Oriental Financial Group Reports 4Q12 & 2012 Results
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."
DECEMBER 31, 2012 BALANCE SHEET TRANSFORMATION
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 billion
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 billion
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 million
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 million
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
4Q12 INCOME STATEMENT REFLECTS STRONG CORE TRENDS AND NON-RECURRING ITEMS
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.
$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 2012.
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 (repos)
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
BUSINESS COMBINATION OF BBVA PR ASSETS AND LIABILITIES
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
INTEGRATION GOING SMOOTHLY
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 loans
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
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.
ABOUT ORIENTAL FINANCIAL GROUP
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.
NON-GAAP FINANCIAL MEASURES
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 business.
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.
Oriental Financial Group Inc.
Alexandra López, 787-522-6970
Anreder & Company, 212-532-3232
Steven Anreder, firstname.lastname@example.org
Gary Fishman, email@example.com
KEYWORDS: United States North America Caribbean Puerto Rico New York
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