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Capital Bancorp (CBNK) to Buy Integrated Financial for $66M

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Capital Bancorp, Inc. (CBNK - Free Report) and Integrated Financial Holdings, Inc. jointly announced a definitive merger agreement, in which CBNK will acquire Integrated Financial in a cash and stock transaction valued at $66 million.

CBNK shares gained 1.46% following the transaction announcement. The strategic merger between the two companies turned investors bullish on the stock, as it is likely to create synergies, improve competition and increase growth opportunities.

Integrated Financial is a financial service holding company with assets of approximately $548 million as of 2023-end.

This transaction will establish a best-in-class nationwide lender in government guaranteed lending across both the U.S. Department of Agriculture and U.S. Small Business Administration programs. The merger will also enable CBNK to leverage Integrated Financial’s preeminent government guaranteed servicing platform, Windsor Advantage. The bank is set to benefit from the opportunities in this expanding niche market.

Terms of the Deal

Per the merger agreement, shareholders of Integrated Financial will receive $5.36 in cash and 1.115 shares of CBNK common stock for each share of the prior’s common stock held.

Based on Capital Bankcorp’s closing price of $20 on Mar 26, 2024, the total implied purchase price is $27.66 per share.

At or immediately before the closing of the transaction, Integrated Financial is expected to distribute its minority equity interest in Dogwood State Bank to its shareholders. This will be in the form of dividend, equivalent to approximately 0.469 shares of Dogwood State Bank for each share of Integrated Financial common stock. This distribution will carry a value of $7.69 per share or approximately $18 million, calculated based on Dogwood State Bank's closing price on Mar 26, 2024.

Following the completion of the transaction, CBNK and Integrated Financial shareholders are expected to hold approximately 84% and 16% respectively, of the combined company.

The transaction has received unanimous approval from the board of directors of both companies. This deal is expected to be completed in the second half of 2024, subject to the approval of CBNK and Integrated Financial’s shareholders, regulatory approvals and fulfillment of other customary closing conditions.

Financial Benefits of the Merger

This transaction will expand CBNK’s commercial loan portfolio, with C&I and owner-occupied CRE loans constituting about 38% of the total lending book.
Based on net income, the contribution from commercial and consumer loans is expected to be 70% and 30%, respectively.

The EPS is expected to rise 17% in 2025. However, a slight dilution of tangible book value of approximately 5% is expected in 2025. This is anticipated to be recovered in 1.8 years.

An estimated increase of 260 basis points on return on common tangible equity is expected in 2025.
This merger is also likely to increase fee income’s contribution to total revenues by more than 20%.

The transaction is anticipated to allow strong capital generation. Specifically, the pro forma tangible common equity to tangible assets ratio is expected to be 11%.

The deal will also allow CBNK to access new potential markets for growth opportunities in Chicago and North and South Carolina.

Management Comments

Ed Barry, chief executive officer (CEO) of CBNK, stated, “Capital has a track record of creating value by investing in teams and lines of businesses that generate strong returns for shareholders. This acquisition represents a continuation of our strategy to build a highly diversified business that generates best-in-class returns for our shareholders and allows us to better serve our customers.”

Ed Barry also stated, “Integrated Financial’s expertise originating and servicing USDA and SBA loans fits well with our strategic objectives and will allow us to serve a market with substantial need and growth potential.”

Marc McConnell, chairman, president and CEO of Integrated Financial, stated, “We are excited for this partnership with Capital and for the benefits that it brings to both banks. With a larger balance sheet and our combined lending and deposit-gathering capabilities we believe that we can secure and grow our position as a leader in nationwide government guaranteed lending.”

Our View

The merger between Capital Bancorp and Integrated Financial marks a significant step toward specializing in government guaranteed lending programs. This transaction aims to create a nationwide leader in this niche market, combining Integrated Financial’s expertise with CBNK's diversified business model.

In the past year, CBNK shares have gained 10.4% compared with 15.8% growth recorded by the industry.


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Currently, CBNK carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inorganic Expansion Efforts by Other Finance Stocks

Last month, Stifel Financial Corp. (SF - Free Report) announced its plan to acquire Finance 500, Inc. and CB Resource, Inc., market leaders in the underwriting and issuance of certificates of deposits (CD). The terms of the deal remain undisclosed.

The deal is expected to enhance and deepen SF’s CD funding offerings with market-leading CD underwriting, tech-enabled risk management and strategic planning capabilities. This aligns with the company’s efforts to expand its deposit base, which is the primary funding source, through expansion as well as its existing private client network.

In March, First National Corporation (FXNC - Free Report) and Touchstone Bankshares, Inc. announced a merger agreement. Per the deal, FXNC will acquire Touchstone Bankshares in an all-stock transaction. The closing of the deal is expected in the fourth quarter of 2024, subject to shareholder and regulatory approvals and customary conditions.

This transaction will bring two community-focused banks, strengthening their commitment to their customers and communities. According to the deal, the combined assets of both banks are expected to be $2.1 billion, with $1.5 billion in loans, $1.8 billion in deposits and 30 branches in Virginia and two in North Carolina.

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