Oriental Financial Group Inc. (OFG, Financial) filed Annual Report for the period ended 2010-12-31.
Oriental Financial Group has a market cap of $580.3 million; its shares were traded at around $12.52 with a P/E ratio of 62.6 and P/S ratio of 1.9. The dividend yield of Oriental Financial Group stocks is 1.6%. Oriental Financial Group had an annual average earning growth of 31.4% over the past 10 years. GuruFocus rated Oriental Financial Group the business predictability rank of 2.5-star.
($1.00 par value per share, $25.00 liquidation preference per share)
At the beginning of 2010, it was apparent that the FDIC was likely to take action against various Puerto Rico commercial banks that were experiencing serious financial difficulties and were operating under cease and desist orders with their banking regulators, which actions could include placing the banks into an FDIC-administered receivership. Management decided that the Groups participation in the consolidation of the Puerto Rico banking industry that would result from any such action was in the Groups best interest to potentially benefit from acquiring assets and liabilities at an attractive price and with FDIC assistance to mitigate the risk of credit losses. As part of the Groups capital plan, on March 19, 2010, the Group completed the public offering of 8,740,000 shares of its common stock. The offering resulted in net proceeds of $94.6 million after deducting offering costs. The Group made a capital contribution of $93.0 million to its banking subsidiary. At the annual meeting of shareholders held on April 30, 2010, the shareholders approved an increase in the number of authorized shares of common stock, par value $1.00 per share, from 40 million to 100 million, and an increase in the number of authorized shares of preferred stock, par value $1.00 per share, from 5 million to 10 million. On April 30, 2010, the Group issued 200,000 shares of Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, Series C (the Series C Preferred Stock), through a private placement. The preferred stock had a liquidation preference of $1,000 per share. The offering resulted in net proceeds of $189.4 million after deducting offering costs. The Group made a capital contribution of $179.0 million to its banking subsidiary. At a special meeting of shareholders of the Group held on June 30, 2010, the majority of the shareholders approved the issuance of 13,320,000 shares of the Groups common stock upon the conversion of the Series C Preferred Stock, which was converted on July 8, 2010 at a conversion price of $15.015 per share. The difference between the $15.015 per share conversion price and the market price of the common stock on April 30, 2010 ($16.72) was considered a contingent beneficial conversion feature on June 30, 2010, when the conversion was approved by the majority of the shareholders. Such feature amounted to $22.7 million at June 30, 2010 and was recorded as a deemed dividend on preferred stock. These transactions strengthened the Groups capital base and facilitated its participation in the FDIC-assisted transaction described below.
Under the terms of the Banks purchase and assumption agreement with the FDIC, excluding the effects of purchase accounting adjustments, the Bank acquired approximately $1.5 billion in assets, including approximately $857.0 million in loans and foreclosed real estate, and assumed $729.4 million of deposits of Eurobank. The deposits were acquired with a premium of 1.25% on approximately $400 million in core retail deposits, and the assets were acquired at a discount of 13.8% to the former Eurobanks historic book value. In connection with the transaction, the Bank issued a $715.5 million promissory note to the FDIC (the Note) bearing interest at an annual rate of 0.881% due one year from issuance, and the Bank had the option to extend the Notes maturity date for up to four additional one-year periods. The Note was collateralized by certain loans and foreclosed real estate acquired by the Bank from the FDIC that were subject to loss sharing agreements. On September 27, 2010, the Group made the
strategic decision to repay the Note prior to maturity. At the time of repayment, the Note had an outstanding principal balance of $595.0 million. As part of the consideration for the transaction, the Group issued to the FDIC a value appreciation instrument (VAI). Under the terms of the VAI, the FDIC had the opportunity to obtain a cash payment equal to the product of (a) 334,000 and (b) the amount by which the average of the volume weighted average price of the Groups common stock for each of the two NYSE trading days immediately prior to the exercise of the VAI exceeded $14.95. The VAI was not exercised by the FDIC. The equity appreciation instrument had a fair value of $909 thousand at April 30, 2010. In connection with the Eurobank FDIC-assisted transaction, the FDIC retained the investment securities, outstanding borrowings and substantially all of the brokered certificates of deposit of Eurobank.
The Bank has agreed to make a true-up payment, also known as clawback liability, to the FDIC on the date that is 45 days following the last day (the True-up Measurement Date) of the final shared loss month, or upon the final disposition of all covered assets under the loss sharing agreements in the event losses thereunder fail to reach expected levels. Under the loss sharing agreements, the Bank would pay to the FDIC 50% of the excess, if any, of: (i) 20% of the Intrinsic Loss Estimate of $906.0 million (or $181.2 million) (as determined by the FDIC) less (ii) the sum of: (A) 25% of the asset discount (per bid) (or ($227.5 million)); plus (B) 25% of the cumulative shared-loss payments (defined as the aggregate of all of the payments made or payable to the Bank minus the aggregate of all of the payments made or payable to the FDIC); plus (C) the sum of the period servicing amounts for every consecutive twelve-month period prior to and ending on the True-Up Measurement Date in respect of each of the loss sharing agreements during which the loss sharing provisions of the applicable loss sharing agreement is in effect (defined as the product of the simple average of the principal amount of shared loss loans and shared loss assets at the beginning and end of such period times 1%). The true-up payment represents an estimated liability of $13.8 million at April 30, 2010. This estimated liability is accounted for as a reduction of the indemnification asset. The indemnification asset represents the portion of estimated losses covered by the loss sharing agreements between the Bank and the FDIC. The Group recorded goodwill of $1.7 million as part of the transaction. Refer to the Note 2, FDIC-assisted acquisition, to the consolidated financial statements for additional information on the Eurobank FDIC-assisted transaction, including the accounting for assets acquired and liabilities assumed as well as information on the breakdown and accounting of the acquired loan portfolio.
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Oriental Financial Group has a market cap of $580.3 million; its shares were traded at around $12.52 with a P/E ratio of 62.6 and P/S ratio of 1.9. The dividend yield of Oriental Financial Group stocks is 1.6%. Oriental Financial Group had an annual average earning growth of 31.4% over the past 10 years. GuruFocus rated Oriental Financial Group the business predictability rank of 2.5-star.
Highlight of Business Operations:
($1.00 par value per share, $25.00 liquidation preference per share)($1.00 par value per share, $25.00 liquidation preference per share)
At the beginning of 2010, it was apparent that the FDIC was likely to take action against various Puerto Rico commercial banks that were experiencing serious financial difficulties and were operating under cease and desist orders with their banking regulators, which actions could include placing the banks into an FDIC-administered receivership. Management decided that the Groups participation in the consolidation of the Puerto Rico banking industry that would result from any such action was in the Groups best interest to potentially benefit from acquiring assets and liabilities at an attractive price and with FDIC assistance to mitigate the risk of credit losses. As part of the Groups capital plan, on March 19, 2010, the Group completed the public offering of 8,740,000 shares of its common stock. The offering resulted in net proceeds of $94.6 million after deducting offering costs. The Group made a capital contribution of $93.0 million to its banking subsidiary. At the annual meeting of shareholders held on April 30, 2010, the shareholders approved an increase in the number of authorized shares of common stock, par value $1.00 per share, from 40 million to 100 million, and an increase in the number of authorized shares of preferred stock, par value $1.00 per share, from 5 million to 10 million. On April 30, 2010, the Group issued 200,000 shares of Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, Series C (the Series C Preferred Stock), through a private placement. The preferred stock had a liquidation preference of $1,000 per share. The offering resulted in net proceeds of $189.4 million after deducting offering costs. The Group made a capital contribution of $179.0 million to its banking subsidiary. At a special meeting of shareholders of the Group held on June 30, 2010, the majority of the shareholders approved the issuance of 13,320,000 shares of the Groups common stock upon the conversion of the Series C Preferred Stock, which was converted on July 8, 2010 at a conversion price of $15.015 per share. The difference between the $15.015 per share conversion price and the market price of the common stock on April 30, 2010 ($16.72) was considered a contingent beneficial conversion feature on June 30, 2010, when the conversion was approved by the majority of the shareholders. Such feature amounted to $22.7 million at June 30, 2010 and was recorded as a deemed dividend on preferred stock. These transactions strengthened the Groups capital base and facilitated its participation in the FDIC-assisted transaction described below.
Under the terms of the Banks purchase and assumption agreement with the FDIC, excluding the effects of purchase accounting adjustments, the Bank acquired approximately $1.5 billion in assets, including approximately $857.0 million in loans and foreclosed real estate, and assumed $729.4 million of deposits of Eurobank. The deposits were acquired with a premium of 1.25% on approximately $400 million in core retail deposits, and the assets were acquired at a discount of 13.8% to the former Eurobanks historic book value. In connection with the transaction, the Bank issued a $715.5 million promissory note to the FDIC (the Note) bearing interest at an annual rate of 0.881% due one year from issuance, and the Bank had the option to extend the Notes maturity date for up to four additional one-year periods. The Note was collateralized by certain loans and foreclosed real estate acquired by the Bank from the FDIC that were subject to loss sharing agreements. On September 27, 2010, the Group made the
strategic decision to repay the Note prior to maturity. At the time of repayment, the Note had an outstanding principal balance of $595.0 million. As part of the consideration for the transaction, the Group issued to the FDIC a value appreciation instrument (VAI). Under the terms of the VAI, the FDIC had the opportunity to obtain a cash payment equal to the product of (a) 334,000 and (b) the amount by which the average of the volume weighted average price of the Groups common stock for each of the two NYSE trading days immediately prior to the exercise of the VAI exceeded $14.95. The VAI was not exercised by the FDIC. The equity appreciation instrument had a fair value of $909 thousand at April 30, 2010. In connection with the Eurobank FDIC-assisted transaction, the FDIC retained the investment securities, outstanding borrowings and substantially all of the brokered certificates of deposit of Eurobank.
The Bank has agreed to make a true-up payment, also known as clawback liability, to the FDIC on the date that is 45 days following the last day (the True-up Measurement Date) of the final shared loss month, or upon the final disposition of all covered assets under the loss sharing agreements in the event losses thereunder fail to reach expected levels. Under the loss sharing agreements, the Bank would pay to the FDIC 50% of the excess, if any, of: (i) 20% of the Intrinsic Loss Estimate of $906.0 million (or $181.2 million) (as determined by the FDIC) less (ii) the sum of: (A) 25% of the asset discount (per bid) (or ($227.5 million)); plus (B) 25% of the cumulative shared-loss payments (defined as the aggregate of all of the payments made or payable to the Bank minus the aggregate of all of the payments made or payable to the FDIC); plus (C) the sum of the period servicing amounts for every consecutive twelve-month period prior to and ending on the True-Up Measurement Date in respect of each of the loss sharing agreements during which the loss sharing provisions of the applicable loss sharing agreement is in effect (defined as the product of the simple average of the principal amount of shared loss loans and shared loss assets at the beginning and end of such period times 1%). The true-up payment represents an estimated liability of $13.8 million at April 30, 2010. This estimated liability is accounted for as a reduction of the indemnification asset. The indemnification asset represents the portion of estimated losses covered by the loss sharing agreements between the Bank and the FDIC. The Group recorded goodwill of $1.7 million as part of the transaction. Refer to the Note 2, FDIC-assisted acquisition, to the consolidated financial statements for additional information on the Eurobank FDIC-assisted transaction, including the accounting for assets acquired and liabilities assumed as well as information on the breakdown and accounting of the acquired loan portfolio.
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