Oriental Financial Group Inc. (OFG) continues to show strength in its key market of mid to high net worth clients as it recently surprised on earnings for the 8th consecutive time. Despite a run up in the stock price, OFG isn’t expensive. It trades at just 4.1x forward earnings.

Company Description

Oriental Financial Group is a diversified financial holding company headquartered in San Juan, Puerto Rico and operating under U.S. and Puerto Rico banking laws and regulations. It provides a range of mortgage, commercial and consumer banking services from its 23 financial centers in Puerto Rico.

The Group also handles financial planning, trust, insurance, investment brokerage and investment banking services.

Oriental Financial Group Surprised by 3.13%

On July 21, Oriental Financial Group reported second quarter results which beat Wall Street estimates by 3.13%. Earnings per share were $2.04 compared to 54 cents in the year ago period but excluding a $1.38 one time after-tax gain, EPS was 66 cents.

Analysts had expected 64 cents in the quarter.

The Group had success in expanding its market share in the key niche market of mid and high net worth clients using its services and capital strength to attract new business versus simply offering attractive rates on loans or deposits.

Revenue growth came from an increase in the core banking and financial service segment, which saw revenue climb 19.4% compared to the year ago period and 15.8% from the prior quarter. Assets under management grew 5.23% from the first quarter to $2.85 billion. The Group also won two new large trust accounts that will add $75 million to total assets.

Retail deposits grew by 9.3% quarter over quarter to $110.4 million and was 20.4% higher in the first 6 months of the year.

Credit Losses Declined

Credit losses fell by 11.42% to $2.1 million from $2.3 million in the prior quarter. However, the Group raised its provision for loan losses to $3.7 million from $3.2 million in previous quarter.

Non-performing loans (NPLs) rose by $3.3 million in the quarter but that was at a lower rate than in the previous quarter. The Group does not expect NPLs to result in significantly higher losses as most are well-collateralized with adequate loan-to-value ratios.

In residential mortgages, more than 90% of the Group’s portfolio is fixed-rate, fully amortizing and documented loans that have lower risk than subprime or other mortgage loans.

2009 Zacks Consensus Estimates Jump

Now that the company has reported second quarter results, covering analysts are mixed on the third quarter but appear on the same page for the full year.

Zacks third-quarter consensus estimates fell 2 cents to 60 cents in the last week as 3 analysts raised and 2 analysts out of 5 lowered.

For the full year, all 4 covering analysts increased estimates in the past 7 days. The Zacks consensus estimates jumped 40.4% to $3.96 from $2.82 per share.

Analysts now expect 96.04% year over year earnings growth in 2009.

Value Fundamentals

Oriental Financial Group, Inc. is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of just 1.07. The Group also has a stellar 5-year average return on equity (ROE) of 16.74%.

As an added bonus, the Group also pays a dividend with a current yield of 1.30%.

Zacks Investment Research
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