ORIENTAL FINANCIAL GROUP 4Q12 RESULTS€¦ · presentation of non-GAAP measures is not intended to be a substitute for, and should not be considered in isolation from, the financial

FEBRUARY 8, 2013

ORIENTAL FINANCIAL GROUP 4Q12 RESULTS

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. 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.

2

FORWARD LOOKING STATEMENTS

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 BBVA PR’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.

3

4Q12 & 2012 HIGHLIGHTS

4

STRATEGIC TRANSFORMATION• Acquisition of BBVA PR and deleveraging of OFG’s investment securities portfolio have

transformed Oriental

• Combination of OFG and BBVA PR has created a larger, more diversified and growth oriented banking platform

MINIMAL BOOK VALUE DILUTION• BBVA PR’s valuation was higher than originally estimated, resulting in almost no dilution to

book value per share

• Estimated time to earn back tangible book value has been reduced significantly

POSITIVE TRENDS & OUTLOOK• Strong core performance for both companies in 4Q12 and 2012; however, as anticipated, non-

recurring items negatively affected results

• For 2012, Oriental earned net income available to common shareholders of $14.6 million, equal to $0.35 per common share

• 2013 outlook highly favorable, based on initial EPS guidance

5

LOAN BOOK TRANSFORMATION

Net Loans as % of Total Assets

% Total 12/31/12 % Total 9/30/12Commercial 39% 28%Residential Mortgage 34% 65%

Auto/Consumer 27% 7%Total 100% 100%

Improved Diversity among Loan Categories (non-covered gross loans)

225%Total net loans at 12/31/12, reflecting the BBVA PR acquisitionand organic growth

$5.2BIncrease in total net loans 12/31/12 vs. 9/30/12

25% 26%

56%

0%

10%

20%

30%

40%

50%

60%

70%

12/31/11 09/30/12 12/31/12

6

41% 43%

70%

0%

10%

20%

30%

40%

50%

60%

70%

12/31/11 09/30/12 12/31/12

DEPOSIT BASE TRANSFORMATION

Deposits as % of Interest-Bearing Liabilities

12/31/12 % Total 9/30/12 % TotalNon-interest bearing 14% 9%

Interest bearing savings and demand 40% 50%

Time 46% 41%Total 100% 100%

Improved Diversity among Core Retail Deposits

157%Total deposits at 12/31/12, reflecting the BBVA PR acquisitionand organic growth

$5.7BIncrease in total deposits, 12/31/12 vs. 9/30/12

PUERTO RICO OVERVIEW

7

ECONOMIC / FISCAL SITUATION• Fundamental issues still loom large

• Signs of stabilization

• Encouraged by newly appointed Government economic and fiscal team

LOCAL BANKING MARKET• Deposit costs continue to decline, but at a slower pace

• Industry credit deterioration easing

STRATEGY

8

STRONG COMBINATION OF PRODUCTS & SERVICES• Auto loans

• Small, medium, corporate and institutional lending

• Corporate transaction and treasury services with multinational capabilities

• Credit card and consumer lending

• Residential mortgage production and sales

• Wealth management, trust and insurance

GrowthPlatformOfferings

LARGER, MORE STRATEGIC PLATFORM• 250% increase in customer base

• More than doubled branch network, to 64 from 28

• Methodical approach to integration

• Providing superior customer service

9

4Q12 & 2012 RESULTS

Summary of Reported Results 4Q12 2012Net (loss) income available to common shareholders ($23.3) $14.6

Per common share (basic and diluted) (0.53) 0.35

Related to BBVA PR Acquisition & DeleveragingNet cost of deleveraging ($22.9) ($12.2)

Lost net interest income from deleveraging (2.6) (2.6)

Non-interest expenses related to acquisition (5.4) (7.1)

Income after income taxes from 13 days of BBVA PR 3.7 3.7New dividends paid on preferred shares to fund capital plan for the acquisition in advance (2.1) (3.9)

Total ($29.3) ($22.1)

Pre-Tax Pre-Provision Operating Income $18.0 $76.4

($ in millions except per share amounts)

10

58% 59%

24%30%

0%

10%

20%

30%

40%

50%

60%

70%

Investments as % of assets Borrowings as % of interestbearing liabilities

DELEVERAGING OF OFG’S INVEST. SEC. PORTFOLIO

$ in millions Securities Sold Repos Paid Down / Early Extinguished Net Gain (Loss)

4Q12 $486 $957 ($22.9)

3Q12 532 400 10.7

Total $1,018 $1,357 ($12.2)

2.70%Millions in unencumbered securities retained after realizing higher prices on securities sold

$300Average yield of the $300 million in securities Oriental did not sell

Significantly Improved Profile 12/31/11 vs. 12/31/12

Cost of Deleveraging Generally on Plan

BUSINESS COMBINATION OF BBVA PR BALANCE SHEET

11

HIGHLIGHTS• BBVA PR loan portfolio recorded at a discount of 6.47% in line with original estimate of 6.5%

• $53.0 million in goodwill recorded for the acquisition versus original estimate of $95.0 million

RESULT• BV per common share of $15.31 at 12/31/12

• TBV per common share of $13.79 at 12/31/12 versus original estimate of $12.50

• TBV earn back period reduced significantly from originally anticipated 2.5-3 years

NIM & COST OF DEPOSITS

12

Net Interest Margin

1.78%

2.59%2.28%

2.77%2.97%

1.00%

1.50%

2.00%

2.50%

3.00%

4Q11 1Q12 2Q12 3Q12 4Q12

Cost of Deposits

1.72%1.57%

1.42% 1.31%1.12%

0.00%

0.50%

1.00%

1.50%

2.00%

4Q11 1Q12 2Q12 3Q12 4Q12

2.65% +46 1.33% -482012 NIM, exceeded guidance

BPS improvement in NIM, 2012 vs. 2011

2012 Cost of Deposits BPS decline in cost of deposits, 2012 vs. 2011

NIM Improvement Largely Due to Lower Cost of Deposits

INTEREST & NON-INTEREST INCOME

13

Interest Income from Loans

$39.4 $39.7 $37.6

$40.2

$47.9

$30.0

$35.0

$40.0

$45.0

$50.0

4Q11 1Q12 2Q12 3Q12 4Q12

Non-Interest Fee Income

19% 22% 30% 13%Increase in Interest Income from Loans, 4Q12 vs. 3Q12

Increase in Interest Income from Loans, 2012 vs. 2011

Increase in Non-Interest Fee Income, 4Q12 vs. 3Q12

Increase in Non-Interest Fee Income, 2012 vs. 2011

Continued Growth in Recurring Income Sources ($ in millions)

$12.2 $11.7 $11.7

$11.3

$14.7

$10.0

$11.0

$12.0

$13.0

$14.0

$15.0

4Q11 1Q12 2Q12 3Q12 4Q12

ASSETS UNDER MANAGEMENT

14

Trust Assets Managed

$2.22 $2.37 $2.41 $2.45 $2.51

$1.8

$2.0

$2.3

$2.5

$2.8

12/31/11 03/31/12 06/30/12 09/30/12 12/31/12

B-D Assets Gathered

3% 14% 26% 41%Increase in Trust Assets, 12/31/12 vs. 9/30/12

Increase in Trust Assets, 12/31/12 vs. 12/31/11

Increase in BD Assets, 12/31/12 vs. 9/30/12

Increase in BD Assets, 12/31/12 vs. 12/31/11

Continued Growth in AUM ($ in billions)

$1.93 $2.06 $2.10 $2.17

$2.72

$1.8

$2.0

$2.3

$2.5

$2.8

12/31/11 03/31/12 06/30/12 09/30/12 12/31/12

15

6.56%Leverage Capital Ratio (4.00% minimum)

Tier 1 risk-based capital ratio (4.00% minimum)

Total risk-based capital ratio (8.00% minimum)

Tangible common equity to total assets

13.21% 15.42% 6.83%

STRONG CAPITAL POSITION

HIGHLIGHTS• Oriental continues to be well capitalized in excess of regulatory minimums

• All ratios better than expected compared to original post-acquisition estimates

• Includes $77 million in new capital raised in 4Q12 through common and preferred stock offerings related to the acquisition

• Our capital ratios are, and anticipated to be, in excess of current regulatory guidelines when the Basel III rules are implemented

INTEGRATION

16

PROGRESSING SMOOTHLY• Combined organizations starting to operate as one

• Loan volumes and deposits July 2012 through January 2013 have continued to grow

• Plan for converting and consolidating operations and technology platforms expected to be completed in the second half of 2013

LOWER ESTIMATED COST• Total acquisition/integration now budgeted at approximately $35 million

• 12.5% less than original $40 million estimate

• Approximately $19 million capitalized or expensed in 2012

• Balance to be expensed/amortized 2013-2017

GUIDANCE

17

INITIAL 2013 TARGET• Around $1.40 income available to shareholders per share

• Based on an anticipated increase in financial stability from a significantly larger proportion of income based on loans and fees and significantly smaller reliance on investment securities

KEY FACTORS• Compared to 2012, Oriental expects to benefit from:

1. Higher average loan balances and net interest margin

2. Growth of non-interest income from wealth management, banking services and mortgage banking activities

3. Sharply reduced premium amortization on investment securities

4. None of the non-recurring costs associated with 2012’s deleveraging

• There will be higher amortization of the FDIC shared-loss indemnification asset due to continued improved performance on the former Eurobank portfolio

Q&A

18

Former BBVA PR corporate HQ in Hato Rey, San Juan

Was originally Chase’s HQ before its PR operation was acquired by BBVA PR

Oriental plans to move its corporate offices here later this month