","","Due After One Through Three Years","","Due After Three Through Five Years","","Due After 5 Years","","Total"],["FHLB advances","$","22,000","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","22,000"],["Certificates of deposit $250,000 or more","265,073","","","9,144","","","\u2014","","","\u2014","","","274,217"],["Certificates of deposit less than $250,000","461,919","","","116,430","","","29,348","","","20","","","607,717"],["Lease payments","2,030","","","2,559","","","890","","","1,188","","","6,667"],["Subordinated debt","\u2014","","","\u2014","","","\u2014","","","12,062","","","12,062"],["Total","$","751,022","","","$","128,133","","","$","30,238","","","$","13,270","","","$","922,663"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","December 31,"],["(in thousands)","2024","","2023"],["Unfunded lines of credit","$","403,029","","","$","336,472"],["Letters of credit","3,122","","","4,641"],["Commitment to fund other investments","2,714","","","3,874"],["Total credit extension commitments","$","408,865","","","$","344,987"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","61"]]
[[/GREPCENT_TABLE]]

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

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

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

Impact of Inflation

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

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

[[GREPCENT_TABLE]]
[["","62"]]
[[/GREPCENT_TABLE]]

Non-GAAP Financial Measures and Reconciliations

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

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

[[GREPCENT_TABLE]]
[["Earnings Metrics, as Adjusted","Year Ended"],["(in thousands, except per share data)","December 31, 2024","","December 31, 2023"],["Net Income","$","30,972","","","$","35,871"],["Add: Merger-Related Expenses, net of tax","3,308","","","\u2014"],["Add: Non-Recurring Equity and Debt Investment Write-Down","2,620","","","\u2014"],["Add: IFH Non-PCD ACL Provision, Net of Tax","3,169","","","\u2014"],["Net Income, as Adjusted","$","40,069","","","$","35,871"],["Weighted Average Common Shares - Diluted","14,640","","","14,081"],["Earnings per Share - Diluted","$","2.12","","","$","2.55"],["Earnings per share - Diluted, as Adjusted","$","2.74","","","$","2.55"],["Average Assets","$","2,554,049","","","$","2,188,299"],["Return on Average Assets","1.21","%","","1.64","%"],["Return on Average Assets, as Adjusted","1.57","%","","1.64","%"],["Average Equity","$","287,420","","","$","240,519"],["Return on Average Equity","10.78","%","","14.91","%"],["Return on Average Equity, as Adjusted","13.94","%","","14.91","%"],["Net Interest Income (a)","$","154,746","","","$","141,526"],["Noninterest Income","31,410","","","24,975"],["Total Revenue","$","186,156","","","$","166,501"],["Noninterest Expense","$","126,219","","","$","110,767"],["Efficiency Ratio(1)","67.80","%","","66.53","%"],["Noninterest Income","$","31,410","","","$","24,975"],["Add: Non-Recurring Equity and Debt Investment Write-Down","2,620","","","\u2014"],["Noninterest Income, as Adjusted (b)","$","34,030","","","$","24,975"],["Total Revenue, as Adjusted (a) + (b)","$","188,776","","","$","166,501"],["Noninterest Expense","$","126,219","","","$","110,767"],["Less: Merger-Related Expenses","3,930","","","\u2014"],["Noninterest Expense, as Adjusted","$","122,289","","","$","110,767"],["Efficiency Ratio, as Adjusted(1)","64.78","%","","66.53","%"]]
[[/GREPCENT_TABLE]]

_______________

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

[[GREPCENT_TABLE]]
[["","63"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Net Interest Margin, as Adjusted","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Net Interest Income","$","154,746","","","$","141,526"],["Less: Credit Card Loan Income","59,821","","","61,096"],["Net Interest Income, as Adjusted","$","94,925","","","$","80,430"],["Average Interest Earning Assets","2,487,607","","","2,145,209"],["Less: Average Credit Card Loans","115,581","","","114,450"],["Total Average Interest Earning Assets, as Adjusted","$","2,372,026","","","$","2,030,759"],["Net Interest Margin, as Adjusted","4.00%","","3.96%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Portfolio Loans Receivable Yield, as Adjusted","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Portfolio Loans Receivable Interest Income","$","202,346","","","$","174,378"],["Less: Credit Card Loan Income","59,821","","","61,096"],["Portfolio Loans Receivable Interest Income, as Adjusted","$","142,525","","","$","113,282"],["Average Portfolio Loans Receivable","2,142,638","","","1,816,968"],["Less: Average Credit Card Loans","115,581","","","114,450"],["Total Average Portfolio Loans Receivable, as Adjusted","$","2,027,057","","","$","1,702,518"],["Portfolio Loans Receivable Yield, as Adjusted","7.03%","","6.65%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Pre-tax, Pre-Provision Net Revenue (\"PPNR\")","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Net Income","$","30,972","","","$","35,871"],["Add: Income Tax Expense","10,860","","","10,354"],["Add: Provision for Credit Losses","17,720","","","9,610"],["Add: Provision for (Release of) Credit Losses on Unfunded Commitments","385","","","(101)"],["PPNR","$","59,937","","","$","55,734"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["PPNR, as Adjusted","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Net Income","$","30,972","","","$","35,871"],["Add: Income Tax Expense","10,860","","","10,354"],["Add: Provision for Credit Losses","17,720","","","9,610"],["Add: Provision for (Release of) Credit Losses on Unfunded Commitments","385","","","(101)"],["Add: Merger-Related Expenses","3,930","","","\u2014"],["Add: Non-Recurring Equity and Debt Investment Write-Down","2,620","","","\u2014"],["PPNR, as Adjusted","$","66,487","","","$","55,734"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Allowance for Credit Losses to Total Portfolio Loans","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Allowance for Credit Losses","$","48,652","","","$","28,610"],["Total Portfolio Loans","$","2,630,163","","","$","1,903,288"],["Allowance for Credit Losses to Total Portfolio Loans","1.85%","","1.50%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","64"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Nonperforming Assets to Total Assets","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Total Nonperforming Assets","$","30,241","","","$","16,042"],["Total Assets","$","3,206,911","","","$","2,226,176"],["Nonperforming Assets to Total Assets","0.94%","","0.72%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Nonperforming Loans to Total Portfolio Loans","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Total Nonperforming Loans","$","30,241","","","$","16,042"],["Total Portfolio Loans","$","2,630,163","","","$","1,903,288"],["Nonperforming Loans to Total Portfolio Loans","1.15%","","0.84%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Net Charge-Offs to Average Portfolio Loans","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Total Net Charge-Offs","$","9,003","","","$","8,473"],["Total Average Portfolio Loans","$","2,142,638","","","$","1,816,968"],["Net Charge-Offs to Average Portfolio Loans","0.42%","","0.47%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Tangible Book Value per Share","Year Ended"],["(in thousands, except share and per share data)","December 31, 2024","","December 31, 2023"],["Total Stockholders' Equity","$","355,139","","","$","254,860"],["Less: Preferred Equity","\u2014","","","\u2014"],["Less: Intangible Assets","42,454","","","\u2014"],["Tangible Common Equity","$","312,685","","","$","254,860"],["Period End Shares Outstanding","16,662,626","","","13,922,532"],["Tangible Book Value per Share","$","18.77","","","$","18.31"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Return on Average Tangible Common Equity","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Net Income","$","30,972","","","$","35,871"],["Add: Intangible Amortization, Net of Tax","198","","","\u2014"],["Net Tangible Income","$","31,170","","","$","35,871"],["Average Equity","287,420","","","240,519"],["Less: Average Intangible Assets","6,951","","","\u2014"],["Net Average Tangible Common Equity","$","280,469","","","$","240,519"],["Return on Average Equity","10.78","%","","14.91","%"],["Return on Average Tangible Common Equity","11.11","%","","14.91","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Core Return on Average Tangible Common Equity","Year Ended"],["(in thousands)","December 31, 2024","","December 31, 2023"],["Net Income, as Adjusted","$","40,069","","","$","35,871"],["Add: Intangible Amortization, Net of Tax","198","","","\u2014"],["Net Tangible Income, as Adjusted","$","40,267","","","$","35,871"],["Core Return on Average Equity, as Adjusted","14.01","%","","14.91","%"],["Core Return on Average Tangible Common Equity, as Adjusted","14.36","%","","14.91","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","65"]]
[[/GREPCENT_TABLE]]