Oriental Financial Group Reports Strong Results for the Fourth Quarter Ended December 31, 2008

Business Wire, March 10, 2009

SAN JUAN, Puerto Rico -- Oriental Financial Group Inc. (NYSE: OFG) today announced results for the fourth quarter and year ended December 31, 2008.

For the quarter, the Group reported income available to common shareholders of $39.2 million, an increase of 176.7% over the year ago quarter’s $14.2 million. Income per common share (basic and diluted) of $1.61 was 172.9% greater than the $0.59 reported in the year ago quarter. Fourth quarter 2008 highlights included:

• Strong performance in core revenues, with net interest income of $29.8 million or 6.2% higher than in the previous quarter, and banking and financial service revenues of $6.6 million or 5.3% higher than in the previous quarter.
• Gain of $25.2 million on the sale of securities, as Oriental took advantage of the sharp increase in fair values, the result of the U.S. Treasury’s plan to purchase such securities in the secondary market, combined with reductions in the federal funds target rate, twice in October and once in December. This gain included $14.4 million from the sale on December 31, 2008 of $820.6 million of held-to-maturity (HTM) agency-issued securities. The proceeds from such sale were reinvested after year-end in similar quality agency-issued securities at a higher average yield. The remaining securities in the HTM portfolio were transferred to the available-for-sale (AFS) portfolio on that date.
• Loss of $2.5 million, representing a provision for mortgage loan tax credits for new homeowners. The credits were instituted by the Commonwealth of Puerto Rico in 2008, but it is now doubtful whether these will be granted.
• Income tax benefit of $3.2 million, primarily reflecting an increase in the deferred tax asset.

As a result of Oriental’s strong performance, regulatory capital and total common equity improved on a sequential quarter basis, with tier-1 regulatory capital increasing 8.4% to $389.2 million at December 31, 2008, book value per common share increasing 9.8% to $7.86, and Tangible Common Equity to Total Assets increasing to 3.05% from 2.91%.

Commentary and Outlook

Commenting on fourth quarter results and Oriental’s 2009 outlook, José Rafael Fernández, President and Chief Executive Officer, said, “We remain well positioned to benefit from our strategies in the foreseeable future, recognizing the fact that our investment securities portfolio will continue to be affected by conditions in financial markets around the world.”

“Despite the recession in Puerto Rico, we are successfully making inroads with our target clientele, resulting in satisfactory levels of loan production and banking and financial service revenues, considering today’s environment. For the year, total loan production of $290.1 million was up 43% compared to 2007, with increases in originations of 56.5% in residential mortgages and 14.5% in commercial loans, most of which are collateralized by real estate properties.”

“While Puerto Rico also continues to be challenging from a credit point of view, our conservative strategies have minimized our exposure, placing us in a good position going forward. Because of favorable average FICO scores, loan to value ratios and sufficient reserves, even if non-performing loans increase, we expect to continue providing credit to homeowners and businesses in Puerto Rico, while experiencing low net credit losses.”

Fourth Quarter 2008 Income Statement

Net interest income of $29.8 million increased 29.5% from the year ago quarter, reflecting higher overall yield (5.78% versus 5.73%) and average interest-earning assets (up 5.1%) combined with lower average rates paid on deposits and borrowings (4.01% versus 4.42%). Net interest margin increased to 1.98% compared to 1.61% in the year ago quarter. On a tax-equivalent basis, the net interest margin increased to 3.90% as compared to 3.49% in the year ago quarter.

While down from a year ago, total banking and financial service revenues of $6.6 million were up 5.3% sequentially. Recent growth reflects increased mortgage banking revenues due to the securitization and sale of conventional mortgages into the secondary market and increased financial services revenues from brokerage activity. Banking service fees remained relatively stable on a sequential basis as growth in commercial activity offset declines in consumer activity.

Assets under management, which generate recurring fees for the Group’s financial service businesses, stood at $2.9 billion at December 31, 2008, down 5.7% from September 30, 2008. A relatively high proportion of fixed income investments in the mix helped to offset the general decline in equity markets.