Oriental Financial Group Reports 4Q12 & 2012 Results

  Oriental Financial Group Reports 4Q12 & 2012 Results

Business Wire

SAN JUAN, Puerto Rico -- February 7, 2013

Oriental Financial Group Inc. (NYSE: OFG) today reported results for the
fourth quarter and year ended December 31, 2012.


  *Acquisition of Banco Bilbao Vizcaya Argentaria, S.A.’s Puerto Rico
    operations (BBVA PR) and related deleveraging of the investment securities
    portfolio have transformed Oriental in line with its major strategies
  *Combination of BBVA PR and Oriental has created a larger, diversified and
    growth oriented banking platform
  *Due to a higher than originally estimated valuation for BBVA PR, there was
    almost no dilution to book value per share. As a result, estimated time to
    earn back tangible book value has been significantly reduced.
  *Strong core performance in 4Q12 and 2012; however, as anticipated,
    non-recurring items primarily related to the acquisition and deleveraging
    negatively affected results
  *2012 net income available to common shareholders of $14.6 million, equal
    to $0.35 per common share
  *2013 outlook strong, based on initial EPS guidance


“Oriental is now in a very solid position, financially and operationally, to
realize the benefits of the combination with BBVA PR,” said José Rafael
Fernández, President, Chief Executive Officer and Vice Chairman of the Board.

“We want to thank our customers for their continuing support, placing their
trust in our ability to serve them. We also want to thank our employees for
their enthusiasm and contribution. Employee morale is high, and integration is
well underway. We are very pleased with the momentum that we have as an
organization and the initial progress that we’ve made deploying our lending
and deposit gathering initiatives.

“Unencumbered by legacy issues, Oriental is poised to realize its potential as
one of Puerto Rico’s leading banking institutions, with our strong capital and
significantly improved market position.

“Now that the 4Q12 transition quarter is behind us, we look forward to
generating income available to common shareholders for 2013 of around $1.40
per share, based on our initial outlook.”

Based on initial valuation of the BBVA PR acquisition
All comparisons are to September 30, 2012 unless otherwise noted

Loans and Deposits

Due to organic growth and the December 18, 2012 acquisition of BBVA PR,
Oriental reported:

  *305% increase in non-covered loan balances, to $4.8 billion from $1.2
  *Greatly improved diversity among loan categories, with commercial loans
    representing 39% of non-covered gross loans versus 28%; residential
    mortgages representing 34% versus 65%; and auto/consumer loans
    representing 27% versus 7%
  *Net loans representing 56% of total assets versus 26%, indicating
    decreased reliance on investment securities
  *157% increase in deposits, to $5.7 billion from $2.2 billion
  *108% increase in core retail deposits, to $4.2 billion from $2.0 billion
  *Greatly improved diversity among core retail deposits, with non-interest
    bearing accounts representing 14% versus 9%; interest bearing savings and
    demand deposits accounts representing 40% versus 50%; and time deposits
    representing 46% versus 41%
  *Deposits representing 70% of interest bearing liabilities versus 43%,
    indicating decreased reliance on borrowings

Investment Securities and Borrowings

As a result of the above and the implementation of the second phase of
deleveraging the investment securities portfolio in 4Q12, Oriental reported:

  *29% decline in investment securities balances, to $2.2 billion from $3.2
  *Investment securities representing 24% of assets versus 52%
  *17% decline in borrowings, to $2.5 billion from $3.0 billion
  *Borrowings representing 30% of interest bearing liabilities versus 57%

Stockholders’ Equity, Capital Position and Total Balance Sheet

The changes in the balance sheet set forth above, and the raising of $77
million in new capital during 4Q12 through common and preferred stock
offerings related to the acquisition, resulted in:

  *12% increase in stockholders’ equity, to $863.6 million from $771.7
  *Book value per common share after the acquisition of $15.31 versus $15.40
  *Due to a higher than anticipated valuation of BBVA PR, tangible book value
    per common share was $13.79, significantly reducing the earn back period
    from an originally anticipated 2.5-3 years

  *45.6 million issued and outstanding shares of common stock versus 40.7
  *Strong capital position, highlighted by 6.56% leverage capital ratio,
    13.21% tier 1 risk based capital, 15.42% total risk based capital, and
    6.83% tangible common equity to total assets
  *52% increase in total balance sheet, to $9.2 billion from $6.1 billion

All comparisons are to 3Q12 unless otherwise noted

Oriental reported a net loss to common shareholders of $23.3 million for the
quarter ended December 31, 2012, equal to ($0.53) per common share, and net
income available to common shareholders for 2012 of $14.6 million, equal to
$0.35 per common share.

Results include:

  *$22.9 million net loss in 4Q12 from implementation of the second phase of
    the deleveraging plan. Net cost of the deleveraging was $12.2 million in
    2012, when combined with $10.7 million net profit from the plan’s first
    phase in 3Q12.
  *Approximately $2.6 million lower net interest income in 4Q12, due
    primarily to the sale of investment securities during 3Q12 as part of the
    deleveraging plan
  *Merger and restructuring charges of $5.0 million in 4Q12 non-interest
    expenses due to planned integration and other activities contractually
    required to transition from BBVA PR’s infrastructure and branding.
    Combined with costs incurred primarily in the second half of 2012,
    non-interest expenses related to the acquisition totaled $7.1 million in
  *Approximately $3.7 million of income after tax in 4Q12, reflecting the
    post-acquisition results of BBVA PR’s operations
  *$2.1 million in new dividends paid in 4Q12 on preferred shares sold in
    3Q12 and in 4Q12 as part of Oriental’s capital raise plan for the
    acquisition. Total dividends paid in 2012 on the preferred shares sold in
    the second half amounted to $3.9 million.

Core Business Performance

Oriental’s core franchise continued to demonstrate strong performance and
begin to show the benefits of the acquisition:

  *Record interest income from loans of $47.9 million, up 19%
  *Net interest margin of 2.97% for 4Q12 and 2.65% for 2012, exceeding
    guidance of 2.50%-2.60% for the year
  *Cost of retail deposits continued to decline to 1.05%, down 20 basis
    points (bps)
  *Cost of borrowings continued to decline to 1.98%, down 19bps
  *Provision for non-covered loans declined 4%, reflecting improvement in
    credit quality
  *Record fee income of $14.7 million, up 30%

  *Non-interest expenses (excluding those related to acquisition) increased
    only $5.2 million from 3Q12 and were $1.8 million lower for the year
  *Record loan production and purchases of $147.5 million, up 39%
  *Record level of trust assets managed of $2.5 billion, up 3%
  *Record level of broker-dealer assets gathered of $2.7 billion, up 26%

Pre-tax, pre-provision operating income, which eliminates some of the effects
of the above-mentioned non-recurring items, was $18.0 million in 4Q12 and
$76.4 million in 2012.


  *During 4Q12, Oriental sold $486 million in investment securities and paid
    down or early extinguished $957 million of repurchase agreement funding
  *Total deleveraging performed in the second half of 2012 resulted in the
    sale of $1.0 billion in investment securities and the pay down or early
    extinguishment of $1.36 billion in repos
  *Oriental sold a lesser amount of securities than originally planned
    because of higher than anticipated gains on investments sold. This enabled
    the Company to retain $300 million of now unencumbered securities, with an
    average yield of 2.70%.
  *Also in 4Q12, $420 million of BBVA PR’s securities were sold and $336
    million of related repos were paid down or extinguished


  *The total BBVA PR loan portfolio was preliminarily recorded at a discount
    of 6.47% in line with the original estimate
  *Oriental preliminarily recorded $52.2 million in goodwill for the
    acquisition, versus the original estimate of $95.0 million


People, Technology and Costs

  *The combined organizations have started operating as one, with employees
    from both companies working together on common goals
  *Loan volumes and deposits from July 2012 through January 2013 have
    continued to grow
  *The plan for converting and consolidating operations and technology
    platforms is going well, with full completion expected in the second half
    of 2013
  *Total acquisition/integration costs are now budgeted at approximately
    $35.0 million, down 12.5% as compared to original $40.0 million estimate


The combination of BBVA PR and Oriental provides the Company with a robust
platform to expand net interest and non-interest income through:

  *250% increase in customer base
  *More than doubled branch network, to 64 from 28, reaching more markets
    with minimal overlap
  *Better service and a strong combination of product offerings
  *NIM expansion from a higher proportion of loans and from higher yielding
  *Expanded access to customer segments, such as corporate, institutional and
    auto lending
  *Doubling of fee revenue potential


Oriental’s initial 2013 guidance is based on increased financial stability
from a significantly larger proportion of anticipated income from loans and
fees and significantly smaller reliance on investment securities. In
particular, as compared to 2012, Oriental expects to benefit from:

  *Higher loan balances and net interest margin
  *Growth of non-interest income from wealth management, banking services and
    mortgage banking activities
  *Sharply reduced premium amortization on investment securities
  *Absence of non-recurring costs associated with deleveraging the investment
    securities portfolio

The Company does anticipate higher amortization of the FDIC shared-loss
indemnification asset due to continued improved performance on the former
Eurobank portfolio.


A conference call to discuss Oriental’s results, outlook and related matters
will be held Friday, February 8, 2013 at 10:00 AM Eastern Time (11:00 AM
Puerto Rico Time). The call will be accessible live via a webcast on
Oriental’s Investor Relations website at www.orientalfg.com. A webcast replay
will be available shortly thereafter. Access the webcast link in advance to
download any necessary software.


Full financial tables for 4Q12 and 2012 can be found on the Webcasts,
Presentations & Other Files page, under the News & Presentations page, on
Oriental’s Investor Relations website at www.orientalfg.com.


Oriental Financial Group Inc. is a diversified financial holding company that
operates under U.S. and Puerto Rico banking laws and regulations, principally
through its two subsidiaries, Oriental Bank and Oriental Financial Services.
Now in its 49th year in business, Oriental provides a full range of
commercial, consumer and mortgage banking services, as well as financial
planning, trust, insurance, investment brokerage and investment banking
services, primarily in Puerto Rico, through 64 financial centers. Investor
information about Oriental can be found at www.orientalfg.com.


From time to time, Oriental uses certain non-GAAP measures of financial
performance to supplement the financial statements presented in accordance
with GAAP. Oriental presents non-GAAP measures when its management believes
that the additional information is useful and meaningful to investors.
Non-GAAP measures do not have any standardized meaning and are therefore
unlikely to be comparable to similar measures presented by other companies.
The presentation of non-GAAP measures is not intended to be a substitute for,
and should not be considered in isolation from, the financial measures
reported in accordance with GAAP.

Oriental’s management has reported and discussed the results of operations
herein both on a GAAP basis and on a pre-tax pre-provision operating income
basis (defined as net interest income plus banking and wealth management
revenues, less non-interest expenses, and calculated on the financial
statements that can be found on the investor section of the company’s
website). Oriental’s management believes that, given the nature of the items
excluded from the definition of pre-tax pre-provision operating income, it is
useful to state what the results of operations would have been without them so
that investors can see the financial trends from Oriental’s continuing

Tangible common equity consists of common equity less goodwill and other
intangibles. Management believes that the ratios of tangible common equity to
total assets and to risk-weighted assets assist investors in analyzing
Oriental’s capital position.


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)
difficulties in integrating BBVAPR’s operations into Oriental’s operations;
(ii) the amounts by which our assumptions related to the acquisition fail to
approximate actual results; (iii) the rate of growth in the economy and
employment levels, as well as general business and economic conditions; (iv)
changes in interest rates, as well as the magnitude of such changes; (v) the
fiscal and monetary policies of the federal government and its agencies; (vi)
changes in federal bank regulatory and supervisory policies, including
required levels of capital; (vii) the relative strength or weakness of the
consumer and commercial credit sectors and of the real estate market in Puerto
Rico; (viii) the performance of the stock and bond markets; (ix) competition
in the financial services industry; (x) possible legislative, tax or
regulatory changes; and (xi) difficulties in combining the operations of any
other acquired entity.

For a discussion of such factors and certain risks and uncertainties to which
Oriental is subject, see Oriental’s annual report on Form 10-K for the year
ended December 31, 2011, 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, Oriental assumes no
obligation to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.


Puerto Rico:
Oriental Financial Group Inc.
Alexandra López, 787-522-6970
Anreder & Company, 212-532-3232
Steven Anreder, steven.anreder@anreder.com
Gary Fishman, gary.fishman@anreder.com
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