![]() Acquisition of BBVA’s Puerto Rico Operations Investor Conference Call June 28, 2012 1 Exhibit 99.2 |
![]() 2 Disclaimer The information contained in this presentation (the “Presentation”) is preliminary, may not be complete and may be changed. Unless otherwise indicated or unless the context requires otherwise, all references to “Oriental,” “we,” “us,” “our” or similar references means Oriental Financial Group Inc. The Presentation includes forward-looking statements about Oriental. These forward-looking statements may relate to Oriental’s financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the proposed acquisition described herein, the pro forma effect of such acquisition and related transactions, and our ability to finance such acquisition. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements. Forward-looking statements provide our expectations or predictions of future conditions, events or results. They are not guarantees of future performance, and actual results may differ materially. By their nature, these forward-looking statements involve numerous assumptions and uncertainties, both general and specific, including those discussed in Oriental’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 10-K”), Oriental’s Quarterly Report on Form 10-Q for the three-month period ended March 31, 2012 (the “1Q 10-Q”), and other filings we make with the Securities and Exchange Commission. These statements speak only as of the date they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward looking statements were made. These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict. Various factors, some of which, by their nature are beyond Oriental’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements, including with respect to market conditions. Factors that might cause such a difference include, but are not limited to those included under the “Risk Factors” section of the 2011 10-K and the 1Q 10-Q or the risk factors included in the materials provided to you in connection with this transaction. You are urged to read the “Risk Factors” section of the 2011 10-K and the 1Q 10-Q as well as the risk factors included in the materials provided to you in connection with this transaction. Market data used in the Presentation has been obtained from industry sources and publications as well as from research reports prepared for other purposes. Furthermore, certain information has been obtained from Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) and BBVA does not assume any responsibility therefore. We have not independently verified any the data obtained from these sources, and we cannot assure you of the accuracy or completeness of the data. In addition, information regarding the combined company included in this presentation is based in part on certain assumptions regarding the transaction and the value of the acquired assets and liabilities that we believe are reasonable. We cannot assure you that our assumptions will prove to be accurate over time. This Presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction in which it is unlawful for such person to make an offer or solicitation. The Presentation contains unaudited non-GAAP financial and other performance measures. Oriental presents non-GAAP and other performance measures when its management believes that the additional information is useful and meaningful to investors. Non-GAAP and other performance 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 and other performance 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. See Appendix for definitions and reconciliations of certain non-GAAP measures to the comparable GAAP measures and for definitions of certain other performance measures used in this presentation. |
![]() 3 I. Transaction Overview and Rationale |
![]() 4 Acquisition Overview and Rationale Signed definitive agreement to purchase BBVA’s Puerto Rico operations (1) for $500 million in cash – Closing (subject to customary regulatory approvals) targeted before December 31, 2012 Effective use of excess capital which enhances financial performance, franchise and shareholder value – Generates significant earnings per share accretion (over 50% in 2014) – Combines two of the healthiest lenders in Puerto Rico to create a market leading bank – Provides an expanded customer base and complementary products and services – Enhances Oriental’s competitive position on the Island with #2 core deposit share Accelerates the transformation of Oriental’s balance sheet – Larger and more diversified loan portfolio – Far less reliance on investment securities and wholesale funding – Improves earnings stability Well timed: Puerto Rico’s economy has stabilized and fiscal situation has improved (1) Acquisition targets include BBVA PR’s commercial bank and insurance brokerage which are subsidiaries of BBVA PR Holding Corporation, a bank holding company, and BBVA Securities of Puerto Rico, Inc. which is a separate subsidiary. Description Rationale |
![]() 5 Pricing and Financing Oriental / BBVA PR Comparable Transactions (2) Price / Tangible Book Value Per Share 1.03x 1.65x Price / Marked Tangible Book Value Per Share 1.37x 2.01x Price / Earnings (1) 14.0x 27.5x Attractive Purchase Valuation for Healthy Commercial Bank Target Financing Designed to Minimize Shareholder Dilution and Maximize EPS Accretion $350 million of balance sheet cash Signing of purchase agreements for $84 million private placement of noncumulative convertible perpetual preferred stock occurred in connection with the signing of the acquisition agreement – Conversion price of $11.77 and dividend of 8.75% Incremental $65-$70 million of Tier 1 capital to be raised before closing of the acquisition – Approximately equal amounts of non-convertible perpetual preferred equity and common equity $1.8 billion deleveraging of the investment securities portfolio and wholesale funding emphasizes shift towards core commercial banking platform Source: SNL Financial, regulatory filings. (1) Annualized earnings for BBVA PR in 1Q 2012 and the most recent quarter prior to announcement of comparable transactions. (2) Includes U.S. nationwide transactions announced since June 30, 2010 with deal value between $200 million and $6 billion. Median metrics. |
![]() 6 Acquisition Benefits Financial Metrics Are Very Favorable EPS Accretion ~35% accretive to 2013 EPS (Assumes 12/31/12 close) (1) ~52% accretive to 2014 EPS Tangible Book Value per Share and Earn Back Period Tangible book value per share dilution of ~23% at close Less than 2 years earn-back period (2) based on combined company’s earnings Less than 5 years earn-back period (3) based on earnings contributed by acquisition IRR ~20% Pro Forma Accretion and Profitability Provide Attractive Relative Valuation Oriental Median of Current Pro Forma U.S. Bank Peers (5) Price to: 2014E EPS 7.3x 4.8x 11.1x Tangible Book Value 0.66 0.86 1.41 2014E Profitability Metrics ROAA 0.90% 1.07% 1.13% ROATCE 8.2 16.8 10.7 Note: Financial metrics and pro forma capital ratios assume December 31, 2012 transaction close. Combined metrics include acquisition adjustments and are pro forma for $150 million capital raise and $1.8 billion in deleverage transactions to be conducted at time of acquisition close. Assumes constant OFG stock price of $10.46 as of June 27, 2012. (1) Excludes impact of one-time restructuring costs. (2) Tangible book value per share earn-back period defined as tangible book value per share dilution at acquisition close divided by 2014 EPS. (3) Tangible book value per share earn-back period defined as tangible book value per share dilution at acquisition close divided by dollars of 2014 EPS accretion. (4) Oriental current EPS assumes First Call 2013 median estimated diluted EPS of $1.32 grown at the First Call median long-term EPS growth rate of 8%. (5) Includes publicly-traded U.S. banks between $5 billion and $15 billion in assets. 2014E profitability metrics reflect First Call median estimates. (4) |
![]() 7 II. Overview of BBVA’s Puerto Rico Operations |
![]() 8 BBVA PR Presents a Complementary Franchise with an Established History of Over 45 Years Serving Puerto Rico BBVA PR Operations Highly Complementary to Oriental Acquisition includes commercial bank, insurance agency business and securities brokerage (1) $5.2 billion in assets, $3.7 billion in loans, $3.3 billion in deposits and 36 branches Specialist in commercial banking and auto lending with excellent corporate banking services Also strong in residential mortgages and consumer loans Management team of local executives with significant retail and commercial banking experience Foundation of Banco de Mayagüez Acquisition of 98.8% of Banco de Mayagüez by Banco Occidental (Banco Occidental was acquired by Banco Vizcaya in 1982) Renamed as BBV PR Headquarters moved to San Juan Acquisition of 20% of General Electric Capital Acquisition of Royal Bank of PR Acquisition of Las Americas Trust & Co Acquisition of Ponce Bank and acquisition of assets and liabilities of Chase Manhattan Bank Merger between BBV and Argentaria Renamed as BBVA PR Acquisition of part of Citibank’s auto financing business (1) Acquisition targets include BBVA PR’s commercial bank and insurance brokerage which are subsidiaries of BBVA PR Holding Corporation, a bank holding company, and BBVA Securities of Puerto Rico, Inc. which is a separate subsidiary. 1967 1979 1992 1993 1994 1998 1999 2000 2001 2011 BBVA PR Historical Timeline |
![]() 9 BBVA PR’s Credit Quality Has Stabilized BBVA PR Peer Median (1) Source: SNL Financial and BBVA PR regulatory filings as of March 31, 2012. (1) Nonperforming asset formation has declined to normalized levels BBVA PR’s loan portfolio has consistently earned a considerably higher yield than U.S. national peers BBVA PR’s nonperforming loan balance has declined 27% since peaking in 3Q 2010 BBVA PR has been aggressive in addressing problem assets with a reserve to nonperforming loans ratio of 52% Key Points BBVA PR Exhibits Higher Loan Yields Versus Peers (1) Nonperforming Loans Have Declined and Stabilized NPA Formation Has Declined Significantly from Peak Levels Peers defined as U.S. banks with assets between $3 and $10 billion. 6 7 8 9 10% 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 0.0 6.0 12.0 18.0% 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 5.0 5.5 6.0 6.5 7.0% 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 |
![]() 10 Oriental performed extensive credit review Process utilized Oriental’s extensive knowledge of Puerto Rico market to generate conservative loss estimates Commercial loan file review covered – 79% of construction portfolio – 74% of nonperforming commercial real estate – 52% of auto dealer – 47% of corporate loans Total nonperforming loans marked by nearly 50% Aggregate loan mark of 7.5% Implied cumulative losses of 16.5% Extensive Credit Due Diligence and Conservative Loan Marks ($ in millions) 1/1/08 - 3/31/12 Average Loans, HFI Balance $3,852 NCOs taken 1/1/08 - 3/31/12 ($357) (9.3%) Cumulative Losses ($635) (16.5%) Gross Loan Performing Balance Mark $ Mark % Mortgage $852 ($37) (4.4%) Autos 963 0 0.0 CRE 186 (24) (12.7) Construction 29 (8) (26.2) Commercial 1,228 (69) (5.6) Consumer 198 (18) (9.1) Total Performing $3,456 ($155) (4.5%) Gross Loan Non Performing Balance Mark $ Mark % Mortgage $84 ($50) (59.9%) Autos 8 (3) (41.4) CRE 17 (5) (30.1) Construction 59 (26) (43.2) Commercial 79 (36) (45.8) Consumer 3 (2) (73.7) Total Nonperforming $250 ($123) (49.0%) Total $3,706 ($278) (7.5%) |
![]() 11 III. Pro Forma Impact of Acquisition |
![]() 12 Transaction Significantly Enhances the Competitive Position of the Oriental Franchise Core Deposit Funded Enhanced Scale Island-wide Retail Branch Network 12 (1) Puerto Rico core deposits are estimated on a pro-rata basis based on proportion of Puerto Rico deposits to total deposits disclosed in 2012 Q1 10-Q and 2011 10-K for Popular and First BanCorp., respectively. Actual Puerto Rico core deposits may differ. Source: SNL Financial, public SEC and regulatory filings. Note: Companies shown include Puerto Rico-based banks. Data as of March 31, 2012. Pro forma data represented as if financing and acquisition transactions occurred March 31, 2012, included for illustrative purposes. Combined metrics include acquisition adjustments and are pro forma for $150 million capital raise and $1.8 billion in deleverage transactions to be conducted at time of acquisition close. See page 20 and 21 for key pro forma and deleverage assumptions, respectively. 47% 14% 14% 11% 9% 7% 6% 6% 0% 10% 20% 30% 40% 50% Popular PF Oriental / BBVA PR Banco Santander First BanCorp Scotia BBVA PR Doral Oriental Market Share of Core Deposits $28 $13 $9 $8 $7 $7 $6 $5 $0 $5 $10 $15 $20 $25 $30 Popular First BanCorp. PF Oriental / BBVA PR Doral Banco Santander Scotia Oriental BBVA PR Total Assets ($B) 182 64 56 48 47 36 33 28 0 50 100 150 200 Popular PF Oriental / BBVA PR Banco Santander First BanCorp. Scotia BBVA PR Doral Oriental Branches ($ mm) OFG BBVA PR Pro Forma Deposits $2,275 $3,269 $5,544 Branches 28 36 64 Dep. / Branch $81 $91 $87 (1) (1) OFG BBVA PR |
![]() 13 60% 34% 36% 57% 4% 9% 1Q 2012 Standalone Pro Forma Brokered Deposits Core Deposits Borrowings Acquisition of BBVA PR Accelerates Ongoing Transformation of Oriental Source: SNL Financial, public SEC and regulatory filings. Note: Combined metrics include acquisition adjustments and are pro forma for $150 million capital raise and $1.8 billion in deleverage transactions to be conducted at time of acquisition close. See page 20 and 21 for key pro forma and deleverage assumptions, respectively. (1)Pro forma data as if financing and acquisition transactions occurred March 31, 2012 included for illustrative purposes. (2)Covered loans benefit from FDIC loss share agreements. Earning Asset Composition Funding Composition (1) The transaction creates a more attractive earning asset and funding composition, with an increased proportion of loans and core deposits – Includes $1.8 billion deleveraging of investment securities portfolio and wholesale funding 14% 22% 57% 15% 21% 15% 9% 6% 41% 1Q 2012 Standalone Pro Forma Marked Loans Covered Loans Non-Covered Loans Government Sponsored RMBS Other Securities and Cash Equivalents |
![]() 14 Source: SNL Financial, Oriental and BBVA PR SEC and regulatory filings. Note: Financial data as of March 31, 2012. (1) Pro forma data as if financing and acquisition transactions occurred March 31, 2012 included for illustrative purposes. Combined metrics include acquisition adjustments and are pro forma for $150 million capital raise and $1.8 billion in deleverage transactions to be conducted at time of acquisition close. See page 20 and 21 for key pro forma and deleverage assumptions, respectively. (2) Other loans and leases include home equity, agricultural production, institutional / government, and floor plan loans. BBVA PR Diversifies Oriental’s Loan Portfolio and Enhances its Funding Base 14 Pro Forma Total: $5.2 BN Autos 19% Commercial Banking 30% Residential Mortgages 35% Consumer and Other (2) Loans & Leases 17% Oriental Total: $1.8 BN Commercial Banking 37% Residential Mortgages 55% Consumer and Other Loans & Leases (2) 8% Diversifies Loan Composition Across Commercial and Retail Credits (1) Oriental Total: $2.3 BN Jumbo Time 16% Retail Time 29% Non- Interest Bearing 8% Other Interest Bearing 47% Pro Forma Total: $5.5 BN Jumbo Time 23% Retail Time 23% Non- Interest Bearing 17% Other Interest Bearing 37% (1) Deposit Composition is Improved with Additional Core Deposits |
![]() 15 Source: SNL Financial, public SEC and regulatory filings. Note: Financial data as of March 31, 2012. Pro forma data as if financing and acquisition transactions occurred March 31, 2012, included for illustrative purposes. Combined metrics include acquisition adjustments and are pro forma for $150 million capital raise and $1.8 billion in deleverage transactions to be conducted at time of acquisition close. See page 20 and 21 for key pro forma and deleverage assumptions, respectively. NPAs / Total Assets Marked Loans / Total Loans Loans / Deposits Pro Forma Company Has a Low-Risk Balance Sheet 2.4% 2.6% 3.7% 5.3% 6.2% 6.3% 9.5% 11.7% 0% 2% 4% 6% 8% 10% 12% 14% Oriental Scotia PF Oriental / BBVA PR Santander BBVA PR Popular First BanCorp. Doral 76% 56% 30% 22% 0% 0% 0% 0% 0% 20% 40% 60% 80% 100% PF Oriental / BBVA PR Scotiabank Oriental Popular Doral First BanCorp. BBVA PR Santander 77% 92% 93% 104% 104% 113% 139% 139% 0% 50% 100% 150% Oriental Popular PF Oriental / BBVA PR First BanCorp. Santander BBVA PR Scotiabank Doral |
![]() 16 Transaction Results in a Well-Capitalized Balance Sheet Capital Ratios Reported Oriental (3/31/12A) Pro Forma with BBVA PR (12/31/12E) TCE / TA 9.6% 5.6% - 5.8% Tier 1 Common Capital 27.3% 7.9% - 8.2% Tier 1 Risk Based Capital 32.3% 12.2% - 12.5% Tier 1 Leverage 10.3% 6.8% - 7.0% Summary Key Balance Sheet Items ($ in billions) 3/31/12A 12/31/12E Oriental BBVA PR Pro Forma Assets Gross Loans $1.8 $3.7 $5.2 Securities 3.6 0.7 2.2 Intangible Assets 0.0 0.1 0.1 Liabilities and Equity Deposits $2.3 $3.3 $5.5 Borrowings 3.4 1.2 2.9 Equity 0.7 0.6 0.8 |
![]() 17 IV. Conclusions |
![]() 18 Acquisition Highlights and Strategic Rationale Repositions balance sheet composition away from wholesale assets and liabilities to predominately loans and deposits Well capitalized and over 75% of loans will have been marked by purchase accounting Strong credit quality and asset and liability composition create a more stable, higher quality earnings stream Creates a More Stable Balance Sheet and Consistent Earnings Accelerates Strategic Transformation Oriental avoided significant asset quality problems through the financial crisis and has been generating organic growth in commercial banking The acquisition of BBVA PR accelerates strategy with the addition of a large, profitable and diversified institution Purchase price of 1.03x tangible book value (1) and 14x MRQ net income is well below comparable transactions BBVA PR has produced six straight quarters of profitability Estimated post acquisition EPS increases over 50% in 2014 Improves all key profitability ratios Attractive Valuation for a Healthy Bank Target Generates Positive Financial Impact Establishes Oriental as a winner in the Puerto Rico bank recovery and consolidation cycle |
![]() 19 V. Appendix |
![]() 20 Key Assumptions Underlying Pro Forma Analysis Transaction Assumptions Consideration 100% cash consideration to BBVA of $500 million Financing $150 million Tier 1 Capital issuance by Oriental Remaining funds to be paid from cash on Oriental Bank & Trust’s balance sheet at consummation of the transaction Assumes 2.8% pre-tax cost of cash Loan Credit Mark 7.5% of loans outstanding on March 31, 2012 ($278 million) Core Deposit Intangibles 1.25% of core deposits, amortized on a straight line basis over 10 years Balance Sheet Restructuring $454 million and $1.3 billion deleverage from BBVA PR and OFG’s respective balance sheets (1) Assumptions on Acquired BBVA PR Operations Net Interest Margin 4.3% - 4.8% Non-Interest Income ~$35 million per annum Cost Savings 20% of BBVA PR’s non-interest expense 50% realized in 2013, 100% thereafter Restructuring Expenses ~$40 million (pre-tax) Deposit Run-off $250 million; 8% of BBVA PR’s total deposits Taxes 30% tax rate Closing December 31, 2012 closing date (1) See page 21 for transaction deleverage details. |
![]() 21 Anticipated Deleverage Allocates Capital for Building Oriental’s Core Banking Business $1.3 billion in securities sold to delever liabilities consisting of hedged repurchase agreements and FHLB advances One time after-tax loss on settlement of repurchase agreements estimated at $9 million Estimated net income impact of: ($12) million in 2013 ($8) million in 2014 Oriental’s Balance Sheet $454 million in securities sold to delever liabilities consisting of repurchase agreements Mark to market loss on early settlement of repurchase agreements estimated at $23 million (purchase accounting mark) Estimated net income impact of: $7 million in 2013 Acquired BBVA PR Balance Sheet $1.8 billion in combined deleverage from both companies’ balance sheets Deleverage expected to occur at acquisition close Assets and liabilities sold are selected based upon expected cost to unwind Leverages core funding base to support higher yielding assets Optimizes Oriental’s utilization of capital Reduces interest rate sensitivity Deleverage Strategic Rationale |
![]() 22 Conservative Loan Mark Source: SNL Financial, SEC and regulatory filings. (1) Cumulative mark based on gross loan mark and total NCOs since January 1, 2008 through announcement of acquisition. (2) Includes nationwide transactions since June 30, 2010 with deal value between $200 million and $6 billion. Data at announcement of acquisition. (3) Includes “Recent Transactions” referenced in footnote 2 above with seller over 5% NPLs / Loans. Data at announcement of acquisition. BBVA PR’s loan portfolio exhibits a higher loan yield and lower loss severity than precedent targets Precedent Transaction Credit Mark Analysis BBVA PR Recent Transaction Median (2) Comparable Transaction Median (3) Gross Loan Mark / Loans 7.5 % 4.4 % 12.2 % Cumulative Mark / Average Loans (1) 16.5 8.1 14.7 NPLs / Loans 6.9 1.9 6.8 LTM NCOs / Average Loans 1.7 0.8 2.7 LTM NCOs / Average NPLs 22.9 31.3 42.5 Loan Yield 6.4 5.3 4.6 |
![]() 23 Tier 1 Common Equity: Common Stockholders' Equity $621 Unrealized Gains on Available-for-Sale Securties (74) Unrealized Losses on Cash Flow Hedges 44 Disallowed Deferred Tax Assets (25) Disallowed Servicing Assets (1) Intangible Assets (4) Total Tier 1 common equity $561 Risk-weighted assets: Balance sheet items $2,000 Off-balance sheet items 53 Total Risk-Weighted Assets $2,053 Tier 1 Common Equity to Risk-Weighted Assets 27.3% Definitions/Reconciliation of Non-GAAP and Other Performance Measures TCE / TA Tier 1 Common Capital ($ in millions) Tangible Common Equity: Total Stockholders' Equity $689 Preferred Stock (68) Intangible Assets (4) Total Tangible Common Equity $617 Tangible Assets: Total Assets $6,461 Intangible Assets (4) Total Tangible Assets $6,458 Tangible Common Equity to Tangible Assets 9.6% Source: SNL Financial, Oriental public SEC filings, regulatory filings. Other Non-GAAP and Performance Measures • Tangible book value and tangible common equity are defined as total common equity less total intangible assets. • Marked tangible book value defined as total common equity less total intangible assets and mark-to-market adjustments. • Internal Rate of Return (“IRR”) represents the annualized effective rate of return on investment. • Return on average assets (“ROAA”) is calculated as projected 2014 net income available to common shareholders divided by projected 2014 average assets. Assets are assumed to grow consistently over the course of 2014. • Return on average tangible common equity (“ROATCE”) calculated as projected 2014 net income available to common shareholders divided by average projected 2014 tangible common equity. Tangible common equity is assumed to grow consistently over the course of 2014. • Nonperforming loans defined as nonaccrual loans and loans over 90 days past due. • NPA formation defined as the gross amount of loans placed on nonaccrual status since prior period end annualized, expressed as a percentage of average total assets. • Core deposits defined as total deposits less brokered deposits. • Nonperforming assets are defined as nonaccrual loans and other real estate owned. |