Oriental Financial Group, Inc. (OFG)

Q4 2012 Earnings Conference Call

February 08, 2013, 10:00 AM ET

Executives

José Rafael Fernández - President, CEO and Vice Chairman

Ganesh Kumar - EVP and CFO

José Ramón González - Senior EVP - Banking & Corporate Development

Analysts

Robert Greene - Sterne Agee & Leach Inc.

Derek Hewett - Keefe Bruyette & Woods Inc.

Todd Hagerman - Sterne Agee & Leach Inc.

Presentation

Operator

Good morning. My name is Jackie and I will be your conference operator today. Thank you for joining us for this conference call for Oriental Financial Group. Our speakers are José Rafael Fernández, President, Chief Executive Officer and Vice Chairman; and Ganesh Kumar, Executive Vice President and Chief Financial Officer.

There is a presentation that accompanies today's remarks. It can be found on the Investor Relations website under News & Presentations and then under Webcasts, Presentations & Other Files.

Please note this call may feature certain forward-looking statements about management's goals, plans and expectations which are subject to various risks and uncertainties outlined in the Risks Factors section of Oriental's Securities and Exchange Commission filings.

Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments which occur afterward. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

During the question-and-answer session, we ask questioners to not use cellphones or BlackBerry as they might cause loud static on the line.

I would now like to turn the call over to Mr. Fernández. Please go ahead.

José Rafael Fernández

Thank you for joining us today. I'll review some big picture items and Ganesh will go over key aspects of our income statement and balance sheet. I'll wrap it up and then we'll go into question and answer.

Let's start on slide 4. The fourth quarter was a transformative period for us. We closed on the BBVA Puerto Rico acquisition and completed the deleveraging of our investment portfolio, achieving one of our major business strategies. The result is an almost complete change in our balance sheet and the creation of a larger, more diversified and growth-oriented banking financial services platform.

Because of BBVA's overall performance in 2012, the valuation closed on December 18 was greater than originally anticipated. As a result, we experienced almost no dilution to book value per share and the estimated time it will take to earn back tangible book value has been greatly reduced.

Oriental's core businesses also performed well in the fourth quarter and for all of last year. However, there were several non-recurring items in the quarter, chiefly related to the acquisition or the deleveraging and which negatively affected results as was anticipated.

Last year, Oriental still generated $15 million in net income available to common shareholders equal to $0.35 per share. Our outlook for this year is very positive based on our initial guidance and Ganesh will discuss more about that in a little while.

If you turn to slide 5, you can begin to see the dramatic change in our loan book and balance sheet. We now have more than $5 billion in loans which is up 225% from September 30. Net loans as a percentage of total assets now equals 56% compared to 26% at the end of the third quarter.

Our mix has also improved. Each of our major categories; commercial, residential mortgage and auto and consumer loans now represents about a third each of our non-covered gross loan book.

Our deposit base has changed as well. If you turn to slide 6, you can see we now have nearly $6 billion of deposits which is up 157% from December 30. Deposits as a percentage of interest bearing liabilities now equal 70% compared to 43% at the end of the third quarter.

Similarly, our mix of deposits has improved with 14% non-interest bearing, 40% in interest bearing savings and demand deposits and 46% in time deposits.

I'd like to discuss our strategy going forward. Turning to slide 7, with regards to Puerto Rico, there is still many economic and fiscal issues facing the island but we see encouraging signs of stability. In addition, we are encouraged by the makeup of the new government's economic and fiscal teams.

With regards to the local banking market, cost of deposits will continue to decline but probably at a slower pace. Credit problems appear to be stabilizing. Against this background, our strategies to increase market share through a strong combination of products and services and our larger more strategic platform.

Turning to slide 8, we're one of the top players in Puerto Rico across a wide spectrum of banking services; including auto loans, small, medium, corporate and institutional, commercial lending, credit cards and consumer lending and residential mortgage, production and sales.

We are able to complement our commercial lending business with a great platform for facilitating transactions and providing a wide variety of other services, including treasury services for both domestic and international companies. In addition, we're able to provide commercial clients with top-level wealth management, trust, retirement and insurance products.

We now have a significantly larger customer base and branch network for marketing and distributing or products and services. With our sound balance sheet and finances, we're not going to compete on the basis of a low price and low service. We are going to compete based on a fair price cognizant of our expected profitability, great service and the quality of our offerings.

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