<PAGE> 1
FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-75609
PROSPECTUS
1,225,000 SHARES
(ORIENTAL FINANCIAL GROUP INC. LOGO)
7.125% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A
PRICE TO PUBLIC: $25 PER SHARE
Oriental Financial Group Inc. is offering to the public 1,225,000 shares of
its 7.125% Noncumulative Monthly Income Preferred Stock, Series A. The Series A
Preferred Stock has the following characteristics:
- Annual dividends of $1.78125 per share, payable monthly, if declared
by the board of directors. Missed dividends never have to be paid.
- Redeemable at Oriental Financial Group's option beginning on May 30,
2004.
- No mandatory redemption or stated maturity.
There is currently no public market for the Series A Preferred Stock. The
New York Stock Exchange has approved for listing the Series A Preferred Stock
under the symbol "OFGPrA." Trading of the Series A Preferred Stock on the New
York Stock Exchange is expected to commence within 30 days of its initial
issuance.
INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public Offering Price.............................. $25.00 $30,625,000
Underwriting Discounts............................. $ 0.7875 $ 964,688
Proceeds to Oriental Financial Group............... $24.2125 $29,660,312
</TABLE>
Oriental Financial Group has also granted the underwriters an
over-allotment option to purchase up to 180,000 additional shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR
COMMONWEALTH OF PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY.
SANTANDER SECURITIES KEEFE, BRUYETTE & WOODS, INC.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Dividends Will Not be Paid Unless
Declared by the Board of
Directors....................... 7
Missed Dividends Never Have to be
Paid............................ 7
Banking Regulations May Restrict
Oriental Financial Group's
Ability to Pay Dividends........ 7
Fluctuations in Interest Rates May
Hurt Oriental Financial Group's
Business........................ 7
Oriental Financial Group is at Risk
Because its Business is
Conducted in Puerto Rico........ 7
Oriental Financial Group's Business
Would be Disrupted if its
Computer Systems Cannot Work
Properly with Year 2000 Data.... 7
Forward-Looking Statements........... 8
Recent Developments.................. 8
Use of Proceeds...................... 8
Capitalization....................... 9
Selected Financial Data.............. 10
Summary of Certain Terms of the
Series A Preferred Stock........... 12
Description of Capital Stock......... 17
Taxation............................. 18
Underwriting......................... 26
Where You Can Find More
Information........................ 27
Legal Matters........................ 28
Experts.............................. 28
</TABLE>
------------------------
Prospective investors may rely only on the information incorporated by
reference or contained in this prospectus. Neither Oriental Financial Group nor
any underwriter has authorized anyone to provide prospective investors with
information different from that incorporated by reference or contained in this
prospectus. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
2
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including the information incorporated by
reference into this prospectus and the "Risk Factors" section beginning on page
7.
Unless otherwise stated, all information in this prospectus assumes that
the underwriters will not exercise their over-allotment option to purchase any
of the 180,000 shares subject to that option.
THE COMPANY
Oriental Financial Group is a bank holding company headquartered in San
Juan, Puerto Rico, subject to regulation and supervision by the Federal Reserve
Board. At December 31, 1998, Oriental Financial Group had $3.585 billion of
total financial assets owned, managed or gathered. The total financial assets
consist of $1.458 billion of assets owned and $1.314 billion of trust assets
managed by Oriental Bank and Trust, and $813.3 million of customer investment
assets gathered by Oriental Financial Services Corp.
As a diversified financial institution, Oriental Financial Group provides a
wide range of financial services to retail and institutional clients. Oriental
Financial Group's core businesses are mortgage banking, trust and money
management services, financial planning and securities brokerage services, and a
full range of consumer lending and banking services provided through its network
of twenty branches located throughout Puerto Rico.
Oriental Financial Group's principal offices are located at Hato Rey Tower,
Suite 501, 268 Munoz Rivera Avenue, San Juan, Puerto Rico 00918, and its
telephone number is (787) 766-1986. Oriental Financial Group maintains a website
at http://www.orientalfinancial.com.
3
<PAGE> 4
THE OFFERING
Series A Preferred Stock
Offered.................... 1,225,000 shares; 1,405,000 shares if the
underwriters exercise their over-allotment option
in full.
Offering Price............. $25 per share.
Liquidation Preference..... If Oriental Financial Group is liquidated or
dissolved, you will be entitled to receive $25
per share plus accrued dividends for the current
month from any assets available for distribution.
You will be paid before any of Oriental Financial
Group's assets are distributed to holders of
common stock or any stock ranking junior to the
Series A Preferred Stock.
Dividends.................. Dividends will be paid on the last day of each
month beginning on May 30, 1999. The board of
directors must approve each dividend payment and
any payment it does not approve never has to be
paid. The annual dividend rate is equal to 7.125%
of the liquidation preference per share.
No Voting Rights........... You will not have any voting rights, except as
described on page 15 of this prospectus.
Redemption at Oriental
Financial Group's Option... Series A Preferred Stock may be redeemed beginning
on May 30, 2004 at Oriental Financial Group's
option. Redemption prices are discussed on page
13 of this prospectus.
No Maturity Date or
Mandatory Redemption....... The Series A Preferred Stock does not have a
maturity date. Oriental Financial Group is not
required to provide for the retirement of the
Series A Preferred Stock by mandatory redemption
or sinking fund payments.
Rank....................... The Series A Preferred Stock ranks senior to the
common stock of Oriental Financial Group.
Oriental Financial Group may not issue preferred
stock ranking senior to the Series A Preferred
Stock without the approval of holders of at least
two-thirds of the Series A Preferred Stock.
New York Stock Exchange
Symbol................... OFGPrA
4
<PAGE> 5
SUMMARY FINANCIAL AND OPERATING DATA
You should read the summary financial information presented below together
with Oriental Financial Group's consolidated financial statements and notes
which are incorporated by reference into this prospectus and with the historical
financial information of Oriental Financial Group included under "Selected
Financial Data" beginning on page 10 of this prospectus.
The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average equity ratio is
computed by dividing net income by average stockholders' equity for the period.
Both ratios have been computed using month-end averages. The ratios for the
six-month periods ended December 31, 1998 and 1997, have been presented on an
annualized basis.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------- --------------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS AND
DIVIDENDS:
Net Income................ $ 12,426 $ 10,153 $ 21,410 $ 16,562 $ 14,736 $ 12,107 $ 9,827
Cash Dividends Paid Per
Share................... $ 0.23 $ 0.19 $ 0.41 $ 0.33 $ 0.23 $ 0.13 $ 0.08
PERIOD END BALANCES:
Bank Assets Owned......... $1,457,500 $1,202,600 $1,311,400 $1,068,600 $ 877,400 $ 744,400 $ 655,000
Trust Assets Managed...... $1,313,800 $1,120,700 $1,310,000 $1,088,600 $ 874,500 $ 699,000 $ 545,400
Broker-Dealer Customer
Assets Gathered......... $ 813,300 $ 560,600 $ 741,400 $ 524,900 $ 293,100 $ 195,400 $ 153,200
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Financial
Assets......... $3,584,600 $2,833,900 $3,362,800 $3,197,800 $2,446,300 $1,911,700 $1,507,300
========== ========== ========== ========== ========== ========== ==========
Stockholders' Equity...... $ 110,772 $ 101,292 $ 107,030 $ 89,394 $ 79,903 $ 69,705 $ 55,684
SELECTED RATIOS:
Return on Average
Assets.................. 1.79% 1.73% 1.74% 1.84% 1.82% 1.77% 1.68%
Return on Average
Equity.................. 21.73% 21.09% 21.24% 21.17% 19.30% 19.05% 26.52%
</TABLE>
5
<PAGE> 6
CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratios shown below measure Oriental Financial Group's ability to
generate sufficient earnings to pay the fixed charges or expenses of its debt
and preferred stock dividends. The ratios of earnings to combined fixed charges
and preferred stock dividends were computed by dividing earnings by combined
fixed charges and preferred stock dividends.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------- -------------------------------------
1998 1997 1998 1997 1996 1995 1994
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Including Interest on Deposits........... 1.45x 1.43x 1.43x 1.43x 1.48x 1.49x 1.56x
Excluding Interest on Deposits........... 1.83x 1.78x 1.78x 1.81x 1.89x 1.79x 1.83x
</TABLE>
For purposes of computing the consolidated ratios of earnings to combined
fixed charges and preferred stock dividends, earnings consist of pretax income
from continuing operations plus fixed charges and amortization of capitalized
interest, less interest capitalized. Fixed charges consist of interest expensed
and capitalized, amortization of debt issuance costs, and Oriental Financial
Group's estimate of the interest component of rental expense. Ratios are
presented both including and excluding interest on deposits.
During the periods shown above Oriental Financial Group did not have
preferred stock issued and outstanding.
6
<PAGE> 7
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus, including the information incorporated by reference in this
prospectus, before deciding to invest in the Series A Preferred Stock.
DIVIDENDS WILL NOT BE PAID UNLESS DECLARED BY THE BOARD OF DIRECTORS
Monthly dividends will only be paid if declared by Oriental Financial
Group's board of directors. The board of directors is not obligated or required
to declare monthly dividends.
MISSED DIVIDENDS NEVER HAVE TO BE PAID
If the board of directors does not declare a dividend for a particular
month, those dividends never have to be paid.
BANKING REGULATIONS MAY RESTRICT ORIENTAL FINANCIAL GROUP'S ABILITY TO PAY
DIVIDENDS
Oriental Financial Group may not be able to pay dividends in the future if
it does not earn sufficient net income. Federal Reserve Board policy is that a
bank holding company should pay dividends only out of its current net income.
Oriental Financial Group had net income of $21.4 million for the year ended June
30, 1998 and of $12.4 million for the six-month period ended December 31, 1998.
Banking regulations may also restrict the ability of Oriental Bank and Trust to
make distributions to Oriental Financial Group. These distributions may be
necessary for Oriental Financial Group to pay dividends on the Series A
Preferred Stock.
FLUCTUATIONS IN INTEREST RATES MAY HURT ORIENTAL FINANCIAL GROUP'S BUSINESS
Interest rate fluctuations is the primary market risk affecting Oriental
Financial Group. Changes in interest rates affect the following areas, among
others, of Oriental Financial Group's business:
- the number of mortgage loans originated;
- the interest income earned on loans and securities;
- the value of securities holdings; and
- gain from sales of loans and securities.
ORIENTAL FINANCIAL GROUP IS AT RISK BECAUSE ITS BUSINESS IS CONDUCTED IN PUERTO
RICO
Because all of Oriental Financial Group's business activities are conducted
in Puerto Rico and a substantial portion of its credit exposure is in Puerto
Rico, Oriental Financial Group is at risk from adverse economic, political or
business developments and natural hazards that affect Puerto Rico. If Puerto
Rico's economy experiences an overall decline as a result of these adverse
developments or natural hazards, the rates of delinquencies, foreclosures,
bankruptcies and losses on loan portfolios would probably increase
substantially. This would cause Oriental Financial Group's profitability to
decrease.
ORIENTAL FINANCIAL GROUP'S BUSINESS WOULD BE DISRUPTED IF ITS COMPUTER SYSTEMS
CANNOT WORK PROPERLY WITH YEAR 2000 DATA
Oriental Financial Group could experience a significant disruption to its
business operations that could have an adverse effect on its profitability if
its computer systems and the computer systems provided by third party vendors on
which it relies are not able to properly use date calculations in the year 2000.
Oriental Financial Group has taken steps that it believes are adequate to make
sure this does not happen through a comprehensive year 2000 compliance program.
However, Oriental Financial Group cannot assure you that these efforts will be
completely successful. Problems suffered by providers of basic services, such as
telephone, water, sewer and electricity could also have an adverse impact on
Oriental Financial Group's daily operations.
7
<PAGE> 8
Oriental Financial Group is in the process of revising its existing business
interruption contingency plans to address any disruptions of these basic
services.
FORWARD-LOOKING STATEMENTS
This prospectus, including information incorporated in this prospectus by
reference, contains certain "forward-looking statements" concerning Oriental
Financial Group's operations, performance and financial condition, including its
future economic performance, plans and objectives and the likelihood of success
in developing and expanding its business. These statements are based upon a
number of assumptions and estimates which are subject to significant
uncertainties, many of which are beyond the control of Oriental Financial Group.
The words "may," "would," "could," "will," "expect," "anticipate," "believe,"
"intend," "plan," "estimate" and similar expressions are meant to identify these
forward-looking statements. Actual results may differ materially from those
expressed or implied by these forward-looking statements.
RECENT DEVELOPMENTS
On April 8, 1999, Oriental Financial Group released its unaudited earnings
for the quarter ended March 31, 1999. Oriental Financial Group reported net
income of $6.6 million or $0.50 per common share on a diluted basis for the
third quarter of fiscal 1999, compared to $5.4 million or $0.40 per common share
on a diluted basis for the same period in fiscal 1998. Oriental Financial
Group's profitability ratios for the third quarter of fiscal 1999 resulted in a
return on average assets of 1.76% compared to 1.72% for the same period in
fiscal 1998, and a return on average stockholders' equity of 26.06% compared to
20.95% for the same period in fiscal 1998. On March 31, 1999, Oriental Financial
Group's total financial assets owned or managed reached $3.8 billion, an
increase of 19% when compared to $3.2 billion on March 31, 1998.
USE OF PROCEEDS
The net proceeds to Oriental Financial Group after deducting expenses from
the sale of shares of Series A Preferred Stock are estimated at approximately
$29,395,312. If the Underwriters' over-allotment option is exercised in full,
the net proceeds are estimated at $33,753,562. Oriental Financial Group intends
to use the net proceeds for general corporate purposes, which may include:
- making capital contributions and loans to its banking and non-banking
subsidiaries;
- funding possible passive portfolio equity and debt investments in other
companies as permitted by applicable banking laws and regulations;
- increasing working capital; and
- repurchasing common stock under a repurchase program.
8
<PAGE> 9
CAPITALIZATION
The following table shows the unaudited indebtedness and capitalization of
Oriental Financial Group at December 31, 1998, on an actual basis and as
adjusted to give effect to the issuance of the shares of Series A Preferred
Stock offered by this prospectus. The table also assumes that the underwriters
do not exercise their over-allotment option. In addition to the indebtedness
reflected below, Oriental Financial Group had deposits of $618.6 million. This
table should be read together with Oriental Financial Group's Consolidated
Financial Statements and related notes incorporated by reference into this
prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrowings
Securities sold under agreements to repurchase.............. $534,290 $534,290
Advances and borrowings from The Federal Home Loan Bank of
New York............................................... 60,100 60,100
Term notes and bonds payable.............................. 106,500 106,500
-------- --------
Total borrowings.................................. $700,890 $700,890
======== ========
Stockholders' Equity
Preferred stock, $1.00 par value; 5,000,000 shares
authorized; 1,225,000 shares of Series A Preferred
Stock, as adjusted.................................... $ 0 $ 1,225
Common stock, $1.00 par value; 40,000,000 shares
authorized; 13,553,653 issued and outstanding at
December 31, 1998...................................... 13,554 13,554
Additional paid-in capital................................ 23,969 52,139
Legal surplus............................................. 6,468 6,468
Retained earnings......................................... 72,596 72,596
Treasury stock, at cost, 495,486 shares at December 31,
1998................................................... (11,890) (11,890)
Accumulated other comprehensive income, net of taxes(1)... 6,075 6,075
-------- --------
Total stockholders' equity........................ $110,772 $140,167
======== ========
</TABLE>
- ---------------
(1) Consists of unrealized gains on securities available for sale, net of
deferred tax.
9
<PAGE> 10
SELECTED FINANCIAL DATA
The following table shows certain selected consolidated financial and
operating data of Oriental Financial Group on a historical basis as of and for
the six-month periods ended December 31, 1998 and 1997, and for each of the five
fiscal years in the period ended June 30, 1998. This information should be read
together with Oriental Financial Group's Consolidated Financial Statements and
the related notes incorporated by reference in this prospectus. Financial
information for the six-month periods ended December 31, 1998 and 1997, is
derived from unaudited financial statements, which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
results for those periods. These adjustments consist only of normal recurring
accruals. Results for the six-month period ended December 31, 1998, are not
necessarily indicative of results for the full year.
In fiscal 1998 Oriental Financial Group earned $21.4 million or 20% over
the $17.9 million earned in fiscal 1997, excluding a one-time Savings
Association Insurance Fund assessment. The increase in net income was mainly due
to increases in net interest income and non-interest income. Earnings per common
share on a diluted basis were $1.56 in fiscal 1998 or 19% higher than the $1.31
in fiscal 1997, in each case as adjusted to reflect a four-for-three stock split
effected on October 15, 1998 and a five-for-four stock split effected on October
15, 1997. Oriental Financial Group's profitability ratios for fiscal 1998
resulted in a return on average assets of 1.74%, compared to 1.84% in fiscal
1997, and a return on average stockholders' equity of 21.24%, compared to 21.17%
in fiscal 1997.
Net interest income for fiscal 1998 reached $43.4 million, 16% or $5.9
million higher than the $37.5 million earned in fiscal 1997. This improvement in
net interest income reflects an increase of $6.3 million due to a higher volume
of net interest-earning assets; partially offset by an unfavorable effect in
interest rates of $376,000, as a result of a reduction of 39 basis points in the
interest rate margin. In fiscal 1998 the interest rate spread was 3.57%,
compared to 3.89% in fiscal 1997, and the net interest margin was 3.80%,
compared to 4.19% in fiscal 1997.
Non-interest income rose 30% to $22.6 million in fiscal 1998, from $17.4
million in fiscal 1997. Trust, money management and brokerage fees, the
principal components of recurring non-interest income, totaled $8.4 million,
which represents an increase of 24% from the $6.8 million earned in fiscal 1997.
Noninterest income from recurring mortgage banking activities, excluding fees
from its mortgage loan servicing portfolio, reached $4.5 million in fiscal 1998,
an increase of 95% over the $2.3 million earned in fiscal 1997. This increase
was the result of greater mortgage origination volume and favorable market
conditions for the sale of such loans in the secondary market.
The return on average assets ratio is computed by dividing net income by
average assets for the period. The return on average equity ratio is computed by
dividing net income by average stockholders' equity for the period. The
efficiency ratio is computed by dividing recurring operating expenses by the sum
of net interest income and recurring non-interest income. The expense ratio is
computed by dividing net recurring operating expenses, which represents
recurring non-interest expenses less recurring non-interest income, by total
average interest-earning assets for the period. The average equity to average
total assets ratio is computed by dividing average assets for the period by
average stockholders' equity. The interest rate spread is the percentage
difference or margin between the yield on interest-earning assets and the
effective interest rate paid on interest-bearing liabilities. All ratios have
been computed using month-end averages. All ratios, except for the interest rate
spread, for the six-month periods ended December 31, 1998 and 1997, have been
presented on an annualized basis. All per share information shown in the table
has been adjusted to reflect a four-for-three stock split effected on October
15, 1998 and a five-for-four stock split effected on October 15, 1997.
10
<PAGE> 11
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
----------------------- --------------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS AND DIVIDENDS PAID:
Interest Income...................... $ 54,873 $ 48,331 $ 101,580 $ 82,629 $ 70,447 $ 58,143 $ 46,475
Interest Expense..................... 31,988 27,955 58,139 45,098 37,694 30,423 22,843
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income.................. 22,885 20,376 43,441 37,531 32,753 27,720 23,632
Provision for Loan Losses............ 9,750 5,000 9,545 4,900 4,600 2,550 2,000
Recurring Non-Interest Income........ 8,494 7,973 17,303 14,774 11,961 9,157 8,363
Non-recurring Non-Interest Income.... 8,517 3,945 5,342 2,578 2,801 2,275 1,609
Recurring Non-Interest Expenses...... 15,248 15,265 30,881 28,491 24,608 21,590 18,752
Non-recurring Non-Interest Expenses
Expenses........................... 337 51 400 1,830 0 0 0
Provision for Income Taxes........... 2,135 1,825 3,850 3,100 3,571 2,905 3,025
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income................... 12,426 10,153 21,410 16,562 14,736 12,107 9,827
SAIF Assessment, Net of Taxes........ 0 0 0 1,333 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Excluding SAIF
Assessment)...................... $ 12,426 $ 10,153 $ 21,410 $ 17,895 $ 14,736 $ 12,107 $ 9,827
========== ========== ========== ========== ========== ========== ==========
Cash Dividends Paid................ $ 3,026 $ 2,474 $ 5,442 $ 4,369 $ 3,184 $ 1,709 $ 730
PER SHARE DATA:
Diluted (Excluding SAIF
Assessment)........................ $ 0.92 $ 0.74 $ 1.57 $ 1.31 $ 1.06 $ 0.89 $ 0.91
Diluted.............................. $ 0.92 $ 0.74 $ 1.57 $ 1.21 $ 1.06 $ 0.89 $ 0.91
Cash Dividends Paid.................. $ 0.23 $ 0.19 $ 0.41 $ 0.33 $ 0.23 $ 0.13 $ 0.08
Book Value........................... $ 8.17 $ 7.62 $ 7.99 $ 6.72 $ 6.03 $ 5.23 $ 4.60
Market Price......................... $ 31.31 $ 22.18 $ 27.66 $ 16.95 $ 9.50 7.61 5.48
Average Common Shares Outstanding.... 13,125 13,242 13,258 13,181 13,381 12,743 10,035
Average Potential Common Shares...... 397 451 440 496 532 870 820
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Shares................. 13,522 13,693 13,698 13,677 13,913 13,613 10,855
========== ========== ========== ========== ========== ========== ==========
PERIOD END BALANCES:
Bank Assets Owned.................... $1,457,500 $1,202,600 $1,311,400 $1,068,600 $ 877,400 $ 744,400 $ 655,000
Trust Assets Managed................. 1,313,800 1,120,700 1,310,000 1,088,600 874,500 699,000 545,400
Broker-Dealer Customer Assets
Gathered........................... 813,300 560,600 741,400 524,900 293,100 195,400 153,200
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Financial Assets............... 3,584,600 2,883,900 3,362,800 2,682,100 2,045,000 1,638,800 1,353,600
Loans Serviced for Third Parties..... 0 0 0 515,700 401,300 272,900 153,700
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Financial Assets (Including
Loans Serviced).................... $3,584,600 $2,883,900 $3,362,800 $3,197,800 $2,446,300 $1,911,700 $1,507,300
========== ========== ========== ========== ========== ========== ==========
Investment and Trading Securities.... $ 837,320 $ 585,619 $ 706,652 $ 468,594 $ 350,736 $ 290,106 $ 279,303
Loans and Loans Held-for-sale, Net... 555,095 558,995 545,420 532,970 476,110 409,391 339,216
Interest-Earning Assets.............. $1,392,415 $1,144,614 $1,252,072 $1,001,564 $ 826,846 $ 699,497 $ 618,519
========== ========== ========== ========== ========== ========== ==========
Deposits............................. $ 618,622 $ 531,058 $ 571,431 $ 497,542 $ 382,557 $ 313,542 $ 249,192
Repurchase Agreements................ 534,290 330,708 416,171 247,915 242,335 195,337 --
Borrowings........................... 166,600 218,978 189,388 204,816 145,466 137,472 327,870
---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest-Bearing Liabilities......... $1,319,512 $1,080,744 $1,176,990 $ 950,273 $ 770,358 $ 646,351 $ 577,062
========== ========== ========== ========== ========== ========== ==========
Stockholders' Equity................. $ 110,772 $ 101,292 $ 107,030 $ 89,394 $ 79,903 $ 69,705 $ 55,684
REGULATORY CAPITAL RATIOS:
Leverage Capital..................... 7.24% 7.97% 7.70% 8.17% 8.71% 8.89% 8.49%
Total Risk-Based Capital............. 19.62% 19.45% 21.68% 18.66% 19.14% 17.73% 19.92%
Tier 1 Risk-Based Capital............ 18.37% 18.20% 20.45% 17.53% 18.07% 17.00% 18.90%
SELECTED FINANCIAL RATIOS:
Return on Average Assets............. 1.79% 1.73% 1.74% 1.84% 1.82% 1.77% 1.68%
Return on Average Equity............. 21.73% 21.09% 21.24% 21.17% 19.30% 19.05% 26.52%
Efficiency Ratio..................... 48.59% 52.35% 50.27% 52.76% 53.43% 59.65% 61.04%
Expense Ratio........................ 1.05% 1.22% 1.13% 1.34% 1.52% 1.61% 1.80%
Average Equity to Average Total
Assets............................. 7.60% 8.42% 8.16% 8.69% 9.44% 9.31% 6.33%
Interest Rate Spread................. 3.37% 3.58% 3.57% 3.89% 4.03% 4.04% 4.15%
OTHER INFORMATION:
Number of Banking Offices............ 19 17 17 16 16 15 14
</TABLE>
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<PAGE> 12
SUMMARY OF CERTAIN TERMS OF THE SERIES A PREFERRED STOCK
The following summary contains a description of the material terms of the
Series A Preferred Stock. The summary is subject to and qualified in its
entirety by reference to Oriental Financial Group's certificate of
incorporation, as amended, and to the certificate of designation creating the
Series A Preferred Stock (the "Certificate of Designation"), copies of which are
incorporated by reference as exhibits to the registration statement of which
this prospectus is a part.
DIVIDENDS
If declared at the option of Oriental Financial Group's board of directors,
holders of record of the Series A Preferred Stock will be entitled to receive
cash dividends in the amount of $1.78125 per share each year, which is
equivalent to 7.125% of the liquidation preference of $25 per share. Oriental
Financial Group is not required to declare or pay dividends on the Series A
Preferred Stock, even if it has funds available for the payment of such
dividends. Dividends may only be paid out of funds that are legally available
for this purpose.
Dividends on the Series A Preferred Stock will accrue from their date of
original issuance and will be payable on the last day of each month in United
States dollars beginning on May 30, 1999. Payment of dividends will be made to
the holders of record of the Series A Preferred Stock as they appear on the
books of Oriental Financial Group on the fifteenth day of the month in which the
dividends are payable. In the case of the dividend payable on May 30, 1999, this
dividend will cover the period from the date of issuance of the Series A
Preferred Stock to May 30, 1999. If any date on which dividends are payable is
not a Business Day, then payment of the dividend will be made on the next
Business Day without any interest or other payment in respect of the delay. If
December 31 of any year is not a Business Day, then the dividend payable on such
date will be made on the immediately preceding Business Day. A "Business Day" is
a day other than a Saturday or Sunday or a general banking holiday in San Juan,
Puerto Rico, or New York, New York.
Dividends on the Series A Preferred Stock will be noncumulative. If the
board of directors does not declare a dividend for any monthly dividend period
on the Series A Preferred Stock, then the holders of Series A Preferred Stock
will not have a right to receive a dividend for that monthly dividend period,
whether or not dividends on the Series A Preferred Stock are declared for any
future monthly dividend period.
Dividends for any monthly dividend period will be paid in equal
installments in the amount of $0.1484375 per share. The amount of dividends
payable for any period shorter than a full monthly dividend period will be
computed on the basis of the actual number of days elapsed in that period.
Dividend payments will be mailed to the record holders of the Series A
Preferred Stock at their addresses appearing on the register for the Series A
Preferred Stock.
The terms of the Series A Preferred Stock do not permit Oriental Financial
Group to declare, set apart or pay any dividend or make any other distribution
of assets on, or redeem, purchase, set apart or otherwise acquire shares of
common stock or of any other class of stock of Oriental Financial Group ranking
junior to he Series A Preferred Stock as to the payment of dividends or as to
the distribution of assets upon liquidation, dissolution or winding up of
Oriental Financial Group, unless certain conditions are met. Those conditions
are (1) all accrued and unpaid dividends on the Series A Preferred Stock for the
twelve monthly dividend periods ending on the immediately preceding dividend
payment date shall have been paid or are paid contemporaneously, (2) the full
monthly dividend on the Series A Preferred Stock for the then current month has
been or is contemporaneously declared and paid or declared and set apart for
payment, and (3) Oriental Financial Group has not defaulted in the payment of
the redemption price of any shares of Series A Preferred Stock called for
redemption. See "Redemption at the Option of Oriental Financial Group." The
above limitations do not apply to stock dividends or other distributions made in
stock of Oriental Financial Group ranking junior to the Series A Preferred Stock
as to the payment of dividends and as to the distribution of assets. The above
limitations also do not apply to conversions or exchanges for stock of Oriental
Financial Group ranking junior to the Series A Preferred Stock as to the payment
of dividends and as to the distribution of assets.
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<PAGE> 13
If Oriental Financial Group is unable to pay in full the dividends on the
Series A Preferred Stock and on any other shares of stock of equal rank as to
the payment of dividends with the Series A Preferred Stock, all dividends
declared upon the Series A Preferred Stock and any such other shares of stock
will be declared pro rata. In this event, each share of Series A Preferred Stock
and of the other classes of stock of equal rank will receive dividends in the
same proportion as the full dividends on the Series A Preferred Stock, for the
then-current dividend period (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods) and full dividends,
including required or permitted accumulations, if any, on such other classes of
equally ranked stock, bear to each other.
For a discussion of the tax treatment of distributions to stockholders see
"Taxation," "Puerto Rico Taxation," and "United States Taxation," and for a
discussion on certain potential regulatory limitations on Oriental Financial
Group's ability to pay dividends, see "Risk Factors -- Banking Regulations May
Restrict Oriental Financial Group's Ability to Pay Dividends."
NO CONVERSION OR EXCHANGE RIGHTS
The Series A Preferred Stock will not be convertible into or exchangeable
for any other securities of Oriental Financial Group.
REDEMPTION AT THE OPTION OF ORIENTAL FINANCIAL GROUP
Oriental Financial Group may not redeem the shares of the Series A
Preferred Stock prior to May 30, 2004. On and after that date, Oriental
Financial Group may redeem the Series A Preferred Stock for cash, at its option,
in whole or in part, at the redemption prices shown below plus accrued and
unpaid dividends for the then current monthly dividend period to the redemption
date. The redemption prices for the twelve month periods beginning on May 30,
2004 are shown below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2004...................................................... $25.50
2005...................................................... $25.25
2006 and thereafter....................................... $25.00
</TABLE>
In the event that Oriental Financial Group elects to redeem less than all
of the outstanding shares of the Series A Preferred Stock, the shares to be
redeemed will be allocated pro rata or by lot as may be determined by the board
of directors, or by any other method as the board of directors may consider
fair. Any method chosen by Oriental Financial Group will conform to any rule or
regulation of any national or regional stock exchange or automated quotation
system on which the shares of the Series A Preferred Stock may at the time be
listed or eligible for quotation.
Oriental Financial Group will mail a notice of any proposed redemption to
the holders of record of the shares of Series A Preferred Stock to be redeemed,
at their address of record, not less than 30 nor more than 60 days prior to the
redemption date. The notice of redemption to each holder of shares of Series A
Preferred Stock will specify the number of shares of Series A Preferred Stock to
be redeemed, the redemption date and the redemption price payable to the holder
upon redemption, and shall state that from and after the redemption date
dividends will cease to accrue. If Oriental Financial Group redeems less than
all the shares owned by a holder, the notice will also specify the number of
shares of Series A Preferred Stock of the holder which are to be redeemed and
the numbers of the certificates representing such shares. Any notice mailed in
accordance with these procedures will be conclusively presumed to have been
properly given, whether or not the stockholder receives this notice. The failure
by Oriental Financial Group to give this notice by mail, or any defect in the
notice, to the holders of any shares designated for redemption will not affect
the validity of the proceedings for the redemption of any other shares of Series
A Preferred Stock
If the redemption notice is properly mailed and Oriental Financial Group
pays the redemption price, from and after the redemption date, all dividends on
the shares of Series A Preferred Stock called for redemption will cease to
accrue and all rights of the holders of the shares being redeemed as
stockholders of Oriental Financial Group shall cease on the redemption date.
Holders will retain the right to receive the redemption
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<PAGE> 14
price upon presentation of their stock certificates. If Oriental Financial Group
redeems less than all the shares represented by any certificate, a new
certificate representing the unredeemed shares shall be issued without cost to
the holder.
At its option, Oriental Financial Group may, on or prior to the redemption
date, irrevocably deposit the entire amount payable upon redemption of the
shares of the Series A Preferred Stock to be redeemed with a bank or trust
company designated by Oriental Financial Group having its principal office in
New York, New York, San Juan, Puerto Rico, or any other city in which Oriental
Financial Group shall at that time maintain a transfer agent with respect to its
capital stock, and having a combined capital and surplus of at least $50,000,000
(hereinafter referred to as the "Depositary"). The Depositary will hold this
amount in trust for payment to the holders of the shares of the Series A
Preferred Stock to be redeemed. If the deposit is made and the funds deposited
are immediately available to the holders of the shares of the Series A Preferred
Stock to be redeemed, Oriental Financial Group will no longer have any
obligation to make payment of the amount payable upon redemption of the shares
of the Series A Preferred Stock to be redeemed. Following the deposit, except as
discussed in the next paragraph, holders of these shares shall look only to the
Depositary for payment.
Any funds remaining unclaimed at the end of two years after the redemption
date for which these funds were deposited shall be returned to Oriental
Financial Group. After the funds are returned to Oriental Financial Group, the
holders of shares called for redemption shall look only to Oriental Financial
Group for the payment of the redemption price. Any interest accrued on any funds
deposited with the Depositary will belong to Oriental Financial Group and shall
be paid to Oriental Financial Group on demand.
After the redemption of any shares of the Series A Preferred Stock, the
redeemed shares will have the status of authorized but unissued shares of serial
preferred stock, without designation as to series, until these shares are once
more designated as part of a particular series by the board of directors of
Oriental Financial Group.
Certain Regulatory Considerations Affecting Redemptions
Under regulations adopted by the Federal Reserve Board, Oriental Financial
Group may not redeem the Series A Preferred Stock, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board will not permit
a redemption unless (1) the shares are redeemed with the proceeds of a sale of
common stock or perpetual preferred stock, or (2) the Federal Reserve Board
determines that Oriental Financial Group's condition and circumstances warrant
the reduction of a source of permanent capital.
Also, under Section 8.04 of the Puerto Rico General Corporation Law,
Oriental Financial Group may not redeem any shares of its capital stock unless
the assets remaining after the redemption are sufficient to pay any debts for
which payment has not otherwise been provided.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution, or winding up of Oriental Financial
Group, the record holders of shares of Series A Preferred Stock will be entitled
to receive out of the assets of Oriental Financial Group available for
distribution to shareholders, before any distribution is made to holders of
common stock or any other equity securities of Oriental Financial Group ranking
junior upon liquidation to the Series A Preferred Stock, the amount of $25 per
share plus an amount equal to any accrued and unpaid dividends for the current
monthly dividend period to the date of payment.
If Oriental Financial Group is liquidated or dissolved and the amounts
payable with respect to the Series A Preferred Stock and any other shares of
stock of equal rank upon liquidation are not paid in full, the holders of the
Series A Preferred Stock and of the other shares will share ratably in any such
distribution of assets in proportion to the full liquidation preferences to
which each would otherwise be entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of shares of
Series A Preferred Stock will not be entitled to any further participation in
any distribution of assets of Oriental Financial Group.
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<PAGE> 15
A consolidation or merger of Oriental Financial Group with any other
corporation, or any sale, lease or conveyance of all or any part of the property
or business of Oriental Financial Group, shall not be deemed to be a
liquidation, dissolution, or winding up of Oriental Financial Group.
VOTING RIGHTS
Holders of the Series A Preferred Stock will not be entitled to receive
notice of or attend or vote at any meeting of stockholders of Oriental Financial
Group, except as described below.
If Oriental Financial Group does not pay dividends in full on the Series A
Preferred Stock for eighteen monthly dividend periods, whether consecutive or
not, the holders of outstanding shares of the Series A Preferred Stock, together
with the holders of any other shares of stock having the right to vote for the
election of directors solely in the event of any failure to pay dividends,
acting as a single class, will be entitled to appoint two additional members to
the board of directors of Oriental Financial Group. They will also have the
right to remove any member so appointed from office and appoint another person
in place of such member. To make this appointment, the holders of a majority in
liquidation preference of these shares must send written notice of the
appointment to Oriental Financial Group or pass a resolution adopted by a
majority of holders at a separate general meeting of those holders called for
this purpose.
Not later than 30 days after the right of holders of Series A Preferred
Stock to elect directors arises, if written notice by a majority of the holders
has not been given as provided for in the preceding sentence, the board of
directors of Oriental Financial Group or an authorized board committee is
required to call a separate general meeting for this purpose. If the board of
directors fails to convene this meeting within the 30-day period, the holders of
10% of the outstanding shares of the Series A Preferred Stock and any such other
stock will be entitled to convene the meeting.
The provisions of the certificate of incorporation, as amended, and by-laws
of Oriental Financial Group relating to the convening and conduct of general
meetings of stockholders will apply to any separate general meeting of this
type. Any member of the board of directors appointed as described above shall
vacate office if Oriental Financial Group resumes the payment of dividends in
full on the Series A Preferred Stock and each other series of stock having
similar voting rights for twelve consecutive monthly dividend periods. The
by-laws of Oriental Financial Group provide that the board of directors shall
consist of such number of directors as established from time to time by a vote
of a majority of the board of directors, provided that no decrease in the number
of directors shall have the effect of shortening the term of any incumbent
director. As of the date of this prospectus, Oriental Financial Group's board of
directors consisted of nine members.
Any change or cancellation of the rights and preferences of the Series A
Preferred Stock will require the approval of holders of at least two thirds of
the outstanding aggregate liquidation preference of the Series A Preferred
Stock. This approval can by evidenced either by a consent in writing or by a
resolution passed at a meeting of the holders of the Series A Preferred Stock.
The authorization or issuance of any shares of Oriental Financial Group ranking
senior to the Series A Preferred Stock as to dividend rights or rights on
liquidation or similar events, will be considered a change requiring the consent
of the Series A Preferred Stock. Conversely, the authorization or issuance of
shares ranking, as to dividend rights or rights on liquidation or similar
events, on a parity or junior to the Series A Preferred Stock, will not be
considered a change or abrogation of the rights of the Series A Preferred Stock
and the consent of the holders of the Series A Preferred Stock will not be
required in connection with this action.
No vote of the holders of the Series A Preferred Stock will be required for
Oriental Financial Group to redeem or purchase and cancel the Series A Preferred
Stock in accordance with the certificate of incorporation, as amended, or the
Certificate of Designation for the Series A Preferred Stock.
Oriental Financial Group will cause a notice of any meeting at which
holders of the Series A Preferred Stock are entitled to vote to be mailed to
each record holder of the Series A Preferred Stock. Each notice will contain (1)
the date of the meeting, (2) a description of any resolution to be proposed for
adoption at the meeting, and (3) instructions for deliveries of proxies.
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<PAGE> 16
Certain Regulatory Issues Related to Voting Rights
Under regulations adopted by the Federal Reserve Board, if the holders of
shares of Series A Preferred Stock become entitled to vote for the election of
directors as described above, the Series A Preferred Stock could be deemed a
"class of voting securities." In this instance, a holder of 25% or more of the
Series A Preferred Stock could then be subject to regulation as a bank holding
company in accordance with the Bank Holding Company Act. A holder of 5% that
otherwise exercises a "controlling influence" over Oriental Financial Group
could also be subject to regulation under the Bank Holding Company Act. In
addition, at any time the Series A Preferred Stock is deemed a class of voting
securities, (1) any other bank holding company may be required to obtain the
approval of the Federal Reserve Board to acquire or retain 5% or more of the
outstanding shares of Series A Preferred Stock, and (2) any person other than a
bank holding company may be required to file with the Federal Reserve Board
under the Change in Bank Control Act to acquire or retain 10% or more of such
series.
Section 12 of the Puerto Rico Banking Law requires that the Office of the
Commissioner of Financial Institutions of Puerto Rico approve any change of
control involving a bank organized under the Banking Law. The Banking Law
requires that the Office of the Commissioner be informed not less than 60 days
prior to any transfer of voting stock of a Puerto Rico bank that results in any
person owning, directly or indirectly, more than 5% of the outstanding voting
stock of the bank. For the purposes of Section 12 of the Banking Law, the term
"control" means the power to, directly or indirectly, direct or influence
decisively the administration or the norms of the bank. The Office of the
Commissioner has made an administrative determination that these provisions of
the Banking Law are applicable to a change in control of Oriental Financial
Group.
Pursuant to the Banking Law, if the Office of the Commissioner receives
notice of a proposed transaction that may result in a change of control of
Oriental Financial Group, the Office of the Commissioner is required to
investigate and determine whether a change of control has occurred. The Office
of the Commissioner will issue an authorization for the transfer of control of
Oriental Financial Group if the results of its investigations are in its
judgment satisfactory. The decision of the Office of the Commissioner is final
and unreviewable.
RANK
The Series A Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank:
- senior to all classes of common stock of Oriental Financial Group, and to
all other equity securities issued by Oriental Financial Group the terms
of which specifically provide that those equity securities will rank
junior to the Series A Preferred Stock;
- on a parity with all other equity securities issued by Oriental Financial
Group the terms of which specifically provide that those equity
securities will have equal rank as the Series A Preferred Stock; and
- junior to all equity securities issued by Oriental Financial Group the
terms of which specifically provide that those equity securities will
rank senior to the Series A Preferred Stock.
For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.
Oriental Financial Group may not issue shares ranking, as to dividend
rights or rights on liquidation, winding up and dissolution, senior to the
Series A Preferred Stock, except with the consent of the holders of at least
two-thirds of the outstanding aggregate liquidation preference of the Series A
Preferred Stock. See "Voting Rights" above.
TRANSFER AGENT; DIVIDEND DISBURSING AGENT; REGISTRAR
American Stock Transfer and Trust Company will initially act as the
transfer agent, dividend disbursing agent and registrar for the Series A
Preferred Stock. Holders of the Series A Preferred Stock may contact
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<PAGE> 17
American Stock Transfer and Trust Company, at the following address: 40 Wall
Street, 46th Floor, New York, New York 10005, toll-free telephone number
1-800-937-5449, fax number 718-236-4588.
The transfer of a share of Series A Preferred Stock may be registered upon
the surrender of the certificate evidencing the share of Series A Preferred
Stock to be transferred, together with the form of transfer endorsed on it duly
completed and executed, at the office of the transfer agent and registrar.
Registration of transfers of shares of Series A Preferred Stock will be
effected without charge by or on behalf of Oriental Financial Group, but upon
payment of any tax or other governmental charges which may be imposed in
relation to it or the giving of an indemnity as the transfer agent and registrar
may require.
Oriental Financial Group will not be required to register the transfer of a
share of Series A Preferred Stock after the share has been called for
redemption.
REPLACEMENT OF LOST CERTIFICATES
If any certificate for a share of Series A Preferred Stock is mutilated or
alleged to have been lost, stolen or destroyed, the holder may request a new
certificate representing the same share. Oriental Financial Group will issue a
new certificate subject to delivery of the old certificate or, if alleged to
have been lost, stolen or destroyed, compliance with the conditions as to
evidence of ownership and indemnity. In all cases, the holder shall pay the
out-of-pocket expenses of Oriental Financial Group as Oriental Financial Group
may determine.
NO PREFERENTIAL RIGHTS TO PURCHASE ADDITIONAL SECURITIES
Holders of the Series A Preferred Stock will have no preemptive or
preferential rights to purchase or subscribe for any securities of Oriental
Financial Group.
NO REPURCHASE AT THE OPTION OF THE HOLDERS
Holders of the Series A Preferred Stock will have no right to require
Oriental Financial Group to redeem or repurchase any shares of Series A
Preferred Stock.
NO MANDATORY REDEMPTION OR SINKING FUNDING OBLIGATION
The shares of Series A Preferred Stock are not subject to any mandatory
redemption, sinking fund or similar obligation.
PURCHASE OF SHARES BY ORIENTAL FINANCIAL GROUP
Oriental Financial Group may, at its option, purchase shares of the Series
A Preferred Stock from holders thereof from time to time, by tender, in
privately negotiated transactions or otherwise.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL
Oriental Financial Group is authorized to issue 40,000,000 shares of common
stock, $1.00 par value per share, and 5,000,000 shares of preferred stock, $1.00
par value per share. The following is a summary of certain rights and privileges
of the common stock and serial preferred stock. Statements in this summary are
qualified in their entirety by reference to Oriental Financial Group's
certificate of incorporation, as amended, and to the General Corporation Law of
Puerto Rico.
COMMON STOCK
As of February 28, 1999, there were 13,560,474 shares of common stock
issued, of which 13,014,988 were outstanding and 545,486 were held by Oriental
Financial Group as treasury shares. As of that date, a total of 750,000 shares
were reserved for issuance in connection with Oriental Financial Group's 1998
Incentive Stock
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<PAGE> 18
Option Plan. Under the 1996 Incentive Stock Option Plan, 1,025,590 shares were
issued and are outstanding and 24,147 shares were reserved for issuance. All
stock options issued under the 1996 Incentive Stock Option Plan are contingent
upon Oriental Financial Group meeting or exceeding certain financial goals.
Under the 1988 Stock Option Plan, 402,100 shares were issued and are
outstanding. The common stock is traded in the New York Stock Exchange under the
symbol "OFG." The holders of the common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Each
share of common stock has the same relative rights as, and is identical in all
respects with, each other share of common stock. At each annual meeting of
stockholders in which more than one director is being elected, every stockholder
entitled to vote at such election has the right to vote, in person or by proxy,
the number of shares owned by the stockholder for as many persons as there are
directors to be elected and for whose election the stockholder has a right to
vote, or to accumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of his shares
equals, or by distributing such votes on the same principle among any number of
candidates.
Subject to the rights of holders of the Series A Preferred Stock and any
other outstanding shares of preferred stock, in the event of the liquidation,
dissolution or distribution of assets of Oriental Financial Group, the holders
of common stock are entitled to share ratably in the assets legally available
for distribution to stockholders. The common stock has no redemption, conversion
or sinking fund privileges.
Subject to any dividend preferences which may be established with respect
to any series of serial preferred stock, the holders of common stock are
entitled to receive, pro rata, dividends when and as declared by the board of
directors out of funds legally available for the payment of dividends.
Holders of common stock do not have preemptive rights to subscribe for or
purchase additional securities of Oriental Financial Group.
American Stock Transfer and Trust Company is the transfer agent and
registrar for the common stock.
PREFERRED STOCK
The certificate of incorporation, as amended, authorizes the board of
directors to fix the designation, voting powers, preferences, limitations and
relative rights of any series of Oriental Financial Group's serial preferred
stock at the time of issuance. As of the date of this prospectus, there are no
series of preferred stock designated by Oriental Financial Group, other than the
Series A Preferred Stock.
TAXATION
GENERAL
In the opinion of McConnell Valdes, San Juan, Puerto Rico, counsel to
Oriental Financial Group, the following discussion summarizes the material
Puerto Rico and United States tax considerations relating to the purchase,
ownership and disposition of Series A Preferred Stock. This discussion does not
intend to describe all of the tax considerations that may be relevant to a
particular investor in light of that person's particular circumstances and does
not describe any tax consequences arising under the laws of any state, locality
or taxing jurisdiction other than Puerto Rico and the United States.
This discussion is based on the tax laws of Puerto Rico and the United
States as in effect on the date of this prospectus, as well as regulations,
administrative pronouncements and judicial decisions available on or before such
date and now in effect. All of the foregoing are subject to change, which change
could apply retroactively and could affect the continued validity of this
summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE APPLICATION TO YOUR
PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE
APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX.
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PUERTO RICO TAXATION
The following discussion does not intend to cover all aspects of Puerto
Rico taxation that may be relevant to a purchaser of Series A Preferred Stock in
light of the purchaser's particular circumstances, or to purchasers subject to
special rules of taxation, such as life insurance companies, "Special
Partnerships," "Subchapter N Corporations," registered investment companies, and
certain pension trusts.
For purposes of the discussion below, a "Puerto Rico corporation" is a
corporation organized under the laws of Puerto Rico and a "foreign corporation"
is a corporation organized under the laws of a jurisdiction other than Puerto
Rico.
OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK
Taxation of Dividends.
General. Distributions of cash or other property made by Oriental
Financial Group on the Series A Preferred Stock will be treated as dividends to
the extent that Oriental Financial Group has current or accumulated earnings and
profits. To the extent that a distribution exceeds Oriental Financial Group's
current and accumulated earnings and profits, the distribution will be applied
against and reduce the adjusted tax basis of the Series A Preferred Stock in the
hands of the holder. The excess of any distribution of this type over the
adjusted tax basis will be treated as gain on the sale or exchange of the Series
A Preferred Stock and will be subject to income tax as described below.
The following discussion regarding the income taxation of dividends on
Series A Preferred Stock received by individuals not residents of Puerto Rico
and foreign corporations not engaged in a trade or business in Puerto Rico
assumes that dividends will constitute income from sources within Puerto Rico.
Generally, a dividend declared by a Puerto Rico corporation will constitute
income from sources within Puerto Rico unless the corporation derived less than
20% of its gross income from sources within Puerto Rico for the three taxable
years preceding the year of the declaration. Oriental Financial Group has
represented that it has derived more than 20% of its gross income from Puerto
Rico sources on an annual basis since its incorporation in 1972.
Individual Residents of Puerto Rico and Puerto Rico Corporations. In
general, individuals who are residents of Puerto Rico will be subject to a
special 10% income tax (the "10% Special Tax") on dividends paid on the Series A
Preferred Stock. This tax is generally required to be withheld by Oriental
Financial Group or dividends paid on the Series A Preferred Stock. An individual
may elect for this withholding not to apply, and in that case he or she will be
required to include the amount of the dividend as ordinary income and will be
subject to income tax thereon at the normal income tax rates, which may be up to
33%.
Puerto Rico corporations will be subject to income tax on dividends paid on
the Series A Preferred Stock at the normal corporate income tax rates, subject
to the dividend received deduction discussed below. In the case of a Puerto Rico
corporation, no withholding will be imposed on dividends paid on the Series A
Preferred Stock. The dividend received deduction will be equal to 85% of the
dividend received, but the deduction may not exceed 85% of the corporation's net
taxable income. Based on the applicable maximum Puerto Rico normal corporate
income tax rate of 39%, the maximum effective income tax rate on these dividends
will be 5.85% after accounting for the dividend received deduction.
As a practical matter, dividends on the Series A Preferred Stock held in
"street name" through foreign financial institutions or other securities
intermediaries not engaged in trade or business in Puerto Rico will generally be
subject to a separate 10% withholding tax imposed on foreign corporations. See
"Foreign Corporations." Accordingly, individuals resident of Puerto Rico who
desire to file an election out of the applicable 10% Special Tax and applicable
withholding tax should have their shares of Series A Preferred Stock issued and
registered in their own name. Similarly, Puerto Rico corporations that own any
shares of Series A Preferred Stock and wish to avoid the withholding imposed on
foreign corporations should have their shares issued and registered in their own
name in order to ensure that no withholding is made on dividends.
United States Citizens Not Residents of Puerto Rico. Dividends paid on the
Series A Preferred Stock to a United States citizen who is not a resident of
Puerto Rico will be subject to the 10% Special Tax which will
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be withheld by Oriental Financial Group. These individuals may elect for the 10%
Special Tax and withholding not to apply, and in that case he or she will be
required to include the amount of the dividend as ordinary income and will be
subject to income tax thereon at the normal income tax rates, which may be up to
33%. Notwithstanding the making of this election, a separate 10% withholding tax
will be required on the amount of the dividend unless the individual timely
files with Oriental Financial Group or its agent a withholding exemption
certificate to the effect that the individual's gross income from sources within
Puerto Rico during the taxable year does not exceed $1,300 if single or $3,000
if married. Withholding exemption certificates will only be accepted by Oriental
Financial Group or its agent from individuals who have the shares of Series A
Preferred Stock registered in their names. Individuals who hold shares of Series
A Preferred Stock in "street name" will not be eligible to file with Oriental
Financial Group or its agent withholding exemption certificates.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. Dividends paid on the Series A Preferred Stock to any individual who is
not a citizen of the United States and who is not a resident of Puerto Rico will
generally be subject to a 10% tax which will be withheld at source by Oriental
Financial Group.
Foreign Corporations. The income taxation of dividends paid on the Series
A Preferred Stock to a foreign corporation will depend on whether or not the
corporation is engaged in a trade or business in Puerto Rico in the taxable year
of the dividend.
A foreign corporation that is engaged in a trade or business in Puerto Rico
will be subject to the normal corporate income tax rates applicable to Puerto
Rico corporations on their net income that is effectively connected with the
trade or business in Puerto Rico. This income will include all net income from
sources within Puerto Rico and certain items of net income from sources outside
Puerto Rico that are effectively connected with the trade or business in Puerto
Rico. Net income from sources within Puerto Rico will include dividends on the
Series A Preferred Stock. A foreign corporation that is engaged in a trade or
business in Puerto Rico will be entitled to claim the 85% dividend received
deduction discussed above in connection with Puerto Rico corporations.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico are also subject to a 10% branch profits tax. However, dividends on
the Series A Preferred Stock received by these corporations will be excluded
from the computation of the branch profits tax liability of these corporations.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the
Series A Preferred Stock.
Partnerships. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to Puerto Rico
and foreign corporations is equally applicable in the case of most Puerto Rico
and foreign partnerships, respectively.
Taxation of Gains Upon Sales or Exchanges other than Redemptions.
General. The sale or exchange of Series A Preferred Stock will give rise
to gain or loss equal to the difference between the amount realized on the sale
or exchange and the tax basis of the Series A Preferred Stock in the hands of
the holder. Any gain or loss that is required to be recognized will be a capital
gain or loss if the Series A Preferred Stock is held as a capital asset by the
holder and will be a long-term capital gain or loss if the stockholders' holding
period of the Series A Preferred Stock exceeds six months.
Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on
the sale or exchange of Series A Preferred Stock by an individual resident of
Puerto Rico or a Puerto Rico corporation will generally be required to be
recognized as gross income and will be subject to income tax. If the stockholder
is an individual and the gain is a long-term capital gain, the gain will be
taxable at a maximum rate of 20%.
If the stockholder is a Puerto Rico corporation and the gain is a long-term
capital gain, the gain will qualify for an alternative tax rate of 25%.
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<PAGE> 21
United States Citizens Not Residents of Puerto Rico. A United States
citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico
income tax on the sale or exchange of Series A Preferred Stock if the gain
resulting therefrom constitutes income from sources outside Puerto Rico.
Generally, gain on the sale or exchange of Series A Preferred Stock will be
considered to be income from sources outside Puerto Rico if all rights, title
and interest in or to the Series A Preferred Stock are transferred outside
Puerto Rico, and if the delivery or surrender of the instruments that evidence
the Series A Preferred Stock is made to an office of a paying or exchange agent
located outside Puerto Rico. If the gain resulting from the sale or exchange
constitutes income from sources within Puerto Rico, an amount equal to 20% of
the payments received will be withheld at the source; and if the gain
constitutes a long-term capital gain, it will be subject to a tax at a maximum
rate of 20%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described above under
"United States Citizens Not Residents of Puerto Rico." However, if the gain
resulting from the sale or exchange of Series A Preferred Stock constitutes
income from sources within Puerto Rico, an amount equal to 25% of the gain will
be withheld at the source; provided, that if the gain resulting from the sale or
exchange represents a net capital gain, the individual will generally be subject
to tax on this gain at a fixed rate of 29%. The amount of tax withheld at source
will be creditable against the shareholder's Puerto Rico income tax liability.
Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to Puerto Rico corporate
income tax on any gain realized on the sale or exchange of Series A Preferred
Stock if the gain is (1) from sources within Puerto Rico or (2) from sources
outside Puerto Rico and effectively connected with a trade or business in Puerto
Rico. Any such gain will qualify for an alternative tax of 25% if it qualifies
as a long-term capital gain.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax. In the computation
of this tax, any gain realized by these corporations on the sale or exchange of
Series A Preferred Stock and that is subject to Puerto Rico income tax will be
taken into account. However, a deduction will be allowed in the computation for
any income tax paid on the gain realized on the sale or exchange.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Series A Preferred Stock if the
gain is from sources within Puerto Rico. Gain on the sale or exchange of Series
A Preferred Stock will generally not be considered to be from sources within
Puerto Rico if all rights, title and interest in or to the Series A Preferred
Stock are transferred outside Puerto Rico, and if the delivery or surrender of
the instruments that evidence the Series A Preferred Stock is made to an office
of a paying or exchange agent located outside Puerto Rico. If the gain resulting
from the sale or exchange constitutes income from sources within Puerto Rico, an
amount equal to 25% of the gain will be withheld at the source and be creditable
against the shareholder's Puerto Rico income tax liability. In the case of such
foreign corporation, no income tax will be imposed if the gain constitutes
income from sources outside Puerto Rico.
Partnerships. Partnerships are generally taxed as corporations.
Accordingly, the discussion with respect to Puerto Rico and foreign corporations
is equally applicable to most Puerto Rico and foreign partnerships,
respectively.
Taxation of Redemptions.
A redemption of shares of the Series A Preferred Stock for cash will be
treated as a distribution taxable as a dividend to the extent of Oriental
Financial Group's current or accumulated earnings and profits if it is
"essentially equivalent to a dividend." Under regulations issued by the
Department of the Treasury of Puerto Rico (1) a redemption of stock that
completely terminates a shareholder's interest in a corporation does not
constitute a dividend, and (2) certain pro rata redemptions among all the
shareholders will be treated as a dividend. In situations not described by these
regulations, the Department of the Treasury of Puerto Rico will
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generally follow principles applied by the United States Internal Revenue
Service under the United States Internal Revenue Code of 1986, in determining
whether a distribution is essentially equivalent to a dividend. The Department
of the Treasury of Puerto Rico, however, is not bound by IRS determinations on
this issue and is free to adopt a different rule.
If the redemption of the Series A Preferred Stock is not treated as a
dividend, it will generally generate gain or loss that will be measured as
provided above under "Taxation of Gains upon Sales or Exchanges (Not including
Redemptions)" for a sale or exchange of Series A Preferred Stock. Gain on the
redemption of Series A Preferred Stock will generally be recognized and will be
subject to income tax. If the stockholder of the Series A Preferred Stock is an
individual resident of Puerto Rico and the gain is a long-term capital gain, the
gain will be taxable at a maximum rate of 20%. If the stockholder is a Puerto
Rico corporation and the gain is a long-term capital gain, the gain will qualify
for the alternative tax rate of 25%.
If the stockholder of the Series A Preferred Stock is an individual who is
not a resident of Puerto Rico or a foreign corporation or foreign partnership,
any gain realized by the holder on the redemption of the Series A Preferred
Stock that is not taxable as a dividend may be subject to Puerto Rico income tax
if the gain constitutes income from sources within Puerto Rico or is effectively
connected with a trade or business conducted by the holder in Puerto Rico. The
Puerto Rico income tax law does not clearly provide a source of income rule for
a gain of this nature. As a result thereof, these prospective shareholders
should be aware that a gain realized from a redemption of the Series A Preferred
Stock may be subject to Puerto Rico income tax.
ESTATE AND GIFT TAXATION
The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to estate and gift tax if the
individual is a citizen of the United States who acquired his or her citizenship
solely by reason of birth or residence in Puerto Rico. Other individuals should
consult their own tax advisors in order to determine the appropriate treatment
for Puerto Rico estate and gift tax purposes of the transfer of the Series A
Preferred Stock by death or gift.
MUNICIPAL LICENSE TAXATION
Individuals and corporations that are not engaged in a trade or business in
Puerto Rico will not be subject to municipal license tax on dividends paid on
the Series A Preferred Stock or on any gain realized on the sale, exchange or
redemption of the Series A Preferred Stock.
A corporation or partnership, Puerto Rico or foreign, that is engaged in a
trade or business in Puerto Rico will generally be subject to municipal license
tax on dividends paid on the Series A Preferred Stock and on the gain realized
on the sale, exchange or redemption of the Series A Preferred Stock if the
dividends or gain are attributable to that trade or business. The municipal
license tax is imposed on the volume of business of the taxpayer, and the tax
rates range from a maximum of 1.5% for financial businesses to a maximum of 0.5%
for other businesses.
PROPERTY TAXATION
The Series A Preferred Stock will not be subject to Puerto Rico property
tax.
UNITED STATES TAXATION
The following discussion is limited to the United States federal tax
consequences of the ownership and disposition of the Series A Preferred Stock by
U.S. Holders, as defined below, and corporations organized under the laws of
Puerto Rico ("PR Corporations"). This discussion is based on the existing United
States Internal Revenue Code of 1986 (the "Code") and proposed regulations of
the U.S. Department of the Treasury promulgated thereunder, administrative
pronouncements and judicial decisions, all of which are subject to change, even
with retroactive effect. This discussion deals only with Series A Preferred
Stock held by initial purchasers as capital assets within the meaning of Section
1221 of the Code. It does not discuss all of
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<PAGE> 23
the tax consequences that may be relevant to a purchaser in light of that
person's particular circumstances or to purchasers subject to special rules,
such as entities that are taxed under the Code as partnerships, "Subchapter S
Corporations," life insurance companies, tax exempt entities, dealers in
securities, financial institutions, or to persons whose functional currency is
not the U.S. dollar.
As used herein, the term "U.S. Holder" means a beneficial owner of Series A
Preferred Stock that does not own directly, constructively or by attribution 10%
or more of the voting stock of the Company and is, for United States federal
income tax purposes:
- a citizen or resident of the United States,
- a corporation organized under the laws of a state of the United States,
- a corporation organized under the laws of the United States or of any
political subdivision thereof, or
- an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
The term "U.S. Holder" does not include individual Puerto Rico residents
who are not citizens or residents of the United States nor does it include PR
Corporations. As used herein, the term "Puerto Rico U.S. Holder" means an
individual U.S. Holder who is a bona fide resident of Puerto Rico during the
entire taxable year (or, in certain cases, a portion thereof).
OWNERSHIP AND DISPOSITION OF THE SERIES A PREFERRED STOCK
Taxation of Dividends.
General. Under the source of income rules of the Code, dividends on the
Series A Preferred Stock will constitute gross income from sources outside the
United States if less than 25% of Oriental Financial Group's gross income on an
ongoing basis is effectively connected with a trade or business in the United
States. Since its incorporation in 1972, Oriental Financial Group has not, nor
does it expect in the future, that 25% or more of its gross income will be
effectively connected with a trade or business in the United States.
Accordingly, dividends on the Series A Preferred Stock distributed by Oriental
Financial Group will constitute gross income from sources outside the United
States so long as Oriental Financial Group continues to meet the gross income
test described above.
U.S. Holders other than Puerto Rico U.S. Holders. Subject to the
discussion under "Passive Foreign Investment Company Rules" below, distributions
made with respect to the Series A Preferred Stock, including the amount of any
Puerto Rico taxes withheld on the distribution, will be includable in the gross
income of a U.S. Holder, other than a Puerto Rico U.S. Holder, as foreign source
gross income to the extent the distributions are paid out of current or
accumulated earnings and profits of Oriental Financial Group as determined for
United States federal income tax purposes. These dividends will not be eligible
for the dividends received deduction generally allowed to U.S. Holders that are
corporations. To the extent, if any, that the amount of any distribution by
Oriental Financial Group exceeds its current and accumulated earnings and
profits as determined under United States federal income tax principles, it will
be treated first as a tax-free return of the U.S. Holder's tax basis in the
Series A Preferred Stock and thereafter as capital gain.
Subject to certain conditions and limitations contained in the Code, any
Puerto Rico income tax imposed on dividends distributed by Oriental Financial
Group in accordance with Puerto Rico law will be eligible for credit against the
U.S. Holder's United States federal income tax liability. See "Puerto Rico
Taxation -- Ownership and Disposition of Series A Preferred Stock -- Taxation of
Dividends" above. For purposes of calculating a U.S. Holder's United States
foreign tax credit limitation, dividends distributed by Oriental Financial Group
will generally constitute foreign source "passive income" or, in the case of
certain U.S. Holders (those predominantly engaged in the active conduct of a
banking, financing or similar business), foreign source "financial services
income."
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"Passive Foreign Investment Company Rules" below, distributions of dividends
made by Oriental Financial Group on the Series A
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<PAGE> 24
Preferred Stock to a Puerto Rico U.S. Holder will constitute gross income from
sources within Puerto Rico, will not be includable in the stockholder's gross
income and will be exempt from United States federal income taxation. In
addition, for United States federal income tax purposes, no deduction or credit
will be allowed that is allocable to or chargeable against amounts so excluded
from the Puerto Rico U.S. Holder's gross income.
PR Corporations. In general, distributions of dividends made by Oriental
Financial Group on the Series A Preferred Stock to a PR Corporation will not, in
the hands of the PR Corporation, be subject to United States income tax if the
dividends are not effectively connected with a United States trade or business
of the PR Corporation and the PR Corporation is not treated as a domestic
corporation for purposes of the Code. The Code provides special rules for PR
Corporations that are "Controlled Foreign Corporations," "Personal Holding
Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment
Companies."
Taxation of Capital Gains.
U.S. Holders other than Puerto Rico U.S. Holders. A U.S. Holder, other
than a Puerto Rico U.S. Holder, will recognize gain or loss on the sale or other
disposition of Series A Preferred Stock, including redemptions treated as sales
or exchanges of the Series A Preferred Stock under Section 302 of the Code, in
an amount equal to the difference between the U.S. Holder's adjusted tax basis
in the Series A Preferred Stock and the amount realized on the sale or other
disposition. Subject to the discussion under "Passive Foreign Investment Company
Rules" below, the gain or loss will be a capital gain or loss. U.S. Holders
should consult their own tax advisors concerning the treatment of capital gains
and losses. Redemptions of the Series A Preferred Stock that are not treated as
sales or exchanges under Section 302 of the Code will generally be subject to
income tax under the Code as dividends.
Gain recognized by a U.S. Holder on the sale or other disposition of Series
A Preferred Stock generally will be treated as United States source income.
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"Passive Foreign Investment Company Rules" below, gain from the sale or exchange
of the Series A Preferred Stock, including redemptions treated as sales or
exchanges of the Series A Preferred Stock under Section 302 of the Code, by a
Puerto Rico U.S. Holder that is a resident of Puerto Rico for purposes of
Section 865(g)(1) of the Code (1) will constitute income from sources within
Puerto Rico, (2) will not be includable in the stockholder's gross income and
(3) will be exempt from United States federal income taxation. Also, no
deduction or credit will be allowed that is allocable to or chargeable against
amounts so excluded from the Puerto Rico U.S. Holder's gross income. Redemptions
of the Series A Preferred Stock that are not treated as sales or exchanges under
Section 302 of the Code will generally be subject to income tax under the Code
as dividends.
PR Corporations. In general, any gain derived by a PR Corporation from the
sale or exchange of the Series A Preferred Stock will not, in the hands of the
PR Corporation, be subject to United States income tax if the gain is not
effectively connected with a United States trade or business of the PR
Corporation and the PR Corporation is not treated as a domestic corporation for
purposes of the Code. The Code provides special rules for PR Corporations that
are "Controlled Foreign Corporations," "Personal Holding Companies," "Foreign
Personal Holding Companies," or "Passive Foreign Investment Companies."
Redemptions of the Series A Preferred Stock that are not treated as sales or
exchanges under Section 302 of the Code will generally be subject to income tax
under the Code as dividends.
Backup Withholding. Certain corporate U.S. Holders may be subject to
backup withholding at the rate of 31% on dividends paid or the proceeds of a
sale, exchange or redemption of Series A Preferred Stock. Generally, backup
withholding applies only when the taxpayer fails to furnish or certify a proper
taxpayer identification number or when the payor is notified by the IRS that the
taxpayer has failed to report payments of interest and dividends properly. U.S.
Holders should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any applicable
exemption.
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<PAGE> 25
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Code provides special rules for distributions received by U.S. Holders
on stock of a Passive Foreign Investment Company ("PFIC") as well as amounts
received from the sale or other disposition of PFIC stock. For purposes of these
rules pledges are considered dispositions.
Based upon certain proposed Treasury Regulations under the PFIC provisions
of the Code (the "Proposed Regulations"), Oriental Financial Group believes that
it has not been a PFIC for any of its prior taxable years and expects to conduct
its affairs in a manner so that it will not meet the criteria to be considered a
PFIC in the foreseeable future. If, contrary to Oriental Financial Group's
expectation, the Series A Preferred Stock were considered to be shares of a PFIC
for any fiscal year, a U.S. Holder would generally be subject to special rules,
regardless of whether Oriental Financial Group remains a PFIC, with respect to
(1) any "excess distribution" by Oriental Financial Group to the U.S. Holder and
(2) any gain realized on the sale, pledge or other disposition of Series A
Preferred Stock. An "excess distribution" is, generally, any distributions
received by the U.S. Holder on the Series A Preferred Stock in a taxable year
that are greater than 125% of the average annual distributions received by the
U.S. Holder in the three preceding taxable years, or the U.S. Holder's holding
period for the Series A Preferred Stock if shorter.
Under these rules, (1) the excess distribution or gain would be allocated
ratably over the U.S. Holder's holding period for the Series A Preferred Stock,
(2) the amount allocated to the current taxable year and any taxable year prior
to the first taxable year in which Oriental Financial Group is a PFIC would be
taxed as ordinary income, and (3) the amount allocated to each of the other
taxable years would be subject to tax at the highest rate of tax in effect for
the applicable class of taxpayer for that year, and an interest charge for the
deemed deferral benefit would be imposed on the resulting tax attributable to
each such year.
As an alternative to these rules, if Oriental Financial Group were a PFIC,
U.S. Holders may, in certain circumstances, elect a mark-to-market treatment
with respect to their Series A Preferred Stock, provided that the Series A
Preferred Stock will constitute "marketable stock" for purposes of these rules.
In general, the Proposed Regulations provide that Puerto Rico U.S. Holders
would be subject to the rule described in (3) above only to the extent that any
excess distribution or gain is allocated to a taxable year during which the
individual held the Series A Preferred Stock and was not a bona fide resident of
Puerto Rico during the entire taxable year or, in certain cases, a portion
thereof.
Under current law, if Oriental Financial Group is a PFIC in any year, a
U.S. Holder who beneficially owns Series A Preferred Stock during that year must
make an annual return on IRS Form 8621 that describes any distributions received
from Oriental Financial Group and any gain realized on the disposition of Series
A Preferred Stock.
ESTATE AND GIFT TAXATION
The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to U.S. federal estate and gift tax
if the individual is a citizen of the United States who acquired his or her
citizenship solely by reason of birth or residence in Puerto Rico. Other
individuals should consult their own tax advisors in order to determine the
appropriate treatment for U.S. federal estate and gift tax purposes of the
transfer of the Series A Preferred Stock by death or gift.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), Oriental Financial Group has agreed to sell to
each of the underwriters named below, and each of the underwriters severally has
agreed to purchase from Oriental Financial Group, the aggregate number of shares
of Series A Preferred Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES(1)
- ----------- -------------------
<S> <C>
Santander Securities Corporation of Puerto Rico............. 980,000
Keefe, Bruyette & Woods, Inc................................ 245,000
---------
Total............................................. 1,225,000
=========
</TABLE>
- ---------------
(1) Assumes no exercise of the underwriters' over-allotment option.
Under the terms and conditions of the Underwriting Agreement, Oriental
Financial Group is obligated to sell, and the underwriters are obligated to
purchase, all of the shares of Series A Preferred Stock shown in the table
above, if any of the shares of Series A Preferred Stock are purchased.
The underwriters propose to offer the shares of Series A Preferred Stock to
the public initially at the public offering price set forth on the cover page of
this prospectus and to certain selected dealers at the public offering price
less a concession not to exceed $0.375 per share. The underwriters or the
selected dealers may reallow a commission to certain other dealers not to exceed
$0.375 per share. After the offering to the public, the public offering price,
the concession to selected dealers and the reallowance to other dealers may be
changed by the underwriters.
Oriental Financial Group has granted the underwriters an option exercisable
for 30 days from the date of this prospectus, to purchase up to 180,000
additional shares of Series A Preferred Stock to cover over-allotments, if any,
at the initial public offering price, less the underwriting discounts, as shown
on the cover page of this prospectus. If the underwriters exercise this option,
then each of the underwriters will have a firm commitment, subject to certain
conditions contained in the Underwriting Agreement, to purchase a number of
option shares proportionate to the underwriter's initial commitment as indicated
in the table above. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of Series A
Preferred Stock offered hereby.
The offering of the Series A Preferred Stock is being conducted pursuant to
Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. because Oriental Financial Services Corp., an indirect
wholly-owned subsidiary of Oriental Financial Group and registered
broker-dealer, will participate as a member of the selling group for the initial
public offering of the Series A Preferred Stock. In accordance with Rule 2720,
Keefe, Bruyette & Woods, Inc. has acted as "qualified independent underwriter"
and the price of the Series A Preferred Stock was no higher than that
recommended by Keefe, Bruyette & Woods, Inc. as qualified independent
underwriter. Keefe, Bruyette & Woods, Inc., in its role as qualified independent
underwriter, has performed due diligence investigations and reviewed and
participated in the preparation of this prospectus.
The underwriters have informed Oriental Financial Group that, in accordance
with Rule 2720(1) of the Conduct Rules of the National Association of Securities
Dealers, Inc., they will not sell shares of the Series A Preferred Stock to
accounts over which they exercise discretionary authority without the prior
specific written approval of each customer under such account.
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The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Oriental Financial Group as
well as the proceeds received by Oriental Financial Group from the offering,
before deducting expenses. The amounts are shown assuming both no exercise and
full exercise of the underwriters' option to purchase up to an additional
180,000 shares.
<TABLE>
<CAPTION>
TOTAL ASSUMING FULL
EXERCISE OF OVER-
PER SHARE TOTAL ALLOTMENT OPTION
--------- ----------- -------------------
<S> <C> <C> <C>
Public Offering Price................................. $ 25.00 $30,625,000 $35,125,000
Underwriting Discounts................................ $ 0.7875 $ 964,688 $ 1,106,438
Proceeds to Oriental Financial Group.................. $24.2125 $29,660,312 $34,018,562
</TABLE>
Until the distribution of the Series A Preferred Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for and purchase the Series A Preferred Stock. As an
exception to these rules, the underwriters may engage in certain transactions
that stabilize the price of the Series A Preferred Stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Series A Preferred Stock.
If the underwriters create a short position in the Series A Preferred Stock
in connection with the offering, i.e., if the underwriters sell more shares of
Series A Preferred Stock than are set forth on the cover page of this
prospectus, they may reduce that short position by purchasing shares of Series A
Preferred Stock in the open market. The underwriters may also elect to reduce
any short position by purchasing all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases.
Oriental Financial Group estimates that the total expenses of this
offering, excluding underwriting discounts and commissions, will be $265,000.
This amount includes the reimbursement of certain out-of-pocket expenses to the
underwriters.
In connection with this offering, Oriental Financial Group has agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments that
the underwriters may be required to make in respect thereof.
The New York Stock Exchange has approved for listing the Series A Preferred
Stock under the symbol "OFGPrA." Trading of the Series A Preferred Stock on the
New York Stock Exchange is expected to commence within 30 days of its initial
issuance. The underwriters have advised Oriental Financial Group that they
intend to make a market in the Series A Preferred Stock prior to commencement of
trading in the New York Stock Exchange. The underwriters will have no obligation
to make a market in the Series A Preferred Stock, and may cease market making
activities, if commenced, at any time.
The underwriters have from time to time been customers of, engaged in
transactions with, or performed services for, Oriental Financial Group and its
subsidiaries in the ordinary course of business. The underwriters may continue
to do so in the future.
WHERE YOU CAN FIND MORE INFORMATION
Oriental Financial Group files annual, quarterly and current reports, proxy
statements and other information with the SEC. Oriental Financial Group has also
filed with the SEC a Registration Statement on Form S-3, to register the Series
A Preferred Stock being offered in this prospectus. This prospectus, which forms
part of the Registration Statement, does not contain all of the information
included in the Registration Statement. For further information about Oriental
Financial Group and the shares of Series A Preferred Stock offered in this
prospectus, you should refer to the Registration Statement and its exhibits.
You may read and copy any document filed by Oriental Financial Group with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Oriental Financial
Group
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files its SEC materials electronically with the SEC, so you can also review
Oriental Financial Group's filings by accessing the website maintained by the
SEC at http://www.sec.gov. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. You can also obtain more information about Oriental Financial Group by
visiting its website at http://www.orientalfinancial.com.
The SEC allows Oriental Financial Group to "incorporate by reference" the
information it files with them, which means Oriental Financial Group can
disclose important information to you by referring to these documents. The
information included in the following documents is incorporated by reference and
is considered a part of this prospectus. The most recent information that
Oriental Financial Group files with the SEC automatically updates and supersedes
previously filed information. Oriental Financial Group has previously filed the
following documents with the SEC and is incorporating them by reference into
this prospectus:
- Annual Report on Form 10-K for the year ended June 30, 1998;
- Quarterly Reports on Form 10-Q for the quarters ended September 30, 1998
and December 31, 1998; and
- Current Report on Form 8-K dated April 8, 1999.
Oriental Financial Group also incorporates by reference all documents filed
by it pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, after the date of this prospectus and until all the shares being
offered by this prospectus are sold. You should rely only on the information
incorporated by reference or provided in this prospectus or any prospectus
supplement. Oriental Financial Group has not authorized anyone else to provide
you with different information. Oriental Financial Group is not making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information in this prospectus or any prospectus supplement
is accurate as of any date other than the date on the front of those documents.
Oriental Financial Group will provide, at no cost, to each person,
including a beneficial owner, to whom this prospectus is delivered, upon written
or oral request, a copy of any or all of the documents incorporated herein by
reference, other than exhibits to these documents unless such exhibits are
specifically incorporated by reference into such documents. Requests for copies
should be directed to Oriental Financial Group Inc., Attention: Mr. Rafael
Valladares, Senior Vice President and Controller, Hato Rey Tower, Suite 503, 268
Munoz Rivera Avenue, San Juan, Puerto Rico 00918, telephone: (787) 766-1986.
LEGAL MATTERS
The validity of the shares of Series A Preferred Stock offered hereby will
be passed upon for Oriental Financial Group by McConnell Valdes, San Juan,
Puerto Rico. As of March 31, 1999, attorneys working in McConnell Valdes owned,
in the aggregate, approximately 59,887 shares of common stock of Oriental
Financial Group. Certain legal matters will be passed upon for the underwriters
by Pietrantoni Mendez & Alvarez LLP, San Juan, Puerto Rico.
EXPERTS
The consolidated financial statements of Oriental Financial Group as of
June 30, 1998 and 1997 and for each of the three years in the period ended June
30, 1998, incorporated in this prospectus by reference to the Annual Report on
Form 10-K for the year ended June 30, 1998, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
28
<PAGE> 29
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1,225,000 SHARES
(ORIENTAL FINANCIAL GROUP INC. LOGO)
7.125% NONCUMULATIVE
MONTHLY INCOME
PREFERRED STOCK, SERIES A
PRICE TO PUBLIC: $25 PER SHARE
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PROSPECTUS
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SANTANDER SECURITIES
KEEFE, BRUYETTE & WOODS, INC.
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APRIL 30, 1999
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