Doral Financial's failure benefited three banks and may have opened the door for more consolidation in Puerto Rico.

The big winner from Friday's failure appeared to be Popular Inc., which snagged eight branches and $612 million in deposits in Puerto Rico. The company gained even more traction in a market where it already had a market-leading 36.6% of deposits, according to the Federal Deposit Insurance Corp. Popular, already Puerto Rico’s top mortgage lender, also picked up $848 million in performing residential and commercial loans in the territory.

Popular also obtained about $5 billion of mortgage-servicing rights tied to government-sponsored enterprises.

The failure also provided the $33.1 billion-asset Popular with three branches, $1.3 billion in deposits and $931 million in performing commercial loans in New York, where the company already had 32 branches. (Popular sold its operations in California, Illinois and central Florida last year to exit the Troubled Asset Relief Program.)

"Right away, this gives us over $2 billion of good earning assets," Richard Carrion, Popular's chief executive, said in an interview Friday. "We think it is a good investment."

There was no loss sharing agreement with the FDIC.

Successfully bidding on Doral is "a definitive positive for Popular," said Taylor Brodarick, an analyst at Guggenheim Securities. "They have market constraints in Puerto Rico, so it's harder to turn over new stones. This can only help them and give them a boost to their efforts to grow in New York."

Market watchers view it as a positive any time a Puerto Rican bank can add core deposits, Brodarick said. Banks in the territory have struggled with deposit gathering, often relying on brokered accounts for funding.

From that perspective, Doral's failure also benefited the $12.4 billion-asset First BanCorp. The Santurce, Puerto Rico, company bought 10 Doral branches, along with $625 million in deposits, from Popular. First BanCorp also said it added 100 employees and gained a $300 million mortgage loan portfolio.

"As part of our commitment to Puerto Rico, we forged an alliance with a local competitor, Banco Popular," Aurelio Alemán, First BanCorp's president and chief executive, said in a press release. "We are convinced that this investment contributes to further strengthen the local banking sector, and thus the economic condition of Puerto Rico."

A surprise beneficiary was Home Bancshares in Conway, Ark., which reached an agreement with Popular to buy Doral's five branches on the Florida Panhandle. Home also snagged $466 million in deposits, $42.2 million in loans and a “significant cash settlement” as part of the deal. Home said in a press release that it expects to record a one-time bargain purchase gain of $2 million after buying the assets as a discount of roughly $5.9 million..

The $7.4 billion-asset Home has built a significant business along the Florida Panhandle through failed-bank acquisitions, amassing 26 branches and $1.2 billion in assets in the area. Lately, Home has been more focused on finding larger deals, but Johnny Allison, the company's chairman, is always looking for bargains.

"You know, we've been fishing for a bigger fish and in this we caught a bass and that's great," Allison said in an interview Friday. The Doral branches are "not a huge deal, but it is an in-market accretive transaction. We're looking forward to getting to know these folks."

Allison said that, in recent weeks, he met with representatives from Popular, FirstBank and OFG Financial about co-bidding on Doral's franchise, ultimately attaching Home's prospects to bids by Popular and OFG. Popular's deal only included Florida, but OFG's bid would have also given Home control of Doral's New York operations.

"We would have taken it and run it," Allison said of the New York branches. "It would have been the first time you'd see me step out of my lane, but after visiting with those guys, we ended up liking it."

Popular said in a press release that an affiliate of J.C. Flowers & Co. participated in its alliance, gaining $316 million in mainland loans.

Overall, Doral's failure could reshape Puerto Rico's banking landscape, industry experts said.

"You're taking out a significant player," said Bert Ely of Ely & Co. "This ultimately reduces competition. Since it is such an isolated market, it would be hard to entice anyone new to come in."

Reduced competition might be a positive for the territory, Brodarick said. Puerto Rico now has just seven banks, but Brodarick said he still considers the area overbanked as the territory's economy continues to struggle and its population declines.

Doral's resolution may help spur other consolidation. The $5.9 billion-asset bank, which had struggled for the better part of a decade, was saved once before by a last-minute investment by a group of private equity investors.

Doral's most-recent, and ultimately damning, capital problems stemmed from a disagreement with the Puerto Rican government over a $230 million tax refund. The FDIC had ruled that Doral couldn't count the funds towards its Tier 1 capital. Doral never received the refund and was unable to raise enough capital to stave off failure.

"The company had been struggling with profitability and credit for a number of years," Brodarick said. "Even if it hadn't been closed, it would have been hard for the company to stay independent. It is probably good to have this resolved. I think any further consolidation would have been delayed until it was."

The New York branches were "the most attractive part" of the deal because of the lenders and the commercial business, Carrion said, adding that the deal is an example of further expansion Popular might do in New York.

"This complements our operations" in New York, Carrion said. "There is a very good lending team and portfolio there."

There were a few different permutations of bids for Doral, including one where Popular bid on the whole bank, Carrion said. But Popular had not negotiated to buy Doral in an open-bank transaction prior to the closure, he said.

The Puerto Rican assets Popular bought included two pools of performing single family residential mortgages and $100 million of performing commercial loans. In the U.S., the assets were primarily commercial, including commercial real estate. 

Robert Barba and Paul Davis contributed to this report.

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