Capital Bancorp, Inc. · NASDAQ:CBNK
Capital Bancorp — Merger or Acquisition (March 2024)
34 slides from Capital Bancorp's merger presentation, Mar 28, 2024
Slide 1: Acquisition of Integrated Financial Holdings, Inc. Further Diversifies CBNK
Acquisition of Integrated Financial Holdings, Inc. Further Diversifies CBNK with a Niche C&I Business that is Capital Efficient, High-Return and Generates Meaningful Fee Income March 28, 2024
Slide 2: Disclaimer and Additional Statements
2 Disclaimer and Additional Statements Forward-Looking Statements This communication includes -looking within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended
Slide 3: Disclaimer and Additional Statements (cont.)
3 Disclaimer and Additional Statements (cont.) Non-U.S. GAAP Financial Measures This presentation includes certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Non-GAAP financial measures should not be considered in isolation, and should be consid
Slide 4: Agenda
Agenda 4 TRANSACTION OVERVIEW AND STRATEGIC RATIONALEI. 5 OVERVIEW OF IFH AND ASSESSING THE GROWTH OPPORTUNITYII. 10 KEY MERGER FINANCIAL IMPACTSIII. 16 DUE DILIGENCEIV. 27 CONCLUSIONV. 30 APPENDIXVI. 33
Slide 5: Transaction Overview and Strategic Rationale
TRANSACTION OVERVIEW AND STRATEGIC RATIONALEI. 5
Slide 6: Transaction Overview and Strategic Rationale
Source: S&P Global Market Intelligence; FactSet. 1 Based on IFH 2023Y core revenue; excludes one-time, non-recurring items. 2 Based on IFH 2023Y core net income based on reported net income of $11.2 million less $4.7 million in pre-tax adjustments, tax effected at 22.5%. 3 Return on invested capital
Slide 7: CBNK Initiatives To Date and C&I Loan Growth
$251 $311 $357 $479 $599 $547 $862 2018Y 2019Y 2020Y 2021Y 2022Y 2023Y 2023Y Pro Forma Owner Occupied CRE C&I Source: S&P Global Market Intelligence; Company Documents. Note: Loan composition based on bank-level regulatory data. Net interest margin data represents BHC GAAP data for Selected Banks. 1
Slide 8: Pro Forma Loan and Deposit Composition
Yield on Loans: 9.66% Yield on Loans: 8.54% Yield on Loans: 9.46% Construction / TRBC: Bank - 18% Reg CRE / TRBC: Bank - 57% NIB 33% IB Demand, Savings & MMDA 46% Retail 2% Jumbo 19% 21% NIB 11% IB Demand, Savings & MMDA 40% Retail 29% Jumbo NIB 30% IB Demand, Savings & MMDA 39% Retail 9% Jumbo 21%
Slide 9: Pro Forma Business Model Remains Uniquely Diversified
9 Pro Forma Business Model Remains Uniquely Diversified Source: Company Documents. Note: CBNK financial metrics as of 12/31/2023. 1 2 Volume in 2021 was approximately $1.0 billion and volume in 2022 was approximately $300 million. 3 Excludes $1.8 million loss in Capital Bank Home Loans. Commercial B
Slide 10: Overview of IFH and Assessing the Growth Opportunity
OVERVIEW OF IFH AND ASSESSING THE GROWTH OPPORTUNITY II. 10
Slide 11: Overview of IFH
48% 52% Net Interest Income Core Fee Income 0% 37% 62% Servicing Income GGL Revenues Other Source: S&P Global Market Intelligence; Company Documents; USDA. Note: Yield on loans and cost of deposits exclude purchase accounting and other merger related adjustments. 1 2023Y core operating revenue and c
Slide 12: IFH Has a Track Record of Strong Operating Performance
Source: S&P Global Market Intelligence; Company Documents. 1 2023Y core operating revenue and core net income excludes one-time, non-recurring items. IFH 2023Y core net income based on reported net income of $11.2 million less $4.7 million in pre-tax adjustments, tax effected at 22.5%. 12 IFH Has a
Slide 13: Overview of IFH Business Segments
Source: Company Documents. 13 Overview of IFH Business Segments Branch-lite franchise specializing in small business lending solutions nearly $1.0 billion in authorized loans through the USDA B&I and REAP programs since 2016 Nationwide Government Guaranteed Lending business with niche expertise in S
Slide 14: USDA B&I and REAP Loan Programs
Source: USDA; SBA. 1 USDA active lenders represents number of institutions in the U.S. that authorized at least one USDA loan through either the B&I or REAP Programs. SBA active lenders represents number of institutions that authorized at least one SBA loan through the SBA 7(a) Program. 2 West Town
Slide 15: Renewables Business Poised to Grow as Energy Transition Continues
15 Renewables Business Poised to Grow as Energy Transition Continues to Take Hold OperationsProject AssemblyDevelopment Project Lifecycle LTC Development Loans Formula based on mid and late-stage development assets Rate: Prime + 1.0% to 3.0% Variable, quarterly adjust Term: 24 months Loan to Cost: U
Slide 16: Key Merger Financial Impacts
KEY MERGER FINANCIAL IMPACTSIII. 16
Slide 17: Transaction Structure
Transaction Structure Approximately 81% stock / 19% cash for IFH shareholders Fixed exchange ratio of 1.115x CBNK shares and, subject to certain adjustments, cash of $5.36 for each IFH share At or immediately prior to closing, IFH will distribute its minority equity interest in Dogwood State Bank to
Slide 18: Transaction Assumptions and Financial Impacts
per IFH share $ Millions Mix Indicative Value of CBNK Stock (1.115x exchange ratio)1 $22.30 $52.3 81% Cash Consideration Paid by CBNK $5.36 $12.6 19% Total Consideration Paid by CBNK to IFH Common $27.66 $64.9 Value of IFH Options (rolled in economically equivalent CBNK options) $1.6 Total Considera
Slide 19: Pro Forma Financial Profile vs Selected Banks
12.3% 14.9% 9.8% CBNK Pro Forma Selected Banks Median 1.5% 1.7% 0.8% CBNK Pro Forma Selected Banks Median $2.65 $3.10 CBNK Pro Forma 100% 93% 52% CBNK Pro Forma Selected Banks Median 307% 285% 361% CBNK Pro Forma Selected Banks Median 29% 38% 24% CBNK Pro Forma Selected Banks Median $2.2 $2.9 CBNK P
Slide 20: Pro Forma Profitability and Capital Metrics
5.1% 2.1% 4.1% 3.4% 11.3% CBNK 2023Q4 IFH 2023Q4 Pro Forma at Close Selected Banks Median KRX Index Median 1.5% 1.9% 1.7% 1.1% 1.2% CBNK 2023Q4 IFH 2023Q4 Pro Forma at Close Selected Banks Median KRX Index Median 11.4% 11.0% 11.1% 11.8% 12.5% 8.9% CBNK 2023Q4 Pro Forma at Close Pro Forma YE 2024 Pro
Slide 21: Transaction Preserves Excess Capital Position
$4.00 $8.00 $12.00 Transaction Close YE 2024 YE 2025 YE 2026 YE 2027 Standalone Excess Capital per share Pro Forma Excess Capital per share ~$1.29 ~$1.58 Standalone Pro Forma Source: S&P Global Market Intelligence; FactSet; Company Documents. Note: Market data as of 3/26/2024. 1 Illustrative analysi
Slide 22: Return on Invested Capital and Internal Rate of Return
~$6mm ~$44mm Premium Paid Over IFHI Adjusted TCE Capitalized Value of Cost Synergies, net 30%+ 20%+ 15% Internal Rate of Return 2025 Return on Invested Capital 2023 CBNK Return on Average TCE Source: S&P Global Market Intelligence; FactSet; Company Documents. Note: Market data as of 3/26/2024. Note:
Slide 23: Price / TBV and Price / Earnings Multiples
1.07x 0.91x 1.14x 0.50x 0.65x 0.80x 0.95x 1.10x 1.25x 1.40x 1.55x Price / IFHI Adjusted TBV at 12/31/23 Selected Banks Avg. Price / TBV Selected Banks 5-Year Avg. Price / TBV 8.9x 5.2x 9.9x 10.5x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x Price / LTM Core Earnings Price / LTM Core Earnings + Cost S
Slide 24: Transaction Multiples vs Selected Banks
Source: S&P Global Market Intelligence; FactSet; Company Documents. Note: Market data as of 3/26/2024. Note: Median does not include CBNK / IFH multiple. 1 Excludes price / last-twelve-months earnings multiples above 40.0x. IFH 2023Y core net income based on reported net income of $11.2 million less
Slide 25: Pro Forma Comparison to Selected Banks
1.5% 1.7% Median 1.3% Mid-Atlantic $1.5B - $4.5B1 Median Top Quartile 2025E LTM 2025E LTM Core ROAA 1.5% 1.6% 1.7% 0.8% 1.3% Core ROATCE 12.3% 14.1% 14.9% 10.0% 13.7% Fee Income / Revenue 15% 48% 22% 10% 16% Efficiency Ratio 66% 73% 64% 59% 55% MRQ MRQ Closing MRQ Gross Loans / Deposits 101% 92% 99%
Slide 26: Acquisition Creates Opportunity For Additional Synergies and Growth
26 Acquisition Creates Opportunity For Additional Synergies and Growth Larger Balance Sheet Ability to retain a greater portion of economics given a larger balance sheet and funding sources - allowing the bank to hold more bridge loans, which fuels further loan volumes and associated reserve deposit
Slide 27: Due Diligence
IV. DUE DILIGENCE Gcarnar BANCORP, INC. | oFH 27
Slide 28: Comprehensive Due Diligence Process
28 Comprehensive Due Diligence Process Credit Risk Management Funding Legal Compliance Finance and Accounting Human Resources Regulatory IT Key Areas of Focus Collaborative multi-month diligence process led by both management teams and supported by legal and financial advisors Comprehensive and thor
Slide 29: Due Diligence & Risk Management
29 Due Diligence & Risk Management Thoughtful Integration Planning to Minimize Risk Low-risk transaction given prudent pricing and overall size of the acquisition Cultural and strategic fit between companies with planned retention of key employees Outside integration support Thorough loan review (in
Slide 30: Conclusion
V. CONCLUSION Gcarnar BANCORP, INC. | oFH 30
Slide 31: Transaction Rationale
31 Transaction Rationale Strategically Compelling Diversifies CBNK with a C&I platform and multiple new lines of business Nationwide Government Guaranteed Lending business with niche expertise in Solar and Renewable Energy Nationwide SBA servicing platform Strong pipeline of C&I loans and proven abi
Slide 32: Share Appreciation Outperforms Industry
(60%) (40%) (20%) 0% 20% 40% 60% 80% 100% 120% 140% 32 CAGR % Change CBNK 17.6% 134% NASDAQ Regional Banking Index 9.5% 61% Selected Banks2 Median 9.0% 57% Share Appreciation Outperforms Industry Share Price Change Since CBNK IPO on 9/26/20181TBVPS + Dividend Growth Since 2018Q3 70%+ Outperformance
Slide 33: Appendix
VI. APPENDIX Gcarnar BANCORP, INC. | oFH 33
Slide 34: Reconciliations to GAAP Financial Measures
34 Reconciliations to GAAP Financial Measures ($ in thousands, except per share data) CBNK IFHI Tangible Common Equity: Common Shareholders' Equity (GAAP) $254,860 $100,331 A Less: Goodwill (GAAP) 0 13,161 B Less: Other Intangibles (GAAP) 0 5,018 C Tangible Common Shareholders' Equity (Non-GAAP) $25