Conference Call Thursday at 10:00 AM ET
OFG Bancorp (NYSE: OFG) and Scotiabank (NYSE: BNS) today
announced 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 US Virgin
Island (USVI) branch operation for a $10 million deposit
premium.
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.
Acquisition Highlights
- 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 becomes the second largest in Puerto Rico in core
deposits, branches, automated and interactive teller machines, and
mortgage servicing
- Expected to be approximately 40% accretive to OFG’s EPS in 2020
with robust capital generation and significantly expanded return on
average tangible common equity
- Upon closing, OFG will have a well-diversified loan portfolio
totaling $7.2 billion, low cost deposits of $7.9 billion, and
approximately 500,000 customers
- 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
- 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 has a highly successful track record acquiring and
integrating banks, including local and multi-nationally owned
operations (Eurobank in 2010 and BBVA’s Puerto Rico operations in
2012)
Conference Call
OFG will hold a conference call to discuss this announcement and
related matters Thursday, June 27, 2019, at 10:00 AM Eastern and
Puerto Rico Time. Phone (888) 562-3356 or (973) 582-2700. 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
later. Access the webcast link in advance to download any necessary
software.
CEO Comment
“The acquisition provides the combined companies with greater
prospects for growth, profitability and employee engagement,” said
José Rafael Fernández, President, CEO and Vice Chairman of the
Board of OFG and Oriental Bank.
“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.
“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 US Virgin
Islands.
“We’re excited about welcoming Scotia’s valued customers and
talented team into the Oriental family. We share a similar culture,
approach and outlook for our businesses and how we regard and
service our customers.
“Scotiabank in Puerto Rico and the US Virgin Islands is known
for its strong retail banking franchise in core deposits and loans,
principally residential mortgages; its well-developed mortgage
servicing and insurance agency operations; and provides Oriental
with a presence as the third largest bank in the US Virgin
Islands.
“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.
“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.”
The OFG-Scotiabank Puerto Rico-USVI Combination
Upon consummation of the acquisition, Oriental Bank will
significantly increase the number of clients served as well as its
core deposit funding. The resulting loan portfolio will be
approximately a third each in commercial loans, residential
mortgages, and consumer loans and leases.
In recent years, Scotiabank has improved the credit quality of
its portfolios in Puerto Rico and USVI. Total non-performing assets
declined by 62% from 2016 to first quarter 2019, and total direct
PR government exposure is no longer significant.
As of March 31, 2019, 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.
Financial Impact
The transaction is expected to be highly positive for OFG:
- Based on current estimates, the acquisition is expected to be
approximately 40% accretive to earnings per share in 2020 on a pro
forma basis.
- Projected annual cost savings are anticipated at about 25% of
Scotiabank PR’s non-interest expenses. Approximately 75% of the
savings are expected to be realized in 2020. Savings are expected
to result from more efficient back office operations and vendor
consolidation and efficiencies.
- OFG expects to incur certain one-time restructuring charges of
approximately $45 million in connection with the transaction.
- Tangible book value per share is expected to be diluted by
approximately 15% at close of the transaction, with an expected
earnback in less than three years based on the crossover
method.
Additional Information
- 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.
- The acquisition has been unanimously approved by OFG’s and
Oriental Bank’s Boards of Directors.
- The transaction 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 well as other customary closing conditions.
- Keefe, Bruyette & Woods, Inc. served as financial advisor
for OFG, and Skadden, Arps, Slate, Meagher & Flom LLP served as
its legal advisor.
- For more information regarding Scotiabank Puerto Rico and USVI,
impact of the transaction on a pro forma basis, and key assumptions
underlying the pro forma analysis, see the investor presentation
expected to be filed tomorrow as an exhibit to our Current Report
on Form 8-K filed with the Securities and Exchange Commission and
posted on our website.
Forward Looking Statements
The information included in this document contains certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
based on management’s current expectations and involve certain
risks and uncertainties that may cause actual results to differ
materially from those expressed in the forward-looking
statements.
Factors that might cause such a difference include, but are not
limited to (i) the rate of growth in the economy and employment
levels, as well as general business and economic conditions; (ii)
changes in interest rates, as well as the magnitude of such
changes; (iii) changes to the financial condition of the government
of Puerto Rico; (iv) amendments to the fiscal plan approved by the
Financial Oversight and Management Board of Puerto Rico; (v)
determinations in the court-supervised debt-restructuring process
under Title III of PROMESA for the Puerto Rico government and all
of its agencies, including some of its public corporations; (vi)
the amount of government, private and philanthropic financial
assistance for the reconstruction of Puerto Rico’s critical
infrastructure, which suffered catastrophic damages caused by
hurricane Maria; (vii) the pace and magnitude of Puerto Rico’s
economic recovery; (viii) the potential impact of damages from
future hurricanes and natural disasters in Puerto Rico; (ix) the
fiscal and monetary policies of the federal government and its
agencies; (x) changes in federal bank regulatory and supervisory
policies, including required levels of capital; (xi) the relative
strength or weakness of the commercial and consumer credit sectors
and the real estate market in Puerto Rico; (xii) the performance of
the stock and bond markets; (xiii) competition in the financial
services industry; and (xiv) possible legislative, tax or
regulatory changes.
For a discussion of such factors and certain risks and
uncertainties to which OFG is subject, see OFG’s annual report on
Form 10-K for the year ended December 31, 2018, as well as its
other filings with the U.S. Securities and Exchange Commission.
Other than to the extent required by applicable law, including the
requirements of applicable securities laws, OFG assumes no
obligation to update any forward-looking statements to reflect
occurrences or unanticipated events or circumstances after the date
of such statements.
This press release shall not constitute, or form a part of, an
offer to sell or the solicitation of an offer to sell or the
solicitation of an offer to buy any securities.
About OFG Bancorp
Now in its 55th year in business, OFG Bancorp is a diversified
financial holding company that operates under U.S. and Puerto Rico
banking laws and regulations. Its three principal subsidiaries,
Oriental Bank, Oriental Financial Services and Oriental Insurance,
provide a wide range of retail and commercial banking, lending and
wealth management products, services and technology, primarily in
Puerto Rico. Visit us at www.ofgbancorp.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20190626005783/en/
Puerto Rico: Idalis Montalvo
(idalis.montalvo@orientalbank.com) at (787) 777-2847 US:
Gary Fishman (gfishman@ofgbancorp.com) and Steven Anreder
(sanreder@ofgbancorp.com) at (212) 532-3232
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