Peoples Bancorp (NASDAQ:PEBO) has agreed to acquire Rockville, Maryland-based Capital Bancorp Inc. in an all-stock transaction valued at approximately $728 million, a deal management described as transformational because it would add scale, national specialty businesses and a more diversified earnings base.
Under the agreement, Capital shareholders would receive 1.11 shares of Peoples stock for each Capital share. Based on Peoples’ 20-day average share price, the transaction has an aggregate value of about $728 million. Existing Peoples shareholders are expected to own roughly two-thirds of the combined company, while Capital shareholders would own the remaining one-third on a diluted basis. Three current Capital directors are expected to join Peoples’ board.
Specialty Businesses Add National Capabilities
Tyler Wilcox, Peoples’ president and chief executive officer, said Capital brings a relationship-based commercial banking franchise in the Washington, D.C., metropolitan area as well as several established specialty operations with nationwide capabilities.
Those businesses include OpenSky, a digitally originated consumer credit card platform offering secured, unsecured and partially secured cards; Windsor Advantage, an outsourced SBA and USDA lending platform for community banks and credit unions; Capital Home Loans, a residential mortgage originator; and a government-guaranteed lending platform with experience in solar and renewable energy.
“We are acquiring a business that is performing well today,” Wilcox said. He added that Peoples sees opportunities to offer its wealth management, insurance, equipment finance, premium finance and commercial banking capabilities to Capital customers, while expanding Capital’s specialty operations through Peoples’ broader franchise.
Management said those potential revenue opportunities are not included in its transaction modeling. Wilcox said Peoples expects to retain the leadership teams of the specialty business lines, which will continue operating with their existing systems and specialized infrastructure.
Capital has generated a last-12-month return on average assets of about 1.58% and return on average tangible common equity of approximately 16%, according to Peoples. The company also grew assets, loans and deposits at roughly 20% annually over the past three years, management said.
Pro Forma Scale and Financial Assumptions
Following completion, the combined company is expected to have about $14 billion in assets, $10 billion in loans and $11 billion in deposits. Peoples said approximately 23% of pro forma revenue would come from fee income, supporting a more diversified revenue mix while retaining a predominantly relationship-based community banking franchise.
Crossing the $10 billion asset threshold was also a consideration in the transaction. Wilcox said Peoples has been investing in systems, risk management, governance, talent and infrastructure in preparation for the threshold. The company’s standalone projections already include an estimated $11 million Durbin amendment-related revenue impact associated with its existing business and pending Citizens merger, while Capital has limited incremental debit-card exposure.
Katie Bailey, Peoples’ chief financial officer and treasurer, said the company expects fully phased-in 2027 earnings-per-share accretion of approximately 19%. The deal is projected to result in initial tangible book value dilution of about 10.8%, with an earn-back period of less than three years and a modeled internal rate of return above 25%.
- Estimated pro forma common equity tier 1 ratio: approximately 11.9%
- Modeled cost savings: approximately 30% of Capital’s non-interest expense
- Expected cost-savings realization: about 70% in 2027 and fully realized in 2028
- Estimated pre-tax transaction expenses: approximately $56.5 million
- Credit mark on Capital’s loan portfolio: 3% gross
Bailey said Peoples expects its interest-rate-risk profile to remain relatively unchanged following the merger. She also said the company expects 2028 earnings accretion to be in line with the fully phased-in 2027 estimate.
Deposit and Credit Considerations
Management highlighted Capital’s specialized national deposit verticals as complementary to Peoples’ traditional deposit base. Wilcox said the most recent quarterly cost of deposits in Capital’s deposit verticals was approximately 2.28% and that the businesses could be scaled across Peoples’ footprint.
On credit, Wilcox described OpenSky as a high-return but higher-risk-adjusted business, noting it operates in a roughly 20% return range and has hundreds of thousands of customers with relatively small balances. He said OpenSky currently represents about $150 million within a pro forma loan portfolio of approximately $10 billion.
Peoples is also completing its acquisition of Citizens. Wilcox said regulatory approvals for that transaction have been received and the closing remains scheduled for Oct. 30. He said the Capital transaction would not change the Citizens deal’s terms or timetable. Peoples expects a system conversion for the Capital transaction around the middle to late third quarter or early fourth quarter following closing.
About Peoples Bancorp (NASDAQ:PEBO)
Peoples Bancorp Inc is a financial holding company headquartered in Marietta, Ohio. Through its principal subsidiary, Peoples Bank, the company provides banking and financial services to individuals, businesses, nonprofit organizations and government entities.
Peoples Bank offers consumer and commercial deposit accounts, residential and commercial real estate loans, consumer lending, mortgage services, treasury management and other business financing solutions. The company also provides wealth management, trust, investment and insurance services through affiliated or related operations.
Founded in 1902, Peoples Bancorp serves communities primarily in Ohio, West Virginia, Kentucky and Virginia through a network of banking offices and digital banking channels.
