EX-99.4 4 ef20040237_ex99-4.htm EXHIBIT 99.4
EXHIBIT 99.4
 
CAPITAL BANCORP, INC.
 
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The following unaudited pro forma combined condensed consolidated financial information and explanatory notes show the impact on the historical financial positions and results of operations of Capital Bancorp, Inc. (“Capital”) and Integrated Financial Holdings, Inc. (“IFHI”) and have been prepared to illustrate the effects of the merger of IFHI with and into Capital, with Capital continuing as the surviving corporation (the “Merger”), under the acquisition method of accounting with Capital treated as the acquirer. (Please see the “Explanatory Note” included in the beginning of this Current Report Amendment No. 1 on Form 8-K/A (the “Amendment”).)
 
The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting, giving effect to the merger. The unaudited pro forma combined condensed consolidated balance sheet combines the historical information of Capital and IFHI as of September 30, 2024 and assumes the merger was completed on that date. The unaudited pro forma combined condensed consolidated income statement combines the historical financial information of Capital and IFHI and gives effect to the merger as if it had been completed as of January 1, 2023 and carried forward through the interim period presented. The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial condition had the merger been completed on the date described above, nor is it necessarily indicative of the results of operations in future periods or the future financial condition and results of operations of the combined entities. The financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma combined condensed consolidated financial information. Certain reclassifications have been made to IFHI historical financial information to conform to Capital’s presentation of financial information.
 
The unaudited pro forma combined condensed consolidated financial information has been derived from and should be read in conjunction with Capital’s historical consolidated financial information and related notes, which are contained in Capital’s 10-Q for the three-month and nine-month periods ended September 30, 2024, IFHI’s audited financial statements as of and for the years ended December 31, 2023 and 2022 which were included in Capital’s Form S-4/A filed on June 21, 2024, and IFHI’s unaudited financial statements as of and for the nine-month period ended September 30, 2024 which appear elsewhere in the Amendment.
 
1
Unaudited Pro Forma Condensed Consolidated Balance Sheets
 
As of September 30, 2024

(in thousands except share data)
  
CBNK Historical
    
IFHI Historical
    
Pro Forma Merger Adjustments
  
 
Notes
  
Pro Forma Combined
  
ASSETS
                  
 
 
      
Cash and cash equivalents:
                            
Cash and due from banks
  
$
23,462
    
$
6,379
    
$
(12,652
)

(j)
  
$
17,189
  
Interest bearing deposits at other financial institutions
    
133,180
      
71,443
                  
204,623
  
Federal funds sold
    
58
      
-
          
 
 
    
58
  
Total cash and cash equivalents
    
156,700
      
77,822
      
(12,652
)
        
221,870
  
Investment securities available for sale
    
208,700
      
1,019
          
 
 
    
209,719
  
Restricted investments
    
5,895
      
-
                  
5,895
  
Marketable equity securities
    
-
      
-
          
 
 
    
-
  
Loans held for sale
    
19,554
      
41,723
                  
61,277
  
Portfolio loans receivable, net of deferred fees and costs
    
2,107,522
      
382,755
      
(17,086
 )
 
 
    
2,472,470
  
Less allowance for credit losses
    
(31,925
)
    
(7,660
)
    
(3,261
)
        
(42,847
)
Total portfolio loans held for investment, net
    
2,075,597
      
375,095
      
(21,068
)
 
  (a)
    
2,429,624
  
Premises and equipment, net
    
5,959
      
3,638
      
3,826
    
  (b)
    
13,423
  
Accrued interest receivable
    
12,468
      
4,299
          
 
 
    
16,767
  
Deferred tax asset
    
10,748
      
784
      
8,452
    
  (c)
    
19,984
  
Bank owned life insurance
    
38,779
      
4,779
          
 
 
    
43,558
  
Goodwill
    
-
      
13,161
      
4,218

 
  (d)
    
17,378
  
Intangible assets
    
-
      
4,520
      
11,559
  
 
  (e)
    
16,079
  
Loan servicing assets
    
-
      
4,515
                  
4,515
  
Accounts receivable
    
597
      
1,158
          
 
 
    
1,755
  
Other assets
    
25,791
      
9,664
      
(681
)
  
  (f)
    
34,774
  
TOTAL ASSETS
  
$
2,560,788
    
$
542,178
    
$
1,656
  
 
  
  
$
3,096,619
  
 
                                    
LIABILITIES
                        
 
 
        
Deposits
                                    
Noninterest-bearing
  
$
718,120
    
$
85,609
          
 
   
  
$
803,729
  
Interest-bearing
    
1,468,104
      
364,274
      
9,070
    
  (g)
    
1,841,447
  
Total deposits
    
2,186,224
      
449,883
      
9,070
  
 
 
    
2,645,176
  
Federal Home Loan Bank advances
    
52,000
      
-
                  
52,000
  
Other borrowed funds
    
12,062
      
-
          
 
 
    
12,062
  
Accrued interest payable
    
8,503
      
1,277
                  
9,780
  
Other liabilities
    
21,888
      
8,388
      
7,150
  
 
  (h)
    
37,426
  
 
                                    
TOTAL LIABILITIES
    
2,280,677
      
459,548
      
16,220
  
 
 
    
2,756,445
  
TOTAL STOCKHOLDERS’ EQUITY
    
280,111
      
82,630
      
(22,567
)
  
  (i)
    
340,175
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
2,560,788
    
$
542,178
    
$
(6,347
 )
 
  
  
$
3,096,619
  
 
2
Unaudited Pro Forma Condensed Consolidated Statements of Income
 
For the Nine Months Ended September 30, 2024

(in thousands except share data)
  
CBNK Historical
    
IFHI Historical
      
Pro Forma Merger Adjustments
  
Notes
  
Pro Forma Combined
  
INTEREST INCOME
            
 
      
 
      
Loans, including fees
  
$
144,313
    
$
27,357
      
$
(234
)
 (a)
  
$
171,435
  
Investment securities available-for-sale
    
3,902
      
1,698
  
 
        
 
    
5,600
  
Federal funds sold and other
    
3,379
      
-
                  
3,379
  
Investment securities & deposits
    
-
      
-
  
 
        
 
    
-
  
Total interest income
    
151,594
      
29,054
        
(234
)
      
180,414
  
INTEREST EXPENSE
                
 
        
 
        
Deposits
    
39,785
      
11,083
        
3,344
  
 (b)
    
54,212
  
Borrowed funds
    
1,390
      
474
  
 
        
 
    
1,864
  
Total interest expense
    
41,175
      
11,557
        
3,344
        
56,076
  
NET INTEREST INCOME
    
110,419
      
17,497
  
 
    
(3,578
)
 
    
124,338
  
Provision for credit losses
    
9,892
      
1,850
        
(2,797
)
 (c)
    
8,945
  
Provision for credit losses on unfunded commitments
    
263
      
-
  
 
        
 
    
263
  
Net interest income after provision for credit losses
    
100,264
      
15,647
        
(781
)
      
115,130
  
NONINTEREST INCOME
                
 
        
 
        
Service charges on deposits
    
642
      
-
                  
642
  
Credit card fees
    
12,266
      
-
  
 
        
 
    
12,266
  
Mortgage banking revenue
    
5,325
      
-
                  
5,325
  
Government loan servicing and processing revenue
            
10,952
  
 
        
 
    
10,952
  
Government lending revenue
            
4,693
                  
4,693
  
Loan servicing rights
            
549
  
 
        
 
    
549
  
Bank-owned life insurance
            
91
                  
91
  
Other income
    
1,264
      
(10,510
)
 (g)
        
 
    
(9,246
)
Total noninterest income
    
19,497
      
5,775
        
-
        
25,272
  
NONINTEREST EXPENSE
                
 
        
 
        
Salaries and employee benefits
    
39,524
      
16,184
                  
55,708
  
Occupancy and equipment
    
5,268
      
862
  
 
        
 
    
6,130
  
Professional fees
    
5,696
      
1,317
                  
7,013
  
Data processing
    
20,479
      
765
  
 
        
 
    
21,244
  
Advertising
    
5,327
      
350
                  
5,677
  
Loan processing
    
1,462
      
1,788
  
 
        
 
    
3,250
  
Intangible amortization expense
            
498
        
(785
)
 (d)
    
(287
)
Foreclosed real estate expenses, net
    
2
      
-
  
 
        
 
    
2
  
Merger-related expenses
    
1,315
      
5,133
                  
6,448
  
Operational losses
    
2,721
      
-
  
 
        
 
    
2,721
  
Other operating
    
6,911
      
4,229
  
 
        
 
    
11,140
  
Total noninterest expenses
    
88,705
      
31,127
        
(785
)
      
119,047
  
Income (loss) before income taxes
    
31,056
      
(9,705
)
 
    
4
  
 
    
21,355
  
Income tax expense
    
7,617
      
1,719
        
1
  
 (e)
    
9,337
  
Net income (loss)
  
$
23,439
    
$
(7,986
)
 
  
$
3
  
 
  
$
15,456
  
Weighted average common shares outstanding:
                                    
Basic
    
13,909,090
      
2,369,645
  
 
    
262,202
  
 (f)
    
16,540,937
  
Diluted
    
13,909,090
      
2,402,438
        
353,828
  
 (f)
    
16,665,356
  
Earnings per share:
                
 
        
 
    
-
  
Basic earning (loss) per share
  
$
1.69
    
$
(3.37
)
      
-
      
$
1.07
  
Diluted earnings (loss) per share
  
$
1.69
    
$
(3.32
)
 
    
-
  
 
  
$
1.08
  

3
Unaudited Pro Forma Condensed Consolidated Statements of Income
 
For the Twelve Months Ended December 31, 2023

(in thousands except share data)
  
CBNK Historical
    
IFHI Historical
    
Pro Forma Merger Adjustments
  
Notes
  
Pro Forma Combined
  
INTEREST INCOME
                  
 
      
Loans, including fees
  
$
174,760
    
$
31,008
    
$
(157
)
(a)
  
$
205,611
  
Investment securities available-for-sale
    
4,815
                  
 
    
4,815
  
Federal funds sold and other
    
3,631
                        
3,631
  
Investment securities & deposits
            
2,095
          
 
        
Total interest income
    
183,206
      
33,103
      
(157
)
      
216,152
  
INTEREST EXPENSE
                        
 
        
Deposits
    
39,625
      
10,127
      
4,192
  
(b)
    
53,944
  
Borrowed funds
    
2,055
      
261
          
 
    
2,316
  
Total interest expense
    
41,680
      
10,388
      
4,192
        
56,260
  
NET INTEREST INCOME
    
141,526
      
22,715
      
(4,349
)
 
    
159,892
  
Provision for credit losses
    
9,610
      
1,245
      
(2,797
)
(c)
    
8,058
  
Provision for (release of) credit losses on unfunded commitments
    
(101
)
    
(64
)
        
 
    
(165
)
Net interest income after provision for credit losses
    
132,017
      
21,534
      
(1,552
)
      
151,999
  
NONINTEREST INCOME
                        
 
    
-
  
Service charges on deposits
    
964
      
-
                
964
  
Credit card fees
    
17,273
      
-
          
 
    
17,273
  
Mortgage banking revenue
    
4,896
      
-
                
4,896
  
Government loan servicing and processing revenue
    
-
      
11,058
          
 
    
11,058
  
Government lending revenue
    
-
      
7,746
                
7,746
  
Loan servicing rights
    
-
      
251
          
 
    
251
  
Bank-owned life insurance
    
-
      
742
                
742
  
Change in fair value of marketable equity securities
    
-
      
1,615
          
 
    
1,615
  
Other income
    
1,842
      
3,354
                
5,196
  
Total noninterest income
    
24,975
      
24,766
      
-
  
 
    
49,741
  
NONINTEREST EXPENSE
                                  
Salaries and employee benefits
    
48,754
      
19,946
          
 
    
68,700
  
Occupancy and equipment
    
5,673
      
1,331
                
8,880
  
Professional fees
    
9,270
      
2,001
          
 
    
11,271
  
Data processing
    
25,686
      
997
                
26,683
  
Advertising
    
6,161
      
629
          
 
    
6,790
  
Loan processing
    
1,633
      
1,930
                
3,563
  
Merger-related expenses
    
-
      
177
          
 
    
177
  
Intangible amortization expense
    
-
      
664
      
(1,046
)
(d)
    
(382
)
Foreclosed real estate expenses (income), net
    
7
      
-
          
 
    
7
  
Operational losses
    
4,613
      
-
                
4,613
  
Outside service providers
    
1,932
      
-
          
 
    
1,932
  
Other operating
    
7,038
      
3,651
                
8,813
  
Total noninterest expenses
    
110,767
      
31,326
      
(1,046
)
 
    
141,047
  
Income before income taxes
    
46,225
      
14,974
      
(505
)
      
60,694
  
Income tax expense
    
10,354
      
3,797
      
(124
)
(e)
    
14,027
  
Net income before noncontrolling interest
    
35,871
      
11,177
      
(383
)
      
46,665
  
Net income attributable to noncontrolling interest
    
-
      
(47
)
        
 
    
(47
)
Net income
    
35,871
      
11,130
      
(383
)
      
46,618
  
Weighted average common shares outstanding:
                        
 
        
Basic
    
14,002,556
      
2,224,846
      
407,001
  
(f)
    
16,634,403
  
Diluted
    
14,080,547
      
2,265,987
      
490,279
  
(f)
    
16,758,822
  
Earnings per share:
                                  
Basic earnings per share
  
$
2.56
    
$
5.00
      
-
      
$
2.80
  
Diluted earnings per share
  
$
2.55
    
$
5.00
      
-
  
 
  
$
2.78
  
 
4
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Pro Forma Adjustments to the Unaudited Consolidated Balance Sheet
 
 
(a)
The pro forma adjustment to the estimate fair value of IFHI’s portfolio loans reflects preliminary estimated fair value adjustment for non-purchased credit deteriorated loans (“PCD”) and preliminary estimated credit mark on PCD loans. The market rate adjustment represents the impact of movement in interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans. The credit adjustment represents changes in credit quality of the underlying borrowers from loan inception to the acquisition date;
 
(b)
 The pro forma adjustment to premises and equipment reflects preliminary estimated fair value adjustments;
 
(c)
The pro forma adjustment to deferred tax asset reflects preliminary estimated fair value adjustments;
 
(d)
The pro forma adjustment to goodwill reflects the elimination of historical IFHI goodwill of $13.2 million and record preliminary estimated goodwill associated with the merger of $9.1 million;
 
(e)
The pro forma adjustment to intangible assets reflects Capital’s estimate of the fair value of identifiable intangible assets determined based on financial, economic, market and other conditions as of the merger date;
 
(f)
 The pro forma adjustment to other assets reflects preliminary estimated adjustments to prepaid expenses & right of use assets;
 
(g)
The pro forma adjustment to interest-bearing deposits reflects differences in interest rates, based on a comparison of rates on IFHI’s time deposits to recent market rates as of the merger date for terms corresponding with the maturity dates of IFHI’s interest-bearing deposits;
 
(h)
The pro forma adjustment to other liabilities reflects preliminary estimated adjustments to establish mortgage and SBA repurchase reserves, as well as update estimated deferred tax liability and lease liabilities;
 
(i)
The pro forma adjustment to stockholders’ equity is reduced by the elimination of IFHI’s stockholders’ equity; and
 
(j)
The pro forma adjustment to cash reflects the cash consideration paid to acquire IFH

Note 2. Pro Forma Adjustments to the Unaudited Consolidated Income Statements
 
 
(a)
The pro forma adjustment to interest income on loans reflects preliminary estimated fair value adjustments including a market rate adjustment and credit mark adjustments on acquired loans receivable. The loan fair value adjustment is amortized using the sum-of-the-years-digits method over four years;
 
(b)
The pro forma adjustment to interest expense on deposits reflects differences in interest rates, based on comparison of rates of IFHI’s time deposits to recent market rates for maturity dates corresponding to the maturity dates of IFHI’s time deposits. The fair value adjustment is amortized into interest expense over the estimated remaining life of the applicable time deposits;
 
(c)
The pro forma adjustment to the provision for credit losses on loans reflects the preliminary estimated day 2 current expected credit losses (“CECL”) adjustment on the loan portfolio;
 
(d)
The pro forma adjustment to intangible amortization expense reflects preliminary estimated amortization of acquired identifiable intangible assets. Identifiable intangible assets are amortized on a straight-line basis over their respective periods;
 
(e)
The pro forma adjustment to income tax expense reflects an assumed tax rate of 24.5%;
 
(f)
The pro forma adjustments to common shares outstanding represents additional shares issued by Capital, net of IFHI shares exchanged, in the merger; and
 
(g)
IFH other income loss mainly driven by one-time loss associated with Special Dividend distribution.


5