Oriental Bank to acquire Scotiabank operations in Puerto Rico, USVI
For some $550 million in cash, to become 2nd largest
SAN JUAN – Puerto Rico-based OFG Bancorp and Canadian financial institution Scotiabank announced Wednesday the signing of a definitive agreement for OFG’s subsidiary, Oriental Bank, to acquire Scotiabank’s Puerto Rico operation for $550 million in cash and Scotiabank’s U.S. Virgin Island (USVI) branch operation for a $10 million deposit premium.
Scotiabank’s Puerto Rico and USVI operations would be merged into Oriental Bank and its related businesses, which would make Oriental the second largest bank in Puerto Rico in terms of “core deposits, branches, automated and interactive teller machines, and mortgage servicing,” according to OFG, which said it would result in a loan portfolio totaling $7.2 billion, “low cost deposits of $7.9 billion” and about half a million customers.
Oriental would also become the third largest bank in the USVI.
The acquisition, which has been approved by OFG’s and Oriental Bank’s boards, is subject to approval by the Board of Governors of the Federal Reserve System, the FDIC, the Commissioner of Financial Institutions of Puerto Rico, and USVI banking authorities.
As of March 31, Scotiabank’s Puerto Rico and USVI operations had $2.5 billion in net loans, $3.2 billion in deposits, 21 branches, 225 ATMs, and approximately 1,000 employees.
“This adds to OFG’s $4.4 billion in net loans, $4.9 billion in deposits, 37 branches, 206 ATMs and Interactive Teller Machines, and 1,394 employees,” the institution said.
The acquisition price of $550 million “takes into account Scotiabank Puerto Rico’s plan to upstream a $500 million dividend to its parent. Prior to closing, Scotiabank Puerto Rico may elect to pay additional dividends to its parent of up to $125 million. If that happens, the purchase price will be adjusted downward by the amount of the additional dividends,” according to the announcing release.
The acquisition “is an excellent opportunity to deploy OFG’s excess capital to accelerate the implementation of our differentiation strategy, enhance financial performance, and increase shareholder value,” said José Rafael Fernández, president, CEO and vice chairman of OFG and Oriental Bank. “The acquisition is also well timed. Rebuilding activities have given a much needed impetus, turning the Puerto Rico economy positive. Ultimately, the transaction reaffirms our faith in Puerto Rico’s future, and our commitment to play an instrumental role in it.”
OFG expects the acquisition “to be approximately 40% accretive to OFG’s EPS [earnings per share] in 2020 with robust capital generation and significantly expanded return on average tangible common equity.”
Oriental also expects its mortgage servicing book will expand “five-fold,” to about $5 billion, giving it “critical mass to create a new and meaningful non-interest income profit center.”
OFG said Scotiabank “improved the credit quality of its portfolios in Puerto Rico and USVI,” and streamlined branch operations over the last five years. “Total non-performing assets declined by 62% from 2016 to first quarter 2019, and total direct PR government exposure is no longer significant,” according to OFG’s release, which adds that the transaction, “which will be funded by OFG’s excess capital, is conservatively priced at 1.15x adjusted tangible book value for the Puerto Rico operation and 2% deposit premium for the USVI branch operation.”
OFG absorbed Puerto Rico’s Eurobank in 2010 and BBVA’s Puerto Rico operations in 2012.
“Ganesh Kumar, our Senior Executive Vice President and Chief Operating Officer, will lead the integration team. Following its 2012 acquisition, Dr. Kumar supervised the very successful incorporation of BBVA PR’s $3.7 billion in loans and $3.3 billion in deposits,” Fernández said.
OFG expects to incur “certain one-time restructuring charges” of approximately $45 million in connection with the transaction, it said.
Keefe, Bruyette & Woods Inc. served as financial adviser for OFG, and Skadden, Arps, Slate, Meagher & Flom LLP served as its legal adviser.
OFG will hold a conference call to discuss this announcement Thursday at 10 a.m. Eastern. Phone (888) 562-3356 or (973) 582-2700 and use conference ID 557-9677. The call also can be accessed live on OFG’s website, at www.ofgbancorp.com. A webcast replay will be available afterward. Access the webcast link in advance to download any necessary software.