First BanCorp to acquire Banco Santander Puerto Rico

To release earnings Tuesday

SAN JUAN – First BanCorp., the holding company of FirstBank Puerto Rico, announced Monday the signing of a stock purchase agreement for the acquisition of Banco Santander’s retail and commercial banking franchise in Puerto Rico, Santander Bancorp, the holding company that includes Banco Santander Puerto Rico (BSPR), for about $1.1 billion in cash.

The transaction, which is expected to close in the middle of 2020, subject to regulatory approvals, does not include FirstBank assuming BSPR’s nonperforming assets, First Bancorp said.

As of June 30, BSPR had $6.2 billion in assets, $3.1 billion in loans and $5 billion in deposits, according to the release. After the transaction, FirstBank will have about $17.6 billion in assets, a $12 billion loan portfolio, and $14.2 billion in deposits, “on a pro forma basis based on June 30, 2019 data, including purchase accounting adjustments, after the transaction,” the release said.

“After completing comprehensive due diligence, we have signed an agreement to acquire Banco Santander Puerto Rico. This acquisition will significantly improve our scale and competitiveness in Puerto Rico, while enhancing our funding and risk profile,” First Bancorp President and CEO Aurelio Alemán said in the announcing release. “The transaction is financially compelling and generates 35 percent accretion to fully phased-in 2020 consensus earnings per share (EPS) with a tangible book value per share earnback period of 2.6 years.”

Alemán said the acquisition will expand FirstBank’s “talent bench” and make it a “stronger competitor” in the island’s retail, commercial and business banking sectors. The executive added that the transaction is structured as an acquisition of BSPR’s holding company, immediately followed by the merger of BSPR and its holding company into FirstBank.

“Our combined institution will be well-positioned to continue growth initiatives and further support the economic recovery and redevelopment in Puerto Rico,” he said.

The $425 million base purchase price, or 117.5 percent of BSPR’s core tangible common equity, comprises a $63 million premium on $362 million of core tangible common equity as of June 30, plus $638 million of BSPR’s excess capital as of June 30, paid at par, according to the release, which adds that the purchase price is subject to adjustment based on BSPR’s balance sheet as of the closing date.

The transaction is expected to deliver an internal rate of return of approximately 20 percent, FirstBank said, adding that pre-tax annual cost savings of $48 million are expected to be fully achieved in 2021, representing about 35 percent of BSPR’s non-interest expenses over the last 12 months, excluding non-earning real estate asset expenses.

First BanCorp expects to report its financial results for the third quarter ended Sept. 30, before the market opens Tuesday, Oct. 22, when it will hold a conference call and live webcast to discuss the financial results at 10 a.m. The call and webcast will be broadcast live and can be accessed through the investor relations section of the corporation’s website: www.1firstbank.com.

BSPR transaction highlights included in the release follow:

• The transaction is expected to be 35 percent accretive to 2020 consensus EPS of $0.81 (assuming fully phased-in BSPR earnings, cost savings and transaction adjustments)

• Tangible book value per share is expected to be diluted by approximately 7 percent at close, with an expected earnback period of approximately 2.6 years based on the crossover method

• One-time restructuring charges of approximately $76 million expected to be phased-in 50 percent at close with the remainder to be incurred in 2021

• Pro forma NPA/Asset Ratio of approximately 2.2 percent as of June 30, 2019

• Enhanced funding and liquidity profile, with a pro forma loan-to-deposit ratio of 84 percent

• All pro forma capital ratios at closing expected to remain significantly above the “well capitalized” threshold, with a closing pro forma Total Risk-Based Capital Ratio of 18.0 percent, a closing pro forma Tier 1 Capital Ratio of 15.6 percent, a closing pro forma Common Equity Tier 1 Ratio of 15.3 percent and a closing pro forma Tier 1 Leverage Ratio of 11.2 percent.

Banco Santander Puerto Rico is the fourth largest banking franchise on the island. It has 27 branches and 1,000 employees, with total assets of $6.2 billion.

Besides FirstBank—its state-chartered commercial bank with operations in Puerto Rico, the U.S. and British Virgin Islands and Florida—First BanCorp. is also the parent corporation of FirstBank Insurance Agency LLC. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance and First Express Inc., both small loan companies. First BanCorp trades on the New York Stock Exchange under the symbol “FBP.”

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