Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANG ACT OF 1934

Oriental Financial Group Inc.

Incorporated in the Commonwealth of Puerto Rico,		IRS Employer Identification No. 66-0538893

Principal Executive Offices:
997 San Roberto Street
Oriental Center 10th Floor
Professional Offices Park
San Juan, Puerto Rico 00926
Telephone Number: (787) 771-6800

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                    No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o                    Accelerated Filer þ                    Non-Accelerated Filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                    No þ

Number of shares outstanding of the registrant’s common stock, as of the latest practicable date:

24,500,842 common shares ($1.00 par value per share)
outstanding as of April 30, 2007

 

 

TABLE OF CONTENTS

		Page
Part I FINANCIAL INFORMATION:
Item 1 Financial Statements
Unaudited consolidated statements of financial condition at March 31, 2007 and 2006			1
Unaudited consolidated statements of income for the quarters ended March 31, 2007 and 2006			2
Unaudited consolidated statements of changes in stockholders’ equity for the quarters ended March 31, 2007 and 2006			3
Unaudited consolidated statements of comprehensive income for the quarters ended March 31, 2007 and 2006			3
Unaudited consolidated statements of cash flows for the quarters ended March 31, 2007 and 2006			4
Notes to unaudited consolidated financial statements			5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3 Quantitative and Qualitative Disclosures About Market Risk			33
Item 4 Controls and Procedures			36
PART II OTHER INFORMATION:
Item 1 Legal Proceedings			36
Item 1A Risk Factors			37
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3 Defaults Upon Senior Securities			37
Item 4 Submissions of Matters to a Vote of Security Holders			37
Item 5 Other Information			37
Item 6 Exhibits			37
Signatures			38
Certifications			39
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

FORWARD-LOOKING STATEMENTS

When used in this Form 10-Q or future filings by Oriental Financial Group Inc. (the “Group”) with the Securities and Exchange Commission (the “SEC”), in the Group’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “project,” “believe,” “should” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

The future results of the Group could be affected by subsequent events and could differ materially from those expressed in forward-looking statements. If future events and actual performance differ from the Group’s assumptions, the actual results could vary significantly from the performance projected in the forward-looking statements.

The Group wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and are based on management’s current expectations, and to advise readers that various factors, including local, regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities, competitive, and regulatory factors, legislative changes and accounting pronouncements, could affect the Group’s financial performance and could cause the Group’s actual results for future periods to differ materially from those anticipated or projected. The Group does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

		March 31,				December 31,
		2007				2006
ASSETS
Cash and cash equivalents:
Cash and due from banks		$	14,286			$	15,341
Money market investments			50,127				18,729
Total cash and cash equivalents			64,413				34,070
Investments:
Time deposits with other banks			5,000				5,000
Trading securities, at fair value with amortized cost of $463 (December 31, 2006 — $246)			461				243
Investment securities available-for-sale, at fair value with amortized cost of $1,828,459 (December 31, 2006 — $984,060)
Securities pledged that can be repledged			1,805,124				947,880
Other investment securities			20,818				27,080
Total investment securities available-for-sale			1,825,942				974,960
Investment securities held-to-maturity, at amortized cost with fair value of $1,880,479 (December 31, 2006 — $1,931,720)
Securities pledged that can be repledged			1,810,909				1,814,746
Other investment securities			92,798				152,731
Total investment securities held-to-maturity			1,903,707				1,967,477
Other Intestments			31,578				30,949
Federal Home Loan Bank (FHLB) stock, at cost			14,197				13,607
Total investments			3,780,885				2,992,236
Securities sold but not yet delivered			74,289				6,430
Loans:
Mortgage loans held-for-sale, at lower of cost or market			42,204				10,603
Loans receivable, net of allowance for loan losses of $8,046 (December 31, 2006 — $8,016)			1,191,690				1,201,767
Total loans, net			1,233,894				1,212,370
Accrued interest receivable			30,482				27,940
Premises and equipment, net			19,853				20,153
Deferred tax asset, net			13,562				14,150
Foreclosed real estate			5,320				4,864
Other assets			69,355				61,477
Total assets		$	5,292,053			$	4,373,690
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits		$	124,610			$	132,434
Savings accounts			307,319				266,184
Certificates of deposit			905,656				834,370
Total deposits			1,337,585				1,232,988
Borrowings:
Federal funds purchased and other short term borrowings			3,139				13,568
Securities sold under agreements to repurchase			3,321,105				2,535,923
Advances from FHLB			195,000				181,900
Term notes			—				15,000
Subordinated capital notes			36,083				36,083
Total borrowings			3,555,327				2,782,474
Securities purchased but not yet received			40,067				—
Accrued expenses and other liabilities			20,752				21,802
Total liabilities			4,953,731				4,037,264
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $1 par value; 5,000,000 shares authorized; $25 liquidation value; 1,340,000 shares of Series A and 1,380,000 shares of Series B issued and outstanding			68,000				68,000
Common stock, $1 par value; 40,000,000 shares authorized; 25,461,200 shares issued (December 31, 2006 — 25,430,929 shares)			25,461				25,431
Additional paid-in capital			209,226				209,033
Legal surplus			37,424				36,245
Retained earnings			31,956				26,772
Treasury stock, at cost 977,600 shares (December 31, 2006 — 989,405 shares)			(12,848	)			(12,956	)
Accumulated other comprehensive loss, net of tax of $351 (December 31, 2006 — $290)			(20,897	)			(16,099	)
Total stockholders’ equity			338,322				336,426
Total liabilities and stockholders’ equity		$	5,292,053			$	4,373,690

		Quarter Ended March 31,
		2007				2006
Interest income:
Loans		$	21,849			$	16,253
Mortgage-backed securities			25,498				24,500
Investment securities			13,697				14,500
Short term investments			456				739
Total interest income			61,500				55,992
Interest expense:
Deposits			12,370				10,498
Securities sold under agreements to repurchase			32,789				26,363
Advances from FHLB, term notes and other borrowings			2,317				2,622
Subordinated capital notes			758				1,297
Total interest expense			48,234				40,780
Net interest income			13,266				15,212
Provision for loan losses			1,075				1,101
Net interest income after provision for loan losses			12,191				14,111
Non-interest income:
Financial service revenues			4,843				3,252
Banking service revenues			1,874				2,176
Investment banking revenues			—				1,709
Net gain on:
Mortgage banking activities			62				436
Securities available-for-sale			358				19
Derivatives			8,418				882
Trading securities			—				28
Other			(304	)			451
Total non-interest income, net			15,251				8,953
Non-interest expenses:
Compensation and employee’s benefits			6,745				6,173
Occupancy and equipment			2,994				2,889
Advertising and business promotion			793				937
Directors and investor relations			531				144
Professional and service fees			1,538				1,624
Communication			338				447
Loan servicing expenses			523				455
Taxes, other than payroll and income taxes			448				600
Electronic banking charges			458				468
Printing, postage, stationery and supplies			202				186
Insurance			216				213
Other			1,041				747
Total non-interest expenses			15,827				14,883
Income before income taxes			11,615				8,181
Income tax expense			624				131
Net income			10,991				8,050
Less: Dividends on preferred stock			(1,200	)			(1,200	)
Income available to common shareholders		$	9,791			$	6,850
Income per common share:
Basic		$	0.40			$	0.28
Diluted		$	0.40			$	0.28
Average common shares outstanding			24,472				24,613
Average potential common shares-options			93				137
			24,565				24,750
Cash dividends per share of common stock		$	0.14			$	0.14

See notes to unaudited consolidated financial statements.

		Quarter Ended March 31,
		2007				2006
CHANGES IN STOCKHOLDERS’ EQUITY:
Preferred stock:
Balance at beginning and end of period		$	68,000			$	68,000
Common stock:
Balance at beginning of period			25,431				25,350
Stock options exercised			30				15
Balance at end of period			25,461				25,365
Additional paid-in capital:
Balance at beginning of period			209,033				208,454
Stock-based compensation expense			4				6
Stock options exercised			189				121
Balance at end of period			209,226				208,581
Legal surplus:
Balance at beginning of period			36,245				35,863
Transfer from retained earnings			1,179				917
Balance at end of period			37,424				36,780
Retained earnings:
Balance at beginning of period			26,772				52,340
Net income			10,991				8,050
Cash dividends declared on common stock			(3,428	)			(3,448	)
Cash dividends declared on preferred stock			(1,200	)			(1,200	)
Transfer to legal surplus			(1,179	)			(917	)
Balance at end of period			31,956				54,825
Treasury stock:
Balance at beginning of period			(12,956	)			(10,332	)
Stock used to match defined contribution plan 1165(e)			108				92
Balance at end of period			(12,848	)			(10,240	)
Accumulated other comprehensive loss, net of tax:
Balance at beginning of period			(16,099	)			(37,884	)
Other comprehensive loss, net of tax			(4,798	)			(1,817	)
Balance at end of period			(20,897	)			(39,701	)
Total stockholders’ equity		$	338,322			$	343,610

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED MARCH 31, 2007 AND 2006
(In thousands)

		Quarter Ended
		March 31,
		2007				2006
COMPREHENSIVE INCOME
Net income		$	10,991			$	8,050
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available-for-sale			4,841				(11,543	)
Realized gain on investment securities available-for-sale included in net income			—				(19	)
Unrealized gain on derivatives designated as cash flows hedges arising during the period			—				9,916
Gains on derivatives designated as cash flow hedges included in net income			(773	)			(749	)
Gain from termination of cash flow hedging			(8,225	)			—
Income tax effect related to unrealized (gain) loss on securities available-for-sale			(641	)			578
Other comprehensive loss for the period			(4,798	)			(1,817	)
Comprehensive income		$	6,193			$	6,233

See notes to unaudited consolidated financial statements

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2007 AND 2006
(In thousands)  

		Quarter ended March 31,
		2007				2006
Cash flows from operating activities:
Net income		$	10,991			$	8,050
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred loan origination fees, net of costs			(285	)			(401	)
Amortization of premiums, net of accretion of discounts			986				(359	)
Depreciation and amortization of premises and equipment			1,393				1,567
Deferred income tax benefit			(53	)			(1,045	)
Equity in losses (earnings) of investment in limited liability partnership			892				(304	)
Provision for loan losses			1,075				1,001
Common stock used to match defined contribution plan 1165(e)			108				92
Stock-based compensation			4				6
Gain on:
Sale of securities available-for-sale			(358	)			(19	)
Mortgage banking activities			(62	)			(436	)
Derivatives			(9,052	)			(882	)
Sale of foreclosed real estate			(37	)			(104	)
Originations of loans held-for-sale			(36,766	)			(13,243	)
Proceeds from sale of loans held-for-sale			5,227				6,656
Net decrease (increase) in:
Trading securities			(218	)			(174	)
Accrued interest receivable			(2,542	)			(472	)
Other assets			(3,239	)			152
Net decrease in:
Accrued interest on deposits and borrowings			(2,683	)			(153	)
Other liabilities			(636	)			(175	)
Net cash used in operating activities			(35,255	)			(243	)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale			(900,000	)			(101,616	)
Other Investments			(31	)			—
Equity options			(5,764	)			—
Maturities and redemptions of:
Investment securities available-for-sale			30,160				37,616
Investment securities held-to-maturity			63,663				39,371
FHLB stock			(590	)			599
Proceeds from sales of:
Investment securities available-for-sale			23,031				15,193
Foreclosed real estate			820				1,218
Loan production:
Origination and purchase of loans, excluding loans held-for-sale			(35,515	)			(79,416	)
Principal repayment of loans			43,563				44,347
Additions to premises and equipment			(1,093	)			(2,046	)
Net cash used in investing activities			(781,756	)			(44,734	)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits			104,304				(25,715	)
Securities sold under agreements to repurchase			759,788				85,391
Federal funds purchased			(10,429	)			499,593
Proceeds from:
Short term borrowings			—				(490,237	)
Advances from FHLB			1,121,320				515,195
Exercise of stock options			219				136
Repayments of advances from FHLB			(1,108,220	)			(528,495	)
Maturity of term note			(15,000	)			—
Dividend paid in common and preferred stock			(4,628	)			(4,645	)
Net cash provided by financing activities			847,354				51,223
Net change in cash and cash equivalents			30,343				6,246
Cash and cash equivalents at beginning of period			34,070				17,269
Cash and cash equivalents at end of period		$	64,413			$	23,515
Supplemental Cash Flow Disclosure and Schedule of Noncash Activities:
Interest paid		$	45,828			$	40,627
Mortgage loans securitized into mortgage-backed securities		$	—			$	2,936
Securities sold but not yet delivered		$	74,289			$	1,192
Securities and loans purchased but not yet received		$	40,067			$	1,233
Transfer from loans to foreclosed real estate		$	1,239			$	624

See notes to unaudited consolidated financial statements.

ORIENTAL FINANCIAL GROUP INC.
Notes to Unaudited Consolidated Financial Statements

NOTE 1 — BASIS OF PRESENTATION:

The accounting and reporting policies of Oriental Financial Group Inc. (the “Group” or “Oriental”) conform with U.S. generally accepted accounting principles (“GAAP”) and to financial services industry practices.

The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these consolidated financial statements include all adjustments necessary, all of which are of normal recurring nature, to present fairly the consolidated financial condition as of March 31, 2007 and December 31, 2006, and the results of operations, and the cash flows for the quarters ended March 31, 2007 and 2006. All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results of operations and cash flows for the quarters ended March 31, 2007 and 2006 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2006, included in the Group’s Form 10-K.

Nature of Operations

Oriental is a diversified, publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. It has four wholly-owned subsidiaries, Oriental Bank and Trust (the “Bank”), Oriental Financial Services Corp. (“Oriental Financial Services”), Oriental Insurance, Inc. (“Oriental Insurance”), and Caribbean Pension Consultants, Inc. (located in Boca Raton, Florida). The Group also has two special purpose entities, Oriental Financial (PR) Statutory Trust I (the “Statutory Trust I”) and Oriental Financial (PR) Statutory Trust II (the “Statutory Trust II”). Through these subsidiaries and its divisions, the Group provides a wide range of financial services such as mortgage, commercial and consumer lending, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services. Note 9 to the unaudited consolidated financial statements present further information about the operations of the Group’s business segments.

The main offices of the Group and its subsidiaries are located in San Juan, Puerto Rico. The Group is subject to examination, regulation and periodic reporting under the U.S. Bank Holding Company Act of 1956, as amended, which is administered by the Board of Governors of the Federal Reserve System.

The Bank operates through twenty-five branches located throughout Puerto Rico and is subject to the supervision, examination and regulation of the Office of the Commissioner of Financial Institutions of Puerto Rico and the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers banking services such as commercial and consumer lending, saving and time deposit products, financial planning, and corporate and individual trust services, and capitalizes on its commercial banking network to provide mortgage lending products to its clients. The Bank also operates two international banking entities (“IBEs”) pursuant to the International Banking Center Regulatory Act of Puerto Rico, as amended (the “IBE Act”): O.B.T. International Bank, which is a unit of the Bank, and Oriental International Bank Inc., which is a wholly-owned subsidiary of the Bank. On January 1, 2004, the Group transferred most of the assets and liabilities of O.B.T. International Bank to Oriental International Bank Inc. The IBE offers the Bank certain Puerto Rico tax advantages and its services are limited under Puerto Rico law to persons and assets/liabilities located outside of Puerto Rico.

Oriental Financial Services is subject to the supervision, examination and regulation of the National Association of Securities Dealers, Inc., the SEC, and the Office of the Commissioner of Financial Institutions of Puerto Rico. Oriental Insurance is subject to the supervision, examination and regulation of the Office of the Commissioner of Insurance of Puerto Rico.

Significant Accounting Policies

The unaudited consolidated financial statements of the Group are prepared in accordance with GAAP and with the general practices within the financial services industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Group believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on losses that are estimated to occur. Loan losses are charged against the allowance when the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Group follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses. This methodology consists of several key elements. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

Larger commercial loans that exhibit potential or observed credit weaknesses are subject to individual review and grading. Where appropriate, allowances are allocated to individual loans based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Group.

Included in the review of individual loans are those that are impaired, as provided in the Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan.” A loan is considered impaired when, based on current information and events, it is probable that the Group will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the observable market price of the loan or the fair value of the collateral, if the loan is collateral dependent. Loans are individually evaluated for impairment, except large groups of small balance homogeneous loans that are collectively evaluated for impairment and loans that are recorded at fair value or at the lower of cost or market. The Group measures for impairment all commercial loans over $250,000. The portfolios of mortgage and consumer loans are considered homogeneous, and are evaluated collectively for impairment.

The Group, using a rating system, applies an overall allowance percentage to each loan portfolio category based on historical credit losses adjusted for current conditions and trends. This delinquency-based calculation is the starting point for management’s determination of the required level of the allowance for loan losses. Other data considered in this determination includes: the overall historical loss trends and other information including underwriting standards and economic trends.

Loan loss ratios and credit risk categories are updated quarterly and are applied in the context of GAAP and the importance of depository institutions having prudent, conservative, but not excessive loan allowances that fall within an acceptable range of estimated losses. While management uses current available information in estimating possible loan losses, factors beyond the Group’s control such as those affecting general economic conditions may require future changes to the allowance.

Financial Instruments

Certain financial instruments including derivatives, hedged items, trading securities and investment securities available-for-sale are recorded at fair value and unrealized gains and losses are recorded in other comprehensive income or other gains and losses as appropriate. Fair values are based on listed market prices, if available. If listed market prices are not available, fair value is determined based on other relevant factors, including price quotations for similar instruments. The fair values of certain derivative contracts are derived from pricing models that consider current market and contractual prices for the underlying financial instruments as well as time value and yield curve or volatility factors underlying the positions.

Impairment of Investment Securities

The Group evaluates its securities available-for-sale and held-to-maturity for impairment. An impairment charge in the consolidated statements of income is recognized when the decline in the fair value of investments below their cost basis is judged to be other-than-temporary. The Group considers various factors in determining whether it should recognize an impairment charge, including, but not limited to the length of time and extent to which the fair value has been less than its cost basis, and the Group’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. For debt securities, the Group also considers, among other factors, the investors repayment ability on its debt obligations and its cash and capital generation ability.

Income Taxes

In preparing the consolidated financial statements, the Group is required to estimate income taxes. This involves an estimate of current income tax expense together with an assessment of temporary differences resulting from differences

between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The determination of current income tax expense involves estimates and assumptions that require the Group to assume certain positions based on its interpretation of current tax laws and regulations. Changes in assumptions affecting estimates may be required in the future and estimated tax assets or liabilities may need to be increased or decreased accordingly. The accrual for tax contingencies is adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. The Group’s effective tax rate includes the impact of unrecognized tax benefits and changes to such benefits, as considered appropriate by management. When particular matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to the Group’s effective rate in the year of resolution. Unfavorable settlement of any particular issue could increase the effective rate and may require the use of cash in the year of resolution.

The Group maintained an effective tax rate lower than the maximum marginal statutory rate of 39% and 43.5% as of March 31, 2007 and 2006, respectively, mainly due to the interest income arising from investments exempt from Puerto Rico income taxes, net of expenses attributable to the exempt income. Exempt interest relates mostly to interest earned on obligations of the United States and Puerto Rico governments and certain mortgage-backed securities, including securities held by the Bank’s international banking entities.

The determination of deferred tax expense or benefit is based on changes in the carrying amounts of assets and liabilities that generate temporary differences. The carrying value of the Group’s net deferred tax assets assumes that the Group will be able to generate sufficient future taxable income based on estimates and assumptions. If these estimates and related assumptions change in the future, the Group may be required to record valuation allowances against its deferred tax assets resulting in additional income tax expense in the consolidated statements of income.

Management evaluates the realizability of the deferred tax assets on a regular basis and assesses the need for a valuation allowance. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowance from period to period are included in the Group’s tax provision in the period of change. As of March 31, 2007, a valuation allowance of approximately $3.9 million was recorded to offset deferred tax assets from loss carry forwards that the Group considers it may not realize in future periods.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Group will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2007. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

Effective at the beginning of the first quarter of 2007, the Group adopted the provision of Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

The total amount of gross unrecognized tax benefits as of the date of adoption that would affect the effective tax rate was $5.7 million. The Group historically classified unrecognized tax benefits in current taxes payable. No adjustments resulted by the implementation of FIN 48. These gross unrecognized tax benefits would affect the effective tax rate if realized.

The Group’s policy to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated condensed statements of income did not change as a result of implementing the provisions of FIN 48. As of the date of adoption of FIN 48, the Group had accrued $1.3 million for the payment of interest and penalties relating to unrecognized tax benefits. The Group does not anticipate significant changes in unrecognized tax benefits during 2007.

Stock Option Plans

At March 31, 2007, the Group had two stock-based employee compensation plans: the 1998 and 2000 Incentive Stock Option Plans. These plans offer key officers, directors and employees an opportunity to purchase shares of the Group’s common stock. The Compensation Committee of the Board of Directors has sole authority and absolute discretion as to the number of stock options to be granted to any officer, director or employee, their vesting rights, and the options’ exercise

prices. The plans provide for a proportionate adjustment in the exercise price and the number of shares that can be purchased in case of merger, consolidation, combination, exchange of shares, other reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split in which the number of shares of common stock of the Group as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities. Stock options vest upon completion of specified years of service.

Effective July 1, 2005, the Group adopted SFAS No. 123R “Share-Based Payment” (“SFAS 123R”), an amendment of SFAS 123 “Accounting for Stock-Based Compensation” using the modified prospective transition method. SFAS 123R requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award with the cost to be recognized over the service period. SFAS 123R is effective for financial statements as of the beginning of the first interim or annual reporting period of the first fiscal year that began after June 15, 2005. SFAS No. 123R applies to all awards unvested and granted after this effective date and awards modified, repurchased, or cancelled after that date.

The Group recorded approximately $4,000 during the quarter ended March 31, 2007 related to compensation expense for options issued subsequent to the adoption of SFAS 123R. The remaining unrecognized compensation cost related to unvested awards as of March 31, 2007, was approximately $303,000 and the weighted average period of time over which this cost will be recognized is approximately 7 years.

The average fair value of each option granted during the quarter ended March 31, 2007 and 2006 was $3.55 and $4.05, respectively. The average fair value of each option granted was estimated at the date of the grant using the Black-Scholes option pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no restrictions and are fully transferable and negotiable in a free trading market. Black-Scholes does not consider the employment, transfer or vesting restrictions that are inherent in the Group’s employee options. Use of an option valuation model, as required by GAAP, includes highly subjective assumptions based on long-term predictions, including the expected stock price volatility and average life of each option grant.

The following assumptions were used in estimating the fair value of the options granted:

		Quarter Ended
		March 31,
		2007				2006
Weighted Average Assumptions:
Dividend yield			4.20	%			3.81	%
Expected volatility			33.72	%			34.26	%
Risk-free interest rate			4.33	%			4.19	%
Expected life (in years)			8.5				8.5

The expected term of share options granted represents the period of time that share options granted are expected to be outstanding. Expected volatilities are based on historical volatility of the Group’s shares over the most recent period equal to the expected term of the share option.

NOTE 2 — INVESTMENT SECURITIES:

The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the investment securities as of March 31, 2007 and December 31, 2006, were as follows:

		March 31, 2007 (In thousands)
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Fair				Average
		Cost				Gains				Losses				Value				Yield
Available-for-sale
Obligations of US Government sponsored agencies		$	900,000			$	3,075			$	180				902,895				5.87	%
Puerto Rico Government and agency obligations			20,273				85				492				19,866				5.68	%
Corporate bonds and other			25,548				130				—				25,678				5.80	%
Total investment securities			945,821				3,290				672				948,439
FNMA and FHLMC certificates			144,597				—				1,171				143,426				5.45	%
GNMA certificates			40,099				418				205				40,312				5.61	%
Collateralized mortgage obligations (CMO’s)			697,942				51				4,228				693,765				5.48	%
Total mortgage-backed-securities and CMO’s			882,638				469				5,604				877,503
Total securities available-for-sale			1,828,459				3,759				6,276				1,825,942				5.68	%
Held-to-maturity
US Treasury securities			15,007				—				37				14,970				2.71	%
Obligations of US Government sponsored agencies			818,470				14				9,450				809,034				3.89	%
Puerto Rico Government and agency obligations			55,260				—				3,324				51,936				5.29	%
Total investment securities			888,737				14				12,811				875,940
FNMA and FHLMC certificates			687,831				1,131				9,049				679,913				5.04	%
GNMA certificates			177,316				243				2,092				175,467				5.35	%
Collateralized mortgage obligations			149,823				326				990				149,159				5.14	%
Total mortgage-backed-securities and CMO’s			1,014,970				1,700				12,131				1,004,539
Total securities held-to-maturity			1,903,707				1,714				24,942				1,880,479				4.57	%
Total		$	3,732,166			$	5,473			$	31,218			$	3,706,421				5.11	%

		December 31, 2006 (In thousands)
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Fair				Average
		Cost				Gains				Losses				Value				Yield
Available-for-sale
Puerto Rico Government and agency obligations		$	20,254			$	64			$	872			$	19,446				5.68	%
Corporate bonds and other			50,598				520				2,347				48,771				6.11	%
Total investment securities			70,852				584				3,219				68,217
FNMA and FHLMC certificates			150,099				—				1,506				148,593				5.45	%
GNMA certificates			40,690				408				235				40,863				5.61	%
Collateralized mortgage obligations (CMOs)			722,419				7				5,139				717,287				5.48	%
Total mortgage-backed-securities and CMO’s			913,208				415				6,880				906,743
Total securities available-for-sale			984,060				999				10,099				974,960				5.52	%
Held-to-maturity
US Treasury securities			15,022				—				127				14,895				2.71	%
Obligations of US Government sponsored agencies			848,400				7				17,529				830,878				3.85	%
Puerto Rico Government and agency obligations			55,262				—				3,961				51,301				5.29	%
Total investment securities			918,684				7				21,617				897,074
FNMA and FHLMC certificates			713,171				628				11,529				702,270				5.04	%
GNMA certificates			182,874				215				2,176				180,913				5.35	%
Collateralized mortgage obligations			152,748				18				1,303				151,463				5.13	%
Total mortgage-backed-securities and CMO’s			1,048,793				861				15,008				1,034,646
Total securities held-to-maturity			1,967,477				868				36,625				1,931,720				4.55	%
Total		$	2,951,537			$	1,867			$	46,724			$	2,906,680				4.87	%

The amortized cost and fair value of the Group’s investment securities available-for-sale and held-to-maturity at March 31, 2007, by contractual maturity, are shown in the next table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		(In thousands)
		Available-for-sale								Held-to-maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Investment securities
Due within 1 year		$	2,000			$	2,005			$	164,979			$	163,916
Due after 1 to 5 years			—				—				287,390				281,098
Due after 5 to 10 years			901,343				904,283				281,261				281,271
Due after 10 years			42,478				42,151				155,107				149,655
			945,821				948,439				888,737				875,940
Mortgage-backed securities
Due within 1 year			151				158				—				—
Due after 1 to 5 years			1,015				1,057				—				—
Due after 10 years			881,472				876,288				1,014,970				1,004,539
			882,638				877,503				1,014,970				1,004,539
		$	1,828,459			$	1,825,942			$	1,903,707			$	1,880,479

Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

Proceeds from the sale of investment securities available-for-sale during the three-month period ended March 31, 2007 totaled $23.0 million (March 31, 2006, $15.2 million). Realized gains on those sales during the quarter was $358,000 (March 31, 2006, gains of $19,000). There were no losses in either periods.

The following table shows the Group’s gross unrealized losses and fair value of investment securities available-for-sale and held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2007.

Available-for-sale

(In thousands)

		Less than 12 months
		Amortized				Unrealized				Fair
		Cost				Loss				Value
Obligations of U.S. government entities		$	150,000			$	180			$	149,820
Mortgage-backed securities and CMO’s			850,219				5,232				844,987
			1,000,219				5,412				994,807

		12 months or more
		Amortized				Unrealized				Fair
		Cost				Loss				Value
Puerto Rico Government and agency obligations			14,102				492				13,610
Mortgage-backed securities and CMO’s			8,517				372				8,145
			22,619				864				21,755

		Total
		Amortized				Unrealized				Fair
		Cost				Loss				Value
Obligations of U.S. government entities			150,000				180				149,820
Puerto Rico Government and agency obligations			14,102				492				13,610
Mortgage-backed securities and CMO’s			858,736				5,604				853,132
		$	1,022,838			$	6,276			$	1,016,562

Held-to-maturity

(In thousands)

						Less than 12 months
		Amortized				Unrealized				Fair
		Cost				Loss				Value
Mortgage-backed securities and CMO’s		$	176,252			$	693			$	175,559
			176,252				693				175,559

		12 months or more
		Amortized				Unrealized				Fair
		Cost				Loss				Value
US Treasury securities			15,007				37				14,970
Obligations of U.S government sponsored entities			562,208				9,450				552,758
Puerto Rico Government and agency obligations			55,260				3,324				51,936
Mortgage-backed securities and CMO’s			472,443				11,438				461,005
			1,104,918				24,249				1,080,669

						Total
		Amortized				Unrealized				Fair
		Cost				Loss				Value
US Treasury securities			15,007				37				14,970
Obligations of U.S government sponsored entities			562,208				9,450				552,758
Puerto Rico Government and agency obligations			55,260				3,324				51,936
Mortgage-backed securities and CMO’s			648,695				12,131				636,564
		$	1,281,170			$	24,942			$	1,256,228

Securities in an unrealized loss position at March 31, 2007 are mainly composed of securities issued or backed by U.S. government agencies and U.S. government sponsored agencies. The vast majority of these securities are rated the equivalent of AAA by nationally recognized rating organizations. The investment portfolio is structured primarily with highly liquid securities that have a large and efficient secondary market. Valuations are performed on a monthly basis using a third party provider and dealer quotes. Management believes that the unrealized losses in the investment portfolio at March 31, 2007 are temporary and are substantially related to market interest rate fluctuations and not to deterioration in the creditworthiness of the issuers. Also, Management has the intent and ability to hold these investments for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

NOTE 3 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES:

Loans Receivable

The Group’s credit activities are mainly with customers located in Puerto Rico. The Group’s loan transactions are encompassed within three main categories: mortgage, commercial and consumer. The composition of the Group’s loan portfolio at March 31, 2007, and December 31, 2006, was as follows:

		(In thousands)
		March 31, 2007				December 31, 2006
Residential mortgage loans		$	897,770			$	899,162
Home equity loans and secured personal loans			35,219				36,270
Commercial loans, mainly secured by real estate			236,739				241,702
Personal consumer loans and lines of credit			33,419				35,772
Loans receivable, gross			1,203,147				1,212,906
Less: deferred loan fees, net			(3,411	)			(3,123	)
Loans receivable			1,199,736				1,209,783
Allowance for loan losses			(8,046	)			(8,016	)
Loans receivable, net			1,191,690				1,201,767
Mortgage loans held-for-sale			42,204				10,603
Total loans, net		$	1,233,894			$	1,212,370

Allowance for Loan Losses

The Group maintains an allowance for loan losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. The Group’s allowance for loan losses policy provides for a detailed quarterly analysis of probable losses. The analysis includes a review of historical loan loss experience, value of underlying collateral, current economic conditions, financial condition of borrowers and other pertinent factors.

While management uses available information in estimating probable loan losses, future additions to the allowance may be required based on factors beyond the Group’s control. Refer to Table 4 of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the changes in the allowance for loan losses for the quarters ended March 31, 2007 and 2006.

The Group evaluates all loans, some individually, and others as homogeneous groups, for purposes of determining impairment. At March 31, 2007 and December 31, 2006, the total investment in impaired loans was $1.7 million and $2.0 million, respectively. The impaired loans were measured based on the fair value of collateral. The Group determined that no specific impairment allowance was required for such loans.

NOTE 4 — PLEDGED ASSETS

At March 31, 2007, residential mortgage loans amounting to $580,875,000 and investment securities with fair values amounting to $6,287,000 were pledged to secure advances and borrowings from the FHLB. Investment securities with fair values totaling $3,420,301, $101,051,000, and $8,463,000 at March 31, 2007, were pledged to secure securities sold under agreements to repurchase, public fund deposits and other funds, respectively. Also, investment securities with fair value totaling $508,000 at March 31, 2007, were pledged to the Puerto Rico Treasury Department.

As of March 31, 2007, investment securities available-for-sale and held-to-maturity not pledged amounted to $69,045,000 and $100,766,000, respectively. As of March 31, 2007, mortgage loans not pledged amounted to $394,318,000.

NOTE 5 — OTHER ASSETS

Other assets at March 31, 2007 and December 31, 2006 include the following:

		(In thousands)
		March 31, 2007				December 31, 2006
Investment in equity indexed options		$	39,746			$	34,216
Investment in limited partnership			11,021				11,913
Deferred charges			977				1,037
Prepaid expenses			1,858				2,152
Accounts receivable and other assets			11,297				7,560
Investment in Statutory Trusts			1,086				1,086
Goodwill			2,006				2,006
Servicing asset			1,364				1,507
		$	69,355			$	61,477

NOTE 6 — SUBORDINATED CAPITAL NOTES

Subordinated capital notes amounted to $36,083,000 at March 31, 2007 and December 31, 2006.

In October 2001 and August 2003, the Statutory Trust I and the Statutory Trust II, respectively, special purpose entities of the Group, were formed for the purpose of issuing trust redeemable preferred securities. In December 2001 and September 2003, $35.0 million of trust redeemable preferred securities were issued by each of the Statutory Trust I and the Statutory Trust II, respectively, as part of pooled underwriting transactions. Pooled underwriting involves participating with other bank holding companies in issuing the securities through a special purpose pooling vehicle created by the underwriters.

The proceeds from these issuances were used by the Statutory Trust I and the Statutory Trust II to purchase a like amount of floating rate junior subordinated deferrable interest debentures (“subordinated capital notes”) issued by the Group. The call provision of the subordinated capital note purchased by the Statutory Trust I was exercised by the Group in December 2006 and the Group recorded a $915,000 loss related to the write-off of unamortized issuance cost of the note. The other subordinated capital note has a par value of $36.1 million, bears interest based on 3-month LIBOR plus 295 basis points (8.30% at March 31, 2007; December 31, 2006 — 8.31%), payable quarterly, and matures on September 17, 2033. The subordinated capital note purchased by the Statutory Trust II may be called at par after five years (September 2008). The trust redeemable preferred securities have the same maturity and call provisions as the subordinated capital notes. The subordinated deferrable interest debentures issued by the Group are accounted for as a liability denominated as subordinated capital notes on the unaudited consolidated statements of financial condition.

The subordinated capital notes are treated as Tier 1 capital for regulatory purposes. On March 4, 2005, the Federal Reserve Board issued a final rule that continues to allow trust preferred securities to be included in Tier I regulatory capital, subject to stricter quantitative and qualitative limits. Under this rule, restricted core capital elements, which are qualifying trust preferred securities, qualifying cumulative perpetual preferred stock (and related surplus) and certain minority interests in consolidated subsidiaries, are limited in the aggregate to no more than 25% of a bank holding company’s core capital elements (including restricted core capital elements), net of goodwill less any associated deferred tax liability.

NOTE 7 — OTHER BORROWINGS

At March 31, 2007, securities underlying agreements to repurchase were delivered to, and are being held by, the counterparties with whom the repurchase agreements were transacted. The counterparties have agreed to resell to the Group the same or similar securities at the maturity of the agreements.

Securities sold under agreements to repurchase at March 31, 2007 mature as follows:

		(In thousands)
		Balance
Due within 30 days		$	514,323
Due after 3 to 5 years			900,428
Due after 5 to 10 years			1,906,354
		$	3,321,105

At March 31, 2007, the contractual maturities of advances from the FHLB by year are as follows:

		(In thousands)
Year ending December 31,		Advances from FHLB
2007		$	145,000
2008			50,000
		$	195,000

NOTE 8 — DERIVATIVES ACTIVITIES

The Group utilizes various derivative instruments as part of its asset and liability management. These transactions involve both credit and market risks. The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. The actual risk of loss is the cost of replacing, at market, these contracts in the event of default by the counterparties. The Group controls the credit risk of its derivative financial instrument agreements through credit approvals, limits, monitoring procedures and collateral, when considered necessary.

The Group generally uses interest rate swaps and options in managing its interest rate risk exposure. Certain swaps were entered into to convert the forecasted rollover of short-term borrowings into fixed rate liabilities for longer periods and provide protection against increases in short-term interest rates. Under these swaps, the Group paid a fixed monthly or quarterly cost and received a floating thirty or ninety-day payment based on LIBOR. Floating rate payments received from the swap counterparties partially offset the interest payments to be made on the forecasted rollover of short-term borrowings. The Group decided to unwind all of its outstanding interest rate swaps with aggregate notional amounts of $1.1 billion in two separate transactions in July and December 2006.

The Group offers its customers certificates of deposit with an option tied to the performance of the Standard & Poor’s 500 stock market index. At the end of five years depositors receive a return equal to the greater of 15% of the principal in the account or 125% of the average increase in the month-end value of the index. The Group uses option agreements with major broker-dealer companies to manage its exposure to changes in this index. Under the terms of the option agreements, the Group receives the average increase in the month-end value of the index in exchange for a fixed premium. The changes in fair value of the option agreements used to manage the exposure in the stock market in the certificates of deposit are recorded in earnings in accordance with SFAS No. 133, as amended.

Derivative instruments are generally negotiated over-the-counter (“OTC”) contracts. Negotiated OTC derivatives are generally entered into between two counterparties that negotiate specific contractual terms, including the underlying instrument, amount, exercise price and maturity.

There were no derivatives designated as a hedge as of March 31, 2007 and December 31, 2006. Other derivatives not designated as a hedge consist of purchased options used to manage the exposure to the stock market on stock indexed deposits with notional amounts of $146,295,000 and $131,530,000 as of March 31, 2007 and December 31, 2006, respectively; embedded options on stock indexed deposits with notional amounts of $138,571,000 and $122,924,000 as of March 31, 2007 and December 31, 2006, respectively.

During the quarters ended March 31, 2007 and 2006, gains of $8.4 million and $882,000, respectively, were recognized as earnings and reflected as “Derivatives Activities” in the unaudited consolidated statements of income, mainly due to the $8.2 million gain recognized because of the elimination of the forecasted transactions on the cash flow hedges of the swaps previously termindated, which gains were previously included in other comprehensive income. During the quarter ended March 31, 2006, unrealized gains of $9.9 million on derivatives designated as cash flow hedges were included in other comprehensive income (loss). There are no unrealized gains or losses at March 31, 2007.

At March 31, 2007 and December 31, 2006, the fair value of derivatives was recognized as either assets or liabilities in the unaudited consolidated statements of financial condition as follows: the purchased options used to manage the exposure to the stock market on stock indexed deposits represented an asset of $39.7 million and $34.2 million, respectively, presented in other assets; the options sold to customers embedded in the certificates of deposit represented a liability of $37.7 million and $32.2 million, respectively, recorded in deposits.

NOTE 9 — SEGMENT REPORTING:

The Group segregates its businesses into the following major reportable segments: Banking, Treasury, and Financial Services. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as the Group’s organization, nature of products, distribution channels and economic characteristics of the products were also considered in the determination of the reportable segments. The Group measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production and fees generated. In June 2006, management decided to reclassify and present investment banking revenues in the Treasury segment rather than in the Financial Services segment. This reclassification was retroactively presented in the table below.

Banking includes the Bank’s branches and mortgage banking, with traditional banking products such as deposits and mortgage, commercial and consumer loans. Mortgage banking activities are carried out by the Bank’s mortgage banking division, whose principal activity is to originate mortgage loans for the Group’s own portfolio. From time to time, if conditions so warrant, the Group may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities certificates. The Group outsourced the servicing of mortgages included in the resulting mortgage-backed securities pools, as well as loans maintained in portfolio.

The Treasury segment encompasses all of the Group’s asset and liability management activities such as: purchases and sales of investment securities, interest rate risk management, derivatives, and borrowings, as well as investment banking revenues on public offerings and private placements of debt and equity securities.

Financial services is comprised of the Bank’s trust division (Oriental Trust), the brokerage subsidiary (Oriental Financial Services Corp.), the insurance agency subsidiary (Oriental Insurance, Inc.), and the pension plan administration subsidiary (Caribbean Pension Consultants, Inc.). The core operations of this segment are financial planning, money management and investment brokerage services, insurance sales, corporate and individual trust and retirement services, as well as pension plan administration services.

Intersegment sales and transfers, if any, are accounted for as if the sales or transfers were to third parties, that is, at current market prices. The accounting policies of the segments are the same followed by the Group, which are described in the “Summary of Significant Accounting Policies” included in the Group’s Form 10-K. Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2007 and 2006:

Unaudited - Quarters Ended March 31, (Dollars in thousands)
										Financial				Total								Consolidated
		Banking				Treasury				Services				Segments				Eliminations				Total
March 31, 2007
Interest income		$	22,344			$	39,083			$	73			$	61,500			$	—			$	61,500
Interest expense			(7,094	)			(40,931	)			(209	)			(48,234	)			—				(48,234	)
Net interest income			15,250				(1,848	)			(136	)			13,266				—				13,266
Non-interest income			1,397				8,952				4,902				15,251				—				15,251
Non-interest expenses			(12,051	)			(731	)			(3,045	)			(15,827	)			—				(15,827	)
Intersegment revenue			948				—				—				948				948				1,896
Intersegment expense			—				(146	)			(802	)			(948	)			(948	)			(1,896	)
Provision for loan losses			(1,075	)			—				—				(1,075	)			—				(1,075	)
Income before income taxes		$	4,469			$	6,227			$	919			$	11,615			$	—			$	11,615
Total Assets as of March 31, 2007		$	1,696,048			$	3,901,554			$	12,883			$	5,610,485			$	(318,432	)		$	5,292,053
March 31, 2006
Interest income		$	16,599			$	39,357			$	36			$	55,992			$	—			$	55,992
Interest expense			(7,763	)			(33,017	)			—				(40,780	)			—				(40,780	)
Net interest income			8,836				6,340				36				15,212				—				15,212
Non-interest income			5,084				2,950				919				8,953				—				8,953
Non-interest expenses			(12,408	)			(550	)			(1,925	)			(14,883	)			—				(14,883	)
Intersegment revenue			722				—				—				722				(722	)			—
Intersegment expense			—				—				(722	)			(722	)			722				—
Provision for loan losses			(1,101	)			—				—				(1,101	)			—				(1,101	)
Income before income taxes		$	1,133			$	8,740			$	(1,692	)		$	8,181			$	—			$	8,181
Total Assets as of March 31, 2006		$	1,071,901			$	3,877,854			$	13,021			$	4,962,776			$	(398,678	)		$	4,564,098