Popular Finds Buyers for Operations in Chicago, California

Popular (BPOP) in San Juan, Puerto Rico, has found buyers for its regional operations in Illinois, California and central Florida.

The $26.6 billion-asset company said in a press release Wednesday that it had reached agreements to sell 41 branches, $1.8 billion loans and $2.1 billion in deposits to three different buyers. The sales will result in net premium of roughly $25 million and an estimated noncash goodwill writedown of about $160 million.

Popular also said it would incur a charge of about $53 million, though its annual operating expenses should decline by about $45 million after it sells the regional operations. The lower costs would offset revenue it would have generate at the divested operations.

The sales will leave Popular with 49 mainland branches in New York, New Jersey and South Florida. The company also has more than 180 branches in Puerto Rico.

"Popular remains deeply committed to serving mainland U.S. customers by building on [our] success in New York and South Florida," Richard Carri-n, the company's chairman, president and chief executive, said in the release. "We believe there are significant opportunities for the growth of our franchise in these markets as the banking sector and overall economy continues in its recovery. Focusing our efforts on these markets will ultimately enable us to better serve and grow our customer base, while strengthening the capital position of both [the bank] and Popular."

First Midwest Bancorp (FMBI) in Itasca, Ill., agreed to buy the Chicago banking operations. The $8.3 billion-asset First Midwest will gain 12 branches, $525 million in loans and $750 million in deposits, along with Popular Community Bank's small-business and middle-market commercial lending operations around Chicago. First Midwest said in a press release Wednesday that it expects to complete the acquisition by the end of this year.

"First Midwest is the bank of choice for more than [250,000] families and 25,000 businesses throughout the greater Chicagoland area", Michael Scudder, First Midwest's president and chief executive, said in the release. "This acquisition is consistent with our desire to expand our footprint in Chicago and surrounding suburban markets."

The $3.6 billion-asset Banc of California (BANC) will buy 20 branches with $1.2 billion in loans and $1.1 billion in deposits. Banc of California said in its own press release that it would pay about $5.4 million for the deposits assumed and loans, or a deposit premium of 0.5%. The transaction includes a loss-share provision that provides indemnification of up to 1.5% of credit losses on loans acquired in the transaction during the two-year period after the deal's closing.

Banc of California said the transaction should generate pretax income of roughly $25 million in the first year and should be more than 20% accretive to earnings per share in the first year. The tangible book value payback period is expected to be less than a year.

Oaktree Capital Management and Patriot Financial Partners are investing more in Banc of California as part of the deal by entering into separate agreements to buy common stock at $11.50 each. Oaktree's aggregate commitment will represent 9.9% of the company's outstanding shares, and Patriot will increase its strategic position by $10 million.

"We are extremely excited to expand our footprint throughout Los Angeles and Orange County, and to strengthen our capabilities to serve California's fast-growing Latino community," Steven Sugarman, Banc of California's president and CEO, said in a release. "Latinos, who represent approximately 37% of the deposits acquired, are the most rapidly growing segment of new small business owners and entrepreneurs in California."

Popular will also sell nine branches with $115 million in loans and $239 million in deposits to the $629 million-asset Harbor Community Bank.

As part of the restructuring, Popular will reduce back-office expenses by closing its Rosemont, Ill., and Orlando, Fla., operations centers and transferring 100 positions to other mainland offices and 200 positions to Puerto Rico. Roughly 250 jobs would be cut in a transition expected to take place by the first quarter of next year.

RBC Capital Markets and Sullivan & Cromwell advised Popular.