- Key insight: Peoples Bancorp CEO Tyler Wilcox said his company was attracted to Rockville, Maryland-based Capital Bancorp due to the seller's specialty-deposit-gathering prowess.
- Supporting data: The pro forma bank will start with $14.3 billion of assets and $11.8 billion of deposits.
- Forward look: The deal, which follows on the heels of a smaller acquisition by Peoples, is expected to close in the first half of 2027.
When Marietta, Ohio-based Peoples Bancorp announced plans to acquire a Kentucky community bank in April, it had to address the question of how it would navigate the $10 billion-asset threshold. Peoples provided its answer Wednesday, announcing the $728 million purchase of Rockville, Maryland-based Capital Bancorp.
Acquiring the $3.9 billion-asset Capital will create a pro forma bank with $14.3 billion of assets, pushing Peoples comfortably past the $10 billion milestone.
"This transaction allows us to cross $10 billion with meaningful scale and earnings capacity, rather than simply growing incrementally over the threshold," Peoples CEO Tyler Wilcox said on a conference call with analysts.
At the same time, the all-stock deal pairs Capital with a larger, better capitalized partner. The combination should allow for the continued growth of the Maryland bank's stable of national specialty business lines.
"Peoples is an excellent strategic partner for Capital because it understands and values the diversified model we built," Capital CEO Ed Barry said in a press release. "The combination creates meaningful opportunities to serve our customers in more ways, supporting the continued growth of our businesses and providing new opportunities for our employees."
For banks, reaching $10 billion of assets triggers the Durbin Amendment's limitation on debit-card swipe fees, an important source of noninterest income.
Additionally, the Federal Reserve, Peoples' primary federal regulator, has established $10 billion of assets as the demarcation point between community banks and regional banks. Crossing the line triggers a heightened — and costlier — level of supervisory scrutiny.
Peoples, the parent company of Peoples Bank, is a serial acquirer, having completed nine whole-bank deals since 2012. With each transaction, the $10 billion threshold has loomed larger for the $9.5 billion-asset bank.
Peoples' recent deal for the $686 million-asset Citizens National Corp. in Paintsville, Kentucky, which is expected to close on Oct. 30, created the prospect of inching past $10 billion of assets.
To remain below the threshold, the bank announced the sale of $135 million of securities in July. It recorded an $8.2 million loss on the transaction.
That backdrop made an additional, larger buy almost a foregone conclusion, according to Brendan Nosal, who covers Peoples for Hovde Group.
"We're not shocked to see it land outside the Midwest given the bank's nascent push into the Mid-Atlantic in recent years. Nor are we surprised to see [Peoples] cross with scale," Nosal wrote in a research note.
Peoples, which has 127 branches in five states and Washington, D.C., entered the D.C.-area banking market in 2021 by acquiring Huntington, West Virginia-based Premier Financial. Premier operated four branches in the Washington metropolitan area.
Niche businesses were attractive
Capital operates four national specialty lines of businesses: secured credit cards, Small Business Administration loan servicing, mortgage lending and commercial lending, including SBA loans. Peoples likes them all, according to Wilcox.
"Those businesses are a key part of why this transaction is so attractive to us," Wilcox said on the conference call. He added that Peoples intends to retain the management of each niche business line. The deal is expected to close in the first half of 2027.
Wilcox said Peoples is interested in building its portfolio of specialty deposits. Capital's niche businesses reported about $3.2 billion of deposits as of June 30.
"They've grown the muscle of diversified deposit-gathering capabilities … so it's kind of a match made in heaven in that regard," Wilcox said. The combined bank would have $11.8 billion of deposits.
For its part, Peoples operates equipment-leasing and insurance-premium-finance businesses that are national in scope, which should minimize operational risk, according to Wilcox. "We have a track record of integrating differentiated businesses," he said.
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Shares in Peoples were trading down nearly 5.3% at $36.80 on Wednesday afternoon. While the drop indicates a degree of investor skepticism, Brean Capital analyst Daniel Cardenas stressed the deal's selling points.
"The transaction moves the [Peoples] franchise into a major, but competitive operating market which offers sound growth potential," Cardenas wrote in a research note.
Cardenas also highlighted the "accretive nature of the transaction," in a nod to the 19% earnings-per-share accretion Peoples is estimating in 2027. The buyer is also projecting nearly 11% tangible-book-value-per-share dilution on account of the purchase, but it expects to earn that back in under three years.
