OFG Bancorp’s subsidiary Oriental Bank will acquire Scotiabank’s Puerto Rico operation for $550 million and its U.S. Virgin Island branch operation for $10 million.
Scotiabank’s Puerto Rico and USVI operations will be merged into Oriental Bank and its related businesses. The acquisition is subject to customary regulatory approvals, which will likely take about six months to complete.
The acquisition strengthens OFG businesses with enhanced scale, the addition of Scotiabank’s talented team, and improves Oriental’s competitive position as Puerto Rico’s premier retail bank, Oriental said in a statement.
“The acquisition provides the combined companies with greater prospects for growth, profitability and employee engagement,” said Oriental Bank CEO José Rafael Fernández.
Through the transaction, Oriental becomes the second largest in Puerto Rico in core deposits, branches, automated and interactive teller machines, and mortgage servicing. It will also make its debut in the USVI, where it currently does not have a presence, Fernández said.
Once completed, Oriental will have a network of 58 branches, 431 ATM machines, and nearly 2,400 employees, including the 1,000 currently working for Scotiabank.
“It is also an excellent opportunity to deploy OFG’s excess capital to accelerate the implementation of our differentiation strategy, enhance financial performance, and increase shareholder value,” he said.
Upon closing, OFG will have a diversified loan portfolio totaling $7.2 billion, low cost deposits of $7.9 billion, and approximately 500,000 customers, Oriental said in the press release.
The deal is expected to expand Oriental’s mortgage servicing book five-fold to approximately $5 billion, giving it critical mass to create a new and meaningful non-interest income profit center.
Scotiabank has substantially reduced its balance sheet credit risk and streamlined branch operations over the last five years in Puerto Rico and USVI.
“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 USVI,” Fernández said.
The transaction, which will be funded by OFG’s excess capital, is priced at 1.15x adjusted tangible book value for the Puerto Rico operation and 2% deposit premium for the USVI branch operation.
OFG has a successful track record acquiring and integrating banks, including local and multi-nationally owned operations, namely Eurobank in 2010 and BBVA’s Puerto Rico operations in 2012.
OFG’s Senior Executive Vice President Ganesh Kumar will lead the integration team. Following its 2012 acquisition, Kumar supervised the successful incorporation of BBVA Puerto Rico’s $3.7 billion in loans and $3.3 billion in deposits.