Capital Bancorp to acquire Integrated Financial Holdings to bolster commercial loan and government lending services

Capital Bancorp, Inc. (“CBNK”), a notable entity in the financial services sector, headquartered in Rockville, Maryland, and Integrated Financial Holdings, Inc. (“IFH”), based in Raleigh, North Carolina, have officially announced their merger under a definitive agreement. This agreement stipulates that CBNK will acquire IFH in a sophisticated cash and stock transaction valued at approximately $66 million. This strategic move not only diversifies CBNK’s operations but significantly enhances its niche in Commercial and Industrial (C&I) Business, promising high returns and meaningful fee income generation.

Scheduled to commence on April 1, 2024, the merger involves a detailed transaction where IFH shareholders are set to receive $5.36 in cash and 1.115 shares of CBNK common stock per IFH share. This arrangement values the per-share purchase at $27.66, considering Capital’s closing stock price as of March 26, 2024. A notable aspect of this merger is the anticipated dividend distribution to IFH shareholders, comprising a minority equity interest in Dogwood State Bank, further enriching shareholder value.

The merger is poised to establish a new leader in government guaranteed lending, particularly in sectors backed by the U.S. Department of Agriculture (USDA) and the U.S. Small Business Administration (SBA). This expansion aligns with Capital’s ongoing mission to enhance its service offerings and operational efficiency, showcasing its commitment to providing robust financial solutions across various sectors.

Ed Barry, CEO of Capital Bank, and Marc McConnell, Chairman, President, and CEO of IFH, both expressed optimism about the merger. They highlighted the complementary nature of their operations and the expected benefits, including expanded lending capabilities and a strengthened position in nationwide government guaranteed lending.

Financial and Strategic Advantages

The merger is expected to yield significant financial and strategic benefits:

– A notable increase in the commercial loan book, with C&I and owner-occupied Commercial Real Estate (CRE) loans constituting about 38% of the pro forma loan book.

– A balanced business mix, with commercial and consumer segments contributing approximately 70% and 30%, respectively, to net income based on adjusted full-year 2023 earnings.

– An estimated 17% accretion to earnings per share (EPS) in 2025, with tangible book value dilution manageable and recoverable within roughly 1.8 years.

The transaction’s completion is subject to approvals from Capital’s and IFH’s shareholders, regulatory endorsements, and other customary conditions. Post-merger, IFH’s leadership, including Marc McConnell, A. Riddick Skinner, Melissa Marsal, and Mike Breckheimer, will assume significant roles within Capital Bancorp and Capital Bank, ensuring a seamless integration and continuation of expertise.

Advisory roles for the merger were filled by Stephens Inc. and Squire Patton Boggs for CBNK, with Raymond James & Associates and Wyrick Robbins Yates & Ponton advising IFH, indicating a well-supported and strategically planned merger.

The acquisition of Integrated Financial Holdings by Capital Bancorp represents a landmark development in the banking and financial services industry. It not only expands Capital’s portfolio but also solidifies its standing as a leader in commercial lending and government-backed financial services. This merger is a strategic move that underscores the industry’s evolving dynamics, highlighting the growing importance of niche markets like government guaranteed lending.