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Oriental Financial Group Inc. (OFG): Banking on Puerto Rico

Oriental Financial Group (OFG) is a bank holding company that offers banking services such as commercial and consumer lending, saving and time-deposit products, financial planning, corporate and individual trust and retirement services, and mortgage lending services to customers in Puerto Rico and Florida. The company also operates an international banking entity, Oriental International Bank, Inc., that engages in similar lines of business. As of the end of 2007, Oriental Financial had 24 retail branches on the island of Puerto Rico.

Oriental Financial also provides financial services, including fiduciary, insurance, and pension administration services; investment banking services; and securities brokerage services covering various investment alternatives, such as tax-advantaged fixed income securities, mutual funds, stocks, and bonds to retail and institutional clients. The Puerto Rico-based company offers mutual fund and asset allocation services, as well as debt and equity offerings. It also has a brokerage business that serves mid- to high-net worth customers and families.

Shares of Oriental Financial have not been able to escape the contagion that has punished the shares of almost every financial stock trading in the U.S. After trading to almost $25 a share earlier this year, Oriental Financial investors saw the share price decline close to $14 this summer. The stock has started to rebound, but recent market news shows financial stocks, no matter how big or small, are far from being out of the woods. In fact, due to an increase in bad loans and the accompanying loan-loss provision increases, Oriental Financial shares traded as low as $10 a year ago.

The news isn’t all bad as the company declared a 14-cent a share quarterly dividend last month. This is a bold move, considering many larger banks have slashed their dividends recently in an effort to preserve cash. The company has restructured many of its debt securities to earn higher yields and has about $57 million in cash on hand. Institutional ownership of Oriental Financial’s shares is stout with 136 institutions holding about 86 percent of the shares. Mutual fund owners include American Century, Fidelity, Oppenheimer and Vanguard.

Oriental Financial’s shares closed at $18.68 on Wednesday on volume of 116,500, less than half the daily average for the past three months. The $453.8 million firm has a 12-month trailing price-to-earnings ratio of 9.

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