Oriental Financial plans more aggressive lending, cross-selling of products in 2011

Thursday, March 17, 2011

Puerto Rico's Oriental Financial Group (NYSE: OFG) is planning to lend more aggressively this year and increase cross-selling of products among its customers, as the purchase of failed bank Eurobank has increased its client base and allowed it to lower funding costs, president and CEO José Rafael Fernández told BNamericas.

In April last year, Oriental closed the purchase of US$1.7bn in assets and 22 branches from Eurobank in an FDIC-assisted transaction.

The acquisition lifted Oriental to the fourth spot - from ninth - among Puerto Rican banks, increased its assets by 30% to US$7.2bn and allowed it to enter the leasing business.

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The purchase's biggest impact was that Oriental almost tripled the income it generates from clients and that loans now represent a higher portion of assets, as its balance sheet becomes more bank-like, Fernández said.

"Coupled with our organic growth in 2010, the purchase has put us in a position where today we have 78% of our income coming from clients, when a year or two ago that figure was around 30%," he said.


Eurobank's portfolio added more commercial and individual clients to Oriental's core financial services, trust and insurance business model, and increased its retail branch network to 30 from 21.

"This gives us the opportunity to grow deposits, which is our raw material to generate loans, and that is helping us lower our cost of funding to become more aggressive in lending," the executive said, adding that a more stable economy on the island will also help the bank's loan expansion plan.

Oriental's retail deposits grew 44.2% last year to US$2.03bn, while deposit spreads fell to 1.95% as of end-2010 from 2.9% a year ago.

Oriental's loan production and purchases were up 15% last year compared to 2009 to US$373mn.

A lower cost of deposits coupled with stronger wealth management and bank service revenues allowed Oriental to book US$3.9mn in 4Q10 net income compared with a loss of US$75.3mn in the year-ago quarter.

As of end-2010, Oriental had achieved some 35% annualized Eurobank cost savings, higher than its previous plan, Fernández said.


Fernández said that he still sees room for further consolidation in the Puerto Rican banking industry and that there are also potential purchase opportunities in niche markets such as the insurance, trust and brokerage businesses.

Oriental is looking for ways to deploy its excess US$450mn in cash. Last month, it announced a US$30mn stock repurchase program that replaces its prior US$15mn program launched in 2007.

This follows a November announcement that Oriental would increase its quarterly common stock dividend by 25% as it returns part of its capital to investors.

Last month, Oriental declared a regular quarterly cash dividend of US$0.05 per common share for the first quarter, which will be paid April 15.