Oriental Financial Group Reports Third Quarter Earnings of $0.83 Per Diluted Common Share

• Press Release
• Source: Oriental Financial Group Inc.
• On 4:10 pm EDT, Thursday October 22, 2009

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--Oriental Financial Group Inc. (NYSE: OFG - News) today reported income available to common shareholders of $20.1 million for the third quarter ended September 30, 2009. Results reflect higher returns on average assets of 1.32% and average common equity of 28.12%, when compared with negative (2.99%) and (88.58%), respectively, in the third quarter of 2008. Diluted earnings per common share improved to $0.83 from a loss of ($1.89) in the year ago quarter.

Related Quotes

Symbol	Price	Change
OFG	9.83	+0.04

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“We had another excellent quarter as we: (1) continued to grow our core franchise, focusing on mid and high net worth customers; (2) continued to accumulate capital and increase liquidity, to position Oriental prudently in light of Puerto Rico’s economy, and also remain prepared for market opportunities; and (3) started to transition our investment strategy to a potentially rising interest rate environment,” said José Rafael Fernández, President and Chief Executive Officer.

Highlights

• Pre-tax operating income (net interest income after provision for loan losses, core non-interest income from banking and financial service revenues, less non-interest expenses) of approximately $15.4 million compared to $14.2 million in the year-ago quarter.
• Net interest income increased 17.3% compared to the year-ago quarter, due to an improvement in the net interest margin to 2.17% from 1.88% in the year-ago quarter, primarily reflecting lower cost of funds.
• Growth in core banking and financial service revenues of 18.3% compared to the year-ago quarter, mainly due to an increase of approximately $1.3 million in mortgage banking activities. The Group also experienced sustained growth in retail deposits of $100.6 million (7.7%) on a sequential quarter basis and $321.3 million (29.7%) on a year-to-date basis.
• Benefitting from the strategic positioning of its investment securities portfolio, the Group took advantage of market conditions during the quarter to realize gains on sales of securities of $35.5 million. These gains more than offset a $17.6 million charge for early termination of $200 million in high-cost repurchase agreements, as previously announced, and credit-related other than temporary impairment charges of $8.3 million on non-agency mortgage-backed securities.
• Proceeds from these sales of securities have been used in a combination of strategies to position Oriental for a potential increase in interest rates, while maintaining the flexibility to take advantage of local market opportunities. These strategies include keeping higher levels of short-term money market instruments, and investing in seasoned U.S. agency mortgage-backed securities and short-to-intermediate maturing U.S. agency debentures.
• Stockholders’ equity increased $22.9 million during the quarter and $121.3 million since December 31, 2008, representing an increase of 46.4% on a year-to-date basis. Book value per common share increased to $12.98, from $12.04 at June 30, 2009 and $7.96 at December 31, 2008.
• Non-interest expenses fell 7.8% from the second quarter, which included an industry-wide FDIC special assessment on insured depository institutions.

Capital

At September 30, 2009, stockholders’ equity totaled $382.6 million, 58.1% and 6.4% higher than the year ago quarter and the preceding quarter, respectively. Tangible common equity to risk-weighted assets was 9.95% compared to 8.86% in the previous quarter.

The Group maintains capital ratios in excess of regulatory requirements. At September 30, 2009, the Leverage Capital Ratio was 7.69% (1.92 times the requirement of 4.00%) ; Tier I Risk-Based Capital Ratio was 15.80% (3.95 times the requirement of 4.00%) , and the Total Risk-Based Capital Ratio was 16.45% (2.06 times the requirement of 8.00%) . In dollars, Leverage Capital and Tier 1 Risk-Based Capital was $496.5 million, and Total Risk-Based Capital was $516.7 million, an increase from the previous quarter of $18.6 million and $22.1 million, respectively. The Group’s banking subsidiary is categorized as “well-capitalized” under the regulatory framework.

The Financial Service-Banking Franchise

The Group’s niche market approach to the integrated delivery of services to mid and high net worth clients performed well as Oriental expanded market share based on its service proposition and capital strength, as opposed to using rates to attract loans or deposits.

Lending

Total loan production and purchases of $69.2 million for the quarter remained strong, as the Group’s capital levels and low credit losses enabled it to continue prudent lending. The average FICO score was 724 and the average loan to value ratio was 84% on residential mortgage loans originated in the quarter.

The Group sells most of its conforming mortgages, which represented 94% of third quarter production, into the secondary market, and retains servicing rights. As a result, mortgage banking activities now reflect originations as well as a growing servicing portfolio, a source of recurring revenue.

Deposits

Growth in retail deposits primarily reflects increases in demand and savings deposits of $97.5 million in the quarter and $338.7 million year to date. Oriental also reduced brokered deposits by $55.4 million in the quarter and $164.4 million year to date.

Assets Under Management

Assets under management, which generate recurring fees, increased 5.19% from June 30, 2009, to $2.99 billion, reflecting increased market valuations and the Group being awarded two new large trust accounts that added approximately $75 million in managed assets. These increases contributed to 14.6% sequential growth in financial service revenues.

Credit Quality

Net credit losses declined by 54.69%, to $0.9 million (0.32% of average loans outstanding), from $2.1 million (0.70%), in the previous quarter. The Group increased its provision for loan losses to $4.4 million, mainly due to an increase in non-performing commercial loans, resulting in a $20.2 million allowance at September 30, 2009, up 20.68% from the preceding quarter.

Non-performing loans (NPLs) increased $3.2 million in the quarter. The Group’s NPLs generally reflect the economic environment in Puerto Rico. The Group does not expect non-performing loans to result in significantly higher losses as most are well-collateralized with adequate loan-to-value ratios. In residential mortgage lending, more than 90% of the Group’s portfolio consists of fixed-rate, fully amortizing, fully documented loans that do not have the level of risk generally associated with subprime loans. In commercial lending, more than 90% of its loans are collateralized by real estate.

Investment Securities Portfolio

Approximately 87% of the investment securities portfolio consists of fixed-rate mortgage-backed securities or notes, guaranteed or issued by FNMA, FHLMC, or GNMA and U.S. agency senior debt obligations, backed by a U.S. government sponsored entity or the full faith and credit of the U.S. government (85%), and Puerto Rico Government and agency obligations (2%). The remaining balance consists of non-agency collateralized mortgage obligations (10%) and structured credit investments (3%).

Non-GAAP Financial Measures

From time to time, the Group uses certain non-GAAP measures of financial performance to supplement the financial statements presented in accordance with GAAP. The Group presents non-GAAP measures when we believe 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.

We have reported and discussed our results of operations herein both on a GAAP basis and on a pre-tax operating income basis (as defined on page 1 of this release). We believe that, given the nature of the items excluded from the definition of pre-tax operating income, it is useful to state what our results of operations would have been without them so that investors can see the financial trends from our continuing business.

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

Conference Call

A conference call to discuss the Group’s results, outlook and related matters will be held on Friday, October 23, 2009 at 10:00 am (ET). The call will be accessible live via a webcast on the Group’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.

About Oriental Financial Group

Oriental Financial Group Inc. is a diversified financial holding company operating under U.S. and Puerto Rico banking laws and regulations. Now in its 45^th year in business, Oriental provides a full range of mortgage, commercial and consumer banking services through 21 Oriental Group financial centers in Puerto Rico, as well as financial planning, trust, insurance, investment brokerage and investment banking services. Investor information about Oriental can be found at www.orientalfg.com.

Forward-Looking Statements

This news release may contain forward-looking statements that reflect management's beliefs and expectations and are subject to risks and uncertainties inherent to the Group's business, including, without limitation, the effect of economic and market conditions, the level and volatility of interest rates, and other risks and considerations detailed in the Group’s filings with the Securities and Exchange Commission. These or other factors could cause actual results to differ materially from forward-looking statements. The Group also disclaims any obligations to update information contained in this news release because of developments occurring after the date of issuance.

Puerto Rico:
Oriental Financial Group Inc.
Marilyn Santiago-Colón, 787-993-4648
or
U.S.:
Anreder & Company
Steven Anreder and Gary Fishman, 212-532-3232