Oriental Financial Group: Bucking the Credit Crisis Trend

Oriental Financial Group (OFG) is one bank that is bucking the credit crisis trend. Based in Puerto Rico, the company has parlayed a conservative mortgage policy into profits. Oriental beat Wall Street estimates the last two quarters by an average of 51.98%. It has a 2008 P/E of 9.89.

Oriental Financial Group Inc. is a diversified financial holding company headquartered in San Juan, Puerto Rico and operating under U.S. and Puerto Rico banking laws and regulations. The company has 24 financial centers in Puerto Rico that offer services such as financial planning, trust, insurance, investment brokerage and investment banking.

OFG, a Zacks #1 Rank (Strong Buy), operates three business segments: Banking, Treasury and Financial Services. The company has been operating for 44 years and services the mid and high net worth clients in Puerto Rico, specifically those operating professional and mid-sized businesses. As of Dec 31, 2006, the company managed and owned $7.4 billion in financial assets.

On Jan 29, OFG announced it was entering into an alliance with Primerica Financial Services, a wholly owned subsidiary of Citigroup (C), wherein Oriental will be the supplier of a mortgage platform and other mortgage related services for Primerica in its home loan program in Puerto Rico.

Primerica has 400 full-time and 2,000 part-time financial representatives in Puerto Rico who will be using Oriental's focus on long-term, fixed-rate residential mortgages.

What company is crazy enough to expand its home mortgage business in this credit market?

Oriental has not found itself embroiled in the sub prime credit crisis. Oriental made the decision several years ago to adopt conservative lending policies as the Puerto Rico economy started to weaken.

The result is that 90% of its residential mortgage portfolio consists of fixed-rate, fully amortizing, full documentation loans. These loans are far less risky than the sub prime loans offered by many U.S. mortgage originators.

OFG's conservative approach to lending has paid off in spades. The company has never been active in the risky loan products such as negative amortization loans or adjustable rate mortgages (ARMs) with or without teaser rates. OFG also does not own or originate sub prime single-family home loans and it does not own or originate construction/development loans.

Oriental Easily Beat Wall Street Estimates in the Fourth Quarter

The company's financial strength was evident in its fourth-quarter earnings report announced on Feb 7. Oriental Financial beat Wall Street estimates by 25 cents, or 73.53%, reporting 59 cents per share compared to analysts' estimates of 34 cents per share.

OFG bounced back from a loss in the year ago period reporting income of $14.2 million compared to a loss of $19.3 million in fourth-quarter 2006. For the year, Oriental reported income of $36.5 million, or $1.50 per common share, compared to a loss of $9.9 million, or ($0.40) per share, in 2006.

"Oriental remains very well positioned, and we expect to continue to benefit from these strategies in 2008. With our strong capital structure, we also believe we will be able to take advantage of any good quality strategic growth opportunities that may arise," said José Rafael Fernández, President and Chief Executive Officer.

Brokerage analysts are bullish on the company and have been raising estimates over the last 90 days for the first quarter and the full year. Consensus estimates for the first quarter rose five cents to 43 cents from 38 cents per share. For the full year, estimates are up 46 cents to $1.97 from $1.51 per share.

Analysts are also forecasting healthy 2008 earnings growth of 11.5%.

OFG has a 2008 P/E of 9.89, under the industry average of 13.8. Its price-to-book is 1.61. The company has an outstanding five year average return on equity of 18.84%. It also pays a dividend yield of 2.92%.