OFG to buy Scotiabank's Puerto Rico operations

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OFG Bancorp in San Juan, Puerto Rico, has agreed to buy Scotiabank’s operations in Puerto Rico and the U.S. Virgin Islands.

The $6.6 billion-asset OFG said in a press release Wednesday that it will pay $550 million in cash for the Canadian bank’s operations in Puerto Rico. OFG will pay a $10 million deposit premium, or roughly 2%, for the U.S. Virgin Island branch.

The deal priced the Puerto Rico operation at 115% of its tangible book value.

OFG said it should close the acquisition by the end of this year.

Scotiabank’s Puerto Rico and U.S. Virgin Island operations have $3.5 billion in assets, $2.5 billion in loans, $3.2 billion in deposits, 21 branches, 225 ATMs and about 1,000 employees.

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,” José Rafael Fernández, OFG’s president, chief executive and vice chairman, said in the release.

“We are combining two excellent banks to create a strongly capitalized, market leading institution focused on the needs of consumers and businesses in Puerto Rico and the U.S. Virgin Islands,” he added.

OFG said the acquisition will make it the second-biggest bank in Puerto Rico in terms of deposits, branches, ATMs and mortgage servicing.

The deal should be 40% accretive to OFG’s 2020 earnings per share. The company’s mortgage servicing book should increase from $1 billion to $5 billion.

OFG has been a consolidator in Puerto Rico, buying Eurobank in 2010 and Banco Bilbao Vizcaya Argentaria’s operations in 2012.

Scotiabank had been focused on improving credit quality in Puerto Rico and the U.S. Virgin Islands. Nonperforming assets fell by 62% from 2016 to the first quarter of this year.

OFG said it plans to cut about a quarter of the annual noninterest expenses at the Scotiabank operations. The company expects to incur about $45 million in merger-related expenses.

It should take less than three years for OFG to earn back the projected 15% dilution to its tangible book value.

Keefe, Bruyette & Woods and Skadden, Arps, Slate, Meagher and Flom advised OFG.

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Community banking M&A Capital Puerto Rico U.S. Virgin Islands