UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANG ACT OF 1934 |
Commission File Number 001-12647
Oriental Financial Group Inc.
| Incorporated in the Commonwealth
of Puerto Rico, |
IRS Employer Identification No. 66-0538893 |
Principal Executive Offices:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [x] No [ ] .
Number of shares outstanding of the registrant’s common stock, as of the latest practicable date:
21,921,949 common shares ($1.00 par value per share)
outstanding as of March 31, 2004
TABLE OF CONTENTS
| PAGE |
||||||||
Certifications |
||||||||
| EX-31.1 SECTION 302 CERTIFICATION OF THE CEO | ||||||||
| EX-31.2 SECTION 302 CERTIFICATION OF THE CFO | ||||||||
| EX-32.1 SECTION 906 CERTIFICATION OF THE CEO | ||||||||
| EX-32.2 SECTION 906 CERTIFICATION OF THE CFO | ||||||||
PART 1 - FINANCIAL INFORMATION
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2004 AND JUNE 30, 2003
| March 31, | June 30, | |||||||
| (In thousands, except shares information) |
2004 |
2003 |
||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 11,651 | $ | 15,945 | ||||
Investments: |
||||||||
Short term investments |
6,093 | 1,152 | ||||||
Trading securities, at fair value with amortized cost of $2,803 (June 30, 2003 - $998) |
2,820 | 1,037 | ||||||
Investment securities available-for-sale, at fair value with amortized cost of $1,357,146
(June 30, 2003 - $2,162,480): |
||||||||
Securities pledged that can be repledged |
966,863 | 1,446,385 | ||||||
Other investment securities |
414,552 | 761,219 | ||||||
Total investment securities available-for-sale |
1,381,415 | 2,207,604 | ||||||
Investment securities held-to-maturity, at amortized cost with fair value of $1,262,922 |
||||||||
Securities pledged that can be repledged |
1,011,397 | — | ||||||
Other investment securities |
221,636 | — | ||||||
Total investment securities held-to-maturity |
1,233,033 | — | ||||||
Federal Home Loan Bank (FHLB) stock, at cost |
22,537 | 22,537 | ||||||
Total investments |
2,645,898 | 2,232,330 | ||||||
Securities sold but not yet delivered |
12,188 | 1,894 | ||||||
Loans: |
||||||||
Mortgage loans held-for-sale, at lower of cost or market |
7,600 | 9,198 | ||||||
Loans receivable, net of allowance for loan losses of $6,632 (June 30, 2003 - $5,031) |
710,512 | 719,264 | ||||||
Total loans, net |
718,112 | 728,462 | ||||||
Accrued interest receivable |
19,292 | 17,716 | ||||||
Premises and equipment, net |
18,653 | 16,162 | ||||||
Investment in equity options |
14,450 | 6,787 | ||||||
Deferred tax asset, net |
6,821 | 3,731 | ||||||
Foreclosed real estate, net |
447 | 536 | ||||||
Other assets |
18,703 | 16,988 | ||||||
Total assets |
$ | 3,466,215 | $ | 3,040,551 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Deposits: |
||||||||
Demand deposits |
$ | 133,286 | $ | 132,328 | ||||
Savings accounts |
90,613 | 92,210 | ||||||
Individual retirement accounts |
366,261 | 348,346 | ||||||
Certificates of deposit |
467,562 | 471,381 | ||||||
Total deposits |
1,057,722 | 1,044,265 | ||||||
Borrowings: |
||||||||
Securities sold under agreements to repurchase |
1,648,339 | 1,400,598 | ||||||
Advances from FHLB |
310,800 | 130,000 | ||||||
Subordinated capital notes |
72,166 | 36,083 | ||||||
Term notes |
15,000 | 15,000 | ||||||
Total borrowings |
2,046,305 | 1,581,681 | ||||||
Securities purchased but not yet received |
14,419 | 152,219 | ||||||
Accrued expenses and other liabilities |
61,093 | 60,706 | ||||||
Total liabilities |
3,179,539 | 2,838,871 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ equity: |
||||||||
Preferred stock, $1 par value; 5,000,000 shares authorized; $25 liquidation value;
1,340,000 shares of Series A and 1,380,000 shares of Series B issued and outstanding
(June 30, 2003 - 1,340,000 shares of Series A) |
68,000 | 33,500 | ||||||
Common stock, $1 par value; 40,000,000 shares authorized; 22,164,390 shares issued
(June 30, 2003 - 19,684,343 shares) |
22,164 | 19,684 | ||||||
Additional paid-in capital |
124,168 | 57,236 | ||||||
Legal surplus |
25,519 | 21,099 | ||||||
Retained earnings |
89,832 | 106,358 | ||||||
Treasury stock, at cost, 242,441 shares (June 30, 2003 - 2,025,363 shares) |
(4,473 | ) | (35,888 | ) | ||||
Accumulated other comprehensive loss, net of tax effect of $3,503
(June 30, 2003 - $1,566) |
(38,534 | ) | (309 | ) | ||||
Total stockholders’ equity |
286,676 | 201,680 | ||||||
Total liabilities and stockholders’ equity |
$ | 3,466,215 | $ | 3,040,551 | ||||
See notes to consolidated financial statements.
- 1 -
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTER AND NINE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
| Quarter Period |
Nine-Month Period |
|||||||||||||||
| (In thousands, except per share information) |
2004 |
2003 |
2004 |
2003 |
||||||||||||
Interest income: |
||||||||||||||||
Loans |
$ | 12,538 | $ | 12,618 | $ | 39,572 | $ | 38,065 | ||||||||
Mortgage-backed securities |
28,243 | 25,084 | 76,976 | 73,508 | ||||||||||||
Other investment securities |
1,666 | 1,419 | 5,349 | 3,114 | ||||||||||||
Total interest income |
42,447 | 39,121 | 121,897 | 114,687 | ||||||||||||
Interest expense: |
||||||||||||||||
Deposits |
7,755 | 8,265 | 23,058 | 25,599 | ||||||||||||
Securities sold under agreements to repurchase |
9,083 | 8,714 | 26,023 | 25,148 | ||||||||||||
Other borrowed funds |
2,853 | 2,441 | 8,215 | 7,636 | ||||||||||||
Total interest expense |
19,691 | 19,420 | 57,296 | 58,383 | ||||||||||||
Net interest income |
22,756 | 19,701 | 64,601 | 56,304 | ||||||||||||
Provision for loan losses |
1,050 | 850 | 3,404 | 2,790 | ||||||||||||
Net interest income after provision for loan losses |
21,706 | 18,851 | 61,197 | 53,514 | ||||||||||||
Non-interest income (losses): |
||||||||||||||||
Commissions and fees from fiduciary activities |
2,114 | 1,673 | 6,418 | 4,544 | ||||||||||||
Commissions and fees from broker and insurance activities |
2,243 | 1,898 | 6,797 | 5,839 | ||||||||||||
Banking service revenues |
1,820 | 1,376 | 5,225 | 4,354 | ||||||||||||
Net gain (loss) on sale and valuation of: |
||||||||||||||||
Mortgage banking activities |
1,946 | 2,071 | 6,400 | 5,721 | ||||||||||||
Securities available-for-sale |
3,298 | 2,020 | 9,509 | 8,409 | ||||||||||||
Derivatives activities |
(275 | ) | (439 | ) | (935 | ) | (4,429 | ) | ||||||||
Trading securities |
29 | 23 | 20 | 563 | ||||||||||||
Other |
24 | — | 63 | (220 | ) | |||||||||||
Total non-interest income, net |
11,199 | 8,622 | 33,497 | 24,781 | ||||||||||||
Non-interest expenses: |
||||||||||||||||
Compensation and employees’ benefits |
6,381 | 6,098 | 18,155 | 15,266 | ||||||||||||
Occupancy and equipment |
2,465 | 2,403 | 7,083 | 6,756 | ||||||||||||
Advertising and business promotion |
1,919 | 1,228 | 6,087 | 4,812 | ||||||||||||
Professional and service fees |
1,382 | 1,455 | 4,457 | 4,799 | ||||||||||||
Communication |
463 | 385 | 1,386 | 1,207 | ||||||||||||
Loan servicing expenses |
461 | 450 | 1,387 | 1,307 | ||||||||||||
Taxes, other than payroll and income taxes |
455 | 388 | 1,320 | 1,164 | ||||||||||||
Electronic banking charges |
418 | 306 | 1,199 | 914 | ||||||||||||
Printing, postage, stationery and supplies |
270 | 254 | 859 | 763 | ||||||||||||
Insurance, including deposit insurance |
197 | 196 | 591 | 542 | ||||||||||||
Other |
586 | 607 | 2,456 | 1,548 | ||||||||||||
Total non-interest expenses |
14,997 | 13,770 | 44,980 | 39,078 | ||||||||||||
| — | — | — | — | |||||||||||||
Income before income taxes |
17,908 | 13,703 | 49,714 | 39,217 | ||||||||||||
Income tax expense |
(1,585 | ) | (697 | ) | (4,143 | ) | (2,122 | ) | ||||||||
Net income |
16,323 | 13,006 | 45,571 | 37,095 | ||||||||||||
Less: Dividends on preferred stock |
(1,200 | ) | (597 | ) | (2,998 | ) | (1,790 | ) | ||||||||
Net income available to common shareholders |
$ | 15,123 | $ | 12,409 | $ | 42,573 | $ | 35,305 | ||||||||
Income per common share: |
||||||||||||||||
Basic |
$ | 0.75 | $ | 0.65 | $ | 2.15 | $ | 1.86 | ||||||||
Diluted |
$ | 0.71 | $ | 0.61 | $ | 2.04 | $ | 1.74 | ||||||||
Average common shares outstanding |
20,289 | 19,141 | 19,817 | 19,023 | ||||||||||||
Average potential common share-options |
983 | 1,214 | 1,028 | 1,212 | ||||||||||||
| 21,272 | 20,355 | 20,845 | 20,235 | |||||||||||||
Cash dividends per share of common stock |
$ | 0.14 | $ | 0.13 | $ | 0.41 | $ | 0.36 | ||||||||
See notes to consolidated financial statements.
- 2 -
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
| (In thousands) | ||||||||
| CHANGES IN STOCKHOLDERS’ EQUITY: |
2004 |
2003 |
||||||
Preferred stock: |
||||||||
Balance at beginning of period |
$ | 33,500 | $ | 33,500 | ||||
Issuance of preferred stock |
34,500 | — | ||||||
Balance at end of period |
68,000 | 33,500 | ||||||
Common stock: |
||||||||
Balance at beginning of period |
19,684 | 15,300 | ||||||
Issuance of common stock |
1,955 | — | ||||||
Stock options exercised |
525 | 281 | ||||||
Stock split effected in the form of a dividend |
— | 3,865 | ||||||
Balance at end of period |
22,164 | 19,446 | ||||||
Additional paid-in capital: |
||||||||
Balance at beginning of period |
57,236 | 52,670 | ||||||
Issuance of common stock |
52,785 | — | ||||||
Stock options exercised |
4,270 | 2,508 | ||||||
Stock dividend |
14,526 | — | ||||||
Common stock issuance costs |
(3,206 | ) | — | |||||
Preferred stock issuance costs |
(1,443 | ) | — | |||||
Balance at end of period |
124,168 | 55,178 | ||||||
Legal surplus: |
||||||||
Balance at beginning of period |
21,099 | 15,997 | ||||||
Transfer from retained earnings |
4,420 | 3,709 | ||||||
Balance at end of period |
25,519 | 19,706 | ||||||
Retained earnings: |
||||||||
Balance at beginning of period |
106,358 | 75,806 | ||||||
Net income |
45,571 | 37,095 | ||||||
Cash dividends declared on common stock |
(8,344 | ) | (6,948 | ) | ||||
Stock dividend declared on common stock |
(46,335 | ) | (3,865 | ) | ||||
Cash dividends declared on preferred stock |
(2,998 | ) | (1,790 | ) | ||||
Transfer to legal surplus |
(4,420 | ) | (3,709 | ) | ||||
Balance at end of period |
89,832 | 96,589 | ||||||
Treasury stock: |
||||||||
Balance at beginning of period |
(35,888 | ) | (33,674 | ) | ||||
Stock purchased |
(394 | ) | (1,446 | ) | ||||
Stock dividend |
31,809 | — | ||||||
Balance at end of period |
(4,473 | ) | (35,120 | ) | ||||
Accumulated other comprehensive income (loss), net of deferred tax: |
||||||||
Balance at beginning of period |
(309 | ) | 6,830 | |||||
Other comprehensive income (loss), net of tax |
(38,225 | ) | 3,947 | |||||
Balance at end of period |
(38,534 | ) | 10,777 | |||||
Total stockholders’ equity |
$ | 286,676 | $ | 200,076 | ||||
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTER AND NINE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
| (In thousands) | Quarter Period |
Nine-Month Period |
||||||||||||||
| COMPREHENSIVE INCOME |
2004 |
2003 |
2004 |
2003 |
||||||||||||
Net income |
$ | 16,323 | $ | 13,006 | $ | 45,571 | $ | 37,095 | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Unrealized gain (loss) on securities available-for-sale arising during the period |
$ | 9,362 | $ | (3,085 | ) | $ | (38,359 | ) | $ | 28,882 | ||||||
Realized gains on investment securities available-for-sale included in net income |
(3,298 | ) | (2,020 | ) | (9,509 | ) | (8,409 | ) | ||||||||
Unrealized gain (loss) on derivatives designated as cash flows hedges
arising during the period |
(13,208 | ) | (3,845 | ) | (7,739 | ) | (26,939 | ) | ||||||||
Realized loss on derivatives designated as cash flow hedges included in net income |
4,791 | 4,733 | 13,620 | 11,953 | ||||||||||||
Amount reclassified into earnings during the period related to
transition adjustment on derivative activities |
93 | 57 | 260 | 170 | ||||||||||||
Income tax effect related to unrealized (gain) loss on securities available-for-sale |
95 | 160 | 3,502 | (1,710 | ) | |||||||||||
Other comprehensive income (loss) for the period |
(2,165 | ) | (4,000 | ) | (38,225 | ) | 3,947 | |||||||||
Comprehensive income |
$ | 14,158 | $ | 9,006 | $ | 7,346 | $ | 41,042 | ||||||||
See notes to consolidated financial statements.
- 3 -
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
| (In thousands) |
2004 |
2003 |
||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 45,571 | $ | 37,095 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Amortization of deferred loan origination fees and costs |
(7,298 | ) | (1,479 | ) | ||||
Amortization of premiums and accretion of discounts on investment securities, net |
8,959 | 3,750 | ||||||
Depreciation and amortization of premises and equipment |
3,619 | 3,524 | ||||||
Deferred income tax expense |
303 | 2,386 | ||||||
Provision for loan losses |
3,404 | 2,790 | ||||||
Loss (gain) on: |
||||||||
Sale of securities available-for-sale |
(9,509 | ) | (8,409 | ) | ||||
Mortgage banking activities |
(6,400 | ) | (5,721 | ) | ||||
Derivatives activities |
935 | 4,429 | ||||||
Sale of premises and equipment |
— | 220 | ||||||
Originations of loans held-for-sale |
(197,432 | ) | (89,349 | ) | ||||
Proceeds from sale of loans held-for-sale |
119,553 | 2,867 | ||||||
Net decrease in: |
||||||||
Trading securities |
(1,783 | ) | 7,628 | |||||
Accrued interest receivable |
(1,576 | ) | (1,377 | ) | ||||
Other assets |
(1,533 | ) | 19,253 | |||||
Net increase in: |
||||||||
Accrued interest on deposits and borrowings |
4,255 | 4,148 | ||||||
Other liabilities |
3,422 | 34,127 | ||||||
Total adjustments |
(81,081 | ) | (21,213 | ) | ||||
Net cash provided by (used in) operating activities |
(35,510 | ) | 15,882 | |||||
Cash flows from investing activities: |
||||||||
Purchases of: |
||||||||
Investment securities available-for-sale |
(1,417,157 | ) | (1,225,211 | ) | ||||
Investment securities held-to-maturity |
(263,360 | ) | — | |||||
FHLB stock |
— | (17,320 | ) | |||||
Net purchases of equity options |
(1,866 | ) | (1,096 | ) | ||||
Maturities and redemptions of: |
||||||||
Investment securities available-for-sale |
545,917 | 591,854 | ||||||
Investment securities held-to-maturity |
61,422 | — | ||||||
FHLB stock |
— | 17,320 | ||||||
Proceeds from sale of: |
||||||||
Investment securities available-for-sale |
549,311 | 410,905 | ||||||
Other real estate owned |
797 | |||||||
Loan production: |
||||||||
Origination and purchase of loans, excluding loans held-for-sale, net |
(123,418 | ) | (224,571 | ) | ||||
Principal repayment of loans |
139,145 | 120,404 | ||||||
Contribution to Statutory Trust II |
(1,083 | ) | — | |||||
Capital expenditures |
(6,110 | ) | (2,500 | ) | ||||